Custodial Receivables 

Financial Reporting Challenges

March 24, 2016
Highlights

Allowance for Loss has 

the potential to be 

unreliable. 

Foregoing early 

referral to DoJ in favor 

of Treasury is not 

supported. 

Agency Financial 

Report (AFR) can 

provide additional 

Custodial Receivables 

data and performance 

information.

Commodity Futures Trading 

Commission Financial Reporting 

Challenges 

Report Number: 15AU05

Background

This report highlights challenges regarding the presentation of Custodial 

Receivables in the U.S. Commodity Futures Trading Commission (the CFTC)

Agency Financial Report (AFR), and regarding collection efforts. 

What the OIG Found

CFTC’s Financial Management Branch (FMB) policy deems all civil 

monetary sanctions (CMS) resulting from Division of Enforcement 

(Enforcement) efforts uncollectable unless there is evidence to the contrary. 

FMB relies on Enforcement collectability assessments to provide such 

evidence. Enforcement does not document use of a consistent standard for 

its collectability determinations because it only documents the basis for 

collectability determinations if a CMS is determined to be collectable. 

Enforcement and FMB’s practices together do not document reliable 

collectability determinations for all CMS deemed uncollectable. 

Enforcement and FMB’s practices together also potentially impact CFTC’s 

financial statements. FMB reports certain CMS penalties in the CFTC AFR as 

Custodial Receivables, net of any Allowance for Loss for uncollectable 

amounts (determined through the procedures described above). In the CFTC 

FY 2014 and FY 2015 financial statements, FMB reduced Custodial 

Receivables by an Allowance for Loss (amounts deemed uncollectable)

exceeding $1.4 billion, each year. The Allowance for Loss may be impacted 

because determinations that a CMS is uncollectable are not documented. 

FMB refers all outstanding debts initially to the U.S. Department of Treasury 

(Treasury) for collection. Enforcement or Treasury may also refer debts to 

the Department of Justice (DoJ) for more robust collection efforts. Due to 

the failure to document reliable collectability determinations for all CMS

deemed uncollectable, the decision to forego early referral to DoJ in favor of 

Treasury similarly is not supported for all CMS. 

Federal policies call for agencies to collect data for performance measures in 

order to provide relevant information to decision-makers. The CFTC 

historically has not provided comprehensive CMS data and performance 

information in its AFR. 

What the OIG Recommends

We recommend the Office of the Executive Director in consultation with the 

Director of Enforcement, standardize procedures for collectability 

determinations, identify cases for routing first to the Department of Justice, 

and provide additional enforcement information in the AFR. Click here for a 

summary of management’s comments and our evaluation of management’s 

comments. 
U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5110

Facsimile: (202) 418-5522 

Table of Contents

Background ......................................................................................................................... 1

What the OIG Learned ........................................................................................................ 1

What the OIG Recommends ............................................................................................... 3

Summary of Management Comments ................................................................................ 4

Evaluation of Management Comments .............................................................................. 5

Our Objective, Scope, and Methodology............................................................................. 6

Appendix I: Collectability Determinations not Documented 

and Allowances for Loss not Supported ............................................................................. 8

Appendix II: Agency Financial Report Can Provide 

Additional Custodial Receivable Data and Performance Information ............................ 12

Appendix III: Management Comments ............................................................................ 15
Commodity Futures Trading Commission Custodial Receivables 

Office of Inspector General Financial Reporting Challenges 

(Report No.: 15AU05)

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Background

In order for the U.S. Commodity Futures Trading Commission (the CFTC) to fulfill its 

mission to protect market users and the public from fraud, manipulation, and abusive 

practices related to the sale of certain commodity interests, including futures, swaps and 

options, the CFTC investigates, litigates, and adjudicates alleged violations of the 

Commodity Exchange Act (CEA) and Commission regulations. The CFTC’s Division of 

Enforcement (Enforcement) conducts investigations of both individuals and companies. 

A civil monetary sanction (CMS) is an enforceable monetary sanction imposed by a 

court (judgment) order or Commission order. CMS consist of one or more of the 

following types: Civil Monetary Penalties (CMP), disgorgements, restitutions,1 and prejudgment interest. For Enforcement actions to be most successful, collection and 

distribution programs must function effectively. Enforcement is responsible for 

collectability determinations.

The Accountability of Tax Dollars Act of 2002 requires the CFTC to prepare and submit 

to the Congress and the Director of the Office of Management and Budget an audited 

financial statement for each fiscal year, covering all accounts and associated activities of 

each office, bureau, and activity of the agency. The Office of Inspector General (OIG) 

previously reported that financial statement audits by an Independent Public 

Accounting (IPA) firm expressed qualified opinions for the agency financial statements 

as of September 30, 2014 and FY 2015. The firm noted a material weakness in internal 

controls for financial reporting. The Chief Financial Officer, within the Office of the 

Executive Director, has the responsibility for preparing CFTC’s annual Agency Financial 

Reports (AFR) and facilitating collection activities. 

What the OIG Learned 

Our review of the CFTC's operating policies, presentation, and disclosure of custodial 

receivables in the FY 2014 AFR, Management Discussion and Analysis (MD&A), and 

notes to the financial statements identified the following accounting policy challenges

which also affect the FY 2015 AFR. 

