COMMODITY FUTURES TRADING COMMISSION

SEMIANNUAL REPORT

OF THE

OFFICE OF THE

INSPECTOR GENERAL

FOR THE PERIOD ENDING SEPTEMBER 30, 2008
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.gov

November 3, 2008

Walter L. Lukken

Acting Chairman

A. Roy Lavik Q R

Inspector General

Semiannual Report ofthe Office ofthe Inspector General

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

from April 1,2008 through September 30, 2008. 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

Aprill, 2008 THROUGH September 30,2008

TABLE OF CONTENTS

INDEX OF IG ACT REPORTING iii

EXECUTIVE SUMMARY 1

INTRODUCTION '" 2

CFTC Programs and Operations 2

OIG Responsibilities 2

OIG Resources 3

COMPLETED AUDITS and REVIEWS 4

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

Evaluation ofthe CFTC Information Security Management Act, FISMA .4

Review of Agency Use of Contractors 4

CURRENT AUDITS and REVIEWS 5

Audit of CFTC Financial Statements for Fiscal Year 2008 5

AUDIT REPORTS and REVIEWS OVER SIX MONTHS OLD 7

Corrective Action not Completed 7

Corrective Action Completed 7

Management Decision not Made 7

INVESTIGATIONS 7

Investigation Regarding the Interagency Task Force on Commodity Markets Interim Report

on Crude Oil. 8

OIG Response to Allegations Regarding the Transit Subsidy Program 8

OIG Response to Allegations Regarding CFTC Contracts 8

SUMMARY OF MATTERS REFERRED TO PROSECUTORIAL AUTHORITIES 9

CONGRESSIONAL INQUIRIES 9

LEGISLATIVE, REGULATORY AND RULE REVIEWS 9

Introduction and Summary 9

Rule Reviews Initiated in Previous Reporting Periods 9
Rule Reviews Initiated this Reporting Period 9

Legislative Activities 10

OTHER REVIEWS 10

Peer Reviews 10

Other Reviews 10

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD 11

REVISED MANAGEMENT DECISIONS 11

INSPECTOR GENERAL DISAGREEMENT 11

GAO LIAISON 11

STRATEGIC PLAN FOR THE OFFICE OF THE INSPECTOR GENERAL 12

Investigative Agenda 12

Legislative and Regulatory Review Agenda 12

Audit Agenda 13

Introduction 13

Annual Audits 13

Other Audits 14

Resources Required 15

CONTACTING THE OFFICE OF THE INSPECTOR GENERAL 15

Table 1 - Reports Issued with Questioned Costs 16

Table 2 - Reports Issued with Recommendations 17

11
INDEX OF IG ACT REPORTING

REQUIREMENTS

Section 4(a)(2) Review oflegislation and regulations 9

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

Section 5(a)(2) Recommendations with respect to significant problems '" 1

Section 5(a)(3) Significant recommendations that have not been completed 7

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

Section 5(a)(5) Summary ofinstances where information was refused 11

Section 5(a)(6) Completed audit reports .4

Section 5(a)(7) Significant audit reports .4

Section 5(a)(8) Statistical Table-Questioned Costs 16

Section 5(a)(9) Statistical Table-Funds Recommended for Better Use 17

Section 5(a)(10) Audit reports lacking management decision 7

Section 5(a)(1 1) Significant revised management decisions .11

Section 5(a)(12) Significant management decisions where the IG disagrees 11

Section 5(a)(13) .Information described under the Federal Financial Management 6

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

Section 6(b)(2) Summary ofreports to Chairman where assistance was refused 11

111
EXECUTIVE SUMMARY

This semiannual report is issued by the Commodity Futures Trading Commission's

(CFTC's) Office ofInspector General (OIG) pursuant to the Inspector General Act of 1978, as

amended. It summarizes OIG's activities and accomplishments for the period April 1, 2008,

through September 30, 2008. During this period, OIG completed one audit, one evaluation and

one review, and began one audit. OIG completed one investigation and responded to various

allegations of wrongdoing. OIG also responded to Congressional inquiries, commented to

Congressional staff on pending legislation, reviewed rules proposed by CFTC and by regulated

entities, participated in training, monitored peer review activities, visited CFTC field offices and

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

Highlights of OIG's completed and ongoing audit, evaluation and investigative projects

include the following:

• OIG completed the fiscal year (FY) 2008 audit of compliance with the Federal Managers'

Financial Integrity Act (FMFIA). No significant issues were reported.

