CO!v1Ivl0DITYFUTIJRES TRADINGCOMMISSION

SEMIANNUAL REPORT

OF THE

OFFICE OF THE

INSPECTOR GENERAL

. ('\ ':'., 0

FORTHEPERIOD ENDING SEPTEMBER30,2002
u.s. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5110

Facsimile: (202) 418-5522

October 30, 2002

OFFICE OF

INSPEC10R GENERAL

TO:

FROM:

James E. Newsome

Chainnan

A. Roy LavikQ Q£-

Inspector General

SUBJECT: Semiannual Report ofthe Office ofthe Inspector General

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

from April 1, 2002 through September 30, 2002. This report is submitted to you in accordance

with the requirements ofSection 5 ofthe 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!, 2002 THROUGH September 30,2002

TABLE OF CONTENTS

SUM1v1ARY OF OIG ACTIVITIES [including a description ofsignificant problems, abuses,

and deficiencies and a description ofOIG recommendations for corrective action

(Mandated by Section 5(a)(1) and (2) ofthe Act)] 1

AlJDITS 1

IN'VESTIGATIONS 2

LEGISLATIVE AND REGULATORY REVIEWS 2

OIG RESPONSIBII..ITIES 3

OIG RESOURCES 4

CFTC PROGRAMS AND OPERATIONS 4

COMPLETED WORK. 4

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)] .4

IN'VESTIGATIONS 6

LEGISLATIVE AND REGULATORY REVIEWS 7

AUDIT REPORTS OVER SIX MONTHS OLD 8

CORRECTIVE ACTION NOT COMPLETED [including an identification ofeach

significant recommendation described in previous semiannual reports on which

corrective action has not been completed (Mandated by Section 5(a)(3) ofthe Act)] 8

CORRECTIVE ACTION COMPLETED 8
MANAGEMENT DECISION NOT MADE [including a summary ofeach audit

report issued before the commencement ofthe reporting period for which no management

decision has been made by the end ofthe reporting period (including

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

ofthe Act)] 9

SUMMARY OF MATTERS REFERRED TO PROSECUTIVE AUTHORITIES and

the prosecutions and convictions which have resulted (Mandated by

Section 5(a)(4) ofthe Act) 9

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD

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

refused or not provided (Mandated by Section 5(a)(5) ofthe Act) 9

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)(II) ofthe Act)] 9

INSPECTOR GENERAL DISAGREEMENT [including infonnation concerning any

significant management decision with which the Inspector General is in

disagreement (Mandated by Section 5(a)(12) ofthe Act)] 9

CtJRRENT ADDITS 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) ofthe Act) 22

11
INDEX OF IG ACT REPORTING

REQUIREMENTS

Section 5(a)(1) 1

Section 5(a)(2) 1

Section 5(a)(3) 8

Section 5(a)(4) 9

Section 5(a)(5) 9

Section 5(a)(6) 4

Section 5(a)(7) 4

Section 5(a)(8) 21

Section 5(a)(9) 22

Section 5(a)(10) : 9

Section 5(a)(II) 9

Section 5(a)(12) 9

III
SUMMARY OF OIG ACTIVITIES

AUDITS

The primary objectives ofthe 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 ofthe 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 9.)

Review ofEnforcement Information Reguirements. The objectives ofthis review are to

detemrine what the information needs of all levels in the Division ofEnforcement are,

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

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

details, see page 10.)

Review ofAgency 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 first report was prepared in March 2000. The objective ofthis review is to

detemrine how effectively the Commission is complying with GPRA's terms. This will

include an examination ofthe 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 12.)

Review ofEmployee Usage ofGovemment Issued Travel Cards. The objective ofthis

review is to determine whether employees are complying with the agency's policy for use

ofthe cards. An initial review ofthe agency's existing policy regarding travel card

usage has been conducted, and an audit plan is being prepared. (For additional details,

see page 13.)

Completed Audits

The following audits have been completed during this reporting period. (For additional

details, see the section on completed audits beginning on page 4.)-

1
Evaluation ofthe CFTC Information Security Program and Practices, GISRA. The

Government Information SecurityReform Act (GISRA) requires the Inspector General or

his designee to perform annual independent evaluations ofthe information security

program and practices ofthe agency. (For additional details, see page 5.)