 

1 We refer to restitution ordered to reimburse customers harmed through violations of the Commodity Exchange Act 

and Regulations. The restitution is owed to the customer, not the CFTC. Courts generally assign restitution 

collection responsibility to a receiver or a monitor. Because CFTC recognizes restitution claims to be unenforceable 

against the government, it is not reported as a custodial receivable; however, Enforcement performs collectability 

determinations as a matter of policy, recognizing that customer restitution should be paid, and victims made whole, 

prior to payment of other CMS.
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1. Given that FMB’s current policy2 is to recognize custodial receivables (civil monetary 

penalties and disgorgement) as 100% uncollectable3 unless Enforcement makes a 

determination that all or a portion of a receivable is collectable, and that 

Enforcement collectability determinations are not documented using standard 

measures (because only determinations of collectability are documented), FMB’s and 

Enforcement’s current practices do not document reliable collectability 

determinations for all CMS deemed uncollectable. 

2. FMB reports in the CFTC AFR as Custodial Receivables certain CMS penalties 

imposed through Enforcement proceedings, net of any Custodial Receivables 

Allowance for Loss determined through the procedures described above. CMPs form 

the primary basis for the Custodial Receivables Allowance for Loss presented in Note 

4. of the AFR. For the CFTC FY 2014 financial statements, CFTC reduced Custodial 

Receivables of $1.620 billion by an Allowance for Loss (amounts deemed 

uncollectable) of $1.617 billion. Likewise, for FY 2015, CFTC reduced Custodial 

Receivables of $1.452 billion by an Allowance for Loss of $1.449 billion. For the same 

reasons that Enforcement and FMB’s practices together do not document reliable 

collectability determinations for all CMS (because only determinations of 

collectability are documented), they also do not support a reliable Custodial 

Receivables Allowance for Loss reported in the AFR. 

3. CFTC in 1985 adopted Part 143 of the Commission regulations4 to implement 

statutory authority to collect claims owed the United States arising from activities 

under the CFTC’s jurisdiction, including certain CMS debt.5 CFTC updated these 

regulations most recently in 2004.6 FMB refers all outstanding debts initially to the 

U.S. Department of Treasury (Treasury), for collection. Enforcement or Treasury 

may also decide to transfer debts to the Department of Justice (DoJ) for further and 

more robust collection efforts. Due to the failure to document reliable collectability 

determinations when CMS is deemed uncollectable, said collectability 

determinations do not support the determination to forego early referral to DoJ in 

favor of Treasury in all instances, nor the decision to forego existing CFTC collection 

authority at Part 143 of the Commission Regulations. 

 

2 FY 2014 and FY 2015 Civil Monetary Sanctions Cycle Memo.

3 The agency performs a valuation of collectability on a quarterly basis, at which time the Allowance for Loss is set 

for each debt. 

4 17 CFR Part 143. 

5 50 FR 5383 (Feb. 8, 1985) (“These rules are intended to ensure fair and expeditious collection of unpaid claims”). 6 69 FR 52995 (Aug. 31, 2004). CFTC also adopted a Privacy Act Records System Notice for its Debt Collection 

Files, last published in 2011. 76 FR 5974 (Feb. 2, 2011). CFTC’s Records Disposition Schedule (Jan 4, 2016), states 

that debt collection records must be maintained for six years after final payment or cancellation (longer if required 

business use). http://www.cftc.gov/idc/groups/public/@aboutcftc/documents/file/recordsdispositionschedule.pdf. 
Commodity Futures Trading Commission Custodial Receivables 

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4. OMB Circular No. A-129, Policies for Federal Credit Programs and Non-Tax 

Receivables7 calls for agencies to collect data for performance measures in order to 

provide relevant information to decision-makers and other stakeholders. As a 

leading practice, other federal agencies include discussion of this data in the MD&A 

[enforcement] section of the AFR. We noted the CFTC’s AFR can provide additional 

custodial receivables data and performance information such as age, type, damages, 

collection and settlement rates, or assigned collection entities which decision makers

may find beneficial. Compared with similar federal agencies, the CFTC historically 

has provided less comprehensive data and performance information to users who 

would be interested in how well the CFTC’s enforcement actions perform against 

those who violate the CEA and regulations. Another transparency opportunity for 

enforcement actions relates to restitution orders. While the CFTC does not report 

restitution activity in its financial statements,8 it is not prohibited from providing

further discussion of this significant activity in the MD&A section of the AFR. For the 

case matters we reviewed, there was $1.428 billion9 in restitution orders where only 

CMS penalties assessed were discussed in the MD&A section of the AFR. 

The appendices that follow discuss in detail these issues and provide relevant federal 

agency reports as reference.

What the OIG Recommends

We recommend the Office of the Executive Director in consultation with the Division of 

Enforcement: 

1. Standardize procedures to evidence collectability determinations and to better 

support the presentation of an Allowance for Loss; 

2. Identify most promising cases to route first to the Department of Justice;

3. Provide additional enforcement data and performance information in the AFR. 

 

7 OMB A-129, Section IV. A.2. 8 See footnote 1. 9 Some case matters held multiple defendants liable but the debt will be collected only once.
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Summary of Management Comments

Management expressed concern regarding possible interpretation of the report. 

Specifically, management would take issue with any indication that current financial 

reporting of custodial receivables are unreliable10 or unsupported,11 or that current 

practices may have diminished the collection potential of debts or collection rates.12

Also, management expressed concern that, in noting that Enforcement could 

aggressively identify cases with potential to route first to the Department of Justice 

(DoJ), our report questioned the adequacy of collection activities of the U. S. 

