COMMODITY FUTURES TRADING COMMISSION 

SEMIANNUAL REPORT 

OF THE 

OFFICE OF THE 

INSPECTOR GENERAL 

FOR THE PERIOD ENDING MARCH 31, 2012 
Office of the 

Inspector General 

TO: 

FROM: 

SUBJECT: 

u.s. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5110 

Facsimile: (202) 418-5522 

www.cftc.gov 

April 30, 2012 

The Commission 

A. Roy Lavik G R £ 

Inspector General 

Semiannual Report of the Office of the Inspector General 

Attached is the Office of the Inspector General's Semiannual Report (SAR) for the period 

from October 1,2011 through March 31, 2012. This report is submitted to you in accordance 

with the requirements of the Inspector General Act of 1978, as amended, 5 USC App. 3 sec. 5 

and 8G. 

Under section 5(b) of the IG Act, the SAR shall be transmitted to the appropriate 

committees or subcommittees of the Congress within thirty days after receipt of the Semiannual 

report, together with a report by the head of the establishment conforming to the requirements of 

section 5(b) of the IG Act. 

. I appreciate your continuing support of this office. 
Recipients: 

Gary Gensler 

Chairman 

Jill E. Sommers, 

Commissioner 

Bart Chilton, 

Commissioner 

Attachment: 

Semiannual Report for the CFTC OIG 

Scott D. O'Malla 

Commissioner 

Mark P. Wetjen, 

Commissioner 
OFFICE OF THE INSPECTOR GENERAL 

COMMODITY FUTURES TRADING COMMISSION 

SEMIANNUAL REPORT 

FOR THE PERIOD FROM 

October 1,2011 THROUGH March 31,2012 

EXECUTIVE SUMMARY 

This semiannual report is issued by the Commodity Futures Trading Commission's 

(CFTC's) Office of Inspector General (DIG) pursuant to the Inspector General Act of 1978, as 

amended. It summarizes OIG's activities and accomplishments for the period October 1, 2011 

through March 31,2012. During this period, OIG completed two audits, conducted one 

procurement, issued a required discussion of management challenges, and completed one 

preliminary investigation. One iI?-vestigation, initiated in a prior reporting period, was completed 

during this reporting period. OIG reviewed proposed Division of Enforcement actions, as well as 

selected rules proposed by CFTC and by regulated entities, participated in training, visited CFTC 

field offices, and participated in Government-wide OIG professional and cooperative meetings 

and activities. No investigations were pending at the close of this period. No significant 

problems, abuses or deficiencies regarding CFTC programs and operations were identified 

during the reporting period. 

Highlights of OIG's completed and ongoing audit, evaluation, investigation and other 

projects include: 

• OIG contracted for and monitored a required audit of the CFTC Customer Protection 

Fund. The IPA reported on October 24,2011, that the Customer Protection Fund 

financial statements as of September 30, 2011 and for the period from July 21,2010 to 

September 30,2011, were presented fairly, in all material respects, in conformity with 

U.S. generally accepted accounting principles. 

• OIG contracted for and monitored the fiscal year (FY) 2011 audit of the CFTC financial 

statements. For the seventh consecutive year, an independent public accounting finn 

(IPA) reported on November 15,2011, that the CFTC financial statements were 

presented fairly, in all material respects, and in conformity with the U.S. generally 

accepted accounting principles for Federal agencies. 

• OIG completed work on the FY 2011 review of compliance with the Federal Managers' 

Financial Integrity Act (FMFIA). No significant issues were noted. 

• OIG completed work on the FY 2011 Federal Information Security Management Act 

(FISMA) independent evaluation. No significant issues were noted. 

1 
• OIG issued its Assessment of the Most Serious Management Challenges Facing the 

CFTC: human resource expansion and management, efficient deployment of information 

technology resources, and expanding delivery of customer protection resources and 

consumer education. 

• At the request of Senator Shelby, in November 2011 OIG began a review ofCFTC's 

oversight and regulation ofMF Global, Inc. MF Global is now subject to a liquidation 

proceeding initiated by the Securities Investor Protection Corporation. Our review, as 

requested, will examine the CFTC's actions in the events leading up to the MF Global 

bankruptcy. 

• As a member of the Council of Inspectors General on Financial Oversight, in February 

2012 OIG began an audit of the Financial Stability Oversight Council's controls over 

sensitive and proprietary information. 

• OIG completed a preliminary investigation into anonymous allegations pertaining 

generally to technical aspects of the Dodd-Frank rulemaking addressing position limits 

for swaps, and alleging poor management of the rulemaking team. There were no 

findings of violative or improper misconduct in the February 15,2012 report. 

• OIG continued work on an inspection into record retention practices by the Division of 

Enforcement pertaining to investigative records. This inspection should enable the OIG 

to ascertain, over the review period, whether CFTC-DOE policies and procedures 

complied with National Archives and Records Administration (NARA) guidelines for 

retaining/destroying investigative files. This project is nearing completion. 

• Due to competing workload demands, OIG determined to delay completion of an 

inspection into a disclosure of trade information to Congress in 2008. The inspection was 

begun during the prior reporting period and prior to the receipt of anonymous allegations 

concerning the position limits rulemaking. 

• In accordance with the Improper Payments Elimination and Recovery Act (IPERA), OIG 

completed a limited review ofCFTC's compliance with IPERA. OIG issued a 

management letter to the CFTC Chairman on March 14,2012 providing negative 

assurance that CFTC was in compliance with IPERA. 

• In a prior reporting period we received an allegation of misconduct by staff and 

management in the Office of Proceedings. Due to an internal conflict, as well as staff 

resource concerns, we consulted within the OIG investigative community and found 

another OIG willing to conduct the investigation. On March 15,2012, the Treasury 

Inspector General for Tax Administration issued their report with no findings, but 

recommended that new allegations be referred to the Integrity Committee for the Council 

of Inspectors General on Integrity and Efficiency. The referral was made and the 

Integrity Committee will take up the allegations in their May 1, 2012 meeting. 

