COMMODITY FUTURES TRADING COMMISSION

SEMIANNUAL REPORT

OFTHE·

OFFICE OF THE·

INSPECTOR GENERAL

FOR THE PERIOD ENDING MARCH 31, 2006
Office of the

Inspector General

TO:

. FROM:

SUBjECT:

U;S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5110

Facsimile: (202) 418-5522

-www.cftc.govApril 28, 2006

Reuben Jeffery III

Chairman

A. Roy Lavik QQ'£

Inspector General

Semiannual Report ofthe Office ofthe Inspector General

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

from October 1,2005 through March 31, 2006. This report is submitted to you in accordance

with the requirements of Section 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

.October 1, 2005 THROUGH March 31, 2006

TABLE OF CONTENTS

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

and deficiencies and a description ofOIG recommendations for corrective action

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

AlJDITS 1

. rnYESTIGATIONS 2

LEGISLATNE AND REGULATORY REVIEWS 3

OIG RESPONSIBILITIES 3

OIG RESOURCES 4

CFTC PROGRAMS AND OPERATIONS 4

COMPLETED WORK : 5

AlJDITS [including a list of each audit report issued and a summary of each particularly

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

rnYESTIGATIONS : 6

LEGISLATIVE AND REGULATORY REVIEWS 6

AlJDIT REPORTS OVER SIX MONTHS OLD : 7

CORRECTNE ACTION NOT COMPLETED [including an identification of each

significant recommendation described in previous semiannual reports on which

corrective action has not been completed (Mandated by Section 5(a)(3) ofthe Act)] 7

CORRECTNE ACTION COMPLETED 7

1
MANAGEMENT DECISION NOT MADE [including a sUmmary of each 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)] 7

SUMMARY OF MATTERS REFERRED TO PROSECUTNE AUTHORITIES and

the prosecutions and convictions which have resulted (Mandated by

Section 5(a)(4) ofthe Act) 7

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD

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

refused or not provided (Mandated by Section 5(a)(5) ofthe Act) 8

REVISED MANAGEMENT DECISIONS [including description and explanation of

the reasons for any significant revised management decision made during the

reporting period (Mandated by Section 5(a)(11) ofthe Act)] 8

INSPECTOR GENERAL DISAGREEMENT [including information concerning any

significant manageinent decision with which the Inspector General is in

disagreement (Mandated by Section 5(a)(12) ofthe Act)] 8

CURRENT AUDITS 8

GAO LIAISON 13

STRATEGIC PLAN 14

CONTACTING THE OFFICE OF THE INSPECTOR GENERAL .19

TABLE 1 -- REPORTS ISSUED WITH QUESTIONED COSTS

(Mandated by Section 5(a)(8) ofthe Act) : 20

TABLE 2 -- REPORTS ISSUED WITH RECOMMENDATIONS THAT FUNDS BE PUT

TO BETTER USE (Mandated by Section 5(a)(9) ofthe Act) 21

11
INDEX OF IG ACT REPORTING

REQUIREMENTS

Section 5(a)(1) : 1

Section 5(a)(2) 1

Section 5(a)(3) 7

Section 5(a)(4) 7

Section 5(a)(5) 8

·Section 5(a)(6) 5

Section 5(a)(7) 5

Section 5(a)(8) 20

Section 5(a)(9) 21

Section 5(a)(10) 7

Section 5(a)(11) 8

Section 5(a)(12) : ;8

ll1
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-tenn 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 8.)

Audit ofCFTC Financial Statements for Fiscal Year 2006. In FY 2002, Congress passed

the Accountability ofTax Dollars Act. The Act requires the CFTC, along with numerous

other Federal entities, to have its financial statements audited annually. To this end, the

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 fiscal year 2006 in

accordance with generally accepted auditing standards, Government Auditing Standards, .

and OMB Bulletin 01-02. (For additional details, see page 9.)

Review ofAgency Compliance with GPRA. The Government Perfonnance and Results

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

plans setting perfonnance goals, and report annually on actual perfonnance 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 tenns. This

includes an examination ofthe perfonnancemeasures devised by the Commission and

. the systems used for gathering the data to report on those perfonnance measures. (For

additional details, see page 10.)