Audit ofLos Angeles Lease ofReal Estate. The objectives ofthis audit were to

detennine if all payments were made in accordance with the terms ofthe lease

agreement, whether established payment procedures were followed, and ifthe agency

complied with the Prompt Payment Act. This was the first audit conducted by the Office

ofthe Inspector General ofthe Los Angeles, California regional office lease agreement.

This audit covered all payments for the subject lease for the period from July 1, 1993

through December 31, 2001 for all office space leased in the building at 10900 Wilshire

Boulevard, Los Angeles, California. (For additional details, see page 5.)

Audit ofMinneapolis Lease ofReal Estate. The objectives ofthis audit were to

detennine ifall payments were made in accordance with the terms ofthe lease

agreement, whether established payment procedures were followed, and ifthe agency

complied with the Prompt Payment Act. This was the first audit conducted by the Office

ofthe Inspector General ofthe Minneapolis, Minnesota office lease agreement. This

audit covered all payments for the subject lease for the period from February 1, 1991

through August 31, 2002 for all office space leased in the building at 410 South 4th Street,

Minneapolis Minnesota. (For additional details, see page 6.)

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 ofan activity constituting a violation oflaw, rules or regulations, or

mismanagement, abuse ofauthority, or gross waste offunds, or a substantial and specific danger

to the public health and safety.

Two investigations and one informal inquiry were pending as ofthe beginning ofthe

reporting period. The OIG opened one investigation during the reporting period and completed

three investigations and the informal inquiry. No investigations remained open at the end ofthe

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

2
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 tenn; and (6) has met the requirements

ofthe Regulatory Flexibility Act and 'the PapelWork 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 infonnation collections so that they are the least burdensome

necessary to achieve the stipulated objectives.

Legislative Activities

The Inspector General continues to be heavily involved in legislative activities.

Congressional staffwere briefed about the various IG issues.

OIG RESPONSIBILITIES

The Office ofthe 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 ofCFTC

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

programs and operations;

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

administration ofCFTC programs and operations;

• Review existing and proposed legislation and regulations and make recommendations

concerning their impact on the economy and efficiency ofCFTC programs and

operations or the prevention and detection offraud and abuse; and

• Keep the Chainnan and Congress fully infonned about any problems or deficiencies

in the administration ofCFTC programs and operations and provide

recommendations for correction ofthese 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 oflegislative and regulatory proposals and the

monitoring ofinternal CFTC operations.

3
OIG'RESOURCES

The OIG consists ofthe Inspector General, two professional staffmembers, 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 ofUnderstanding with the Office

. ofthe General Counsel (OGe). This Memorandum details the procedures that are used to

provide the OIG with OGC legal services. An OGe staffmember has been assigned to provide

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

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 option 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 (FY) 2005 with the passage ofthe Commodity Futures

Modernization Act of2000 (CFMA).

The CFMA transformed the Commission from a front-line regulatory agency to an

oversight regulator. Although the Commission's approach to regulation will change, the CFTC's

mission remains unchanged. The CFTC continues to be responsible for fostering the economic

utility offutures 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 ofoffsetting price risks.

COMPLETED WORK

AUDITS

The OIG is required to conduct, supervise and coordinate audits ofCFTC 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.

4
The purpose ofthese 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 have been achieved; and

• Resources have been safeguarded.

The following audit reports have been issued during the reporting period.

1. Evaluation ofthe eYre Information Security Program and Practices, GISRA

Objectives.

The Government Information Security Reform Act requires the Inspector General or his

designee to perform annual independent evaluations ofthe information security program and

practices ofthe agency.

Status.

To provide a comprehensive review ofthe Commission's security program, OIRM and

OIG jointly engaged a contractor. Using the information supplied by the contractor and the

program managers, the Inspector General responded to the areas raised by the OMB Guidance.