Department of Treasury (Treasury).13 We appreciate these concerns and thank 

Enforcement for providing the opportunity to address them in our footnotes here.14 

That said, FMB and Enforcement stated they will work collaboratively to enhance 

current procedures and methodologies to improve the transparency and documentation 

of support for financial reporting and custodial receivables collection decisions, and will 

consider additional performance reporting regarding its enforcement activities. 

In reference to recommendation 1, management acknowledged there may be 

opportunities for improvement in the documentation and transparency of the analysis 

that supports Enforcement's preliminary collectability assessments and FMB's 

 

10 The word “unreliable” appears once in our report. Our summary sheet states: “Allowance for Loss has 

the potential to be unreliable.” Because CFTC’s Allowance for Loss is based on collectability 

determinations that are not documented, this statement is true. We are not aware of any scenario where 

undocumented statements regarding collectability can be deemed reliable on their face. 

11 Management appears to conflate “unsupported” with “unsupportable.” We do not state that current 

financial reporting of custodial receivables is unsupportable (i.e., cannot be supported). We respectfully 

clarify here that the financial reporting of custodial receivables is unsupported by documented 

collectability determinations.

12 Managing Federal Receivables (May 2005, rev’d 2015)(MFR), Department of the Treasury Financial 

Management Service, states (at page 1-9): “Each agency shall ensure that . . . the full range of available 

and appropriate delinquent debt collection techniques are used” At Appendix 1 (page 11) we quote from 

MFR the “key factors” Treasury has instructed agencies to consider in determining which collection 

techniques to use. Rather than documenting consideration of the steps set out in MFR, Enforcement 

refers all debt to Treasury, and we maintain this practice “may diminish the collection potential of debts 

and negatively affect collection rates.” We presume the purpose of Treasury’s detailed instructions to 

agencies (in MFR) is to enhance collection results. 13 MFR (page 6-3) states: “Debts based in whole or in part on conduct in violation of the antitrust laws or 

involving fraud, the presentation of a false claim, or misrepresentation on the part of the debtor or any 

party having an interest in the claim must be referred to the Department of Justice (DOJ) for action.” We 

realize Enforcement currently does not have sufficient resources to undertake complex collection efforts; 

we recommend they aggressively identify cases with potential to route first to the Department of Justice

(as required in MFR). We are not inferring any deficiency on the part of Treasury with regard to collection 

efforts, or otherwise. 

14 See fn. 10-13, above.
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determination as to the appropriate Allowance for Loss on custodial receivables. As 

such, FMB and Enforcement will work collaboratively to standardize the procedures for 

this process to ensure clear and consistent documentation. 

In reference to recommendation 2, management is already increasing referrals to DoJ, 

and FMB and Enforcement will work collaboratively to document and further refine the 

methodology and process by which cases are identified for referral to DoJ versus 

Treasury.

In reference to recommendation 3, the Commission will consider additional 

performance reporting regarding its enforcement activities; however, management 

indicated its preference to report such information in CFTC's Annual Performance 

Report (APR), as only high-level summary performance information is generally 

included in an Agency Financial Report (AFR). 

The Management comments in their entirety are presented in Appendix III. 

Evaluation of Management Comments

Management’s planned actions are responsive to each of the recommendations made.

Since management did not provide a date of action, the OIG will evaluate progress made 

as part of the FY 2016 financial statement audit scheduled for reporting during 

November 2016. 

In reference to recommendation 1, the OIG agrees that FMB and Enforcement, working

collaboratively to standardize the procedures to ensure clear and consistent 

documentation, should better evidence the presentation of an Allowance for Loss. Our 

report focuses on the underlying documentation necessary to substantiate a material 

amount reported as uncollectable in the CFTC’s AFR. Without documentation, the 

CFTC cannot support a reported Allowance for Loss. 

In reference to recommendation 2, we are encouraged that the CFTC will refine the 

methodology and process by which cases are identified for referral to DoJ versus 

Treasury.15 We emphasize the methodology should consider not only which collection 

technique(s) to use but also timing, as referrals to DoJ in some cases have occurred 

 

15 Management cited previous audit reports which focused on and encouraged timelier referral of CFTC 

debts to Treasury. We would note the most recent audit dates to 2005 (GAO-05-670, Aug. 2005), while 

MFR (page 6-11 to 6-12) recommends: “An agency should periodically (e.g., every three to five years) 

evaluate the soundness of its strategies and collection activity.”
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almost 2 years after judgment orders. While resource concerns are real (throughout the 

federal government), aggressive collection responsibilities remain with the CFTC.16 If 

resource constraints are the primary driver for current collection processes, then the 

CFTC may seek to supplement its collection process with experts on a fee basis that have 

a non-budgetary implication.

In reference to recommendation 3, we agree with management’s intention to carefully 

consider how to present any additional performance information so that it is helpful to 

the reader and not misleading, whether in the Annual Performance Report and/or the 

Agency Financial Report. We would note that current reporting does not disclose

collection rates nor the age of penalties assessed; we believe this information would be

useful to readers. We agree there is no legal recourse against the government with 

respect to customer restitution and concur with CFTC’s proposal “to identify the 

appropriate reporting for restitution in the MD&A section of the AFR.” 