Review ofthe Need for a Los Angeles Office. In the three years since the closing ofthe

Western Regional Office ofthe Commodity Futures Trading Commission in Los

Angeles, civil injunctive and administrative cases arising in the states fonnerly served by

the Western Regional Office have been handled by stafffrom CFTC's Washington,

Chicago and Kansas City offices. The objective ofthis review is to detennine whether

similar cases which may arise in that area in the future could more efficiently and

effectively be handled by a CFTCoffice in Los Angeles. (For additional details, see

page 11.)

1
Audit ofCompliance with the Federal Managers' Financial Integrity Act. In support of

OMB Circular A-123 (Revised), the Inspector General evaluates, provides technical

assistance, and advises the agency head as to whether the agency's review and evaluation

process was conducted in accordance with the circular's requirements. (For additional

details, see page 12.)

Evaluation ofthe CFTC Information Security Program and Practices, FISMA. The

Federal Information Security Management Act (FISMA) 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 12.)

Completed Audits

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

details, see the section on completed audits beginning on page 5.)

Audit ofCFTC Financial Statements for Fiscal Year 2005. In FY 2002, Congress passed

the Accountability ofTax Dollars Act. The Act requires the CFTC, along with numerous

other Federal entities, to have its fmancia1 statements audited annually. To this end, the

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 fiscal year 2005 in

accordance with generally accepted auditing standards, Government Auditing Standards,

and OMB Bulletin 01-02. (For additional details, see page 5.)

Investigative Peer Review ofExternal Office ofthe Inspector General. A number of

Offices oftheInspector General have agreed to subject themselves to a periodic external

review oftheir investigative functions. The objectives ofthis peer review are to

determine whether the Office ofInspector General's internal quality control system for

investigations is adequate, in place, and operating; and whether established policies,

procedures and applicable investigative standards are being followed in practice. (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 of an activity constituting a violation oflaw, rules or regulations, or

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

to the public health and safety.

No investigations were pending as o:(the beginning ofthe reporting period, and the OIG

opened no investigations during the period. (See the section on investigations beginning on

page 6.)

2
LEGISLATIVE AND REGULATORY REVIEWS

. The DIG reviews proposed and final CFTC regulations, legislation, and selected

exchange rules using the following basic criteria: whether the agency: (1) has identified

specifically the problem(s) to be addressed by the proposal; (2) has defined through case study or

data analysis a clear link between the proposed solution and the identified problem(s); (3) has

specified clearly the means to effectively and efficiently enforce the proposal; (4) has assessed

the likely efficiency and effectiveness of alternative solutions; (5) can reasonably document that

the proposal will yield positive net benefits over the long term; and (6) has met the requirements

ofthe Regulatory Flexibility Act and the Paperwork Reduction Act.

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

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

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

necessary to achieve the stipulated objectives. .

Legislative Activities

The Inspector General continues to be 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 DIG 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, regulations, and exchange rules and make

recomniendations 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.

3
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.

I 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 DIG, on December 4, 1989, signed a Memorandum ofUnderstanding with the Office

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

provide the OIG with OGC legal services. An OGC 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 CoinInission 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 CoinInission 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 has changed, the

CFTC's mission has not. 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 reglilation, the CFTC enables the cOrrnllodity 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.

4
COMPLETED WORK

AUDITS

The Ola 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.

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. Audit of eYre Financial Statements for Fiscal Year 2005

Objective.·

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

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

annually. To this end, the objective ofthis audit is to acquire a contractor who will provide the

audit effort required to enable the contractor to render an opinion on the agency's financial

statements for fiscal year 2005 in accordance with generally accepted auditing standards,

Government Auditing Standards, and OMB Bulletin 01-02.

Status.

An unqualified independent auditor's report was issued on November 14, 2005. The

independent auditor's report stated four reportable conditions; none ofthe reportable conditions

are believed to be material weaknesses. Management letter comments were also issued to the

agency. These two documents closed out the Fiscal Year 2005 audit.

5
2. Investigative Peer Review of External Office ofthe Inspector General

Objective.

A number of Offices ofthe Inspector General have agreed to subject themselves to a

periodic external review oftheir investigative functions. The objectives ofthis peer review are

to determine whether the Office ofInspector General's internal quality control system for

investigations is adequate, in place, and operating; and whether established policies, procedures

and applicable investigative standards are being followed in practice.

