COMMODITYFUTURES TRADINGCOMMISSION

SEMIANNUAL REPORT

OF THE

OFFICE OF THE

INSPECTOR GENERAL

FORTHEPERIOD ENDING SEPTEMBER30, 2000
u.s. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5110

Facsimne: (202) 418-5522

October 30, 2000

OFFICE OF

INSPECTOR GENERAL

TO:

FROM:

William J. Rainer

Chairman

A. RoyLaVikQ (2 '£.

Inspector General

SUBJECT: Semiannual Report ofthe Office of the Inspector General

Attached is the Semiannual Report of the Office of the Inspector General for the period

from April 1, 2000 through September 30, 2000. This report is submitted to you in

accordance with the requirements of Section 5 of the Inspector General Act of 1978, as

amended.

I appreciate your continuing support ofthis office.

Attachment
OFFICE OF THE INSPECTOR GENERAL

COMMODITY FUTURES TRADING COMMISSION

SEMIANNUAL REPORT

FOR THE PERIOD FROM

April!, 2000 THROUGH September 30, 2000

TABLE OF CONTENTS

SUMMARY OF OIG ACTIVITIES [including a description ofsignificant problems, abuses,

and deficiencies and a description of OIG recommendations for corrective action

(Mandated by Section 5(a)(l) and (2) of the Act)] 1

AUDITS 1

INVESTIGAnONS 2

LEGISLATIVE AND REGULATORY REVIEWS 2

OIG RESPONSIBILITIES 3

OIG RESOURCES 4

CFfC PROGRAMS AND OPERATIONS 4

COMPLETED WORK 5

AUDITS [including a list of each audit report issued and a summary of each

particularly significant report (Mandated by Section 5(a)(6) and (7) ofthe Act)] 5

INVESTIGATIONS 6

LEGISLATIVE AND REGULATORY REVIEWS 6

AUDIT REPORTS OVER SIX MONTHS OLD 9

CORRECTIVE ACTION NOT COMPLETED [including an identification of each

significant recommendation described in previous semiannual reports on which

corrective action has not been completed (Mandated by Section 5(a)(3) of the Act)] .... 9

CORRECTIVE ACTION COMPLETED 9
MANAGEMENT DECISION NOT MADE [including a summary of each audit

report issued before the commencement of the reporting period for which no

management decision has been made by the end of the reporting period (including

the date and title of each such report), an explanation of the reasons such a

management decision has not been made, and statement concerning the desired

timetable for achieving a management decision on each such report (Mandated by

Section 5(a)(10) of the Act») 10

SUMMARY OF MATTERS REFERRED TO PROSECUTIVE AUTHORITIES and

the prosecutions and convictions which have resulted (Mandated by

Section 5(a)(4) ofthe Act) 10

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD

under Section 6(b)(2) concerning information or assistance unreasonably

refused or not provided (Mandated by Section 5(a)(5) of the Act) 10

REVISED MANAGEMENT DECISIONS [including description·and explanation of

the reasons for any significant revised management decision made during the

reporting period (Mandated by Section 5(a)(11) of the Act») 10

INSPECTOR GENERAL DISAGREEMENT [including information concerning any

significant management decision with which the Inspector General is in

disagreement (Mandated by Section 5(a)(12) of the Act») 10

CURRENT AUDITS 10

GAO LIAISON 14

STRATEGIC PLAN 15

CONTACTING THE OFFICE OF THE INSPECTOR GENERAL 20

TABLE 1 -- REPORTS ISSUED WITH QUESTIONED COSTS

(Mandated by Section 5(a)(8) ofthe Act) 21

TABLE 2 - REPORTS ISSUED WITH RECOMMENDATIONS THAT FUNDS BE PUT

TO BETTER USE (Mandated by Section 5(a)(9) of the Act) 22

11
INDEX OF IG ACT REPORTING

REQUIREMENTS

Section 5(a)(1) 1

Section 5(a)(2) 1

Section 5(a)(3) · 9

Section 5(a)(4) 10

Section 5(a)(5) 10

Section 5(a)(6) 5

Section 5(a)(7) 5

Section 5(a)(8) 21

Section 5(a)(9) 22

Section 5(a)(10) 10

Section 5(a)(11) 10

Section 5(a)(12) 10

111
SUMMARY OF OIG ACTIVITIES

AUDITS

The primary objectives of the Office ofthe Inspector General (OIG) ofthe Commodity

Futures Trading Commission (Commission, CFTC) are to help promote long-term efficiency

and effectiveness in the administration and operation of the Commission and to protect against

fraud, waste, and abuse. This reporting period's OIG audit activities which are listed below

reflect these objectives.