Our Objective, Scope, and Methodology 

Our objective was to assess the reporting of custodial receivables in the CFTC’s AFR. We 

evaluated 56 case matters17 which dictate the accounting for $1.587 billion or 98% of the 

gross custodial receivables as of September 30, 2014. In the notes to the financial 

statements, gross custodial receivables were approximately $1.620 billion with an 

Allowance for Loss of $1.617 billion. 

We assessed the 2014 AFR as well as results of the IPA work papers to gain an 

understanding of the audit work conducted and all recommendations made relevant to 

the audit topic. We reconciled Custodial Receivables accounting records to judgment

orders in the CFTC’s Practice Manager (PM) application to determine the completeness 

of account balances and reconciled FY 2014 supporting case matters to matters 

supporting the FY 2015 year-end balance. Approximately $1.1 billion of the FY 2014 case 

matters rolled over into the FY 2015 year-end balance. We also evaluated case matters’ 

legal documentation and assessed organizational policies and procedures in place to 

assess the fairness of the Allowance for Loss for the Custodial Receivables. Further, we 

interviewed and surveyed work groups identified to assess leading practices of similar 

 

16 OMB Circular No. A-129 (cited in MFR, page 1-11), requires each agency to “assign to the agency CFO . . 

. responsibility for . . . implementation of . . . debt collection.” The MFR (page 6-3) makes clear that 

agencies have primary responsibility to collect non-tax receivables, including fines and penalties. 

17 These 56 case matters support the Civil Monetary Penalties, Fines, and Administrative Fees amount in 

Note 4 of the FY 2014 financial statements. 
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federal agencies related to disclosure and discussion of enforcement activities and 

custodial receivables to compare as a reference. 

Our scope also considered applicable federal criteria, laws and regulations, and internal 

controls. Specifically, we reviewed and analyzed the Office of Management and Budget 

(OMB) and Federal Accounting Standards Advisory Board (FASAB) guidance to identify 

the CFTC’s responsibilities for implementing, overseeing, and providing guidance for 

the agency’s financial reporting program requirements. In addition, we evaluated 

federal statutes and documented control activities applicable to the subject audit. 

We conducted this review from July 2015 to March 2016 in accordance with the Council 

of the Inspectors General on Integrity and Efficiency Quality Standards for Inspection 

and Evaluation. We used data from the Practice Manager application. Since we

reconciled CMS amounts to judgment orders, we concluded that PM data was 

sufficiently reliable for our conclusions and recommendations.

The report will be published on the OIG webpage and a synopsis will be presented in the 

March 31, 2016 Semiannual Report to Congress. If you have any questions, please 

contact Miguel A. Castillo, Assistant Inspector General for Audits, at (202) 418-5084 or 

Branco Garcia, lead auditor, at (202) 418-5013. 

 

A. Roy Lavik, Inspector General

Judith A. Ringle, Deputy Inspector General 
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Appendix I: 

Collectability Determinations not Documented 

and Allowances for Loss not Supported

Given that Enforcement collectability determinations are not all documented using 

standard measures, that FMB’s policy is to recognize custodial receivables (civil 

monetary penalties) as 100% uncollectable unless Enforcement makes a determination

that all or a portion of a receivable is collectable, FMB’s and Enforcement’s current 

practice does not document a reliable collectability determination. Because the 

collectability determination is used to calculate the Custodial Receivables Allowance for 

Loss for uncollectable CMS in the AFR to the CFTC financial statements, the Allowance 

for Loss is also not supported. 

For the case matters under review, Chief Trial Attorneys (CTAs) documented their basis 

for collectability for only 2 cases associated with civil monetary penalties (CMP). 

Enforcement acknowledges that collectability determinations are not documented, but 

asserts that, regardless of documentation, the CTAs by necessity consider in all cases the 

issues of ability to pay, willingness to pay, and the availability of other sources from 

which to secure payment. Nevertheless, as noted in Illustration 1, Enforcement’s 

Practice Manager System requires documentation only for sanctions with perceived 

collection potential; and that requirement, standing alone, shows that a non-standard 

method is used.18

Illustration 1 - Practice Manager Screenshot

FMB relies on Enforcement’s undocumented assessment of collectability (when CMS is 

deemed uncollectable) rather than requiring an explanation backed by evidence using 

 

18 According to Statement of Federal Financial Accounting Standards 1 (SFFAS 1): Accounting for Selected Assets 

and Liabilities, losses due to uncollectable amounts should be measured through a systematic methodology.

Source: Division of Enforcement Practice Manager System
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standardized collection metrics19 for all case matters. Specifically, FMB’s related 

internal control document states Enforcement “assesses the collectability of each new 

CMS debt based on knowledge of the financial profile of the debtor” and Enforcement’s 

procedure manual also requires CTAs to assess collectability based on evidence of the 

debtor financial profile. Neither addresses standardized metrics for evidencing 

collectability and its application to all case matters supporting the Custodial Receivables 

Allowance for Loss20. More concerning is FMB’s related internal control narrative that

opens the door for passive collection activities. Specifically, FMB’s FY 2014 and FY 2015 

CMS Cycle Memo states “All CMS debts are considered uncollectable unless there is 

evidence to the contrary. Uncollectable debt balances are adjusted to zero for reporting 

purposes.” Illustration 2 depicts the control gap in the current process.