The evaluation covered the following systems: the General Support System, Trade Practice

Investigations System, Payroll and Personnel Systems, ISS Market Surveillance System, IFR

Company Financial Reporting System and the Financial Management System. The Financial

Management System consists ofthree components entitled Financial Management System,

Travel Manager System, and Electronic Certification System.

In addition to the independent evaluation, the Inspector General produced an executive

summary characterizing the results ofthe independent evaluation ofthe agency's infonnation

security program and practices.

2. Audit ofLos Angeles Lease ofReal Estate

Objectives.

The objectives ofthis audit were to determine ifa11 payments were made in accordance

with the terms ofthe lease agreement, whether established payment procedures were followed,

and ifthe agency complied with the Prompt Payment Act. This was the first audit conducted by

the Office ofthe Inspector General ofthe Los Angeles, California regional office lease

agreement. This audit covered all payments for the subject lease for the period from July 1, 1993

5
through December 31, 2001 for all office space leased in the building at 10900 Wilshire

Boulevard, Los Angeles, California.

Status.

The final report issued on July 15, 2002 stated that, generally, lease payments were made

in accordance with the tenns ofthe lease and the Prompt Payment Act.

3. Audit ofMinneapolis Lease ofReal Estate

Objectives.

The objectives ofthis audit were to detennine ifall payments were made in accordance

with the terms ofthe lease agreement, whether established payment procedures were followed,

and ifthe agency complied with the Prompt Payment Act. This was the first audit conducted by

the Office ofthe Inspector General ofthe Minneapolis, Minnesota office lease agreement. This

audit covered all payments for the subject lease for the period from February 1, 1991 through

August 31, 2002 for all office space leased in the building at 410 South 4th Street, Minneapolis

Minnesota.

Status.

The final report issued on September 25, 2002 indicated that payments were generally

made in accordance with the terms ofthe lease and the Prompt Payment Act.

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 ofan activity constituting a violation oflaw, rules or regulations, or

mismanagement, abuse ofauthority, or gross waste offunds, or a substantial and specific danger

to the public health and safety.

Two investigations and one informal inquiry were pending as ofthe beginning ofthe

reporting period. The OIG opened one investigation during the reporting period and completed

three investigations and the infonnal inquiry. No investigations remained open at the end ofthe

period. .

The Commission asked the Inspector General to commence an investigation and report to

the Commission factual findings with respect to whether a CFTC official participated personally

and substantially in particular matters in which he mew he had a financial interest, and/or

willfully and mowingly failed to report his financial interest in a limited partnership and

distributions in the limited partnership on his annual financial disclosure reports. The Inspector

General found that the official did not participate personally and substantially in particular

matters in which he knew he had a financial interest and that the official did not willfully fail to

6
file information required on financial disclosure forms. Accordingly, this investigation was

closed.

In response to a request from regional CFTC officials that the GIG investigate a series of

unprofessional actions that were disrupting the flow ofwork in a regional office, the GIG opened

an investigation. Through a series ofinterviews and an examination ofdocumentation ofpast

actions, the GIG documented the observed situation and recommended corrective action to

responsible officials. Accordingly, this investigation was closed.

At the request ofthe Chairman, the GIG conducted an informal inquiry into allegations

that a former CFTC employee may have divulged confidential or non-public information,

participated in matters as a CFTC employee in which he had a financial interest, converted

. government property for personal use, accepted an illegal bribe or gratuity, accepted employment

in connection with a matter which was the same as, or substantially related to, a matter in which

he participated personally and substantially as a public officer or employee, and/or revealed a

confidence or secret ofthe CFTC. During the course ofthe inquiry, the GIG found no

reasonable grounds to believe that the fonner employee had violated any federal statute or CFTC

rule, but the GIG did find that the fonner employee may have potentially violated a District of

Columbia Bar rule by accepting employment in connection with a matter which was ~e same as,

or substantially related to, a matter in which he participated personally and substantially as a

public officer or employee. The GIG reported this information to the Gffice ofthe Chairman for

any action considered appropriate. Accordingly, this inquiry was closed.