Current Audits

The following are the audits being conducted during the current reporting period and

continuing into the next reporting period. (For additional details, see the section on current

audits beginning on page 10.)

Review of Enforcement Information Requirements. The objectives of this review are to

determine what the information needs of all levels in the Division of Enforcement are,

whether the information needs are being met, and if the required information can be

created, stored, and retrieved in a more effective and efficient manner. (For additional

details, see page 11.)

Review of Agency Compliance with GPRA. The Government Performance and Results

Act of 1993 (GPRA) requires federal agencies to develop strategic plans, prepare

annual plans setting performance goals, and report annually on actual performance

compared to goals. The fust report was prepared in March 2000. The objective of this

review is to determine how effectively the Commission is complying with GPRA's

terms. This will include an examination of the performance measures devised by the

Commission and the systems used for gathering the data to report on those performance

measures. (For additional details, see page 13.)

Review of CFrC's Civil Monetary Penalties Collection Program. The Debt Collection

Act of 1982 and the Debt Collection Improvement Act of 1996 (DCIA) direct Federal

agencies to collect debts owed to the United States. The objective of this review is to

verify total outstanding debts owed to the Commission, examine the Commission's

procedures for collecting outstanding debts, determine Commission's compliance with

the DCIA and recommend improvements, if necessary, to the debt collection process.

(For additional details, see page 13.)

1
Completed Audits

Audit of CFTC's Lease of Space - Washington, D.C. The objective of this audit was

to determine ifthe Commission is complying with the requirements ofthe lease of

space for its office in Washington, D.C. The particular focus was on the

appropriateness of all base rental and escalation payments made under the lease. The

audit covered lease payments from the inception ofthe lease to July 31, 2000. (For

additional details, see page 5.)

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

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.

No investigations were pending as of the beginning of the reporting period. The OIG

opened one investigation during the reporting period and completed one investigation. No

investigations remained open at the end of the period. (See the section on investigations

beginning on page 6.)

LEGISLATIVE AND REGULATORY REVIEWS

The OIG reviews proposed and final CFTC regulations and legislation and selected

exchange rules using the following 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 ofits

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. (For more detailed descriptions of these

reviews, see the section on legislative and regulatory reviews beginning on page 6.)

2

",
Regulations reviewed during this period include:

• Proposed Consumer Advisory about Internet Websites' Promotion of Trac;ling Systems;

• Relevant Considerations for Default Judgements; and

• Proposed New Regu'ations for the Futures Industry.

Legislative Activities

The Inspector General has been heavily involved in legislative activities as a member of

the IG's Legislation Committee. The 20th anniversary ofthe IG Act occasioned many

Congressional bills such as ones enhancing independence. Congressional staff and, in some

instances, members were briefed about the various proposals.

OIG RESPONSIBILITIES

The Office of the Inspector General in the Commodity Futures Trading Commission

was created in accordance with the Inspector General Act of 1978 (P.L. 95-452), as amended

by the Inspector General Act Amendments of 1988 (P.L. 100-504). The OIG was established

to create an independent unit to:

• Promote economy, efficiency, and effectiveness in the administration of CFTC

programs and operations and to 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 and regulations and make

recommendations concerning their impact on the economy and efficiency of CFrC

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

Given that the CFTC does not have extensive contracts or grant making authority, the

OIG's efforts have been focused on the review of legislative and regulatory proposals and the

monitoring of internal CFTC operations.

3
OIG RESOURCES

The OIG consists ofthe Inspector General, two professional staff members, and a

secretary. All positions have been filled since January 2, 2000. The present Inspector General

assumed his position on October 7, 1990.

The OIG, on December 4, 1989, signed a Memorandum of Understanding with the

Office of General Counsel (OGC). This Memorandum details the procedures that will be used

to provide the OIG with OGC legal services. An aGC staff member has been assigned to

provide such services to the OIG on an as-needed basis.