Status.

In February 2006, this Office ofthe Inspector General completed its quality assessment

review ofthe investigative function of a comparably sized Office ofthe Inspector General. A

final report was issued on March 14, 2006.

INVESTIGATIONS

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

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

the possible existence of an activity constituting a violation oflaw, rules or regulatIons, or

mismanagement, abuse of authority, or gross waste offunds, or a substantial and specific danger .

to the public health and safety.

No investigations were pending as ofthe beginning ofthe reporting period, and the OIG

opened no investigations during the period.

LEGISLATIVE AND REGULATORY REVIEWS

As specIfied in Section 4(a) (2) ofthe Inspector General Act of 1978, the OIG reviews

the impact of existing and proposed legislation and regulations on CFTC programs and

operations and makes recommendations regarding more effective or efficient alternatives or

protections against fraud and abuse. The OIG also reviews selected exchange rule proposals and

changes. .

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

documents relating to legislation, rules or investigations. Formal comments were not filed with

the Commission.

RULE REVIEWS INITIATED IN PREVIOUS REPORTING PERIODS

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

into this reporting period.

6
RULE REVIEWS INITIATED THIS REPORTING PERIOD

The DIG has reviewed the numerous rules required by the CFMA. The CFMA altered

the relationship ofthe Commission to the futures industry in many regards and the rules sought

to reflect this change.

Legislative Activities

The Inspector General 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.

MANAGEMENT DECISION NOT MADE

There is one instance of a report issued before the commencement ofthe reporting period

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

Chainnanis continuing to examine the issue.

SUMMARY OF MATTERS REFERRED TO

PROSECUTIVE AUTHORITIES

No matters were referred to prosecutive authorities during the reporting period.

7
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.

I REVISED MANAGEMENT DECISIONS

No management decisions were revised during the reporting period.

INSPECTOR GENERAL DISAGREEMENT

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

recommendations.

CURRENT AUDITS

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

factors:

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

8
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. Audit of CFTC Financial Statements for Fiscal Year 2006

Objectives.

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

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

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

enable the contractor to render an opinion on the agency's financial statements for Fiscal Year

2006 in accordance with generally accepted auditing standards, Government Auditing Standards,

and OMB Bulletin 01-02. .

The specific objectives oftms audit are to determine whether:

(1) The financial statements present fairly the financial position ofthe Commodity

Futures Trading Commission in accordance with generally accepted accounting

principles (GAAP) as promulgated by the Federal Accounting Standards Advisory Board

(FASAB). The six financial statements, along with all corresponding notes to be audited

include: (a) Balance Sheet; (b) Statement ofNet Cost; (c) Statement ofChanges in Net

Position; (d) Statement ofBudgetary Resources; (e) Statement ofFinancing; and (f)

Statement ofCustodial Activity.

(2) Management's assertions about the effectiveness ofits internal controls for achieving

internal control objectives described in AU Section 319 and the Federal Managers

Financial Integrity Act (FMFIA) are fairly stated in all material respects. The contractor

shall make this determination in part by obtaining an understanding ofthe internal control

policies and procedures and assessing the level of control risk relevant to all significant

cycles, classes oftransactions, and account balances. For those significant control

policies and procedures that have been properly designed and placed in operation, the

contractor shall perform sufficient tests to provide reasonable assurance as to whether the

controls are effective and working as designed.

The independent public accountant (IPA) will limit its internal control testing to those

controls necessary to achieve the objectives described in OMB Bulletin 01-02. Further,

the IPA is not required to test all internal controls relevant to operating objectives as·

broadly defined by the Federal Manager's Financial Integrity Act of 1982, such as those

controls relevant to achieving efficient operations.

With respect to internal controls related to performance measures reported in the

accountability report, theIPA will obtain an understanding ofthe design ofsignificant

internal controls relating to the existence and completeness assertions, as required by

OMB Bulletin 01-02. The procedures are not required to provide assurance on internal

controls over reported performance measures.

9
(3) The agency has complied with selected provisions oflaws and regulations identified

by OMB Bulletin 01-02 or the Inspector General, noncompliance with which could have

a direct and material effect on the determination offinancial statement amounts. The IPA

will limit its tests of compliance to these provisions and need not test compliance with all

laws and regulations applicable to the CFTC.

