Federal Real Property: Commodity Futures Trading Commission Needs Better Leasing Guidance to Improve Cost-effectiveness
Published: 2016-04-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The CFTC regulates certain financial markets, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) expanded its regulatory responsibilities. Prior to enactment of the Dodd-Frank Act, in anticipation of these increased responsibilities, the agency began planning for more space to accommodate additional staff in each of four office locations.
GAO was asked to review CFTC's staffing, leasing practices, and costs. This report examines: (1) the extent to which CFTC made cost-effective decisions and used leading government guidance in planning for additional space in fiscal years 2008 through 2015 and (2) potential options to improve the cost-effectiveness of CFTC's future leasing. GAO (1) reviewed applicable federal laws, regulations, and guidance that apply to real property leasing and CFTC's space-planning documents and leases for the fiscal years 2008 through 2015; (2) analyzed data and conducted interviews with key officials from CFTC and GSA; and (3) visited all four CFTC offices.
section_title: What GAO Found
paragraphs: The Commodity Futures Trading Commission (CFTC) did not make cost-effective decisions consistent with leading government guidance for lease procurement and internal controls when planning for additional space in fiscal years 2008–2015. CFTC began planning for expansion in the fiscal year 2009 time frame—more than a year before the enactment of the Dodd-Frank Act in July 2010. CFTC renewed leases and expanded space in its Washington, D.C., headquarters and three regional offices in anticipation of receiving funding to hire additional staff but did not receive the amounts requested. As a result, CFTC has lease obligations for currently unused space some of which extends through 2025. Overall, the total occupancy level for all four offices combined was about 78 percent as of the end of fiscal year 2015, and each office has different occupancy levels, as shown in the figure below. CFTC has independent authority to lease real property, including office space. The two documents CFTC uses to guide the lease procurement process provide some high-level guidance on this process, but the documents do not establish specific policies and procedures to help ensure cost-effective decisions. By comparison, leading government guidance, from the General Services Administration (GSA) includes comprehensive details on lease procurement. The lack of this type of detail may have contributed to CFTC's making decisions that were not cost-effective.
GAO identified several potential options that CFTC may pursue now and in the future to increase space utilization and improve the cost-effectiveness of its leasing arrangements: (1) relocating offices to less costly locations, (2) reducing office space requirements through enhanced telework, and (3) consolidating two regional offices—Kansas City and Chicago. CFTC officials told GAO that these options may not be feasible; however, the officials have not fully assessed these options or their potential for improving cost-effectiveness and do not have a timeline for doing so.
section_title: What GAO Recommends
paragraphs: To help ensure cost-effective leasing decisions, GAO recommends that CFTC (1) ensure that its revised leasing policies and procedures incorporate leading government guidance and (2) establish a timeline for evaluating and documenting options to potentially improve space utilization and reduce leasing costs. CFTC generally concurred with GAO's recommendations but noted that it would not be able to take actions to reduce lease costs in the near term.

section_title: Letter
paragraphs: The Commodity Futures Trading Commission (CFTC)—an independent  regulatory agency with authority to lease real property, including office  space—is responsible for regulating the commodity futures market. The  Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) expanded CFTC’s role by adding the previously unregulated  swaps market to its regulatory responsibilities––a market nearly dozen  times the size of the futures market. The Dodd-Frank Act requires or  authorizes various federal agencies, including CFTC, to issue hundreds  of regulations to implement its reforms. To address these new  responsibilities, the agency began planning to expand its existing space  or lease new space in fiscal year 2009 in each of its four office locations  and implemented this expansion in fiscal years 2010 through 2012.  According to CFTC officials, this expansion was based in part on the  additional staff the agency determined it would need to meet the  requirements of the Dodd-Frank Act once it became enacted. We have  designated federal real property management, as a high risk area in part  due to the government’s overreliance on costly, long-term leasing.
You asked us to review CFTC leasing practices, staffing, and costs. This  report examines: (1) the extent to which CFTC made cost-effective  decisions and followed leading government guidance in planning for  additional space and staff for fiscal years 2008 through 2015 and (2) what  potential options exist to improve the cost-effectiveness of CFTC’s  leasing.