CFTC PROGRAMS AND OPERATIONS

The CFTC was established in 1974 as an independent agency to regulate commodity

futures and options trading in the United States. The CFTC is headquartered in Washington,

D.C., with additional offices in Chicago, New York, Kansas City, Los Angeles, and

Minneapolis.

. The basic objectives of the CFTC are to prevent manipulation of the marlcets, abusive

trade practices, and fraudulent activities; to maintain effective oversight of the markets and

self-regulatory organizations; and to enforce the Commodity Exchange Act and Commission

rules without hindering the futures markets' provision of price discovery and risk shifting

services. The CFTC regulates the futures activities of brokerage firms, salespersons, floor

brokers, floor traders, commodity pool operators, commodity trading advisors, introducing

brokers, and leverage transaction merchants. In addition, the agency ensures the effective

enforcement of exchange rules, reviews the terms and conditions of proposed futures contracts

and the registration offirms and individuals that provide advice or handle customer funds, and

oversees the activities ofthe National Futures Association.

4

.-
COMPLETED WORK

AUDITS

The OIG is required to conduct, supervise and coordinate audits of CFTC programs

and operations and to·ensure that the audits are conducted in accordance with generally

accepted government auditing standards. The OIG 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 purpose of these audits is to ensure that:

• Funds have been expended in a manner consistent with related laws, regulations,

and policies;

• Resources have been managed effectively and efficiently;

• Stipulated program objectives hav~ been achieved; and

• Resources have been safeguarded.

The following report was issued during the reporting period:

1. Audit of CFTC's Lease of Space - Washington, D.C.

Objective.

The objective ofthis audit was to determine if the Commission is complying with the

requirements of the lease ofspace for its headquarters office in Washington, D.C. The

particular focus was on the appropriateness of all base rental and escalation payments made

under the lease. The audit covered lease payments from the inception ofthe lease to July 31,

2000.

Results.

On September 26, 2000, the OIG issued an audit report finding that the system of

internal controls for the procedure for receiving invoices, approving, and paying lease invoices

and documenting each stage ofthe process has been functioning properly since May 1999.

However, we also concluded from the absence ofsome key records that more attention was

needed to oversee the creation and retention ofrecords.

5
As a result ofthis audit, the OIG recommended that the Office ofFinancial Management

(OFM) consistently follow its established internal control procedures for receiving, approving,

and paying lease invoices. We also recommended that OFM make a concerted effort to find the

missing records identified in this audit or to reconstruct those records in cooperation with the

landlord. OFM lias informed the OIG that more attention will be given to the identified

recordkeeping problems.

INVESTIGATIONS

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

may received 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, abuse of authority, or gross waste of funds, or a substantial

and specific danger to the public health and safety.

There were no investigations pending as ofthe beginning ofthe reporting period. The

OIG opened one investigation during the reporting period and closed one investigation. No

investigations remained open at the end of the period.

On May 16, 2000, the OIG reported to the Chairman on a recently completed review of

the legal advice given to a senior level employee on the requirements under the ethics rules for

recusal from matters in which he had an interest, for divestiture of prohibited holdings, and of

his compliance with that advice. Although the OIG found that the official immediately

complied in good faith with the legal advice he received, his experience pointed to the absence

of a comprehensive system to insure the proper execution of the CFTC Ethics program. The

Office of General Counsel indicated that it was in the process of redefining the administration

of the ethics program to insure that, in the future, employees are promptly and correctly

informed of their ethical obligations, that records of advice given are created and maintained in

a manner which permits secure storage and easy retrieval, and that responsibility for carrying

out the program is fixed on identified individuals. The OIG concurred that such an effort is

needed.

LEGISLATIVE AND REGULATORY REVIEWS

As specified in Section 4(a) (2) ofthe Inspector General Act of 1978, the OIG 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. The OIG also reviews exchange rule proposals and

changes.

The OIG has notified the responsible Division as to any concerns with draft and final

documents for the legislation, rules or investigations listed below. Formal comments were not

filed with the Commission. A summary of the principal legislation, regulations and

investigations reviewed and the OIG review results follows.

6
'.

RULE REVIEWS INITIATED IN PREVIOUS REPORTING PERIODS

1. Petition for exemption from Dual Trading Ban of the Chicago Mercantile Exchange

(CME).

Summary of Action

The CME sought exemption for several of its contracts from the dual trading

prohibitions.

