COMMODITY FUTURES TRADING COMMISSION

SEMIANNUAL REPORT 

OF THE 

OFFICE OF THE 

INSPECTOR GENERAL

FOR THE PERIOD ENDING September 30, 2012

OFFICE OF THE INSPECTOR GENERAL

COMMODITY FUTURES TRADING COMMISSION

SEMIANNUAL REPORT

FOR THE PERIOD FROM

April 1, 2012 THROUGH September 30, 2012

EXECUTIVE SUMMARY

This semiannual report is issued by the Office of the Inspector General (OIG) for the 

Commodity Futures Trading Commission (CFTC) pursuant to the Inspector General Act of 

1978, as amended. It summarizes OIG’s activities and accomplishments for the period April 1, 

2012, through September 30, 2012. During this period completed a survey, completed an 

inspection, began one review, continued work on one review, and began audits of 1) agency 

controls over sensitive information, 2) the Fiscal Year (FY) 2012 contract audit of CFTC’s 

financial statements, 3) the FY 2012 contract audit of the CFTC Customer Protection Fund’s 

financial statements, and 4) a contract audit of CFTC’s FY 2012 implementation of the federal 

Manager’s Financial Integrity Act. OIG reviewed proposed enforcement actions and rules 

proposed by CFTC and by regulated entities, participated in training, visited CFTC field offices, 

and participated in Government-wide OIG professional and cooperative meetings and training. 

No investigations were opened, closed, or pending during this reporting period. No significant 

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

during this reporting period. 

Highlights of OIG’s completed and ongoing audit, inspection, review, investigative and 

other projects include: 

• OIG began its contract audit of CFTC’s FY 2012 financial statements. 

• In accordance with the Dodd-Frank Act1

, OIG began its FY 2012 contract audit of the CFTC 

Customer Protection Fund. 

• OIG began its contract audit of CFTC’s FY 2012 implementation of the Federal Managers’ 

Financial Integrity Act.

• In conjunction with the Council of Inspectors General on Financial Oversight (CIGFO), OIG 

participated in a CIGFO Working Group to examine the Financial Stability Oversight 

Council’s controls for ensuring that non-public information is properly safeguarded from 

unauthorized disclosure. OIG completed a survey of CFTC’s controls for ensuring that its 

non-public information is properly safeguarded from unauthorized disclosure, and submitted 

this data for analysis by the Working Group and inclusion in the first CIGFO report, Audit of 

Financial Stability Oversight Council’s Controls over Non-Public Information, issued in

 1 Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-208. 
ii

• June 2012. OIG initiated a follow-on audit of the CFTC’s Protection of Sensitive 

Information. Fieldwork for this audit is complete and a draft of the audit report will be 

circulated to management for comment.

• OIG completed an inspection into record retention practices by the Division of Enforcement 

pertaining to preliminary investigative records. This inspection found that the Division of 

Enforcement retained records of closed inspection files for the three year period as required 

under the CFTC’s record retention policy approved by the National Archives and Records 

Administration (NARA).

• OIG began its FY 2012 review of CFTC’s implementation of the Federal Information 

Security Management Act (FISMA).

• OIG began its contracted FY 2012 review of CFTC’s implementation of the Federal 

Managers Financial Integrity Act (FMFIA).

• At the request of Senator Richard C. Shelby, in November 2011 OIG began a review of 

CFTC’s oversight and regulation of MF Global, Inc. MF Global is now subject to a 

liquidation proceeding initiated by the Securities Investor Protection Corporation. Our 

review, as requested, will examine the CFTC’s actions in the events leading up to the MF 

Global bankruptcy. At the end of the reporting period, our review was ongoing.

• At the request of Congressional staff, during this reporting period OIG began a review of 

CFTC small purchases. This review involves our examination of CFTC’s documentation for 

75 discreet small purchases for the period March 2011 through March 2012. Our objective is 

to ascertain whether the purchases are in compliance with applicable statutes, regulations, 

and policies. At the close of the reporting period, this review was ongoing. 