The Commission asked the Inspector General to conduct an investigation to assure that a

CFTC official, from the time ofbeneficial acquisition ofprohibited financial interests, had not

violated federal conflict ofinterest law and regulations. In response to that request, the Inspector

General conducted an investigation. The OIG detennined that the official worked on no matters

which concerned any entity related to the holdings ofthe trust in which the official has a

beneficial interest. The GIG also determined that during this time, the official did not personally

and substantially participate in any matters ofgeneral applicability to the futures industry which

would have had a direct and predictable effect on the official's interests. Accordingly, this

investigation was closed.

LEGISLATIVE AND REGULATORY REVIEWS

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

The GIG 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.

7
RULE REVIEWS INITIATED IN PREVIOUS REPORTING PERIODS

1. Relevant Considerations for Default Judgements.

Summary ofAction

A question has been raised about the appropriate circumstances for the entry ofdefault

judgements.

OIGReview

OIG concluded its review ofthe issue and made recommendations. Staffis currently

reviewing the issue.

RULE REVIEWS INITIATED THIS REPORTING PERlOD

The OIG has reviewed the numerous rules required by the Commodity Futures

Modernization Act of2000 ("Act"). The Act altered the relationship ofthe Commission to the

futures industry in many regards. The rules sought to reflect this change.

Legislative Activities

The IG continues to be involved in legislative activities and contact has been made with

congressional staffon various IG issues.

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.

CORRECTIVE ACTION COMPLETED

There were no instances ofreports issued before the commencement ofthe reporting

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

8
MANAGEMENT DECISION NOT MADE

There were no instances ofreports issued before the commencement ofthe 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.

9
CURRENT AUDITS

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

factors:

• Statutory and regulatory requirements;

• Adequacy ofinternal 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 ofthe 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 ofCFTC programs and operations;

• Management priorities and improvements that may be possible;

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

• Availability ofaudit resources and the potential opportunity costs to the agency.

The audit agenda and summary ofprogress 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 ofthe audit objective for each.

1. Review ofEnforcement Information Requirements

Objectives.

The mission ofthe Division ofEnforcement is to investigate and prosecute fairly and

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

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

participants and futures and options customers. In the course ofits 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 ofdocuments which must be logically stored

and regularly accessed. To support the accomplishment ofthese tasks, the Division is relYing on

a collection ofvery old manual and automated systems to track the progress ofactivities and to

store and retrieve documents. The objectives ofthis review are to detetmine what the

information needs of all levels in the Division are, whether the information needs are being met,

and ifthe required information can be created, stored, and retrieved in a more effective and

efficient manner.

10
Status.

The joint OIG/Division ofEnforcement team produced extensive and detailed narrative

flow charts ofthe current operational and administrative functions and processes ofthe Division

ofEnforcement and delivered them to the Division ofEnforcement and the Office oflnfonnation

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

ofthe inner workings ofthe Division ofEnforcement and to serve as the base on which the

information requirements ofthe Division ofEnforcement will be defined.

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

the OIG, and OIRM, the principals made commitments ofsix staffyears of effort from OIRM

and approximately three staffyears ofeffort from the Division ofEnforcement to define the

system requirements ofthe Division.

The Division ofEnforcement and OIRM agreed that the first priority was the

development ofa system to track documents in the Division ofEnforcement 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 ofthe 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 ofproductivity information and the sharing ofinformation

within the Division.

The final version ofthe first phase ofwhat was being called "the Enforcement

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

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

The second phase, a system which produces the monthly status reports from ail 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 ofthis system was completed during March 1999.

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

litigation support, and document management system, to tie together the first 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 ofidentified needs.

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

team consisting ofstafffrom the Division ofEnforcement, OIRM, and contractor personnel was

engaged in a review of available off-the-shelfcase management, litigation support, and

document management software from the beginning ofCalendar Year 2000.

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

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

requirements was issued on July 19,2000. None ofthe responses received fully met the

requirements specified in the Request for Proposals.

11
In FY 2001, the agency's Executive Management Council (EMC) formed an Integrated

Project Team (IPT) to define the systems requirements ofthe Division ofEnforcement, examine

alternative methods for meeting the requirements and recommend a solution. The solution,

defined by the IPT and known as the e-law project, assumed the availability of$3.7 million to

fund the purchase and maintenance ofall elements ofthe proposed solution over a number of

fiscal years.