OIGReview

The OIG asked various questions which staff responded to and clarified. Draft orders

have been prepared by Trading and Markets staff.

2. Petition for exemption from Dual Trading Ban of the Chicago Board of Trade (CBT).

Summary of Action

The CBT sought exemption for several of its contracts from the dual trading

prohibitions.

OIG Review

The OIG queried staff about various issues to which staff responded. Draft orders have

been prepared by Trading and Markets staff.

3. Proposed Rules Regarding Direct Foreign Order Transmittals by U.8. Persons

(proposed Rule 30.12).

Summary of Action

Staff of the CFI'C proposed a rule that would allow certain foreign futures and options

brokers to receive directly foreign futures and options orders from sophisticated U.S.

customers.

OIG Review

The OIG raised questions and offered suggestions. Staff provided clarifying answers

and adopted several suggestions. Final rules were published in the Federal RegiSter on August

2, 2000 (65FR47275).

7
4. Proposed Amendments regarding Performance Data and Disclosure for Commodity

Trading Advisers (CTA).

Summary of Action

Staff proposed amendments that would require rate of return performance measures

used by a eTA to be computed by dividing net performance by the nominal account size.

Previously the CFTC had required that actual deposited funds be used in the denominator.

DIG Review

The DIG urged staff to consider using a focus group to determine the relative values of

disclosure of the two methods. Trading and Markets staff is currently reviewing public

comments.

s. Proposed Amendment to CFTC Rule 1.41.

Summary of Action

CFTC staff proposed an amendment to Rule 1.41 permitting contract markets to place

new rules and rule amendments into effect on the business day following their receipt by the

CFTC subject to certain conditions.

DIG Review

DIG supported the staff action and recommended approval to the Commission.

RULE REVIEWS INITIATED THIS REPORTING PERIOD

1. Proposed Consumer Advisory about Internet Websites' Promotion of Trading

Systems.

Summary of Action

The Division of Enforcement recommended that the Commission issue a consumer

advisory urging the public to use caution when evaluating performance claims made by

promoters of trading systems and advisory services.

DIG Review

DIG reviewed the advisory and raised certain questions which were resolved.

8
2. Relevant Considerations for Default Judgements.

Summary of Action

A question has been raised about the appropriate circumstances for the entry of default

judgements.

OIGReview

OIG is currently conducting legal research to determine the criteria relevant to a default

judgement.

3. Proposed New Regulations for the Futures Industry.

Summary of Action

CFTC staff has proposed new regulations that increase legal certainty for derivative

transactions and provide alternative regulatory systems depending on the commodity traded and

the nature of the participant.

OIG Review

OIG has reviewed the proposals which represent progress over the existing system.

Legislative Activities

The IG continues to be involved in legislative activities as a member of the IGts

Legislative Committee. Attention has been given to various issues such as IG independence

with several contacts with Congressional staff.

AUDIT REPORTS OVER SIX MONTHS OLD

CORRECTIVE ACTION NOT COMPLETED

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

had not been completed.

CORRECTIVEACTIONCOMPLE~D

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.

9
MANAGEMENT DECISION NOT MADE

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

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

SUMMARY OF MATTERS REFERRED TO

PROSECUTIVE AUTHORITIES

No matters were referred to prosecutive authorities during the reporting period

SUMMARY OF EACH REPORT MADE TO

THE AGENCY HEAD

No reports were made to the agency head under section 6 (b)(2) concerning information

or assistance unreasonably refused or not provided.

REVISED MANAGEMENT DECISIONS

No management decisions were revised during the reporting period.

INSPECTOR GENERAL DISAGREEMENT

The Inspector General does not disagree with any management decisions on OIG

recommendations.

CURRENT AUDITS

The audit agenda and priorities for the OIG are determined based on the following

factors:

10
'-

• Statutory and regulatory requirements;

• 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.

The audit agenda and summary of progress for each audit which has not yet been

completed is summarized below. New agenda items periodically will be added, as appropriate,

along with a description of the audit objective for each.

1. Review of Enforcement Information Requirements

Objectives.