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

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

we consulted within the OIG investigative community and found another OIG willing to 

conduct the investigation. On March 15, 2012, the Treasury Inspector General for Tax 

Administration issued their report with no findings, but recommended that new allegations be 

referred to the Integrity Committee for the Council of Inspectors General on Integrity and 

Efficiency. The referral was made in March 2012, and in May 2012 the Integrity Committee 

determined not to investigate. 

 
iii

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................ ii

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

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

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

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

OIG Resources............................................................................................................................ 2

COMPLETED AUDITS, INSPECTIONS, EVALUATIONS, REVIEWS and OTHER 

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

Completed Audits....................................................................................................................... 3

Completed Inspections, Surveys Evaluations, Reviews and Other Projects .............................. 3

Survey of CFTC’s Controls for Protecting Non-Public Information Destined for and/or 

Received from the Financial Stability Overesight Council..................................................... 3

Inspection of Division of Enforcement’s Investigative Records Disposition Policy............... 4

IN-PROCESS AUDITS, INSPECTIONS, SURVEYS, EVALUATIONS, REVIEWS and 

OTHER PROJECTS....................................................................................................................... 4

In-Process Audits........................................................................................................................ 4

Audit of CFTC Financial Statements for Fiscal Year 2012.................................................... 4

Audit of CFTC Customer Protection Fund for Fiscal Year 2012........................................... 5

Audit of Compliance with Implementation of the Federal Managers’ Financial Integrity Act 

at CFTC for Fiscal Year 2012 ................................................................................................ 6

Follow-on Audit of the CFTC’s Protection of Sensitive Information..................................... 6

In-process Inspections, Surveys, Evaluations, Reviews and Other Projects .............................. 7

Evaluation of the Federal Information Security Management Act at CFTC.......................... 7

Review of Oversight and Regulation by the Commodity Futures Trading Commission of MF 

Global, Inc. ............................................................................................................................. 7

Review of Small Purchases by CFTC ..................................................................................... 8

AUDIT REPORTS and REVIEWS OVER SIX MONTHS OLD ................................................. 8

Corrective Action not Completed ............................................................................................... 8

Corrective Action Completed ..................................................................................................... 8

Management Decision not Made ................................................................................................ 9

INVESTIGATIONS ....................................................................................................................... 9

Completed Investigations............................................................................................................ 9

Ongoing Investigations............................................................................................................... 9

SUMMARY OF MATTERS REFERRED TO PROSECUTORIAL AUTHORITIES ................. 9

CONGRESSIONAL INQUIRIES ................................................................................................ 10

LEGISLATIVE, REGULATORY AND RULE REVIEWS........................................................ 10
iv

Introduction and Summary ....................................................................................................... 10

Rule Reviews Initiated in Previous Reporting Periods............................................................. 10

Rule Reviews Initiated this Reporting Period........................................................................... 11

Legislative Activities................................................................................................................ 11

OTHER REVIEWS ...................................................................................................................... 11

Other Reviews and Activities. .................................................................................................. 12

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD CONCERNING 

REQUESTS FOR INFORMATION OR ASSISTANCE............................................................. 12

REVISED MANAGEMENT DECISIONS.................................................................................. 12

INSPECTOR GENERAL DISAGREEMENT............................................................................. 12

GAO LIAISON............................................................................................................................. 13

STRATEGIC PLAN FOR THE OFFICE OF THE INSPECTOR GENERAL .......................... 13

Investigative Agenda ................................................................................................................ 13

Legislative and Regulatory Review Agenda............................................................................. 14

Audit, Inspection, Survey, Evaluation and Review Agenda..................................................... 14

Introduction........................................................................................................................... 14

Annual Audit ......................................................................................................................... 15

Annual Review and Evaluation............................................................................................. 15

Other Audits, Inspections, Surveys, Evaluations, Reviews and Projects.............................. 16

Resources Required .................................................................................................................. 16

CONTACTING THE OFFICE OF THE INSPECTOR GENERAL............................................ 17

Table 1 – Reports Issued with Questioned Costs.......................................................................... 18

Table 2 – Reports Issued with Recommendations........................................................................ 19
v