• OIG completed the FY 2008 Federal Information Security Management Act (FISMA)

independent evaluation. No significant issues were reported.

• OIG completed a review ofthe Agency's use of contract employees. While no

significant issues were reported, OIG made recommendations that may improve the

operational effectiveness ofthe CFTC information technology help desk.

• At the request of four U.S. Senators, OIG completed an investigation into allegations of

wrongdoing pertaining to the Interagency Task Force on Commodity Markets Interim

Report on Crude Oil issued in July 2008. While no misconduct was found, OIG

criticized the means of providing relevant information. The disclosures were not

transparent and raised questions sufficient to give rise to the suspicions that triggered the

Senators' request.

• OIG responded to discrete allegations pertaining to the CFTC transit subsidy program.

The evidence did not warrant referrals to the Agency or law enforcement for further

action.

• OIG responded to allegations pertaining to CFTC contracts. No referrals were made to

the Agency or to law enforcement.

1
INTRODUCTION

1. CFTC Programs and Operations.

Congress created the Commodity Futures Trading Commission in 1974 as an

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

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

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

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

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

2013.

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

regulator. 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 of offsetting price risks.

The CFTC operating divisions are: Office ofthe Chairman, Office ofthe Executive

Director, Office of General Counsel, Division of Clearing and Intermediary Oversight, Division

ofEnforcement, Division of Market Oversight and Office ofthe Chief Economist. In addition to

its headquarters office in Washington, DC, the CFTC maintains offices in Chicago, Illinois;

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

2. OIG Responsibilities.

The 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. OIG

was established to create an independent unit to:

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

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

programs and operations;

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

administration of CFTC programs and operations;

2
• Review existing and proposed legislation, regulations and exchange rules and make

recommendations concerning their impact on the economy and efficiency of CFTC

programs and operations or the prevention and detection 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.

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

operations in accordance with generally accepted government auditing standards. OIG is also

required to recommend changes to existing and proposed CFTC programs and operations to

promote economy, efficiency and effectiveness and to prevent and detect fraud and abuse.

The purpose of OIG audits generally is to ensure that:

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

policies;

• Resources have been managed effectively and efficiently;

• Stipulated program objectives have been achieved;

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

• Resources have been safeguarded.

OIG operates independently ofthe Agency and has not experienced any interference from

the CFTC Chairman in connection with the conduct of any investigation or audit, and our

investigations have been pursued regardless ofthe rank or party affiliation ofthe target. OIG has

also conducted audits without interference where it has perceived the opportunity to recommend

improvement to futures regulation efforts, again without regard to the party affiliation of any

Chairman.! No Chairman has interfered with OIG decisions regarding personnel actions,

training, travel or other expenditures, including the selection of an independent accounting firm

to conduct required CFTC financial statement audits.

3. OIG Resources.

OIG consists ofthe Inspector General, the Assistant Inspector General for Audits, an

Attorney-Advisor and a secretary. The present Inspector General assumed his position on

October 7,1990. The Assistant Inspector General joined the office in 1999, and the AttorneyAdvisor joined in 2007.

I The Inspector General Act of 1978, as amended, states: "Neither the head ofthe establishment nor the officer next

in rank below such head shall prevent or prohibit the Inspector General from initiating, carrying out, or completing

any audit or investigation ...." 5 U.S.C. App. 3 sec. 3(a).

3
COMPLETED AUDITS and REVIEWS

1. Audit of Compliance with the Federal Managers' Financial Integrity Act, FMFIA.

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.

OIG reviewed all ofthe draft internal control reviews produced by agency staff and

provided comments to the originating divisions. OIG offered its services to the CFTC Internal

Control Committee as advisor and consultant on conducting and reporting on vulnerability

assessments and internal control reviews. OIG reported the results of its review ofthe final

submissions to the Chairman in its annual assurance letters to the Chairman.

2. Evaluation of the CFTC Information Security Management Act, FISMA.

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.

