U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

Office of the 

Inspector General 

TO: Gary Gensler 

Chairman 

1155 21st Street. NW. Washington. DC 20581 

Telephone: (202) 418-5110 

Facsimile: (202) 418-5522 

MEMORANDUM 

FROM: A. Roy Lavik a.....r~ Inspector General 

DATE: December 13,2013 

SUBJECT: Inspector General's Assessment of The Most Serious Management 

Challenges Facing the Commodity Futures Trading Commission (CFTC) 

Introduction 

The Reports Consolidation Act of2000 (RCA)1 authorizes the CFTC to provide financial and 

performance information in a meaningful and useful format for Congress, the President, and the 

public. The RCA requires the Inspector General to summarize the "most serious" management 

and performance challenges facing the Agency and to assess the Agency's progress in addressing 

those challenges. 2 This memorandum fulfills our duties under the RCA. 

In order to identify and describe the most serious management challenges, as well as the 

Agency's progress in addressing them, we relied on data contained in the CFTC financial 

statement audit and Annual Financial Report, representations by agency management, and our 

knowledge of industry trends and CFTC operations .. Since Congress left the determination and 

threshold of what constitutes a most serious challenge to the discretion of the Inspector General, 

we applied the following defmition in preparing this statement: 

Serious management challenges are mission critical areas or programs that have 

the potential for a perennial weakness or vulnerability that, without substantial 

management attention, would seriously impact Agency operations or strategic 

goals. 

This memorandum summarizes the results of the CFTC's current financial statement audit, 

describes the Agency's progress on last year's management challenges, and fmally discusses the 

most serious management challenges that we have identified. For FY2014, the most serious 

management challenge is: 

1 P.L. 106-531, sec 3, 114 STAT. 2537 (Nov. 22, 2000), codified at 31 USC§ 3516(a). 

2Jd. 
• For the CFTC to deliver on Congressional expectations embedded in the Wall Street 

Reform and Consumer Protection Act (Dodd Frank Act), including expansion of the 

CFTC's regulatory footprint to the swaps markets, while adhering to government-wide 

budgetary constraints. 

CFTC Financial Statement Audit Results 

In accordance with the Accountability ofT ax Dollars Act,3 CFTC, along with numerous other 

federal entities, is required to submit to an annual independent financial statement audit by the 

Inspector General, or by an independent external auditor as determined by the Inspector 

General.4 The results of the Fiscal Year 2013 financial statement audit will be discussed in the 

Annual Financial Report, and the financial statement audit is expected to result in an unmodified 

audit opinion. 

CFTC's Progress on Last Year's Challenges 

Last year, we identified two of the most serious management challenges: 

• Efficient Deployment of Information Technology Resources; and, 

• Expanding Delivery of Customer Protection Resources and Consumer Education. 5 

CFTC made progress on both challenges, but these challenges remain a concern due to 

government wide budget cuts which will require management to prioritize increased oversight 

responsibilities while implementing the Dodd-Frank Act. 

In FY20 14, under a government-wide continuing resolution, CFTC allocated $426 million 

towards technological tools-which is unchanged from FY 2013 and a decline of$9 million from 

FY 2012 spending levels. However, during FY2013, CFTC's regulatory responsibility over the 

$400 trillion7 swaps market increased with the availability of continuous data on swap 

transactions that must be analyzed and sifted for anomalous activity to initiate referrals to 

Division of Enforcement. Therefore, this management challenge remains a concern given 

CFTC's declining budget under sequestration. 

Our FY20 13 fmancial statement audit of the CFTC Customer Protection Fund confrrmed that the 

fmancial statements presented the fund's financial position fairly, in all material respects, and 

3 P.L. 107-289, 116 STAT. 2049, Nov. 7, 2002, codified at 31 USC 3501 note. 

4 The IG's authority is found at§ 304 of the CFO Act, P.L. 101-576, 104 STAT.2852, Nov. 15, 1990, codififed at 31 

USC 3521(e). 