INDEX OF IG ACT REPORTING

REQUIREMENTS

Section 4(a)(2) ....................Review of legislation and regulations......................................10

Section 5(a)(1) ...................... Significant problems, abuses and deficiencies..... .....................i

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

Section 5(a)(3) ......................Significant recommendations that have not been completed.........8

Section 5(a)(4) ......................Matters referred to prosecutorial authorities............................9

Section 5(a)(5) ..................... Summary of instances where information was refused...............12

Section 5(a)(6) ....................Completed audit, inspection and evaluation reports.....................3

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

Section 5(a)(8) .....................Statistical Table—Questioned Costs....................................18

Section 5(a)(9) .................... Statistical Table—Funds Recommended for Better Use..............19

Section 5(a)(10)...............Audit, inspection and evaluation reports lacking

 management decision........................................................6

Section 5(a)(11) ................. Significant revised management decisions...............................12

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

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

 Improvement Act of 1996............................................................5

Section 6(b)(2) ....................Summary of reports to Chairman where assistance was refused.....12
OFFICE OF THE INSPECTOR GENERAL

COMMODITY FUTURES TRADING COMMISSION

SEMIANNUAL REPORT

FOR THE PERIOD FROM

April 1, 2012 – September 30, 2012

1

INTRODUCTION

1. CFTC Programs and Operations

Congress created the Commodity Futures Trading Commission in 1974 as an 

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

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

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

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

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

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

Consumer Protection Act (Dodd-Frank Act), P.L. 111-203, which expanded CFTC’s jurisdiction 

and authorities. 

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

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

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

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

in the nation’s economy–providing a mechanism for price discovery and a means of offsetting 

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

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

public. 

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

Director, Office of General Counsel, Office of the Chief Economist, Division of Clearing and 

Risk, Division of Data and Technology, Division of Enforcement, Office of International Affairs, 

Division of Market Oversight, and Division of Swap Dealer and Intermediary Oversight. In 

addition to its headquarters office in Washington, DC, the CFTC maintains offices in Chicago, 

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

2. OIG Responsibilities

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

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

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

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

• Conduct and supervise audits, inspections, evaluations, reviews, projects and, where 

necessary, investigations relating to the administration of CFTC programs and operations; 
2

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

recommendations concerning their impact on the economy and efficiency of CFTC programs 

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

It is the duty and responsibility of the OIG to conduct, supervise and coordinate audits 

relating to CFTC programs and operations in accordance with generally accepted government 

auditing standards. OIG is also charged with the duty and responsibility 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 OIG audits, inspections, evaluations, reviews and projects generally 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 have been achieved; 

• Agency operations have not been subject to improper influence or corruption; and 

• Resources have been safeguarded. 

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

the CFTC Chairman in connection with the conduct of any investigation, audit, inspection, 

evaluation, review or project, and our investigations have been pursued regardless of the rank or 

party affiliation of the target. In some instances, OIG has recommended improvement to futures 

regulation efforts 

CFTC is a designated Federal entity (DFE) under the IG Act of 1978, as amended, 5 USC 

App. 3 sec. 8G(a)(2). The Dodd-Frank Wall Street Reform and Consumer Protection Act altered 

the relationship between the DFE Inspectors General and the agency head by clarifying that 

“head” of a DFE means “the board or commission of the designated Federal entity.” P.L. 111-

203, Title IX, Subtitle I, sec. 989B, 124 Stat. 1945 (codified at 5 USC App. 3 sec. 8G(a)(4)). 

The effective date of this provision was July 22, 2010. The OIG has not experienced any 

interference from the head of the CFTC in the conduct of its official duties. 

3. OIG Resources

OIG consists of the Inspector General, a part-time Supervisory Senior Auditor hired at 

the close of the prior reporting period, a full-time Senior Auditor, an Attorney-Advisor and a 

secretary. The Inspector General assumed his position on October 7, 1990. The part-time 
3

Supervisory Senior Auditor joined the office in March 2011, the full-time Senior Auditor joined 

the office in 1999, and the Attorney-Advisor joined in 2007. 