To address the extent to which CFTC made cost-effective decisions and  followed leading government guidance to plan for additional space, we  reviewed GSA leasing guidance, Standards for Internal Control in the  Federal Government, and our prior work on federal real property. We  also reviewed and analyzed CFTC’s strategic plans, lease procurement  policies, and space planning documents covering fiscal years 2008  through 2015. Further, we reviewed applicable federal laws and  regulations. Moreover, we obtained and analyzed CFTC data on lease  payments, rentable square feet (rsf) and lease expansions, and its  staffing history. We determined how CFTC lease costs compare to those  of other federal agencies and the private sector in commercial buildings in  markets where CFTC offices are located by analyzing data from the  General Services Administration’s (GSA) inventory of federal agency  leases for fiscal years 2013 through 2015––the years for which these  data were available––and data collected by the Building Owners and  Managers Association International (BOMA). To assess the reliability of  these data, GSA, and BOMA officials about how they collect and maintain  the data, as well as the completeness of the data, and we determined that  the data were sufficiently reliable for the purposes of our report.
To identify what potential options exist to improve the cost-effectiveness  of CFTC’s leases, we reviewed and analyzed CFTC’s legal authority to  lease real property. We reviewed a current presidential memorandum and  Office of Management and Budget (OMB) real property management  initiatives, including OMB’s National Strategy for the Efficient Use of Real  Property (National Strategy), a GSA study on workspace utilization, and  our prior work. We also obtained and analyzed CFTC leases from fiscal  years 2008 through 2015 and conducted site visits at each of CFTC’s four  offices. We interviewed CFTC officials at the Washington, D.C.,  headquarters and each of the regional offices (Kansas City, MO; Chicago,  IL; and New York, NY) about business processes, staffing, space  planning, and management procedures. Additionally, we interviewed the  CFTC Office of Inspector General’s (OIG) officials about their reviews of  CFTC’s space utilization. We interviewed GSA officials to understand  their perspectives on federal lease procurement, including those agencies  with independent leasing authority. Appendix I contains additional  information on our scope and methodology.
We conducted this performance audit from June 2015 to April 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Commodity Futures Trading Act of 1974 (the Act) established the  Commodity Futures Trading Commission (CFTC) as an independent  agency to better enforce the Commodity Exchange Act and oversee and  regulate what was at the time an increasingly complex futures markets.  The Act requires the agency to simultaneously submit its budget request  to House and Senate Appropriations and oversight committees. The Act  also grants independent leasing authority to CFTC. As such, the CFTC  is not required to obtain its space through GSA.
Commodity futures’ trading has grown increasingly complex since its 19th  century origins when agricultural commodities dominated the industry.  During the 20th century, futures’ trading expanded to include greater  diversity in commodities, such as metals, oil, and financial products,  including stock indexes and foreign currency. Subsequently, the Dodd- Frank Act expanded CFTC’s regulatory jurisdiction to include the  previously unregulated over-the-counter derivatives market, commonly  known as the “swaps” market.
CFTC, with a fiscal year 2015 budget of approximately $250 million, is  responsible for administering and enforcing provisions of the Commodity  Exchange Act, fostering open and transparent markets, and protecting  futures markets from excessive speculation, commodity price  manipulation, and fraud. The agency maintains four mission-related  oversight divisions:
Market Oversight: conducts trade surveillance and oversees trading  facilities such as futures exchanges;
Swap Dealer and Intermediary Oversight: oversees registration and  compliance in the derivatives market;
Clearing and Risk: oversees derivatives clearing organizations and  other major market participants; and
Enforcement: investigates and prosecutes alleged violations of the  Commodity Exchange Act.
In addition, the agency maintains several divisions related to functional  operations and support in its four locations. CFTC closed two regional  offices in Los Angeles and Minneapolis in 2003 and 2007, respectively.
section_title: CFTC Did Not Make Cost-effective Decisions Consistent with Leading Government Guidance when Planning for Additional Space
paragraphs: CFTC began planning to substantially expand leased space prior to the  enactment of the Dodd-Frank Act and then entered into leases that did  not make efficient use of limited government resources. CFTC lease  costs vary compared to other federal leases in the same markets. With  the exception of its Washington, D.C., headquarters, CFTC’s rsf costs are  lower or about the same as lease costs among other federal agencies in  the regional office locations. CFTC followed some elements of leading  government-leasing practices; however, the agency lacked  comprehensive policies and procedures to guide efficient and cost- effective decisions for lease procurement. As a result, CFTC currently has  lease obligations for unused space that extend to 2021 and beyond.