A total of$1.15 million ofFY 2001 money was set aside for the implementation ofthe e-law

project defined by the IPT. Congress added $2.6 million to the e-law project to insure the

availability ofDivision ofEnforcement records in the event of a repeat ofthe September 11,

2001 terrorist attack. With the full $3.7 million now available for implementation, the agency

expects to move forward expeditiously with the purchase of all ofthe elements ofthe e-law

system.

2. Review ofAgency 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 report annually on

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

objective ofthis review is to determine how effectively the Commission is complying with

GPRA's terms. This will include an examination ofthe 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 Office ofthe Inspector General consulted with

and advised the Commission's operating divisions concerning GPRA requirements. The Office

ofthe Inspector General reviewed the Commission's FY 2001, FY 2002 and FY 2003 Annual

Performance Plan before each was submitted to Congress. Subsequently, the OIG selectively

reviewed the FY 1999, FY 2000 and FY 2001 Annual Performance Reports after they were

submitted to Congress. The DIG concluded that the agency had made improvements in defining

its goals and identifying measures for reaching its stated goals.

The Commodity Futures Modernization Act, which was enacted in fiscal year 2001,

fundamentally changed the regulatory structure for the commodity futures markets. The

Commission adopted new rules and procedures consistent with the regulatory reforms presented

in that Act. This wholesale change in approach challenged each operating division to redefine its

service goals under GRPA. The agency implemented a reorganization that allows the '<,

Commission to more effectively respond to the new Act.

The Office ofthe Inspector General participated in a number ofdiscussions on how to

best reflect the agency's new regulatory paradigm in structuring future goals and measures under

GPRA. In conjunction with other federal agencies' Inspectors General, the Office ofthe

12
Inspector General is participating in the development ofbest practices for measuring compliance

with the requirements of GPRA. During the second quarter, the OIG will review the goals and

objectives prepared by the senior managers for adherence to the requirements ofGPRA. After

this review, the OIG will verify and validate a subset ofthe data submitted in the GPRA report.

3. Review ofEmployee Usage of Government Issued Travel Cards

Objective.

Government authorized credit cards are issued to employees for use during authorized

Government travel. The objective ofthis review is to examine agency employees' travel card

usage since 1999 and to ascertain whether that usage complied with the agency's policy.

Status.

The OIG has reviewed the agency's policy regarding travel card usage, and an audit plan

is being prepared.

13
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 ofCFTC

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 ofreaching 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 ofthe 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 ofCFTC

programs and operations and 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 make recommendations

concerning their impact on the economy and efficiency ofCFTC programs and

operations or the prevention and detection offraud and abuse; and

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

in the administration ofCFTC programs and operations and provide

recommendations for correction ofthese problems or deficiencies.

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

audit, investigation, and legislative and regulatory review. A summary ofthose programs

follows.

AUDIT

The primary objectives ofthe OIG are to promote long-term efficiency and effectiveness

in the administration and operation ofthe 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 oforganized data on the effects oftheir

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 ofthe operational effects oftheir decision so they can determine ifthe change is in

the direction and ofthe magnitude predicted. In the absence ofsuch information, top level

managers cannot adequately perform theirjobs.

15
A number ofobstacles 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 ofa 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 ofProceedings; appeals ofinitial decisions in

reparations cases are transmitted to the Office ofthe General Counsel where proposed

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

paperwork being handled by the Office ofthe 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 ifit were brand new to the

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

across organizational lines. Ifthe Chairman wanted to mow 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 ofmanual 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 oftracking

resources expended. It can determine how much stafftime 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 ofincreased output. Without this information from all programs

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

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

To increase the efficiency and the effectiveness ofthe management ofCFTC programs

and operations, the OIG will, in addition to conducting mandatory audits, concentrate its audit

resources on the identification ofinformation voids and the lack ofcontinuity 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 GIG 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.