11 
OFFICE OF THE INSPECTOR GENERAL 

COMMODITY FUTURES TRADING COMMISSION 

SEMIANNUAL REPORT 

FOR THE PERIOD FROM 

October 1, 2011 THROUGH March 31, 2012 

TABLE OF CONTENTS 

EXECUTIVE SUMMARY ............................................................................................................. i 

TABLE OF CONTENTS ............................................................................................................... iii 

INDEX OF IG ACT REPORTING REQUIREMENTS ................................................................ v 

INTRODUCTION .......................................................................................................................... 1 

1. CFTC Programs and Operations ......................................................................................... 1 

2. OIG Responsibilities ........................................................................................................... 1 

3. OIG Resources .................................................................................................................... 3 

COMPLETED AUDITS, INSPECTIONS, EVALUATIONS, REVIEWS and OTHER 

PROJECTS ..................................................................................................................................... 3 

1. Audit of CFTC Customer Protection Fund for Fiscal Year 2011 ................................... 3 

2. Audit of CFTC Financial Statements for Fiscal Year 2011 ............................................ 4 

3. Review of Compliance with the Federal Managers' Financial Integrity Act, FMFIA ... 4 

4. Evaluation of the CFTC Information Security Program and Practices, FISMA ............ 4 

5. Assessment ofCFTC's Management Challenges ........................................................... 5 

6. Limited Review ofCFTC's Compliance with the Improper Payments Elimination and 

Recovery Act (IPERA) ................................................................................................... 8 

CURRENT AUDITS, REVIEWS, EVALUATIONS, and INSPECTIONS .................................. 8 

1. Audit of CFTC Financial Statements for Fiscal Year 2012 ............................................. 8 

2. Inspection of the Division of Enforcement's Investigative Records Disposition Policy. 9 

3. Review of Oversight and Regulation by the Commodity Futures Trading Commission 

of MF Global Inc ............................................................................................................. 9 

4. Audit of CFTC Controls and Protocols over Sensitive Information Collected and ........ .. 

Exchanged with the Financial Stability Oversight Council ...................................................... 10 

AUDIT REPORTS and REVIEWS OVER SIX MONTHS OLD ............................................... 11 

INVESTIGATIONS ..................................................................................................................... 11 

SUMMARY OF MATTERS REFERRED TO PROSECUTORIAL AUTHORITIES ............... 12 

111 
CONGRESSIONAL INQUIRIES ................................................................................................ 13 

LEGISLATIVE, REGULATORY AND RULE REVIEWS ........................................................ 13 

PEER REVIEWS .......................................................................................................................... 14 

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD ...................................... 15 

REVISED MANAGEMENT DECISIONS .................................................................................. 15 

INSPECTOR GENERAL DISAGREEMENT ............................................................................. 15 

GAO LIASON .............................................................................................................................. 15 

STRATEGIC PLAN FOR THE .................................................................................................... 16 

OFFICE OF THE INSPECTOR GENERAL ............................................................................... 16 

1. Investigative Agenda .................................................................................................... 16 

2. Legislative and Regulatory Review Agenda ................................................................. 16 

3. Audit, Inspection, Evaluation and Review Agenda ...................................................... 17 

CONTACTING THE OFFICE OF THE INSPECTOR GENERAL ............................................ 19 

iv 
INDEX OF IG ACT REPORTING REQUIREMENTS 

Section 4(a)(2) Review of legislation and regulations ...................................... 13 

Section 5(a)(l) Significant problems, abuses and deficiencies ............................ .i 

Section 5(a)(2) Recommendations with respect to significant problems .................... .i 

Section 5(a)(3) Significant recommendations that have not been completed ......... 11 

Section 5 (a) ( 4) Matters referred to prosecutorial authorities ............................ 12 

Section 5(a)(5) Summary of instances where information was refused .............. ... 15 

Section 5(a)(6) Completed audit reports ....................................................... 3 

Section 5(a)(7) Significant audit reports ......................................................... 3 

Section 5(a)(8) Statistical Table-Questioned Costs ...................................... 20 

Section 5(a)(9) Statistical Table-Funds Recommended for Better Use ................ 21 

Section 5(a)(10) Audit reports lacking management decision .............................. 11 

Section 5(a)(11) Significant revised management decisions ................................ 15 

Section 5(a)(12) Significant management decisions where the IG disagrees ............. 15 

Section 5(a)(13) Information described under the Federal Financial Management. ...... 4 

Improvement Act of 1996 

Section 6(b )(2) Summary of reports to Chairman where assistance was refused ..... .15 

v 
OFFICE OF THE INSPECTOR GENERAL 

COMMODITY FUTURES TRADING COMMISSION 

SEMIANNUAL REPORT 

FOR THE PERIOD FROM 

October 1,2011 THROUGH March 31,2012 

INTRODUCTION 

1. CFTC Programs and Operations 

Congress created the Commodity Futures Trading Commission in 1974 as an 

independent agency with the mandate to regulate commodity futures and options markets in the 

United States. The Commission's mandate was renewed and/or expanded in 1978, 1982, 1986, 

1992 and 1995. In December 2000, the Commission was reauthorized by Congress and the 

President through Fiscal Year 2005 with the passage of the Commodity Futures Modeniization 

Act of 2000 (CFMA). In May of 2008, Congress reauthorized the CFTC through Fiscal Year 

2013. On July 21,2010, the President signed into law the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act), P.L. 111-203, which expanded CFTC'sjurisdiction 

and authorities. 

The CFTC is responsible for fostering the economic utility of futures markets by 

encouraging their competitiveness and efficiency, ensuring their integrity and protecting market 

participants against manipulation, abusive trade practices and fraud. Through effective oversight 

regulation, the CFTC enables the commodity futures markets better to serve their vital function 

in the nation's economy-providing a mechanism for price discovery and a means of offsetting 

price risks. The recent Dodd-Frank Act authorized the CFTC to regulate swap dealers, increase 

transparency and improve pricing in the derivatives marketplace, and lower risk to the American 

public. 