Illustration 2 – Enforcement and FMB Control Gap 

OFM prepares

manual ADI entry,

forwards to ESC

OFM provides DOE

with Listing of 

Open Receivables

ESC posts 

allowance 

entry

ESC

AT END OF QUARTER

E-mailed E-mailed E-mailed

OFM OFM DOE

DOE performs Collectability 

analysis and returns 

spreadsheet to OFM

Further, for custodial receivables presented on its annual balance sheet (civil monetary 

penalties and disgorgements), the CFTC initially refers these debts to the U.S. Treasury 

(Treasury) for collection. Either Enforcement or Treasury may also decide to transfer 

the debt to the Department of Justice for further civil action. Although the historically 

low Treasury collection rates corroborate the Custodial Receivables Allowance for Loss, 

 

19 According to Statement of Federal Financial Accounting Standards 1 (SFFAS 1): Accounting for Selected Assets 

and Liabilities, collectability can be determined based on factors such as: (a) the debtor’s ability to pay, (b) the 

debtor’s payment record and willingness to pay, and (c) the probable recovery of amounts from secondary sources,

including liens, garnishments, cross collections and other applicable collection tools.

20 Statement of Federal Financial Accounting Standards 1 (SFFAS 1): Accounting for Selected Assets and 

Liabilities, conveys that agencies should disclose the major categories of receivables by amount and type, the 

methodology used to estimate the allowance for uncollectable amounts, and the total allowance. 

FMB relies on Enforcement’s undocumented assertion of 

collectability. Considers CMS initially uncollectable.

PM does not capture collectability 

justification for all case matters using a 

standard method. Source: FY2014 Civil Monetary Sanctions Cycle Memo
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our review of the nature of debts and available collection methods21 suggests that

principal reliance on Treasury’s collection service may diminish the collection potential 

of debts and negatively affect collection rates. Specifically, when determining the 

appropriate collection technique to use, Treasury guidance conveys a number of 

additional collection techniques as depicted below:

Illustration 3 – Federal Agency Collection Technique or Tool

Source: Managing Federal Receivables, Department of Treasury, Financial Management Service, May 2005

Key factors to consider when determining the technique or tool to use include:

• Whether the agency is required by law to use the debt collection tool;

• The size and age of the debt;

• The type of debt, particularly whether commercial or consumer;

• The availability of the debt collection tool. For example, the Treasury Offset Program 

is not available until the agency knows the debtor’s taxpayer identifying number;

• The requirements for use of the debt collection tool, such as dollar thresholds;

• Whether one tool can be used concurrently with another tool, such as private 

collection agencies and the Treasury Offset Program;

• The time and resources required to use the collection tool;

• The feasibility of using each tool, including any legal or contractual constraints; and

 

21 MFR, page 6-10 to 6-11, and OMB A-129, Policies for Federal Credit Programs and Non-Tax Receivables, 

Section IV and V.
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• The cost of each tool relative to the size of the debt. The costs would include 

administrative costs, as well as fees charged by a private collection agency22. The

agency should weigh costs against the probability of collecting the debt.23

We also noted that Enforcement could aggressively identify cases with potential to route 

first to the Department of Justice (DoJ).24 While all cases reviewed meet the debt 

threshold for referral to DoJ ($100 Thousand), we noted only 11 of 80 (14%) defendants 

associated with cases under our review were referred to DoJ to collect CMPs totaling 

$91.8 million (6% of $1.587 billion). In September 2015, as a procedural change, 

Enforcement teams were asked to provide all available financial information to be 

included in the referral packages to DoJ. 

 

22 According to Managing Federal Receivables, Department of the Treasury Financial Management Service, May 

2005, private fees are deducted from the collected amounts by statute, not from agency appropriated funds.

23 Managing Federal Receivables, Department of the Treasury Financial Management Service, May 2005 and OMB 

A-129, Policies for Federal Credit Programs and Non-Tax Receivables, Section IV and V. 24 31 CFR Part 901.1, Aggressive Agency Collection Activity states “Federal agencies shall aggressively collect all 

debts arising out of activities of, or referred or transferred for collection services to, that agency.” Aggressive actions 

include contracting for collection services.
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Appendix II: 

Agency Financial Report Can Provide 

Additional Custodial Receivable Data 

and Performance Information

According to OMB Circular No. A-129, Policies for Federal Credit Programs and Nontax Receivables, Section IV. Managing The Federal Government’s Receivables, agencies 

shall prepare, in accordance with the CFO Act and OMB guidance, annual financial 

statements that include information about loan programs and other receivables. 

Agencies should also collect data for program performance measures, including both 

measures of programmatic effectiveness in achieving its policy goals, and financial 

performance measures such as the rate of loan principal repayment, delinquency rates, 

default rates, recovery rates, comparisons of actual to expected subsidy costs, and 

administrative costs, consistent with the Government Performance and Results Act 

(GPRA) Modernization Act of 2010 and Fair Credit Reporting Act. In addition, OMB 

Circular No. A-136 Financial Reporting Requirements, dated September 18, 2014, calls 

for transparency in financial performance reporting. 