COMPLETED AUDITS, SURVEYS, INSPECTIONS, 

EVALUATIONS, REVIEWS and OTHER PROJECTS

1. Completed Audits

During the reporting period, CFTC OIG did not complete any audits. 

2. Completed Inspections, Surveys Evaluations, Reviews and Other Projects

a. Survey of CFTC’s Controls for Protecting Non-Public Information Destined for 

and/or Received from the Financial Stability Oversight Council.

Background

Section 989 E(a)(3) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act, Pub. L. No. 111-203) established the Council of Inspectors General on 

Financial Oversight (CIGFO). CFTC-OIG is one of nine member offices of Inspector 

General serving on CIGFO. The Council voted in December 2011 to initiate an audit of 

the Financial Stability Oversight Council’s (FSOC) Controls over Non-public 

Information and formed a working group for this purpose. The CIGFO working group 

established a common data collection instrument that each member used to compile 

information at its respective agency.

Objective

To survey CFTC’s existing controls over non-public information destined for and 

received from FSOC. 

Status

The CFTC-OIG planned and executed a survey in order to complete the common data 

collection instrument developed by the CIGFO working group and submitted its findings 

to the Agency for comment. Subsequently, CFTC-OIG submitted its completed data 

collection instrument to the CIGFO Working Group, which issued its report on June 22, 

2012. 
4

b. Inspection of the Division of Enforcement’s Disposition of Preliminary 

Investigations Records 

Background

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

industry participants for non-compliance with the Commodity Exchange Act. It is 

incumbent upon CFTC-DOE management to ensure that all enforcement records are 

retained and disposed of as authorized under record retention schedules approved by the 

National Archives and Records Administration (NARA). All complaints and leads must 

be collected, processed, and disposed of according to existing records policy. This 

inspection focused on DOE’s retention of closed preliminary investigation files.

Objective

This inspection sought to ascertain, over the review period (January 1, 2008 to August 1, 

2011), whether DOE adhered to its policies and procedures approved by the National 

Archives and Records Administration for retention of closed preliminary investigation 

files. 

Status

The inspection team randomly selected 174 out of 1722 total preliminary investigation 

matters stored in DOE’s database and found that all 174 were retained in the database for 

the three year period required by existing DOE policies previously approved by NARA. 

The inspection team also found that DOE management periodically informed and 

reminded staff of this policy.

IN-PROCESS AUDITS, INSPECTIONS, SURVEYS 

EVALUATIONS, REVIEWS and OTHER PROJECTS

1. In-process Audits

a. Audit of CFTC Financial Statements for Fiscal Year 2012

Background

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

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

statement audit each year. During the reporting period, the Inspector General selected an 

independent public accountant (IPA) to render an opinion on the agency’s financial 

statements for Fiscal Year 2012 in accordance with generally accepted auditing 
5

standards, Government Auditing Standards, OMB Bulletin 01-02 and OMB Circular A136.

Audit Objective

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

report on internal controls and compliance with laws and regulations. 

Status

 

The Fiscal Year 2012 audit began in May with an entrance conference with senior agency 

managers, the OIG and representatives from the IPA. Further meetings and reviews have 

taken place throughout this reporting period while work on the audit is ongoing. The 

final audit report is to be delivered to the Office of the Inspector General in November 

2012.

1

 

b. Audit of CFTC Customer Protection Fund for Fiscal Year 2012

Background

Section 745(g)(5)(I) of the Dodd-Frank Act requires the Agency to submit to Congress a 

yearly report on the Commission’s whistleblower award program that includes a 

complete set of audited financial statements, including a balance sheet, income statement, 

and cash flow analysis. The OIG is undertaking this required audit. 

Audit Objective

The objective of this audit is to render an opinion on the CFTC’s Customer Protection 

Fund’s financial statements and report on the Customer Protection Fund’s internal 

controls and compliance with laws and regulations. As part of this audit, the OIG will 

also review the agency’s report to select Congressional committees on activities of the 

Customer Protection Fund during the previous year.