The CFTC operating divisions are: Office of the Chairman, Office of the Executive 

Director, Office of General Counsel, Division of Clearing and Intermediary Oversight, Division 

of Enforcement, Division of Market Oversight and Office of the Chief Economist. In addition to 

its headquarters office in Washington, DC, the CFTC maintains offices in Chicago, Illinois; 

Kansas City, Missouri; and New York, New York. 

2. OIG Responsibilities 

The CFTC OIG was created in 1989 in accordance with the 1988 amendments to the 

Inspector General Act of 1978 (P.L. 95-452). OIG was established as an independent unit to: 

Page 1 
• Promote economy, efficiency and effectiveness in the administration ofCFTC programs 

and operations and detect and prevent fraud, waste and abuse in such programs and 

operations; 

• Conduct and supervise audits and, where necessary, investigations relating to the 

administration of CFTC programs and operations; 

• Review existing and proposed legislation, regulations and exchange rules and make 

recommendations concerning their impact on the economy and efficiency of CFTC 

programs and operations or the prevention and detection of fraud and abuse; 

• Recommend policies for, and conduct, supervise, or coordinate other activities carried out 

or financed by such establishment for the purpose of promoting economy and efficiency 

in the administration of, or preventing and detecting fraud and abuse in, its programs and 

operations; and 

• Keep the Chairman and Congress fully informed about any problems or deficiencies in 

the administration of CFTC programs and operations and provide recommendations for 

correction of these problems or deficiencies. 

OIG is required to conduct, supervise and coordinate audits ofCFTC programs and 

operations in accordance with generally accepted government auditing standards. l 010 is also 

required to recommend changes to existing and proposed CFTC programs and operations to 

promote economy, efficiency and effectiveness and to prevent and detect fraud and abuse. 

The 010 also conducts inspections, evaluations, and reviews from time to time. As 

stated in the 2011 Quality Standards for Inspection and Evaluation issued by the Council of 

Inspectors General for Integrity and Efficiency (CIOIE): 

An inspection is defined as a process that evaluates, reviews, studies, and/or analyzes the 

programs and activities of a Department! Agency for the purposes of providing information to 

managers for decision making; making recommendations for improvements to programs, 

policies, or procedures; and identifying where administrative action may be necessary. 

Inspections may be used to provide factual and analytical information; monitor compliance; 

measure performance; assess the efficiency and effectiveness of programs and operations; share 

best practices; and inquire into allegations of fraud, waste, abuse, and mismanagement. 2 

OIG investigations are performed in accordance with the Quality Standards/or 

Investigations issued by the President's Council on Integrity and Efficiency and the Executive 

Council on Integrity and Efficiency and are performed in response to allegations and/or evidence 

1 The US Government Accountability Office issues the Government Auditing Standards (December 2011). The 

standards are available at http://gao.gov/assets/590/58728I.pdf. 

2 Quality Standards for Inspection and Evaluation, page i. http://www.ignet.gov/pande/standards/oeistdsII.pdf. 

Page 2 
indicating possible violations of law, regulations, or applicable standards, as well as other 

improper conduct in connection with the programs and operations ofthe Agency. 3 

OIG operates independently of the Agency and has not experienced any interference from 

the CFTC Chaimlan in cOImection with the conduct of any investigation, inspection, evaluation, 

review, or audit, and our investigations have been pursued regardless of the rank or party 

affiliation of the target. OIG has conducted audits, inspections, evaluations, and reviews without 

interference where it has perceived the opportunity to recommend improvement to futures 

regulation efforts, again without regard to the party affiliation of any Chairman.4 

3. OIG Resources 

The CFTC OIG consists of the Inspector General, a part-time Supervisory Auditor, a 

Senior Auditor, an Attorney-Advisor, and a secretary. We anticipate hiring an additional FTE in 

FY 2012. The Inspector General has been with the CFTC since 1990. -

COMPLETED AUDITS, INSPECTIONS, EVALUATIONS, 

REVIEWS and OTHER PROJECTS 

1. Audit of CFTC Customer Protection Fund for Fiscal Year 2011 

Audit Objective. 

Section 74S(g)(S)(I) of the Dodd-Frank Act requires the Agency to submit to Congress a 

yearly report on the Conmlission's whistleblower award program that includes a complete set of 

audited financial statements, including a balance sheet, income statement, and cash flow 

analysis. The OIG undertook this required audit. 

The objective of this audit was to render an opinion on the CFTC's Customer Protection 

Fund 's financial statements and report on the Customer Protection Fund's internal controls and 

compliance with laws and regulations. As pru1 of this audit, the OIG also reviewed the agency's 

report to select Congressional committees on activities of the Customer Protection Fund during 

the previous year. 

Status. 

CFTC OIG contracted with an independent public accounting firm to perform this audit. 

OIG monitored tillS required audit, and the IPA reported on October 24,2011 , that the Customer 

3 The publication titled Quality Standards/or Investigations (December 2003) was issued by the President's 

Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency and subsequently adopted 

by the CIGIE. The standards are available at !illJ:1:llwww.ignet.gov/pande/standards/invstds.pdf. 

'The Inspector General Act of 1978, as amended, states: "Neither the head of the establishment nor the officer next 

in rank below such head shall prevent or prohibit the Inspector General from initiating, canying out, or completing 

any audit or investigation .... " 5 U.S.C. App. 3 sec. 3(a). 

Page 3 
Protection Fund financial statements as of September 30, 2011 and for the period from July 21, 

2010 to September 30,2011, were presented fairly, in all material respects, in conformity with 

U.S. generally accepted accounting principles. 

2. Audit of CFTC Financial Statements for Fiscal Year 2011 

Audit Objective. 

In FY 2002, Congress passed the Accountability of Tax Dollars Act (ATDA). The 

ATDA requires the CFTC, along with numerous other Federal entities, to have its financial 

statements audited annually. To this end, following a formal procurement, the Inspector General 

selected an IP A to provide the audit effort required to enable the contractor to render an opinion 

on the agency's financial statements for Fiscal Year 2011. 

The objective of this audit was to render an opinion on the CFTC's financial statements 

and report on the agency's internal controls and compliance with laws and regulations. 