To provide a comprehensive review ofthe Commission's security program, Office of

Information Technology Services (OITS) and OIG worked jointly in gathering and interpreting

information relating to the CFTC information security program. Using the information supplied

by OITS staff, a contractor and the program managers, the Inspector General reviewed and

analyzed the information and responded in tabular form to the questions raised by the OMB

Guidance. Results ofthis effort were transmitted to the CFTC's ChiefInformation Officer (CIO)

in September 2008, for combination with the CIa's assessment and inclusion in the Chairman's

report to OMB.

3. Review of Agency Use of Contractors.

The objectives ofthis review were to:

1) Determine whether the Agency has effectively employed contractors to complement its

staff; and

2) Present the Chairman with a complete picture ofthe Agency's use of contractors.

4
Status.

We examined summary information on 65 ofthe Agency's existing contracts and found nothing

to indicate that contract employees were performing inherently governmental tasks. We chose to

examine in detail the two largest Agency contracts resulting in the greatest influx of contract

employees to ensure that these tasks could not be performed by Agency employees at lesser cost.

Both contracts provided information technology (IT) services. We therefore limited our

objectives to analysis oftheir application to these two IT services contracts. We did not audit

compliance with the Federal Acquisition Regulation as it would apply to the contract award

process for these two contracts.

In the two contracts that we examined in detail, we found the Agency effectively supplemented

its full-time staffwith contractors. The Agency was able to acquire skilled software

development talent that reduced development time for several major computer surveillance

systems for the futures and options markets. In another contract, we found that the Agency has

improved its delivery of help-desk services to Agency employees. For one ofthe contracts, we

recommended improving the selection of contractors; greater use offormer help-desk talent to

communicate CFTC specific "fixes" (i.e., modifications to existing software) to the contract

employees; and greater monitoring and use ofthe help-desk logs to identify opportunities for

delivering specific assistance to Agency employees, as well as contract employees.

CURRENT AUDITS and REVIEWS

1. Audit of CFTC Financial Statements for Fiscal Year 2008.

Objectives.

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

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

statement audit each year. To this end, OIG has engaged a contractor to provide the audit effort

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

Fiscal Year 2008 in accordance with generally accepted auditing standards, Government

Auditing Standards and OMB Bulletin 01-02.

The specific objectives ofthis audit include determinations 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 five financial statements, along with all corresponding notes to be audited

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

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

5
Financial Integrity Act (FMFIA) are fairly stated in all material respects. The contractor

makes 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 performs sufficient tests to provide reasonable assurance as to whether the

controls are effective and working as designed.

The independent public accountant (IPA) limits 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 FMFIA, such as those controls relevant to achieving efficient

operations.

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

accountability report, the IPA obtains 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.

(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

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

laws and regulations applicable to the CFTC.

Status.

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

complete the CFTC Financial Statement Audits for up to five successive years. On March 10,

2008 the Fiscal Year 2008 audit began with a meeting with senior agency managers. Further

meetings and reviews have taken place throughout this reporting period while work on the audit

is ongoing. The final audit report is to be delivered to the Office ofthe Inspector General in

November 2008.

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

require the Inspectors General of certain agencies to report "instances and reasons" when the

Agency has not met intermediate target dates established in a remediation plan to bring the

Agency's financial management system into substantial compliance with the Act. CFTC is not

subject to the requirements ofthe FFMIA; however, it voluntarily seeks to comply with its

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

under FFMIA.

6
AUDIT REPORTS and REVIEWS OVER SIX MONTHS OLD

1. Corrective Action not Completed.

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

not been completed.

2. Corrective Action Completed.

There were no instances ofreports issued before the commencement ofthe reporting

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

understand the Agency is working to implement recommendations included in the Review of

Agency Use ofContractors.

3. 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. In

2006, the CFTC OIG issued a report titled "Review ofthe Need for a Western Regional Office in

Los Angeles." That report recommended, among other things, that the Commission review the

feasibility ofreestablishing the former Los Angeles field office. That recommendation was not

carried out largely due to budget constraints. In January 2008, partially in response to a

Congressional inquiry, CFTC OIG updated its analysis and on March 12, 2008; issued a followup report which reiterated the earlier recommendation. While the 2006 recommendations are

over six months old, the March report is barely over six months old. During the reporting period,

we understand that the Agency took steps to gather information and assess the feasibility of

implementation ofthe recommendation in the March 2008 report.