The mission of the Division of Enforcement is to investigate and prosecute fairly and

effectively violations of the Commodity Exchange Act and the Commission's regulations in

order to safeguard the integrity of U.S. futures and options markets and to protect market

participants and futures and options customers. In the course of its activities, the division,

with headquarters and regional components, plans and follows an often complex course to

achieve its objectives and receives and creates a huge volume of documents which must be

logically stored and regularly accessed. To support the accomplishment ofthese tasks, the

division is relying on a collection of very old manual and automated systems to track the

progress of activities and to store and retrieve documents. The objectives ofthis review are to

determine what the information needs of all levels in the division are, whether the information

needs are being met, and if the required information can be created, stored, and retrieved in a

more effective and efficient manner.

Status.

The joint OIG/Enforcement team produced extensive and detailed narrative flow charts

of the current operational and administrative functions and processes of the Division of

Enforcement and delivered them to the Division of Enforcement and the Office of Information

Resources Management (OIRM). These products were designed to inform the analysts in

11
OIRM of the inner workings of the Division of Enforcement and to serve as the base on which

the information requirements ofthe Division of Enforcement will be defined.

In September 1997, in a joint meeting ofrepresentatives ofthe Division of

Enforcement, the OIG, and OIRM, the principals made commitments ofsix staff years of

effort from OIRM and approximately three staff years of effort from Enforcement to define the

system requirements of Enforcement.

The Division of Enforcement and OIRM agreed that the first priority was the

development of a system to track documents in the Division in accordance with the Division's

Enforcement Procedure Number 3. The second phase was devoted to installing a system to

track production within the Division and to report that information in the required formats to

management of the Division. Phase three will concentrate on moving the functions of the

attorneys and investigators from paper to computer screen and using the resulting information

to improve the tracking of productivity information and the sharing of information within the

Division.

The final version of the frrst phase of what is now being called "the Enforcement

Modernization Project" was delivered to the Division of Enforcement in May 1998. This

Enforcement Procedure Number 3 System is now being used at all locations of the Division.

The second phase, a system which produces the monthly status reports from all parts ofthe

Division and maintains on screen data on the current status of all matters within the Division,

has been completed. Training in the use of this system was completed during March 1999.

Refinements to the monthly status report system are expected to be completed before the end of

the calendar year.

Phase Three, designed to present the Enforcement Division with a case management,

litigation support, and doc:ument management system, to tie together the frrst two systems with

this new system, and to automate as many ofthe remaining Enforcement Division processes as

possible, began with a survey of appropriate off-the-shelfsystems and an investigation of

currently available software and hardware which may meet the bulk of identified needs.

Difficulties in maintaining contractor resource levels led to delays in the pursuit of Phase 3. A

team consisting ofstaff from the Division of Enforcement, OIRM, and contractor personnel

has been engaged in a review of available off-the-shelf case management, litigation support,

and document management software since the beginning of Calendar Year 2000.

As a result ofthis review of available off-the-shelfsoftware, the Division of Enforcement

and OIRM developed a list of requirements. A Request for Proposals reflecting those

requirements was issued on July 19, 2000. Responses were due by August 9, 2000. The

Technical Evaluation Committee is currently in the process of reviewing the proposals.

12
2. Review of Agency Compliance with GPRA

Objective.

The Government Performance and Results Act of 1993 requires federal agencies to

develop strategic plans, prepare annual plans setting performance goals, and rep~rt annually on

actual performance compared to goals. The first report was prepared in March 2000. The

objective of this review is to determine how effectively the Commission is complying with

'- GPRA's terms. This will include an examination of the performance measures devised by the

Commission and the systems used for gathering the data to report on those performance

measures.

Status.

In response to Congressional interest, the OIG consulted with and advised the

Commission's operating divisions concerning the GPRA requirements. The OIG reviewed the

Commission's FY 2001 Annual Performance Plan before its submission to Congress. In

conjunction with other federal agencies' Inspectors General, the OIG is participating in the

development of "best practices" for adhering to requirements of GPRA. Presently, the

Commission is undergoing a thorough reexamination of its regulatory mission. The OIG is

participating in the evaluation of comments received by interested parties as well as examining

how best to modify the Commission's GPRA related goals and measures under the new

regulatory paradigm.

3. Review of CFTC's Civil Monetary Penalties Collection Program

Objective.

The Debt Collection Act of 1982 and the Debt Collection Improvement Act of 1996

(DCIA) direct Federal agencies to collect debts owed to the United States. During Fiscal Year

1999, twenty-eight civil monetary penalties (totaling $37,633,977) assessed by the Commission

in administrative proceedings became due. Eight civil monetary penalties (totaling

$49,806,186) assessed by court orders in injunctive proceedings also became due.