However, the CFTC’s AFR can provide additional custodial receivables data and 

performance information resulting from enforcement actions such as age, type, 

damages, collection rate, or settlement rate by assigned collection entity. While the 

CFTC considers added relevant information optional, enhanced data and performance 

information provides various stakeholders the informed ability to assess how well the 

CFTC’s enforcement actions perform against those who improperly engage in 

commodity futures, swaps and option trading and those who improperly market futures, 

swaps and options contracts. 

We benchmarked CMS performance indicators of the Securities and Exchange 

Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC).

As depicted in Illustration 4, the SEC measures not only judgment ordered amounts but 

also collected amounts presented over a period of fiscal years. Stakeholders can readily 

calculate percentage of collections; 34% the lowest in six fiscal years. SEC presents this 

information in the MD&A.
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Illustration 4 - SEC FY 2014 APR Performance Indicator 

Source: SEC FY 2014 Annual Performance Report. OIG calculated collection rate. 

Likewise, the FDIC classifies CMS enforcement actions by distinct type in the MD&A. 

Illustration 5 shows restitutions and various types of CMPs are presented distinctly.

Illustration 5 - FDIC FY 2014 APR Performance Indicator 

 

Source: FDIC FY2014 Annual Report

Another transparency opportunity for enforcement actions relates to restitutions. While

the CFTC does not report restitution activity in its financial statements because it 

recognizes them unenforceable against the government, it is not prohibited from 

providing further discussion of this significant activity in the MD&A section and notes to 

the financial statements of the AFR. 

69% 63% 52% 34% 56% 51%
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For the 56 case matters where data was made available, there was $1.428 billion in 

restitutions. Court appointed receivers were associated with 12 case matters, three case 

matters were associated with bankruptcy proceedings, and others were assigned to 

National Futures Association (NFA) as court monitor without collection enforcement 

authority. We noted in:

• 1 of 56 cases, the court ordered the CFTC to collect $9.4 million dollars as 

restitution. The CFTC referred this matter to the Department of Justice for 

collection of this debt owed victims. 

• 42 of 56 cases the court appointed NFA as monitor to collect $148 million in 

restitutions. Per these court orders, the NFA may and sometimes have referred de 

minimis restitutions to the CFTC to treat as civil monetary penalties. 

These activities are not fully visible to a stakeholder of the AFR as the CFTC only 

discusses assessed penalty amounts in the enforcement MD&A section of the AFR. 
Commodity Futures Trading Commission Custodial Receivables 

Office of Inspector General Financial Reporting Challenges 

(Report No.: 15AU05) 

15 

Appendix III:

Management Comments
U.S. COMMODITY FUTURES TRADING COMMISSION 


Three Lafayette Centre 


1155 21st Street NW, Washington, DC 20581 


Telephone: (202) 418-5000 


Facsimile: (202) 418-5521 


www.cftc.gov 

TO: 	 Miguel A. Castillo 

Assistant Inspector General for Audits 

FROM: 	 Anthony C. Thompson ffM.Jl C 

Executive Director ~G 

Mary Jean Buhler ~Y/ Chief Financial Offl~~-

Aitan Goelman ,$[/


Director, Division ofEnforoerrr.7 


DATE: 	 March 18, 2016 

SUBJECT: 	 Management's Response to 010 Review ofCustodial Receivables 

Thank you for the opportunity to comment on the Office ofthe Inspector General's (010) draft report, 

Custodial Receivables Financial Reporting Challenges (Report Number: I SAUOS), regarding recording 

and reporting on custodial collections ofcivil monelary sanctions (the "Report"). We appreciate the 

dialogue we have had on the issues and your willingness to correct factual errors that were noted by the 

Commission in previous drafts ofthe report. 

CFTC Management has significant concerns about the underlying premise of the Report, specifically that 

the practices ofthe Financial Management Branch ("FMB") and the Division of Enforcement with respect 

to the financial reporting of custodial receivables are unreliable or unsupported, or that these practices 

may have diminished the collection potential of debts or collection rates. The Report does not provide 

support to show that meaningful assets went uncollected in case matters that would demonstrate that 

FMB's financial reporting of custodial receivables is unreliable. We also have concerns about the 

appropriateness ofthe findings that question the adequacy ofthe collection activities ofthe Department of 

Treasury ("Treasury") on behalf of the Commission and suggest that more effective collection would 

have occurred if the Department of Justice ("DoJ") was handling more of the collection work for the 

CFTC. 

That said, in the spirit ofcooperation and good governance, and as noted below, FMB and Enforcement 

will work collaboratively to enhance current procedures and methodologies to improve the transparency 

and documentation of support for financial reporting and custodial receivables co11ection decisions and 

will consider additional perfonnance reporting regarding its enforcement activities. We set forth below 

specific comments and responses to OIG's recommendations and the findings made in the Report. 

OIG Recommendation 1: Standardize procedures to evidence collectability determinations and to 

better support the presentation ofan Allowance for Loss. 