Status. 

For the seventh consecutive year, an independent public accounting firm reported that the 

CFTC financial statements were presented fairly in all material respects, and in conformity with 

the U.S. generally accepted accounting principles for Federal agencies. For the third consecutive 

year the Commission had no material weaknesses, and was compliant with laws and regulations. 

This includes compliance with the Federal Information Security Management Act. Furthermore, 

the CFTC financial management system is in substantial compliance with the Federal Financial 

Management Improvement Act of 1996 (although CFTC is not required to comply with FFMIA, 

it has elected to do so). The financial statement audit report was issued on November 14,2011. 

3. Review of Compliance with the Federal Managers' Financial Integrity Act, FMFIA 

Objective. 

In support of OMB Circular A-123 (Revised), the Inspector General evaluates, provides 

technical assistance and advises the agency head as to whether the agency's review and 

evaluation process was conducted in accordance with the circular's requirements. 

Status. 

OIG reviewed all of the internal control assessments produced by agency staff. OIG 

reported the results of its review of the assessment process to the Chairman in its annual 

assurance letters to the Chairman. No significant issues were noted. 

4. Evaluation of the CFTC Information Security Program and Practices, FISMA 

Page 4 
Objective. 

The Federal Information Security Management Act requires the Inspector General or his 

designee to perform annual independent evaluations of the information security program and 

practices of the agency. 

Status. 

To review the Commission's security program, Office of Data and Technology (ODT) 

and OIG worked jointly in gathering and interpreting information relating to the CFTC 

information security program. Using the information supplied by OITS staff, a contractor and 

the program managers, the Inspector General reviewed and analyzed the information and 

responded in tabular form to the questions raised by the OMB Guidance. Results of this effort 

were transmitted to the CFTC's Chief Information Officer (CIO) in November 2011, for 

combination with the CIO's assessment and inclusion in the Chairman's report to OMB. No 

significant issues were noted. 

5. Assessment of CFTC's Management Challenges 

Objective. 

The Reports Consolidation Act of 2000 requires the Inspector General to summarize the 

most serious management and performance challenges facing the CFTC and to assess the 

Agency's progress in addressing those challenges. 

Status. 

In accordance with the Reports Consolidation Act of2000, the OIG prepared the required 

summary of the Agency's most serious management and performance challenges facing the 

Agency at the close ofFY 2011, and reported on the Agency's progress addressing the most 

serious management and performance challenges identified by the OIG at the close ofFY 2010. 

OIG completed this requirement in November 2011 for inclusion in the annual CFTC Annual 

Financial Report (AFR)5 that is submitted to Congress. We posted the report to our website.6 

Our report is summarized below. 

Update: FY 2010 Management Challenges identified by the OIG. At the close ofFY 2010, the 

OIG identified two most serious management challenges: Implementation of the Dodd-FrankAct 

and Human Resource Expansion and Management. During fiscal year 2011 the Agency 

addressed both issues, making substantial progress. 

s http://www.cftc.gov/ucm/grOups/public/@aboutcftc/docurnents/file/20 11 afr.pdf at page 82. 

6 http://www.cftc.gov/AboutlOfficeoftheInspectorGeneraVindex.htm. 

PageS 
Implementation of the Dodd-FrankAct. Title VII of the Dodd-Frank Act amended the 

Commodity Exchange Act to establish a comprehensive new regulatory framework for swaps 

and security-based swaps. In order to implement the Dodd-Frank Act, the Commission 

identified over 30 areas where rules will be necessary. Many rules required or resulted in 

cooperative efforts with the Securities and Exchange Commission or other federal agencies. In 

addition, the Dodd-Frank Act called for numerous studies and other undertakings by the 

Commission, some also with cooperation from other agencies. Last year, we believed the 

magnitude of this undertaking, especially given the deadlines set out under the Dodd-Frank Act, 

presented a serious management challenge. 

During FY 2011 CFTC staff and Commissioners met more than 1,000 times with 

members of the public to discuss rules proposed under Dodd-Frank, and conducted 14 public 

roundtables. The Commission reviewed more than 25,000 comment letters pertaining to DoddFrank. The Commission held 20 public meetings to vote on various Dodd-Frank matters, and 

more meetings are scheduled this year and into next year. The Commission issued nearly 60 

proposed rules, notices, or other requests seeking public comment, as well as 22 final rules, 

interim final rules, and exemptions, but implementation is not yet complete. 

In order to address the new regulatory mandates stated in the Dodd-Frank Act, the 

Agency has reorganized into 4 Divisions and 7 operating offices. Operational challenges 

associated with Dodd-Frank implementation remain, in our view, a serious management 

challenge. 

Human Resource Expansion and Management. The Commission's new responsibilities under 

Dodd-Frank significantly increased its workload. By the end of fiscal year 2010, the Commission 

had on-board 687 employees, which is 58 below the 745 FTE CFTC requested to carry out 

CFTC's pre-Dodd-Frank authorities. We viewed the possibility of a rapid and dramatic increase 

in new employees to address new rules over newly regulated markets a significant management 

challenge during Fiscal Year 2011. We also viewed the management of existing staff to take on 

additional tasks to present a formidable management challenge. 

During Fiscal Year 2011 the agency secured additional appropriations and staff. The 

CFTC's 2011 spending plan accommodated 717 FTEs. In November 2011 it was our 

understanding, based on the President's Budget Submission, that CFTC may increase to 983 staff 

years - an increase of over 200 staff years - for FY 2012 and, accordingly, we restate Human 

Resource Expansion and Management as a serious and continuing management challenge in the 

coming fiscal year. 

FY 2011 Most Serious Management Challenges. As stated above, at the close of FY 2011 the 

DIG identified Human Resource Expansion and Management for a second year, and identified 

two additional "most serious" management challenges: 

EffiCient Deployment of Information Technology Resources 

According to current data, over eighty percent of futures and options trading on the 

Chicago Mercantile Exchange are transacted electronically. We believe that expanded 

Page 6 
jurisdiction over swaps will increase the volume of electronic trading the Agency will monitor. 