5 Section of748(g) of the Dodd-Frank Act, P.L. 111-203, 124 STAT. 1376, July 21,2010, added section 23(g) to the 

Commodity Exchange Act, 7 U.S.C. § 26, to establish within the Treasury of the United States a revolving fund that 

is available to the Agency for the payment ofwhistleblower awards and education initiatives. The FY2013 audit is 

available here: http://www .cftc.gov/ucm/groups/public/@aboutcftc/documents/file/cpfreport20 13 .pdf. 

6 CFTC- Fiscal Year 2013 Agency Financial Report, Exhibit 26. 

7 !d., at page 13. 

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that the fund was fully funded. 8 As a result of this audit our near term goal is to evaluate how the 

Customer Protection fund is using its available resources to reach potential participants in the 

commodities markets with impartial and educational information. We have begun an audit to 

assess CFTC's Customer Protection Resources and Consumer Outreach Program area's 

emphasis on delivering targeted and educationally useful information to likely participants in the 

commodities related markets. 

Most Serious Management Challenges for the coming year 

The most serious management challenge anticipated for FY 2014 is for the CFTC to deliver on 

congressional expectations in the implementation of Dodd-Frank, including expansion of the 

CFTC's regulatory footprint to the swaps market, while adhering to government wide budgetary 

constraints. 

CFTC has promulgated over 67 rules, orders, and guidances responsive to the Dodd-Frank Act.9 

Now that these rules are in place, management must develop additional mechanisms to shift 

agency productivity from rule writing to rule implementation. As we have identified in the past, 

technological spending can increase staff productivity, but the sheer volume and complexity of 

industry-supplied data mandates that knowledgeable agency staff be on hand to provide the 

guidance necessary to efficiently monitor the markets. With the availability of ownership 

control10 information across markets, CFTC surveillance of the swaps markets is broader and 

more complex than the agency's pre-Dodd Frank Act mission of monitoring futures and options 

on futures markets. Therefore, the agency must adjust its regulatory strategy to reflect its 

expanded jurisdiction. 

Moreover, increased reportable data will increase stakeholders' expectation that CFTC will 

conduct a robust oversight of the swaps market. On January 1, 2013, certain swap market 

participants began reporting new and historical swap data to Swap Data Repositories pursuant to 

17 CFR Part 45, and the Commission began the process of analyzing these new data and 

incorporating them into the weekly CFTC Swaps Report available on its website. 11 As a 

consequence, the agency must now devote labor to the continuous surveillance of the swaps 

markets. In addition, the agency is expanding its oversight of Swap Execution Facilities (SEFs) -

- trading platforms that must be registered with the CFTC. Such structural changes will require 

the CFTC to expand compliance reviews of SEFs as they come online.. This reinforces our 

assessment that the agency, in the near future, will have to examine its current labor skill set and 

reallocate resources - a challenge during sequestration - towards compliance matters as opposed 

to rule making. 

8 The audit report is available here: 

http://www .cftc.gov/ucrnlgroups/public/@aboutcftc/documents/file/cpfreport20 13 .pdf. 

9 See remarks of Chairman Gensler at the CME Global Financial Leadership Conference, 

Nov. 19, 2013 (available here: http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-153). 10 See Remarks of Chairman Gensler, Ownership and Control ("OCR") Reports, Forms 102/102S, 40/40S, and 71, 

October 30,2013 (available at: http://www.cftc.gov/PressRoom/SpeechesTestimony/genslerstatementl03013); see 

also 78 FR 69177-69266 (Nov. 18, 2013)(Final rules for ownership and control reports, effective date Feb. 18,2014, 

available at: http://www.gpo.gov/fdsys/pkg!FR-2013-11-18/pdf/2013-26789.pdt). 11 See http://www .cftc.gov/MarketReports/SwapsReports/index.htm. 

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Relevant OIG audits 

My Office plans to contribute meaningful independent analyses towards aiding the agency to 

explore solutions to its challenges. Toward that goal my office is completing an audit of CFTC 

compliance with information security management requirements and has initiated an audit to 

examine the CFTC's recent allocation of resources to information technology. As previously 

mentioned, we are also conducting an audit to assess CFTC's Customer Protection Resources 

and Consumer Outreach Program area's emphasis on delivering targeted and educationally 

useful information to likely participants in the commodities related markets. These audits along 

with our two financial statement audits and other program audits and reviews provide us with 

valuable data for evaluating future challenges at the CFTC. 

End 

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