Management Response: The Commission's allowance for loss on custodial receivables is presented in 

confonnance with OMB Circular A-136, Financial Reporting Requirements. Division of Enforcement 
March 18, 2016 

Page2 

staffprovide an initial opinion as to the collectability ofall judgments, based on knowledge ofthe 

financial profile ofthe debtor obtained through the course ofthe investigation and litigation ofeach case 

(including efforts to identify and freeze assets at the beginning ofcases, when any remaining assets are 

most likely to be recoverable) and supported by relevant documents and infonnation. The assessment of 

the potential collectability ofa judgment requires consideration and evidence of ability to pay, willingness 

to pay, and the availability from other sources from which to secure payment. In addition, Enforcement 

transparently and specifically addresses where it believes there may be assets available for collection; 

receivables are only considered uncollectable where there is no evidence ofassets against which to 

collect. Accordingly, it is not correct to say that the assessment ofcollectability is not supported or to 

infer that the practices of FMB and Enforcement may have diminished the collection potential ofdebts or 

negatively affected collection rates. To the extent that the Report implies that collectable amounts were 

left uncollected, the Report does not provide support for this conclusion. However, there may be 

opportunities for improvement in the documentation and transparency of the analysis that supports 

Enforcement's preliminary collectability assessment' and FMB's detennination as to the appropriate 

allowance for loss on custodial receivables. FMB and Enforcement will work collaboratively to 

standardize the procedures for this process to ensure clear and consistent documentation. 

OIG Recommendation 2: Identify most promising cases to route first to the Department of Justice. 

Management Response: The Commission has not received, and the Report does not reflect, supporting 

evidence that would corroborate the assertion that "principal reliance on Treasury's collection service 

may diminish the collection potential ofdebts and negatively affect collection rates." Report at 8. The 

CFTC, through FMB, sends an initial dunning letter to each of its debtors, regardless ofthe related 

collectability determination, in accordance with the Debt Collection Improvement Act (DCIA) and other 

federal collection regulations. This initial dunning letter serves as the Commission's initial debt collection 

activity, after which time it refers debts to the Treasury or DoJ ifdebts are not collected in a timely 

manner. The Commission notes that there have been six reports issued by the Government Accountability 

Office (GAO) and the OJG on its collection activities since it signed the cross-servicing agreement with 

Treasury in fiscal year 1999.2 In its 1999 audit report, GAO stated ''CFfC officials told us that they are 

considering whether to enter into an agreement with Treasury under which CFTC would refer unpaid debt 

to Treasury for collection in accordance with the Debt Collection Improvement Act of 1996" and "CFTC 

can refer un~id fines to the Treasury Department and the Attorney General for centralized debt 

collection.' In its 2001 audit report, the CFTC's OIG recommended that CFTC "send uncollected civil 

monetary penalties more than 180 days past their due date to Treasury at least once a month.'"' In its 2001 

follow-up audit report, GAO recommended that CFTC "take steps to ensure that delinquent fines are 

promptly referred to FMS.,,s In its 2003 follow-up audit report, GAO noted that CFfC "was actively 

pursuing collections on all its uncollected cases, primarily through the Departments ofTreasury and 

Justice," therefore indicating that using Treasury and Justice as CFTC's primary collection vehicles was 

acceptable.6 In its 2004 follow-up audit report, the CFTC's 010 "determined that for the period from 

1 The assessment is preliminary because. as discussed below, the Commission refers all judgments to either Treasury or DoJ for 

actual collection work in accoidance with the DCIA and Treasury guidance. 

2 (I) Money Penaltiu: Securities and Futures Regulators Collect Many Fines But Need to Better Use lndastrywide Data 

(GAO/GGD·99.S. Nov. 2, 1998); (2) CFTC: Most Fines Collecled. but Improvements Needed in the Use o/Trea1ury"s 

Collection Service (GAC>-01-900, July 16, 2001); (3) GAO, SEC andCFTC Fines Follo\t1-up: Collection Programs Are 

Improving, but Further Steps are Warranted (GA0-03·79S, July IS. 2003); (4) SEC and CFTC Penalties: Continued 

Progress Made in Collection Elforts. but Greater SE.C Management Attention Is Needed (GAO-OS-670, August 31, 2005); 

(S)Audit a/Civil MonelOl'J' Penalty Collections(CFTC 010 Audit Rcpon A-01.01, April 27. 2001); and (6) Follow-Up 

Audit OfCivil Monetary Penalty Collections (CFTC 010 Audit Report A-04-04, September 23, 2004) 

1 GAO/OGD-99.S. S and 11. 4 A-01-01, 6. 5 GAO-OJ.900. 27. 6 OA0-03-79S. 23. 
March 18, 2016 

Page 3 

200 I through 2004, CFTC had consistently complied with DCIA by referring delinquent debt to FMS 

within the allowable 180 days for collection services."7 In its 2005 follow-up audit report, GAO reported 

that CFTC had fully addressed its 200 I recommendation "that CFTC take steps to ensure that delinquent 

CMPs were promptly referred to FMS."8 The primary focus of each ofthese reports has been on timelier 

referral ofCITC debts to Treasury. 

We note that the guidance cited in the Report encourages agencies to refer debts to Treasury,9 and 

Treasury is authorized to utilize the same collection techniques available to the Commission (which the 

Commission is not adequately resourced to employ on its own).10 The Report cites no evidence to sug~est 

that Treasury's collection activities are inadequate or that DoJ would be more effective than Treasury. 1 

Nor does the Report support the inference that collection directly by the CFTC would result in any 

meaningful greater collection. Cf Report at 3. For the CFTC to engage in collection ofdebts, despite the 

government already dedicating resources to that work at Treasury and DoJ, the CFTC would have to 

divert and re-allocate constrained resources presently committed to other mission-driven functions, such 

as resources dedicated to investigations and litigations to stop on-going fraud and to protect market 

integrity from acts of manipulation, disruptive trading, and other market abuses. Moreover, the CFTC 

does refer appropriate debts directly to DoJ without first referring them to Treasury; as the Report notes, 

14% ofdefendants in the cases reviewed by OIG were referred to DoJ for litigation. In FY 2015 and FY 

2016, to date, the rate ofreferral to DoJ has only increased. However, FMB and Enforcement will work 

collaboratively to document and further refine the methodology and process by which cases are identified 

for referral to DoJ versus Treasury. 