Status

Prior to the close of the reporting period CFTC OIG contracted with an independent 

public accounting firm to perform this audit, and the audit was in process at the close of 

the reporting period. The audit report will be issued by October 25, 2012.

 1 The IG Act and the Federal Financial Management Improvement Act of 1996 (FFMIA) require the Inspectors 

General of certain agencies to report “instances and reasons” when the Agency has not met intermediate target dates 

established in a remediation plan to bring the Agency’s financial management system into substantial compliance 

with the FFMIA. CFTC is not subject to the FFMIA; however, it voluntarily seeks to comply with its 

requirements. During this reporting period, there were no events giving rise to a duty to report under FFMIA.
6

c. Audit of Compliance with Implementation of the Federal Managers’ Financial Integrity 

Act (FMFIA) at CFTC for Fiscal Year 2012

Background

The Federal Managers' Financial Integrity Act of 1982 requires federal managers to

establish a continuous process for evaluating, improving, and reporting on the internal 

control and accounting systems for which they are responsible. OMB Circular A-123, 

revised December 2004, "Management Accountability and Control," is the implementing 

guidance for FMFIA. Annually the Office of the Inspector General reviews the agency 

produced package of FMFIA related reports on internal controls and accounting for 

completeness. 

Status

In FY 2012 the Office of the Inspector General engaged the services of an independent 

public accounting firm (IPA) to conduct an audit of the Agency’s compliance with its 

stated goals for implementing FMFIA. The IPA is in the process of receiving and 

reviewing draft internal control reviews produced by agency staff, evaluating the 

agency’s process for producing its management control reviews and will issue a report by 

the end of October. Results of the audit will aid the Office of the Inspector General in the 

completion of its annual review. 

d. Follow-on Audit of the CFTC’s Protection of Sensitive Information

Background

As a result of OIG’s survey of the CFTC’s controls for protecting sensitive and/or nonpublic information, the audit team identified several internal control weaknesses that 

merited review, beyond the scope of the CIGFO survey. 

Status

The audit team held an entrance conference, completed its fieldwork, and prepared a draft 

of the audit report which is undergoing referencing. In the coming weeks the team will 

discuss findings with management, issue a draft report for written comment, and issue a 

final report. 
7

2. In-process Inspections, Surveys, Evaluations, Reviews and Other Projects

a. Evaluation of Compliance with the Federal Information Security Management Act at 

CFTC

Background

The Federal Information Security Management Act (FISMA) was enacted on December 

17, 2002. FISMA requires the Office of the Inspector General to perform annual 

independent evaluations of the information security program and practices of the agency

and report the results to the Office of Management and Budget.

Status

The OIG is currently completing its evaluation of the agency’s FISMA related documents 

and will submit its assessment along with the agency’s documents to the Office of 

Management and Budget in November 2012.

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

of MF Global, Inc.

Background.

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

the oversight and regulation by the Commodity Futures Trading Commission of MF 

Global Inc. (“MF Global”). MF Global is subject to a liquidation proceeding initiated by 

the Securities Investor Protection Corporation (“SIPC”). The Senator requested the 

following:

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

including an assessment of whether its oversight and regulation of MFGI differed in any 

material way from its oversight and regulation of other futures commission merchants;

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

Exchange (“CME”), the designated self-regulatory organization for MFGI, in overseeing 

MFGI’s customer segregated funds;

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

overseeing and regulating MFGI or monitoring the CME’s oversight of MFGI;

4) An analysis of whether and how the CFTC’s oversight of MFGI changed after the 

CFTC’s enforcement actions against MFGI in December 2007 and December 2009;

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

its net capital in August 2011;
8

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

liquidation;

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

from matters relating to the MFGI investigation is consistent with the CFTC’s official 

recusal policy; and

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

recuse himself from previous matters relating to MFGI would have been consistent with 

the CFTC’s official recusal policy.

Status.