subsections: section_title: CFTC Did Not Fully Assess the Risk of Not Receiving Requested Funding when Leasing Additional Space
paragraphs: CFTC renewed leases and expanded space in its Washington, D.C.,  headquarters and three regional office locations, prior to receiving the  funding necessary to hire staff to occupy the additional space.  Anticipating the increased oversight that would result from regulating and  monitoring the swaps market, CFTC began planning for the expansion of  its leased space in the fiscal year 2009 time frame—more than a year  before the enactment of the Dodd-Frank Act in July 2010. The resulting  leasing decisions negatively impacted the CFTC’s space utilization and  resulted in inefficient use of limited government resources. Federal  standards for internal control call for agencies to identify and analyze  relevant risks associated with achieving agencies’ objectives. According  to these standards, management needs to comprehensively identify risks  and should consider all significant interactions between the entity and  other parties as well as internal factors at both the entity-wide and activity  level, including considering economic conditions. Although CFTC’s  leasing decisions from fiscal years 2009 to 2012 significantly increased its  space, CFTC could not provide us with an analysis of risks related to  these decisions. CFTC has incrementally amended leases and expanded  space in its Washington, D.C., headquarters since first occupying the  building in 1995, and in 2009, CFTC extended the lease that was set to  expire in 2015 by 10 years (through the end of fiscal year 2025) and  expanded its leased space by more than 78 percent from fiscal years  2010 through 2012. Similarly, CFTC amended existing leases and  expanded space in its Chicago and New York regional offices in 2009 and  2011, respectively, and in 2011, CFTC relocated its Kansas City regional  office to a larger space.  As discussed below, these expansions resulted  in reduced rates of occupancy and increased costs.
subsections: section_title: Square footage of Leased Space Increased
paragraphs: As Table 1 shows, overall, the CFTC increased its leased space by 74  percent from fiscal year 2008 through fiscal year 2015. The greatest  increase occurred in the Kansas City Regional Office where the volume of  office space more than doubled. Also, during this period, the Kansas City  Board of Trade closed and merged with the Chicago Mercantile  Exchange.  In the Chicago and New York regional offices, CFTC also  increased leased space—adding approximately 20,000 square feet in  Chicago and 22,000 square feet in New York. According to CFTC, the  additional space currently gives the agency the capacity to accommodate  1,289 staff overall.
The agency requested additional funding to cover its new regulatory  responsibilities and, as figure 1 below demonstrates, in fiscal years 2009  and 2010 the CFTC was appropriated funding in excess of its request.  Figure 1 also shows that this period was followed by 5 years of  appropriations less than the amount requested. Therefore, the CFTC  could not expand its staff at a rate that would allow for full utilization of the  additional leased space. On average, the agency received about 109  percent of the funding it requested in fiscal years 2009 and 2010 and  about 76 percent of its requests from fiscal years 2011 through 2015.
Figure 1 illustrates that––while not always granting CFTC’s full funding  request––Congress increased funding in nominal terms for CFTC every  year from fiscal year 2008 through fiscal year 2015––with the exception of  fiscal year 2013 when funding declined slightly. In other words, CFTC’s  fiscal year 2015 appropriations represent an increase of nearly $138  million, or about 123 percent, when compared to fiscal year 2008. The  amount CFTC allocated versus the amount it requested for staff follows a  similar pattern. In fiscal years 2009 and 2010, based on its higher than  requested appropriation, CFTC hired more staff than it had anticipated. In  the following 5 fiscal years, with a lower appropriation, it hired fewer staff  than requested. CFTC, on average, hired about 13 percent less staff than  it originally requested between fiscal year 2008 and fiscal year 2015 (see  fig. 2).
CFTC federal employee staffing increased in absolute terms by about 53  percent from fiscal year 2008 through fiscal year 2015, according to  CFTC data (see table 2 below). Moreover, CFTC greatly expanded the  number of on-site contractors it employs, an increase of about 324  percent during the same period. According to CFTC, since commodity  futures’ trading is increasingly electronic and data intensive, most of the  CFTC’s on-site contractors are involved with operating and maintaining  CFTC’s electronic data systems. This increase also reflects the $35 to  $55 million Congress set aside for the purchase of information technology  in the appropriations for fiscal years 2012, 2014 and 2015. When CFTC’s  employees and on-site contractors are combined, aggregate agency  staffing increased from 549 to 1006, or more than 80 percent, from fiscal  years 2008 through 2015. This increase, however, falls below the  approximately 1,289 positions for which the CFTC leased additional office  space.