INVESTIGATIONS

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

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

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

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

specific danger to the public health and safety.

No investigations were pending as ofthe beginning ofthe reporting period. One

investigation was opened and completed during this period, and two other preliminary

investigations were opened and closed during this reporting period.

7
1. Investigation Regarding the Interagency Task Force on Commodity Markets

Interim Report on Crude Oil.

During this reporting period, CFTC OIG began and concluded an investigation into

allegations of wrongdoing in connection with the July 22,2008 Interagency Task Force on

Commodity Markets (ITF) Interim Report on Crude Oil (Interim Report). Four U.S. Senators

questioned whether the Interim Report was based on inaccurate data, incomplete information and

flawed analysis. The four Senators also asked whether the Interim Report was issued improperly

in order to influence a Senate vote. Because the Senators did not allege violations ofspecific

criminal or civil statutes or regulations, CFTC OIG conducted this investigation as an

administrative investigation.

CFTC OIG reviewed numerous drafts ofthe Interim Report on Crude Oil, as well as

relevant supporting data and materials. CFTC OIG also interviewed 44 individuals to ascertain

whether the information and analysis used was inaccurate, incomplete, or flawed in any way.

CFTC OIG asked the interviewees ifthey were aware ofthe relevant Senate vote, and also

probed whether the report's conclusions were inappropriately influenced by the CFTC Chairman,

the CFTC Chief Economist, or any other influence inside or outside the CFTC.

CFTC OIG concluded that the evidence did not support the concerns about the substance

ofthe report. We did conclude that the Agency was remiss in failing to disclose certain facts

relating to the Interim Report with sufficient transparency. As a result ofthis action, the

reliability ofthe Interim Report was called into question and the concerns raised by the Senators

were well founded. The CFTC OIG transmitted detailed results ofthis investigation to the four

Senators on September 11, 2008.

2. OIG Response to Allegations Regarding the Transit Subsidy Program.

CFTC OIG received allegations regarding different aspects ofthe transit subsidy program

at CFTC Headquarters. Due to the idiosyncratic nature ofthe allegations, a full description

could reveal the identity ofthe target(s) and possibly the source(s) ofthe allegations. No

referrals were made to the Agency or law enforcement authorities for further action.

3. OIG Response to Allegations Regarding CFTC Contracts.

CFTC OIG received allegations regarding performance and other issues relating to

Agency contracts. One preliminary investigation was completed; a second allegation, which

appeared solely to allege a potential legal dispute, was referred to the Office of General Counsel.

8
SUMMARY OF MATTERS REFERRED TO

PROSECUTORIAL AUTHORITIES

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

CONGRESSIONAL INQUIRIES

OIG fielded multiple requests for assistance from members of Congress and staff during

the reporting period. Issues addressed included constituent concerns and recent OIG activities.

In addition, OIG received the previously discussed request for and concluded its investigation

concerning allegations relating to the Interagency Task Force on Commodity Markets Interim

Report on Crude Oil.

LEGISLATIVE, REGULATORY AND RULE REVIEWS

1. Introduction and Summary.

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

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

and makes recommendations regarding more effective or efficient alternatives or protections

against fraud and abuse. OIG also reviews all exchange rule proposals circulated to senior staff

at CFTC.

OIG 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 during this reporting period.

2. Rule Reviews Initiated in Previous Reporting Periods.

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

into this reporting period.

3. Rule Reviews Initiated this Reporting Period.

No rule reviews were initiated during this reporting period.

9
4. Legislative Activities.

OIG tracked legislation impacting programs and operations ofthe CFTC, and made

contact with Congressional staff concerning various agency and IG issues as appropriate. OIG

reviewed and began implementing procedures to meet website requirements imposed on

Inspectors General by the FY 2008 Consolidated Appropriations Act. In addition, OIG

continued to track the proposed Inspector General Reform Act of2008, Senate Bill 2324. The

IG serves on the legislation committee for the Executive Council on Integrity and Efficiency,

which comments on proposed amendments to the IG Act and other legislation affecting the IG

community.

OTHER REVIEWS

1. Peer Reviews.

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

General community's annual report, A Progress Report to the President, Fiscal Year 2007,2

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

Government Auditing Standards require that audit organizations conducting audits

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

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

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

systems are adequate and provide reasonable assurance that applicable auditing

standards, policies and procedures are met.