OIG Recommendation 3: Provide additional enforcement data and performance information in the 

AFR. 

Management Response: The Commission will consider additional perfonnance reporting regarding its 

enforcement activities. However, such reporting would be more appropriately included in CFTC's Annual 

Perfonnance Report (APR) as only high-level summary perfonnance infonnation is generally included in 

an Agency Financial Report (AFR). The examples provided in Illustrations 4 and 5 ofthe Report are 

excerpts taken from Securities and Exchange Commission (SEC) and Federal Deposit Insurance 

Corporation (FDIC) reports that are not AFR-equivalent reports. 12 It will be necessary to carefully 

consider how to present any additional performance infonnation so that it is helpful to the reader and not 

misleading. For example, the Report's focus on custodial receivables omits presentation of collections 

information for judgments entered and paid within the same fiscal year; the collection rate of all 

judgments entered in a fiscal year is significantly higher than for receivables only,13 as the most 

7 Summwy ofOIG A·04-04 by GAO in repon GA0-05-670, 32. 


a GA0-05-670, 32. 


9 
Deportment ofthe Treasury Financial Management Service. Managing Federal Receivables (May 2005), at 6-27 (noting that 

the Debt Collection Improvement Act requires that debt collection activities be consolidated within the government. to the 

extent possible, to minimize costs, including 1hrough the Cross-Servicing Program opcralcd by Treasury's Fiscal Service). 

10 See id. at 6-10, 6·31-6-32. 

11 Relevant federal regulations reflect that agencies arc authorized, indeed, encouraged, to utilize the debt collection services of 

Treasury and DoJ rather than undcnnking their own collection effons. See. e.g.• 31 C.F.R. § 901.l(d). 

12 See (I) SEC FY 2014 Annual Pcrfonnancc Report submitted as part of its FY 2016 Congressional Budget Justification (~SEC 

FY 2014 APR ). available at hnp://www.scc.gov/uhout/rcoorts/sccfv 16congbu<lgiustpdf, at 43; and (2) FDIC Annual 

Report at hllps:/lwww.fdic.gov/ahout/stralcgiclrcport/2014annualrcport/indcx p<lf.html. at 115 (Appendix). According to 

the transminal memo from the Chainnnn on page 2 ofthe FDIC report. the Annual Repon is in the fonnat ofa Pcrfonnancc 

and Accountability Repon, not on AFR. 

13 For example, in FY 2014, 39% ofall judgments entered were collected thut year, whereas less than I o/o of custodial receivables 

were deemed collectable; for FY 2015, the collection rate was 92o/o. due primarily to a number of large penalties imposed 

against financial institutions in connection with benchmark and forex manipulation cases. as compared to, again. less than 

I% ofcustodial receivables deemed collectable. 
• • • 

March 18, 2016 

Page4 

collectable judgments are typically paid promptly.14 In addition, any discussion of collection perfonnance 

must note that because Commission policy is to impose civil monetary penalties without regard to a 

defendant's ability to pay,15 CFTC collection rates will generally be lower than that ofother agencies, like 

the SEC, that do consider ability to pay in setting penalty amounts.16 

In lieu ofan APR, Treasury's Bureau ofthe Fiscal Service rerorts performance infonnation on its 

collection activities as part of its annual budgetjustification.• In response to this audit recommendation, 

the Commission will engage with Treasury as appropriate to ascertain whether Treasury's perfonnance 

measures related to its collection activities incorporate CFTC debt collection activity at the appropriate 

level of reporting to enable the public to understand the government's efforts to collect delinquent debts. 

Regarding reporting on restitution, there is no legal recourse against the government with respect to 

restitution so information on restitution is not appropriate for inclusion in the notes to the financial 

statements since it fails the rights and obligations management assertion and may confuse readers 

regarding the Commission's ability to enforce collection. However, FMB and Enforcement will work 

collaboratively to identify the appropriate reporting for restitution in the Management's Discussion and 

Analysis section ofthe AFR. 

Thank you again for the opportunity to comment on this Report in advance of its publication. Please do 

not hesitate to contact us if you need additional infonnation or wish to discuss any of our comments in 

further detail. 

14 Notably. the SEC's APR presents collections infonnation in this fonnat. noting ordered amounts and collected amounts by 

fiscal year. See, e.g., SEC FY 2014 APR at 43. 

15 See CFTC Policy Statement Relating to the Commission's Authority to Impose Civil Money Penalties and Futures SclfRcgulntory Organization's Authority to Impose Sanctions; Penalty Guidelines (J994-1996 Transfer Binder] Comm. fut. L. 

Rep. (CCH) 26,265 at 42.246 (Nov. 1994). 

16 See, e.g., IS USC§ 78u-2(d). 

17 Sec FY 2017 budget submission at httn://www.Jr!!i}suo..guv/uhout&udat.1-pcrfbnnnncc!r>nqeslcj-ind!!x.aspx.