(4) The information in the "Overview ofthe Reporting Entity" is consistent in content

and presentation with the information in the principal statements and the related notes

consistent with Statements on Auditing Standards (SAS) No.8, OtherInformation in

Documents Containing Audited Financial Statements.

Status.

An independent public accounting firm was first selected on January 15,2004 to

complete the Fiscal Year 2004 CFTC Financial Statement Audit. Their audit report was

delivered on November 18,2004. The same firm under an option year ofthe contract rendered

an opinion on November 14, 2005 on the agency's financial statements for Fiscal Year 2005.

On February 1, 2006, the Fiscal Year 2006 audit plan was delivered to the Office ofthe

Inspector General. The audit plan was reviewed, modified, and accepted on February 17, 2006.

On March 6, 2006, the Fiscal Year 2006 audit began with a meeting with senior agency

managers. The final audit report is to be delivered to the Office ofthe Inspector General on

November 10, 2006:

2. Review of Agency Compliance with GPRA

Objective.

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

develop strategic plans, prepare annual plans setting performance goals, and 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 includes 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 OIG consulted with and advised the

Commission's operating divisions concerning GPRA requirements. The Office ofthe Inspector

General reviewed the Commission's FY 2001 through FY 2005 Annual Performance Plans

before each was submitted to Congress. The OIG will continue to review the Annual

Performance Plan that is included in the annual budget estimate which is submitted to the Office

ofManagement and Budget. .

10
From FY 1999 through FY 2003, Congress each year required the agency to submit a

report on the agency's performance results by strategic goal. The OIG selectively reviewed

these reports after they were submitted to Congress.

Beginning in FY 2004, in response to an OMB directive, the agency submitted a report

combining the information contained in the annual performance reports with the agency's

audited financial statements. This combined report is entitled the Performance and

. Accountability Report (PAR). The OIG reviewed the Peformance and Accountability Report

prior to its being submitted to the Office ofManagement and Budget and the Congress.

For FY 2005, the OIG concluded that the agency had made improvements in defining its

goals and identifying measures for reaching its stated goals. Using information gathered during

the review ofthese documents, the Inspector General prepared and submitted in November 2005

its annual Assessment ofthe Most Serious Management Challenges Facing the CFTC to the

Office ofManagement and Budget.

For FY 2006, the OIG will review the agency's FY 2006 PAR and prepare its annual

assessment ofthe most serious management challenges facing the CFTC.

3. Review of the Need for a Los Angeles Office

Objective.

In the three years since the closing ofthe Western Regional Office ofthe Commodity

Futures Trading Commission in Los Angeles, civil injunctive and administrative cases arising in

the states formerly served by the Western Regional Office have been handled by stafffrom

CFTC's Washington, Chicago and Kansas City offices. The objective ofthis review is to

determine whether similar cases which may arise in that area in the future could more efficiently

and effectively be handled by a CFTC office in Los Angeles.

Status.

To determine whether civil injunctive and administrative cases arising in the states

formerly served by the Western Regional Office (WRO) could more efficiently and effectively

be handled by a CFTC office in Los Allgeles, the Office ofthe Inspector General first collected

and analyzed data on the staffing and workload ofthe Western Regional Office from FY 1993

until the closing ofthe office at the end ofJune 2003. Similar data was collected for all the rest

ofthe Division ofEnforcement from FY 1993 through FY 2005. Partial year data was collected

for the first quarter ofFY 2006..

Data is being collected and analyzed for travel expenses for civil injunctive and

administrative cases arising in the three Pacific coast states ofCalifornia, Oregon, and

Washington for FY 2000 through FY 2005.

Interviews of current and former CFTC WRO staffmembers are being conducted to

determine their opinions ofthe availability ofCFTC-related work during their tenures in the

11
WRO and their opinions ofthe current availability ofCFTC-related work in the area formerly

serviced by WRO.

4. Audit of Compliance with the Federal Managers' Financial Integrity Act

. Objective.

In support ofOMB Circular A-123 (Revised), the Inspector General evaluates, provides

technical assistance, and advises the agency head as to whether the agency's review and

evaluation process was conducted in accordance with the circular's requirements.

Status.

For the fifth year, the Commission has been working on a new approach to satisfying the

requirements ofCircular A-123 (Revised). The OIG has begun discussions with the staffofthe

Office of Financial Management on the new Circular A-123 requirements and CFTC's plans for

meeting them.