As a result of this structural shift in futures trading (from floor based open outcry to electronic 

platforms), the CFTC has requested from Congress and received additional resources to facilitate 

electronic surveillance. 

Congress in FY 2011 authorized a minimum of $37.2 million for "the highest priority 

information technology activities of the Commission." In response to this congressional 

directive as well as the Agency's added responsibility over the swaps marketplace, the Agency in 

FY 2011 allocated over $42 million dollars towards technological modernization (21 % ofFY 

20 11 appropriations). Approximately two thirds of this budgeted commitment was targeted 

towards automated data processing systems to modernize the Agency's systems for capturing 

and processing market related data. We identified efficient deployment of information 

technology resources as a serious management challenge for the coming year. 

Expanding Delivery of Customer Protection Resources and Consumer Education 

Section of 748(g) of the Dodd-Frank Act added section 23(g) to the Commodity 

Exchange Act to establish within the Treasury of the United States a revolving fund that will be 

available to the Agency for the payment of whistleblower awards and education initiatives. The 

new Customer Protection Fund may be funded -- up to $100 million -- by civil monetary 

penalties collected through the Commission's enforcement program that are not otherwise 

distributed to victims. At the end of FY20 11 the Customer Protection Fund totaled over $23 

million dollars. On October 24, 2011, an initial Office of the Inspector General financial 

statement audit of the Customer Protection Fund resulted in an unqualified opinion on the 

financial statements, which is encouraging. 

Increasingly, the Customer Protection Fund's resources and commitments will demand 

significant management attention. This new commitment to whistleblower protection and 

education will challenge the Agency to effectively manage decisions regarding additions to and 

awards from the CPF, develop its organizational structure, and prudently manage significant 

additional resources. We are encouraged that the agency will soon select management for the 

startup Customer Protection Fund and Consumer Education initiatives, but nevertheless we count 

the creation of this new program among the most serious management challenges facing the 

Commission in the coming year. 

Page 7 
6. Limited Review of CFTC's Compliance with the Improper Payments Elimination 

and Recovery Act (lPERA) 

Objective. 

IPERA directs each agency's Inspector General, beginning with Fiscal Year 2011, to 

review agency improper payment reporting in the agency's Annual Financial Report (AFR) to 

assess the agency's compliance with IPERA. 

Status. 

OIG issued a letter report on March 14,2012 providing negative assurance that CFTC 

was in compliance with IPERA. 

CURRENT AUDITS, REVIEWS, EVALUATIONS, and 

INSPECTIONS 

At the end of this reporting period, there were two ongoing audits, and one ongoing 

inspection. 

1. Audit of CFTC Financial Statements for Fiscal Year 2012 

Background. 

In FY 2002, Congress passed the Accountability of Tax Dollars Act. The Act requires 

the CFTC, along with numerous other Federal entities, to obtain an independent financial 

statement audit each year. During FY 2012, the Inspector General selected an IP A to render an 

opinion on the agency's financial statements for Fiscal Year 2012. The audit will be performed 

in accordance with generally accepted auditing standards, Government Auditing Standards, 

OMB Bulletin 01-02 and OMB Circular A-136. 

Audit Objective. 

The objective of this audit is to render an opinion on the CFTC's financial statements and 

report on internal controls and compliance with laws and regulations. 

Status. 

The Fiscal Year 2012 audit began in February with submission of planning documents 

that set out the framework for this year's financial statement audit. In addition, OIG scheduled 

the entrance conference with senior agency managers, and representatives from the IP A and 

OIG. Further meetings and reviews will be ongoing throughout the coming reporting period 

Page 8 
while work on the audit is ongoing. The final audit report is to be delivered to the Office of the 

Inspector General in November 2012. 

2. Inspection of the Division of Enforcement's Investigative Records Disposition Policy 

Background. 

The CFTC Division of Enforcement (CFTC-DOE) is authorized to conduct investigations 

of industry participants for non-compliance with the Commodity Exchange Act and product 

related malfeasance. It is incumbent upon CFTC-DOE management to assure that all 

enforcement records are disposed of as authorized under record retention schedules approved by 

the National Archives and Records Administration. 

Objective. 

This inspection will enable the OIG to ascertain, over the review period (January 1,2008 

to August 1,2011), whether the CFTC-DOE policies and procedures complied with National 

Archives and Records Administration guidelines for retaining/destroying investigative files. 

Status. 

At the close of the reporting period fieldwork for this inspection was completed, a draft 

report is undergoing review, and the final report will shortly be issued. 

3. Review of Oversight and Regulation by the Commodity Futures Trading 

Commission of MF Global Inc. 

Background. 

On November 30, 2011, Senator Richard Shelby requested that OIG perform a "review of 

the oversight and regulation by the Commodity Futures Trading Commission of MF Global Inc. 

("MF Global,,).7 MF Global is subject to a liquidation proceeding initiated by the Securities 

Investor Protection Corporation ("SIPC"). The Senator requested the following: 

1) A detailed account of the CFTC's role in overseeing and regulating MFGI, including an 

assessment of whether its oversight and regulation of MFGI differed in any material way from its 

oversight and regulation of other futures commission merchants; 

7 The text of the letter is available at htt,p:llshelby.senate.gov/public/index.cfin/newsreleases?ID=8355755f-2d3b40ID-9ce9-27 cdfcded885. 

Page 9 
2) A detailed account of how the CFTC coordinated with the Chicago Mercantile Exchange 

("CME"), the designated self-regulatory organization for MFGI, in overseeing MFGI's customer 

segregated funds; 

3) A summary of relevant examination manuals or other guidance for staff involved in 

overseeing and regulating MFGI or monitoring the CME's oversight ofMFGI; 

4) An analysis of whether and how the CFTC's oversight ofMFGI changed after the CFTC's 

enforcement actions against MFGI in December 2007 and December 2009; 

5) An analysis of the CFTC's role in the determination that caused MFGI to increase its net 

capital in August 2011; 

6) An analysis of the CFTC's activities with respect to MFGI in the week prior to the 

liquidation; 

7) An analysis of whether CFTC Chairman Gary Gensler's decision to recuse himself from 

matters relating to the MFGI investigation is consistent with the CFTC's official recusal policy; 

and 

8) An analysis of whether and how a decision by CFTC Chairman Gary Gensler to recuse 

himself from previous matters relating to MFGI would have been consistent with the CFTC's 

official recusal policy. 