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

requirements ofthe Quality Standardsfor Investigations and determine whether

adequate internal safeguards and management procedures exist to ensure that law

enforcement powers are properly exercised.3

During this reporting period, OIG continued to monitor the government-wide OIG peer

review schedules as communicated by the Executive Council on Integrity and Efficiency. OIG

discussed scheduling issues with our partner OIG offices as appropriate. No peer reviews were

begun or completed during this reporting period.

2. Other Reviews.

No other review activity took place during this reporting period.

2 http://www.ignet.gOY/randp/fy07apr.pdf.

3 Id. atp.19.

10
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 (mandated under section 5(a)(5) ofthe Act).

REVISED MANAGEMENT DECISIONS

No management decisions were revised during the reporting period.

INSPECTOR GENERAL DISAGREEMENT

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

recommendations during the reporting period.

GAO LIAISON

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

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

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

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

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

programs and operations.

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

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

and the methods ofreaching the goals so as to minimize the requirements placed on CFTC

resources.

11
STRATEGIC PLAN FOR THE

OFFICE OF THE INSPECTOR GENERAL

1. Investigative Agenda.

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

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

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

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

the public health and safety.

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

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

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

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

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

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

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

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

5510.

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

investigative agenda has been established.

2. Legislative and Regulatory Review Agenda.

Because ofthe importance ofthis activity in a financial and economic regulatory agency,

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

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

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

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

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

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

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

Flexibility Act and the Paperwork Reduction Act.

12
The Regulatory Flexibility Act requires the agency to evaluate the impact of its

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

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

necessary to achieve the stipulated objectives.

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

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

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

established.

3. Audit Agenda.

a. Introduction

The primary objectives ofthe OIG audit agenda is to promote long-term efficiency and

effectiveness in the administration and operation ofthe Commission and to protect against fraud

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

factors:

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

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

b. Annual Audits

The following required audits are performed on an annual basis.

Audit ofCompliance with the Federal Managers' Financial Integrity Act, FMFIA.

In support of OMB Circular A-123 (Revised), the Inspector General will evaluate,

provide technical assistance and advise the agency head as to whether the agency's review and

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

13
Evaluation ofthe CFTC Information Security Management Act, FISMA.

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.

Audit of CFTC Financial Statements.

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

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

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

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

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

and OMB Bulletin 01-02.

c. Other Audits.

OIG intends to focus the balance of its audit resources on the review ofthe management

and operation ofthe agency and compliance with Congressional mandates. Specifically,OIG

intends to continue to monitor the agency's use of contractors from time to time, with an

emphasis on contracts for IT services. In addition, OIG intends to focus its efforts with a view to

auditing or reviewing activities relating to the most serious management challenges facing the

CFTC.

OIG issues an assessment ofthe most serious management challenges each year for

publication in the CFTC Performance and Accountability Report. In the past three years, OIG

has identified as management challenges the following areas of concern:

• Modernization ofElectronic Market Surveillance

• Expansion of CFTC Oversight into New Markets

• Industry Consolidations

• Exchange Trading Revolutions (Growth ofDerivative Trading)

• Human Resources Planning

• Challenges in the Marketplace (Recent innovations in the industry such as the initial

public offerings ofmajor Chicago basedfutures exchanges andfutures commission

merchants (FCM))

OIG will seek to identify issues and to conduct audits and reviews relating to these management

challenges. Finally, OIG will stand ready to respond to issues and audit requests as they are

received from Congress, the Agency and members ofthe public or any other source.

14
d. Resources Required.

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

next five years further reviews ofthe agency's use of contractors. One-halfstaff year of effort

will be devoted over each ofthe next five years to the "Annual Audits" described above. All

other Audits will consume up to one and a halfstaff years. Because OIG resources can be

diverted at any time to an investigation or audit that responds to current concerns or allegations,

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

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

year to year.

CONTACTING THE OFFICE OF THE

INSPECTOR GENERAL

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.

15
Table 1

Reports Issued with Questioned Costs

(April!, 2008 - September 30, 2008)

Number

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

(1)

( 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

16

o o o
Table 2

Reports Issued with Recommendations

That Funds be Put to Better Use

(Aprill, 2008 - September 30, 2008)

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

17

o o