At this time, we have reviewed document production by the Agency and representatives 

for the MF Global Trustee, and have interviewed over 25 individuals, including market 

professionals, current and former CFTC employees, and others. Work on this request 

was ongoing at the close of the reporting period.

c. Review of Small Purchases by CFTC

At the request of Congressional staff, during this reporting period OIG began a review of 

CFTC small purchases. This review involves our examination of CFTC’s documentation 

for 75 specific small purchases during the period March 2011 through March 2012. Our 

objective is to ascertain whether the purchases accorded with applicable statutes, 

regulations, and policies. At this time we have received documentation for the small 

purchases selected for review, and have begun interviews as we examine this production. 

At the close of the reporting period, this review was ongoing. 

AUDIT REPORTS and REVIEWS OVER SIX MONTHS OLD

1. Corrective Action not Completed

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

not been completed. 

2. Corrective Action Completed

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

period for which corrective action had been completed by the end of the reporting period. 
9

3. Management Decision not Made

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

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

INVESTIGATIONS

1. Completed Investigations

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

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

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

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

specific danger to the public health and safety. No investigations were pending as of the 

beginning of this reporting period. No investigations were opened during this period. 

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

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

concerns, we consulted within the OIG investigative community and found another OIG willing 

to conduct the investigation. On March 15, 2012, the Treasury Inspector General for Tax 

Administration issued their report with no findings, but recommended that new allegations be 

referred to the Integrity Committee for the Council of Inspectors General on Integrity and 

Efficiency. The referral was made during the prior reporting period, and in May 2012 the 

Integrity Committee determined not to investigate. 

2. Ongoing Investigations

The CFTC OIG does not comment on all ongoing investigations and may not disclose the 

existence of all investigations. Ongoing investigations that have become public, through the 

press or otherwise, will be discussed in semi-annual reports, absent exigent circumstances. At 

the close of the reporting period, there were no ongoing investigations.

SUMMARY OF MATTERS REFERRED TO 

PROSECUTORIAL AUTHORITIES

No matters were referred to prosecutorial authorities during this reporting period. 
10

CONGRESSIONAL INQUIRIES

The Inspector General continues to be involved in legislative activities pertaining to both 

the CFTC and the IG community. The IG serves on the legislation committee for the Council of 

Inspectors General on Integrity and Efficiency, which discusses and provides guidance on 

pending legislation affecting the IG community. 

Currently we have pending two requests for our review of Agency conduct. At the 

request of Senator Richard Shelby, in November 2011 OIG began a review of CFTC’s oversight 

and regulation of MF Global, Inc. MF Global is now subject to a liquidation proceeding initiated 

by the Securities Investor Protection Corporation. Our review, as requested, will examine the 

CFTC’s actions in the events leading up to the MF Global bankruptcy. At the close of the 

reporting period, our review was ongoing. In addition, at the request of Congressional staff, we 

are in the process of reviewing 75 specific small purchases made by CFTC during the period 

March 2011 through March 2012. These reviews are described in greater detail at pages 7-8. 

LEGISLATIVE, REGULATORY AND RULE REVIEWS

1. Introduction and Summary

As specified in Section 4(a)(2) of the Inspector General Act of 1978, 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. OIG also reviews exchange rule proposals circulated to senior staff at 

CFTC. 

OIG notifies the responsible Divisions as to any concerns with draft and final documents 

relating to legislation, rules (including exchange rules) or investigations. Initial discussions are 

usually informal. The OIG actively monitors the proposed rules and regulations under 

development as a result of Dodd-Frank Act. Formal comments were not submitted to the 

Commission during this reporting period.

2. Rule Reviews Initiated in Previous Reporting Periods

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

into this reporting period. 
11

3. Rule Reviews Initiated this Reporting Period

No rule reviews were initiated during this reporting period.

4. Legislative Activities

OIG tracked legislation impacting programs and operations of the CFTC and of the 

Office of Inspector General, and made contact with Congressional staff concerning various 

agency and IG issues as appropriate. The IG served on the legislation committee for the Council 

of Inspectors General on Integrity and Efficiency, which comments on proposed amendments to 

the IG Act and other legislation affecting the IG community. 