Status. 

Work on this request was ongoing at the close of the reporting period. 

4. Audit of CFTC Controls and Protocols over Sensitive Information Collected and 

Exchanged with the Financial Stability Oversight Council 

Background 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 20 10 established 

the Financial Stability Oversight Council (FSOC). The Council is charged with identifying 

threats to the fmancial stability of the United States; promoting market discipline; and 

responding to emerging risks to the stability of the United States financial system. The CFTC is 

one of nine federal financial agency member ofFSOC. In February 2012, each FSOC member's 

Office of the Inspector General launched an audit at their respective agency. 

Page 10 
Objective 

At the CFTC the objective is to acquire, evaluate, and report on CFTC policies and 

procedures for managing and protecting FSOC related information. The result of the CFTC OIG 

audit will be included in the Council of Inspectors General on Financial Oversight (CIGFO) 

Working Group audit of FSOC controls over sensitive information. 

Fieldwork is complete and in April 2012 the CFTC-OIG will provide CIGFO with its 

results using a common data collection instrument. 

AUDIT REPORTS and REVIEWS OVER SIX MONTHS OLD 

1. Corrective Action not Completed 

There were no instances of audit reports over six months old where corrective action had 

not been completed. 

2. Corrective Action Completed 

There were no instances of reports issued before the commencement of the reporting 

period for which corrective action had been completed by the end of the reporting period. 

3. Management Decision not Made 

There are no instances of a report issued before the commencement of the reporting 

period for which a management decision had not been made by the end of the reporting period. 

In 2006, the CFTC OIG issued a report titled "Review of the Need for a Western Regional Office 

in Los Angeles." That report recommended, among other things, that the Commission review 

the feasibility of reestablishing the former Los Angeles field office. That recommendation was 

not carried out largely due to budget constraints. In January 2008, partially in response to a 

Congressional inquiry, CFTC OIG updated its analysis and on March 12,2008, issued a followup report which reiterated the earlier recommendation. In January 2009, the Acting Chairman 

issued a decision declining to implement the recommendation generally due to cost 

considerations, but asked the Agency to revisit the issue on a yearly basis. We agree that this 

recommendation should be revisited, and implemented when feasible. 

INVESTIGATIONS 

The Inspector General Act of 1978, as amended, provides that the Inspector General may 

receive and investigate complaints or information from the Commission's employees and other 

Page 11 
sources concerning the possible existence of an activity constituting a violation of law, rules or 

regulations, or mismanagement, abuse of authority, or gross waste of funds, or a substantial and 

specific danger to the public health and safety. 

1. Preliminary Investigation Regarding Position Limits Rulemaking Efforts 

One OIG investigation was pending as of the beginning of the reporting period. During 

the prior reporting period we received anonymous allegations of misconduct in connection with 

the position limits rulemaking efforts undertaken pursuant to the Dodd-Frank Act. We 

completed our preliminary investigation in February 2012 and published our report to the OIG 

website.8 We found no evidence to sustain the allegations received, and found no evidence of 

misconduct by CFTC staff. Due to the uniform quality of information received from CFTC 

employees and management, we did not take steps to refer this matter for further investigation. 

2. Investigation Regarding Allegations of Misconduct in the Office of Proceedings; 

New Allegations 

During a prior reporting period, the OIG received an allegation of misconduct involving 

staff and management in the Office of Proceedings. Due to an internal conflict within the OIG, 

as well as resource concerns, we reached out to the OIG investigative community and obtained 

the Treasury Inspector General for Tax Administration (TIGTA) to conduct this investigation. 

The CFTC entered into a formal Economy Act9 agreement with TIGTA, and the investigation 

was completed with the issuance of an investigative report to the CFTC on March 15, 2012. 

That report contained no findings of misconduct by Agency employees, but recommended 

referral of new allegations to the Integrity Committee for the Council of Inspectors General on 

Integrity and Efficiency. The referral was made, and the Integrity Committee will take up the 

allegations at their next meeting on May 1,2012. 

SUMMARY OF MATTERS REFERRED TO 

PROSECUTORIAL AUTHORITIES 

No matters were referred to prosecutorial authorities during the reporting period. 

8 http://www .cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig investigation 021512.pdf. 

9 The Economy Act (31 U.S.C. 1535) authorizes agencies to enter into agreements to obtain supplies or services by 

interagency acquisition. 

Page 12 
CONGRESSIONAL INQUIRIES 

DIG fielded multiple requests for assistance from members of Congress and staff during 

the reporting period. Issues addressed included recent DIG activities, recent agency activities, 

and proposed and pending legislation affecting the DIG and the agency. 

LEGISLATIVE, REGULATORY AND RULE REVIEWS 

1. Introduction and Summary. 

As specified in Section 4(a)(2) of the Inspector General Act of 1978, DIG reviews the 

impact of existing and proposed legislation and regulations on CFTC programs and operations 

and makes recommendations regarding more effective or efficient alternatives or protections 

against fraud and abuse. DIG also reviews exchange rule proposals circulated to senior staff at 

CFTC. 

DIG notified the responsible Divisions as to any concerns with draft and final documents 

relating to legislation, rules or investigations. Formal comments were not filed with the 

Commission during this reporting period. 

2. Rule Reviews Initiated in Previous Reporting Periods. 

There were no rule reviews initiated in previous reporting periods which were continued 

into this reporting period. 

3. Rule Reviews Initiated this Reporting Period. 

No rule reviews were initiated during this reporting period. 

4. Legislative Activities. 

DIG tracked legislation impacting programs and operations of the CFTC, and made 

contact with Congressional staff concerning various agency and IG issues as appropriate. The 

IG serves on the legislation committee for the Council of Inspectors General on Integrity and 

Efficiency, which comments on proposed amendments to the IG Act and other legislation 

affecting the IG community. 