The U.S. Department ofthe Treasury requires a quarterly report which includes

information about penalties assessed by the Commission and federal courts as well as other

non-penalty debt owed to the Commission. The objectives ofthis review are to verify the

accuracy of the accounting for civil monetary penalties, examine the Commission's procedures

for collecting outstanding debts, determine Commission's compliance with the DCIA, and

recommend improvements, if necessary, to the debt collection process.

Status.

The OIG has begun reviewing the Civil Monetary Penalties Collection program and

developing its audit program. Program documents have been gathered and initial interviews of

13
knowledgeable personnel have been conducted. This audit is expected to be completed before

the close of the next reporting period.

GAO LIAISON

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

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

addition, the 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 ofCFTC activities, and OIG plans its audits so as not to

duplicate GAO's efforts. Moreover, OIG in its audits activities identifies the goals of each

audit and the methods of reaching the goals so as to minimize the requirements placed on

CFTC resources.

14
STRATEGIC PLAN

FOR THE

OFFICE OF THE INSPECTOR GENERAL

INTRODUCTION

The Office of the Inspector General (OIG) in the Commodity Futures Trading

Commission (CFTC) was created in accordance with the Inspector General Act of 1978 (P.L.

95-452), as amended by the Inspector General Act Amendments of 1988 (P.L. 100-504). The

OIG was established to create an independent unit to:

• Promote economy, efficiency, and effectiveness in the administration of CFTC

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

programs and operations;

• Conduct and supervise audits and investigations relating to the administration of

CFTC programs and operations;

• Review existing and proposed legislation and regulations and to make

recommendations concerning their impact on the economy and efficiency of CFTC

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

Accordingly, the OIG has established three programs to carry out its responsibilities:

audit, investigation, and legislative and regulatory review. A summary of those programs

follows.

AUDIT

The primary objectives of the OIG are to promote long-term efficiency and

effectiveness in the administration and operation of the Commission and to protect against

fraud and abuse.

The key to effectively and efficiently managing the CFTC is information. Top level

managers and decision makers require a steady stream of organized data on the effects of their

policy decisions and resource allocations on the operations ofthe Commission. Once having

made the decision to change resource levels or policy, managers must receive accurate and

timely reports of the operational effects oftheir decision so they can determine if the change is

15
in the direction and of the magnitude predicted. In the absence ofsuch information, top level

managers cannot adequately perform their jobs.

A number of obstacles to acquiring and transmitting the desired information to decision

makers may exist in some programs. Principal among them is the Commission's apparent

difficulty in many instances in tracking the progress of a particular action across organizational

lines within the Commission.

A simple example is the Reparations Program prior to the installation of an OIG

recommended unified, Commission-wide tracking system. Complaints are received and

processed and hearings are held in the Office of Proceedings; appeals of initial decisions in

reparations cases are transmitted to the Office of General Counsel where proposed Commission

opinions are drafted; and appeals are decided by the Commission with the paperwork being

handled by the Office of the Secretariat. Each office involved in the process had a separate

tracking system without ties to the tracking systems in the offices preceding them or following

them in the process. Each office treated the case as if it were brand new to the Commission

when they received it. As a result, there was no provision for tracking information across

organizational lines. If the Chairman wanted to know how much time was spent on the

average reparations case of a particular description at each stage in the process, that

information was unavailable without an extensive expenditure of manual labor. .

A related problem is the difficulty the Commission has in associating resources devoted

to an activity with the results ofthat activity. The Commission does a good job of tracking

resources expended. It can determine how much staff time and material at what cost was spent

in a particular activity. Some Commission organizations can even associate costs with

particular projects. What a program manager may have great difficulty doing, however, is

telling a decision maker that for a specific level or increase in resources, the program manager

will deliver a specific level of increased output. Without this information from all programs

competing for limited resources, decision makers cannot make reasoned resource allocation

juqgements.. Decision makers are forced to rely on intuition and anecdotal evidence.

To increase the efficiency and the effectiveness of the management of CFTC programs

and operations, the OIG will, in addition to the conduct of mandatory audits, concentrate its

audit resources on th~ identification of information voids and the lack of continuity in the flow

of information across organizational lines from the beginning of a process until its conclusion.