OTHER REVIEWS

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

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

2

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

Government Auditing Standards require that audit organizations conducting audits 

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

implemented a process to meet this requirement. The purpose of the peer review 

is to determine whether the reviewed audit organization’s internal quality control 

systems are adequate and provide reasonable assurance that applicable auditing 

standards, policies and procedures are met.

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

requirements of the Quality Standards for Investigations and determine whether 

adequate internal safeguards and management procedures exist to ensure that law 

enforcement powers are properly exercised.3

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

semiannual report an appendix containing 

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

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

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

Inspector General;

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

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

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

 2 http://www.ignet.gov/randp/fy07apr.pdf. 3 Id. at p.19. 
12

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

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

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

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

implemented.

In accordance with Section 989C of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (“Dodd-Frank Act”), Pub. L. 111-203, 124 Stat. 1376 (2010), please be advised 

that no peer review was conducted of the CFTC OIG during this reporting period. However, 

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

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

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

had fully implemented all of the recommendations. CFTC OIG did not conduct any peer reviews 

during this reporting period and there remain no outstanding recommendations from peer 

reviews previously conducted by CFTC OIG.

2. Other Reviews and Activities

No other review activity took place during this reporting period. 

SUMMARY OF EACH REPORT MADE TO

THE AGENCY HEAD CONCERNING REQUESTS FOR 

INFORMATION OR ASSISTANCE

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

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

REVISED MANAGEMENT DECISIONS

No management decisions were revised during this reporting period.

INSPECTOR GENERAL DISAGREEMENT

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

recommendations during this reporting period. In 2006, the CFTC OIG issued a report titled 

“Review of the Need for a Western Regional Office in Los Angeles.” That report recommended, 

among other things, that the Commission review the feasibility of reestablishing the former Los 

Angeles field office. That recommendation was not carried out largely due to budget constraints. 
13

In January 2008, partially in response to a Congressional inquiry, CFTC OIG updated its analysis 

and on March 12, 2008, issued a follow-up report which reiterated the earlier recommendation. 

In January 2009, the Acting Chairman issued a decision declining to implement the 

recommendation generally due to cost considerations, but required the Agency on a yearly basis 

to provide to OIG an analysis of regional case filing statistics and costs associated with cases in 

various regions of the country. The Division of Enforcement submitted their yearly analysis to 

OIG in March 2010. In light of increased funding for FY09, FY10 and FY 11 (anticipated), 

corresponding anticipated staffing increases and the enactment of legislation that expands CFTC 

jurisdiction, we renew the recommendation that the Commission consider opening an additional 

CFTC office on the West Coast. 

GAO LIAISON

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

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

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

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

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

CFTC programs and operations. 

GAO also conducts audits of CFTC activities, and OIG plans its audits so as not to 

duplicate GAO's efforts. Moreover, OIG in its audit, review and inspection activities identifies 

the goals of each endeavor and the methods of reaching the goals so as to minimize the 

requirements placed on CFTC resources. 

STRATEGIC PLAN FOR THE 

OFFICE OF THE INSPECTOR GENERAL

1. Investigative Agenda.

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

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

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

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

the public health and safety.

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

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

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

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

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

substantial contracts to award, was not likely to generate a substantial investigative workload.
14

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

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

5510.

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

investigative agenda has been established.

2. Legislative and Regulatory Review Agenda.

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

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

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

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

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

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

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

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

Flexibility Act and the Paperwork Reduction Act.

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

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

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

necessary to achieve the stipulated objectives.

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

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

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

established. 

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

a. Introduction

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

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

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

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

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

internal control reviews recommended by OMB Circular A-123;

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

program, activity, or function to problems or deficiencies;
15

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

efficiency or effectiveness of CFTC programs and operations;

• Management priorities and improvements that may be possible;

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

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

b. Annual Audit

The following required audit is performed on an annual basis.

Audit of CFTC Financial Statements

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

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

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

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

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

and OMB Bulletin 07-04.

Audit of the CFTC Customer Protection Fund

Section 745(g)(5)(I) of the Dodd-Frank Act requires the CFTC to submit to Congress a 

yearly report on the Commission’s whistleblower award program that includes a complete set of 

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

analysis. The OIG is undertaking this required audit

c. Annual Reviews and Evaluations

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

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

In support 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.