Page 13 
PEER REVIEWS 

An important function in each Agency OIG is the peer review process. The Inspector 

General community's annual report, A Progress Report to the President, Fiscal Year 2007,10 

described the processes for audits and investigative peer reviews as follows: 

Government Auditing Standards require that audit organizations conducting audits of 

Federal agencies undergo peer reviews every 3 years. The IG community has implemented a 

process to meet this requirement. The purpose of the peer review is to determine whether the 

reviewed audit organization's internal quality control systems are adequate and provide 

reasonable assurance that applicable auditing standards, policies and procedures are met. 

Similarly, investigative peer reviews are conducted to ensure compliance with the requirements 

of the Quality Standards for Investigations and determine whether adequate internal safeguards 

and mana~ement procedures exist to ensure that law enforcement powers are properly 

exercised. ) 

Section 989C of the Dodd-Frank Act implemented a requirement to include in each OIG 

semiannual report an appendix containing 

• the results of any peer review conducted by another Office of Inspector General during 

the reporting period; or if no peer review was conducted within that reporting period, a 

statement identifying the date of the last peer review conducted by another Office of 

Inspector General; 

• a list of any outstanding recommendations from any peer review conducted by another 

Office of Inspector General that have not been fully implemented, including a statement 

describing the status of the implementation and why implementation is not complete; and 

• a list of any peer reviews conducted by the Inspector General of another Office of the 

Inspector General during the reporting period, including a list of any outstanding 

recommendations made from any previous peer review (including any peer review 

conducted before the reporting period) that remain outstanding or have not been fully 

implemented. 

No peer review was conducted of the CFTC OIG during this reporting period; however, 

during a prior reporting period, the Federal Election Commission Office of Inspector General 

completed a peer review ofCFTC OIG, as of March 31,2011, that resulted in 35 

recommendations for improving CFTC OIG's operations. As of September 30,2011, CFTC OIG 

had fully implemented all of the recommendations. 

10 htqJ:llwww.ignet.gov/randp/fy07apr.pdf. 

11 Id. atp.19. 

Page 14 
CFTC OIG did not conduct any peer reviews during this reporting period and there remain 

no outstanding recommendations from peer reviews previously conducted by CFTC OIG. 

During this reporting period, OIG continued to monitor the government-wide OIG peer review 

schedules as communicated by the Council of the Inspectors General on Integrity and Efficiency, 

and participated in working groups and training pertaining to the peer review process. 

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD 

No reports were made to the Agency head -under section 6(b )(2) concerning infonnation 

or assistance unreasonably refused or not provided (mandated under section 5(a)(5) of the Act). 

REVISED MANAGEMENT DECISIONS 

No management decisions were revised during the reporting period. 

INSPECTOR GENERAL DISAGREEMENT 

The Inspector General did not disagree with any management decisions on OIG . 

recommendations during the reporting period. 

GAO LIAS ON 

OIG is charged with providing policy direction for, and conducting, supervising, and 

coordinating audits and investigations relating to CFTC programs and operations. In addition, 

OIG is required to recommend policies for, and conduct, supervise, and coordinate with other 

Federal agencies, state and local governmental agencies, and nongovernmental entities, audits, 

investigations, and evaluations regarding the economy, efficiency, and effectiveness of CFTC 

programs and operations. 

GAO also conducts audits of CFTC activities, and OIG plans its audits, inspections, 

evaluations, reviews, and investigations so as not to duplicate GAO's efforts. Moreover, OIG in 

its audit activities identifies the goals of each audit and the methods of reaching the goals so as to 

minimize the requirements placed on CFTC resources. 

Page 15 
STRATEGIC PLAN FOR THE 

OFFICE OF THE INSPECTOR GENERAL 

1. Investigative Agenda 

The Inspector General Act of 1978, as amended, provides that the Inspector General may 

receive and investigate complaints or information from the Commission's employees concerning 

the possible existence of an activity constituting a violation of law, rules or regulations, or 

mismanagement, gross waste of funds, abuse of authority or a substantial and specific danger to 

the public health and safety. 

OIG has to date conducted only a reactive investigative program chiefly relying on 

unsolicited employee complaints as the source of investigative leads. However, allegations and 

complaints are also received from the general public and Congress. This reactive program has 

resulted in only a handful of investigations per year. This strategy was followed because OIG 

believed that an independent regulatory agency such as the CFTC, without grant money or 

substantial contracts to award, was not likely to generate a substantial investigative workload. 

To insure that employee complaints could easily reach OIG, a 24-hour hotline was 

established in February 1993 to receive complaints. The hotline phone number is (202)418-

5510. 

Because of the necessarily reactive nature ofOIG's investigative program, no 

investigative agenda has been established. 

2. Legislative and Regulatory Review Agenda 

Because of the importance of this activity in a financial and economic regulatory agency, 

OIG reviews proposed and final CFTC regulations, legislation and selected exchange rules using 

six basic criteria: Whether the agency: (1) has identified specifically the problem(s) to be 

addressed by the proposal; (2) has defined through case study or data analysis a clear link 

between the proposed solution and the identified problem(s); (3) has specified clearly the means 

to effectively and efficiently enforce the proposal; (4) has assessed the likely efficiency and 

effectiveness of alternative solutions; (5) can reasonably document that the proposal will yield 

positive net benefits over the long term; and (6) has met the requirements of the Regulatory 

Flexibility Act and the Paperwork Reduction Act. 

The Regulatory Flexibility Act requires the agency to evaluate the impact of its 

regulations on small entities. The Paperwork Reduction Act requires the agency to manage 

effectively and efficiently its information collections so that they are the least burdensome 

necessary to achieve the stipulated objectives. 

Page 16 
Because OIG does not initiate legislation or, generally, regulations, OIG legislative and 

regulatory review program is reactive to the legislative and regulatory proposals developed by 

others. Accordingly, no independent legislative and regulatory review agenda has been 

established. 