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

16
the possible existence ofan activity constituting a violation oflaw, rules or regulations, or

mismanagement, gross waste offunds, abuse ofauthority 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 ofinvestigative leads. This reactive program has

resulted in only a handful ofinvestigations per year. This strategy was followed because the

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

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

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

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

agency-wide telephone book and in this semiannual report.

Because ofthe reactive nature ofthe OIG's investigative program, no investigative

agenda has been established.

LEGISLATIVE AND REGULATORY REVIEW

Because ofthe importance ofthis 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 PapelWork Reduction Act.

The Regulatory Flexibility Act requires the agency to evaluate the impact ofits

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

effectively and efficiently its infonnation 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 ofCompliance with the Federal Managers' Financial Integrity Act

In support ofO:rvm 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 ofits audit resources on insuring that the Chairman,

the Commissioners, and program managers have timely, useful information on the progress of

the CFTC's programs in meeting their goals and objectives. For example, emphasis will be

placed on detennining whether all managerial levels engaged in a process can track the progress

oftheir 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 ofthe manual and automated

systems used by an organization to gather information on its use ofresources, the results ofthe

devotion ofthose resources (including definitions ofmeasurements ofaccomplishment), and the

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

Chainnan and the Commissioners. Cataloging ofthese decision support systems will be

followed by an assessment ofwhether all concerned officials are timely receiving the

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

priorities ofthe Commission. Ifany elements are lacking in the information systems, they will

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

costlbeneficial manner.

Ifrecommendations are successfully implemented, the proposed systems should allow

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

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

changes in policy, procedure, or staffing.

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

recommending the improvement and/or development oftracking systems in every program

element throughout the Commission.

In addition to our focus on facilitating the development ofan efficient flow of

information throughout the agency, the OIG will devote resources to the audit ofcompliance

with the terms of agency contracts (such as, leases ofspace in New York, Chicago, Los Angeles,

and Washington, D.C.), the collection offunds (such as, compliance with the terms ofthe Debt

Collection Improvement Act of 1996 and the resultant Memorandum ofUnderstanding with

18
Treasury), and agency compliance with Congressional mandates (such as, the Government

Performance and Results Act and the Government Information Security Reform Act).

RESOURCESREQumED

The DIG estimates that approximately one staff year of effort will be devoted over each

ofthe next five years to the development of an efficient flow ofinformation throughout the

agency. Nine-tenths of a staffyear ofeffort will be devoted over each ofthe next five years to

the compliance audits described above. The "Annual Audits" are expected to consume

approximately one-tenth staff year per year.

19
CONTACTING 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

..,
Table 1

Reports Issued with Questioned Costs

(Aprill, 2002 - September 30, 2002)

NWI1ber

Dollar Value

Thousands

Questioned Unsupported

A. For which no management decision has

been made by the commencement ofthe

reporting period

B. Which were issued during the reporting

period

Subtotals (A + B)

c. For which a management decision was

made during the reporting period

o

o

o

o

o

o

o

o

o

o

o

o

(I)

(ii)

dollar value of

disallowed costs

dollar value of costs not

disallowed

o

o

o

o

o

o

D. For which no management decision

has been made by the end ofthe

reporting period

21

o o o
Table 2

Reports Issued with Recommendations

That Funds be Put to Better Use

(Aprill, 2002 - SepteRlber 30, 2002)

A. For which no management decision has

been made by the commencement ofthe

reporting period

B. Which were issued during the reporting

period

Subtotals (A + B)

c. For which a management decision was

made during the reporting period

( i ) dollar value of

recommendations that

were agreed to by management

Number

o

o

o

o

o

Dollar Value

Thousands

o

o

o

o

o

(ii) dollar value of

recommendations that

were not agreed to by

management o o

D. For which no management decision

has been made by the end ofthe

reporting period

22

o o
,
The InspectorGeneral'

needsyourhelpto

assurethe integrityof

CFTC's programs.

Report FRAUD, WASTE

or ABUSE to the

INSPECTOR GENERAL

OTLINE

(202)418-551 0

Office of the Inspector General

Commodity Futures Trading Commi'ssion

1155 21ST Street, N.W.

Washington, D.C. 20581