Evaluation of the CFTC Compliance with the Federal Information Security Management Act, 

FISMA

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

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

practices of the agency.
16

Review of Agency Compliance with the Improper Payment Act of 2002

On July 22, 2010, President Obama signed into law the Improper Payments Elimination 

and Recovery Act. IPERA directs each agency’s Inspector General to review agency improper 

payment reporting in the agency’s Annual Financial Report. The Office of the Inspector General 

will annually review the agency compliance with IPERA. 

At the discretion of the Inspector General, the projects described above periodically may 

be performed as audits. 

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

Looking to the long term, the OIG intends to focus the balance of its resources on the 

review of the management and operation of the agency and compliance with Congressional 

mandates. OIG plans to concentrate its efforts in reviewing activities relating to the most serious 

management challenges facing the CFTC. 

In addition, OIG is aware of the immense regulatory undertaking required under the 

Dodd-Frank Act. OIG will seek to identify issues and to conduct inspections, reviews, 

investigations and other activities relating to these management and regulatory challenges. 

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

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

At the close of the last reporting period, OIG reported that a previously intended 

examination of communications between CFTC staff and large traders had been tabled due to our 

workload during this prior reporting period. This review continues to be tabled. 

e. Resources Required

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

next five years to the annual audit, the annual review, and the annual evaluation described above. 

However, OIG is updating its audit universe in view of CFTC’s increased responsibilities under 

the Dodd-Frank Act and will reevaluate its staffing needs once the update is complete. Revision 

of the CFTC OIG audit procedures and other remediation-related tasks, and all other 

investigations, inspections, evaluations, review and other projects will consume up to two and a 

half staff years. Because OIG resources can be diverted at any time to an investigation, audit, 

inspection, survey, evaluation, review, or other project that responds to current concerns or 

allegations, and must be completed in a timely fashion in order to be of assistance to the Agency 

or Congress, it is impossible to forecast with complete accuracy how resources will be utilized 

from year to year. In accordance with a recommendation contained in our most recent peer 

review, we have hired an experienced auditor to assist with remediation and supervise all audit 

activity, including audits performed by independent public accountants obtained on a contract 

basis. In FY 2013 we anticipate hiring one additional full time staff. Due to staff size, we will 

continue to utilize outside independent auditors to perform OIG audits as necessary. 
17

CONTACTING THE OFFICE OF THE 

INSPECTOR GENERAL

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

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

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

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

http://www.cftc.gov/About/OfficeoftheInspectorGeneral/index.htm. 
18

Table 1

Reports Issued with Questioned Costs

(April 1, 2012 – September 30, 2012)

Dollar Value

Thousands

Number Questioned Unsupported

A. For which no management decision has 

been made by the commencement of the

reporting period 0 0 0

B. Which were issued during the reporting 

period 0 0 0

Subtotals (A + B) 0 0 0

C. For which a management decision was 

made during the reporting period 0 0 0

( I ) dollar value of 

disallowed costs 0 0 0

( ii ) dollar value of costs not 

disallowed 0 0 0

D. For which no management decision

has been made by the end of the

reporting period 0 0 0
19

Table 2

Reports Issued with Recommendations

That Funds be Put to Better Use

(April 1, 2012 – September 30, 2012)

Dollar Value

Number Thousands

A. For which no management decision has 

been made by the commencement of the

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 of the

reporting period 0 0
Report FRAUD, WASTE or ABUSE

in connection with

CFTC Programs and Operations

to the Office of the

INSPECTOR GENERAL.

You may report ANONYMOUSLY.

(202) 418-5510 

HOTLINE 

THE INSPECTOR GENERAL

NEEDS YOUR HELP TO ASSURE 

THE INTEGRITY OF CFTC’S 

PROGRAMS AND OPERATIONS.

 

 

 

 

Office of the Inspector General 

Commodity Futures Trading Commission 

1155 21ST Street, N.W. 

Washington, D.C. 20581