5. Evaluation ofthe CFfC Information Security Program and Practices, FISMA

Objectives.

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

designee to perform annual independent evaluations ofthe information security program and

practices ofthe agency.

Status.

The OIG is currently reviewing OMB Guidance on FISMA. To provide a comprehensive

review ofthe Commission's security program, the Office ofInformation and Technology

Services (ITS) and the OIG will work jointly in gathering and interpreting information relating to

the CFTC information security program. Using the information supplied by the ITS staff, a

contractor, and the program managers, the Inspector General will review and analyze the

information and respond to the questions raised by the OMB Guidance. Results ofthis effort

will be transmitted to the CFTC's ChiefInformation Officer (CIO) for combination with the

CIO's assessment and inclusion in the Chairman's report to OMB.

12
I 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 onCFTC

resources.

13
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, regulations, and exchange rules 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 steadystream 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.

14
A number of obstacles to acquiring and transmitting the desired information to decision

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

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

lines within the Commission.

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

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

processed and hearings are held in the Office 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 infonnation

'across organizational lines. Ifthe Chairman wanted to know how much time was spent on the

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

was unavailable without an extensive expenditure 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 of continuity in the flow of

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

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

implementing the change exceed the costs.

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

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

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

As the Commission implements GPRA, the GIG 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 perfonnance.

INVESTIGATIONS

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

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

15
the possible existence of an activity constituting a violation oflaw, rules or regulations, or·

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

the public health and safety.

The GIG 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

GIG 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 GIG, a 24-hour hotline was

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

back cover ofthis semiannual report.

Because ofthe reactive nature ofthe GIG's investigativeprowam, no investigative

agenda has been established.

LEGISLATIVE AND REGULATORY REVIEW

Because ofthe importance ofthis activity in an economic regulatory agency, the GIG

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 ofthe Regulatory

Flexibility Act and the Paperwork Reduction Act.

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

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

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

necessary to achieve the stipulated objectives.

Because the GIG 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.

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AUDIT AGENDA

ANNUAL AUDITS

The following audits are perfonned.on an. annual basis.

Audit of Compliance with the Federal Managers' Financial Integrity Act

In support ofOMB 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 requireIp.ents.

Evaluation of the CFTC Information Security Program and Practices, FISMA

The Federal Infonnation Security Management Act (FISMA) requires the Inspector

General or his designee to perfonn annual independent evaluations ofthe infonnation security

program and practices ofthe agency.

Audit of CFTC Financial Statements

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

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

annually. To this end, the 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 01-02.

OTHER AUDITS

The OIG intends to focus the balance ofits audit resources on insuring that the Chainnan,

the Commissioners, and program managers have timely, useful infonnation 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

()ftheir various programs. The tracking systems required in many, though not all, programs will

cross fonnal organizational lines.

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

systems used by a program to gather infonnation on its use ofresources, the results ofthe

devotion ofthose resources (including definitions ofmeasurements of accomplishment), and the

reporting ofresults and associated costs to the upper level managers in theDivisi9n and to the

Chairman and the Commissioners, The cataloging ofthese decision support systems will be

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

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

priorities ofthe Commission. If any elements are lacking in the infonnation systems, they will

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

costlbeneficial manner.

17
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 staffmg.

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

recommendingthe improvement and/or development oftracking systems in every program

element throughout the Commission.

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

information throughout the agency, the OIG will devote resources to the review ofthe

management and operation ofthe agency and compliance with Congressional mandates.

RESOURCES REQUIRED

The OIG 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. One-halfstaff year of effort will be devoted over each ofthe next five years to the

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

approximately one-halfstaff year per year.

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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.

19
20
IL-· Ta_b_le_2 :....-- 1

Reports Issued with Recommendations

That Funds be Put to Better Use

(October 1,2005 - March 31,2006)

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

21

o o
The InspectorGeneral

needsyourhelp to

assure the integrityof

CFTC's programs.

Report FRAUD, WASTE

or ABUSE, to'the

INSPECTOR GENERAL,

HOTLINE

(202)418-5510

, Office of the Inspector General

Commodity Futures Trading Commission

115521ST Street, N.W.

Washington, D.C. 20581