3. Audit, Inspection, Evaluation and Review Agenda 

a. Introduction 

The primary objectives of the OIG audit, inspection, evaluation and review agenda is to 

promote long-term efficiency and effectiveness in the administration and operation of the 

Commission and to protect against fraud and abuse. The audit, review, evaluation, and 

inspection agenda and priorities for OIG are determined based on the following factors: 

Adequacy of internal control systems as indicated by vulnerability assessments and internal 

control reviews recommended by OMB Circular A-123; 

Changes in the program conditions or particular vulnerability of the organization, program, 

activity, or function to problems or deficiencies; 

Current and potential dollar magnitude and likely benefits of a review on the efficiency or 

effectiveness of CFTC programs and operations; 

Management priorities and improvements that may be possible; 

Results of audits of CFTC programs and operations by other Federal agencies; and 

Availability of audit resources and the potential opportunity costs to the agency. 

b. Annual Audits 

The following required audit are performed on an annual basis. 

Audit of CFTC Financial Statements 

In FY 2002, Congress passed the Accountability of Tax Dollars Act. The Act requires 

the CFTC, along with numerous other Federal entities, to have its financial statements audited 

annually. To this end, OIG has engaged a contractor to provide the audit effort required to 

enable the contractor to render an opinion on the agency's financial statements for each fiscal 

year in accordance with generally accepted auditing standards, Government Auditing Standards 

and OMB Bulletin 07-04. 

Page 17 
Audit of CFTC Customer Protection Fund 

Section 74S(g)(S)(I) of the Dodd-Frank Act requires the Agency to submit to Congress a yearly 

report on the Commission's whistleblower award program that includes a complete set of audited 

financial statements, including a balance sheet, income statement, and cash flow analysis. To 

this end, OIG has engaged a contractor to provide the audit effort required to enable the 

contractor to render an opinion on the Customer Protection Fund financial statements for each 

fiscal year in accordance with generally accepted auditing standards. 

c. Annual Review and Evaluation 

We will perform the following review and evaluation on an annual basis: 

Review of Compliance with the Federal Managers' Financial Integrity Act FMFIA 

In support ofOMB Circular A-123 (Revised), the Inspector General will evaluate, 

provide technical assistance and advise the agency head as to whether the agency's review and 

evaluation process was conducted in accordance with the circular's requirements. 

Evaluation of the CFTC Information Security Management Act FISMA 

The Federal Information Security Management Act requires the Inspector General or his 

designee to perform annual independent evaluations of the information security program and 

practices of the agency. 

d. Other Audits, Inspections, Evaluations, Reviews and Projects 

The OIG intends to focus the balance of its resources on the review of the management 

and operation of the agency with a focus on compliance with Congressional mandates. OIG has 

developed an audit universe and prioritized the audit areas. The audit universe reflects the 

immense regulatory undertaking required under the Dodd-Frank Act, and identifies other issues 

and activities relating to management and regulatory challenges. Dodd-Frank related projects 

will include our work performed in conjunction with the Inspector General's participation with 

CIGFO. Finally, OIG will stand ready to respond to issues and requests as they are received 

from Congress, the Agency and members of the public or any other source. 

e. Resources Required 

OIG estimates that approximately one-half staff year of effort will be devoted over each 

of the next five years to the two annual financial audits, the annual FMFIA review, and the 

annual FISMA evaluation described above. All other investigations, inspections, evaluations, 

review and other projects will consume up to five and a half staff years. Because OIG resources 

can be diverted at any time to an investigation or audit, inspection, evaluation, review or project 

that responds to current concerns or allegations, and must be completed in a timely fashion in 

Page 18 
order to be of assistance to the Agency or Congress, it is impossible to forecast with complete 

accuracy how resources will be utilized from year to year. 

CONTACTING THE OFFICE OF THE 

INSPECTOR GENERAL 

OIG is located at 1155 21st Street, N.W., Washington, D.C. 20581. Regular business 

hours are between 8:30 AM and 5:00 PM, Monday through Friday, except Federal holidays. The 

telephone number is (202)418-5110. The facsimile number is (202)418-5522. The hotline 

number is (202)418-5510. The OIG web page is located at 

http://www.cfic.gov/AboutiOfficeofthelnspectorGenerallindex.htm. 

Page 19 
Table 1 

Reports Issued with Questioned Costs 

(October 1, 2011 - March 31, 2012) 

Dollar Value 

Thousands 

Number Questioned Unsupported 

A. For which no management decision has 

been made by the commencement of the 

reporting period 0 0 0 

B. Which were issued during the reporting 

period 0 0 0 

Subtotals (A + B) 0 0 0 

c. For which a management decision was 

made during the reporting period 0 0 0 

(1) dollar value of 

disallowed costs 0 0 0 

(ii) dollar value of costs not 

disallowed 0 0 0 

D. For which no management decision 

has been made by the end of the 

reporting period 0 0 0 

Page 20 
A. 

B. 

C. 

D. 

Table 2 

Reports Issued with Recommendations 

That Funds be Put to Better Use 

(October 1,2011- March 31, 2012) 

Dollar Value 

Number Thousands 

For which no management decision has 

been made by the commencement of the 

reporting period 0 0 

Which were issued during the reporting 

period 0 0 

Subtotals (A + B) 0 0 

For which a management decision was 

made during the reporting period 0 0 

( i ) dollar value of 

recommendations that 

were agreed to by management 

0 0 

(ii) dollar value of 

recommendations that 

were not agreed to by 

management 0 0 

F or which no management decision 

has been made by the end of the 

reporting period 0 0 

Page 21 
THE INSPECTOR GENERAL 

NEEDS YOUR HELP TO 

ASSURE THE INTEGRITY OF 

CFTC'S PROGRAMS 

Report FRAUD, WASTE 

Or ABUSE to the 

INSPECTOR GENERAL 

ANONYMOUSL Y 

HOTLINE 

(202) 418-5510 

Office of the Inspector General 

Commodity Futures Trading Commission 

115521 ST Street, N.W. 

Washington, D.C. 20581