The OIG will recommend the implementation of any system improvements where the benefits

of implementing the change exceed the costs.

In addition to our efforts to bring technology to bear on the information requirements of

the Commission, the OIG has been following the Commission's development ofmeasures and

systems ofmeasurement in response to the Government Performance and Results Act (GPRA).

As the Commission implements GPRA, the OIG will devote significant resources to

monitoring agency performance to insure that the data is accurately gathered and that the

measures reported are the best available for demonstrating program performance.

16
INVESTIGATION

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 oflaw, rules or

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

specific danger to the public health and safety.

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

unsolicited employee complaints as the source of investigative leads. This reactive program

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

the OIG believed that an independent regulatory agency such as 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 the OIG, a 24 hour hotline was·

established in February 1993 to receive complaints. The hotline's existence is publicized on

the back cover of the agency-wide telephone book and in this semiannual report.

Because of the reactive nature of the OIG's investigative program, no investigative

agenda has been established.

LEGISLATIVE AND REGULATORY REVIEW

Because of the importance of this activity in an economic regulatory agency, the OIG

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

five 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 ofthe

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.

Because the OIG does not initiate legislation or, generally, regulations, the 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.

17
AUDIT AGENDA

ANNUAL AUDITS

The following audit is performed on an annual basis.

Audit of Compliance with the Federal Managers' Financial Integrity Act

In support of OMB 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.

OTHER AUDITS

The OIG intends to focus the balance of its audit resources on insuring that the

Chairperson, the Commissioners, and program managers have timely, useful information on

the progress of CFTC's programs in meeting their goals and objectives. For example,

emphasis will be placed on determining whether all managerial levels engaged in a process can

track the progress of their various programs. The tracking systems required in many, though

not all, programs will cross formal organizational lines.

These audits will entail a cataloging and description of all of the manual and automated

systems used by an organization to gather information on its use of resources, the results of the

devotion ofthose resources (including defmitions ofmeasurements of accomplishment), and

the reporting ofresults and associated costs to the upper level managers in the Division and to

the Chairman and the Commissioners. Cataloging of these decision support systems will be

followed by an assessment of whether all concerned officials are timely receiving the

information they require to efficiently allocate resources to those uses which best accomplish

the priorities of the Commission. If any elements are lacking in the information systems, they

will be identified and improvements will be recommended ifthey can be implemented in a

costlbeneficial manner.

If recommendations are successfully implemented, the proposed systems should allow

the Chairman, the Commissioners, and concerned program managers to track progress of a

particular program across organizational lines and to quickly determine the effects, if any, of

changes in policy, procedure, or staffmg.

The first step in accomplishing this goal will be to concentrate on documenting, and

recommending the improvement and/or development of tracking systems in every program

element throughout the Commission.

18
RESOURCES REQUIRED

The OIG estimates that approximately one and nine-tenths staff years of effort will be

devoted over each ofthe next five years to the audits described in "Other Audits" above. The

"Annual Audits" are expected to consume approximately one-tenth staff year per year.

19
CONTACTmG THE OFFICE OF THE

INSPECTOR GENERAL

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

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

number is (202)418-5510. Regular business hours are between 8:30 AM and 5:00 PM,

Monday through Friday, except Federal holidays.

20

j
Table 1

Reports Issued with Questioned Costs

(Aprill, 2000 - September 30, 2000)

Dollar Value

Number (Thousands)

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

( i) dollar value of

disallowed costs 0 0

(ii) dollar value of

costs not disallowed 0 0

D. For which no management decision

has been made by the end of the

reporting period 0 0 0

21
Table 2

Reports Issued with Recommendations

That Funds be Put to Better Use

(April 1, 2000 - September 30,2000)

Number

Dollar Value

(Thousands)

A. For which no management decision

has been made by the commencement

ofthe reporting period 0 0

B. Which were issued during the

reporting period 0 0

Subtotals (A + B) 0 0

C. 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

D. For which no management decision

has been made by the end ofthe

reporting period 0 0

22
TheInspectorGeneral

needsyourhelpto

assurethe integrityof

CFTC's programs.

,

Report FRAUD, WASTE

or ABUSE to the

INSPECTOR GENERAL

HOTLINE

(202)418-551 0

Office of the Inspector General

Commodity Futures Trading Commission

1155 21ST Street, N.W.

Washington, D.C. 20581