As discussed below, expanding leased space before obtaining an  appropriation to fund additional staff has resulted in substantial space  underutilization, which increased the space allocation per CFTC staff  member (including CFTC employees and on-site contractors). According  to our analysis of CFTC data, the overall allocation of useable square feet  (usf) per CFTC staff member in fiscal years 2008 through 2010 was 303  square feet on average. From fiscal years 2011 through 2015, the  allocation increased to 465 square feet on average in contrast to the  approximately 300 usf per employee noted in CFTC’s 2009 Program of  Requirements, a space-planning document for all four of the agency’s  office locations.
The total space utilization for all four CFTC offices combined was about  78 percent at the end of fiscal year 2015. However, each office had  differing levels of space utilization, as figure 3 below illustrates, according  to our analysis of CFTC data.
As figure 3 above illustrates, the Kansas City Regional Office is the most  underutilized of the four offices with a staff of 31, including contractors,  housed in space intended to accommodate 72. When we visited the  Kansas City office, officials told us that CFTC vacated approximately a  third of its leased space in response to the CFTC’s OIG recommendation  that the agency take steps to dispose of underutilized property in that  location, including subleasing or returning the space to the landlord (see  figure 4 below). According to CFTC officials, the only effective option to  cease paying for the vacant space in Kansas City involves negotiating  with the landlord to return the space. The landlord agreed to try to lease  the vacant floor; however, there has been limited interest thus far, and  CFTC continues to pay rent on the vacant space.
In our review of CFTC leases, we found that all of the leases include  provisions for subleasing space. CFTC officials told us that the agency  was only authorized to enter into subleases in circumstances where the  sublease would further the purposes of the Commodity Exchange Act.  According to CFTC, subleasing the space in a manner that furthers the  purposes of the Act would, as a practical matter, be very difficult to  accomplish.
The CFTC’s OIG released additional reports in 2015 that found  underutilized space in the Chicago and New York City Regional offices  but not nearly to the extent found in the Kansas City Regional Office.  The report on the Chicago Regional Office recommended better utilization  of space. According to our analysis of CFTC’s data, space utilization in  the Chicago office improved as CFTC increased the number of staff  (including contractors) from 137 in fiscal year 2014 to 150 in fiscal year  2015. The Chicago office currently utilizes about 88 percent of its space  (see fig. 3). With regard to the New York City Regional Office, the OIG  recommended that CFTC sublet or negotiate returning the additional  space it leased beginning in fiscal year 2012. Our analysis of CFTC data  found that space utilization in the New York City office, similar to the  Chicago office, also improved as staff increased (including contractors)  from 80 to 91, or nearly 14 percent, from fiscal year 2014 to fiscal year  2015. When we visited the New York City office in January 2016, we  observed vacant offices, some of which were unfinished, unventilated,  and not adjacent to one another. As of the end of fiscal year 2015, the  New York City office had a utilization rate of 68 percent (see fig. 3). CFTC  officials said that they have notified the landlord that they would like to  return some space on one floor, but the building currently has a vacancy  rate of about 30 percent, so this space would likely be difficult to rent.
section_title: CFTC Lease Costs Increased
paragraphs: According to CFTC data, combined lease costs for all CFTC offices  reached about $20.6 million in fiscal year 2015—a 79 percent increase in  nominal dollars over the combined fiscal year 2008 lease costs (see app.  II for details on lease costs). All four of the CFTC office leases typically  cover a period of 10 years. As such, the current leases will not expire until  fiscal years 2021 through 2025. The Kansas City Regional Office lease  will expire first in 2021, followed by New York in 2022, Chicago in 2022,  and Washington, D.C., in 2025. According to CFTC, lease renewal  planning typically begins about to 2 years in advance of lease expiration,  so it is reasonable to expect CFTC to begin planning around fiscal year  2019.
CFTC officials told us that they converted certain Tenant Improvement  Allowances (TIA) provided under leases into rent abatements in order to  reduce rent in 2011, 2012, and 2013. CFTC used TIA to complete  improvements and alterations to the CFTC office space in Washington,  D.C., Chicago, New York, and Kansas City, as well as to cover such  costs as architectural expenses, furnishings, equipment, cabling, and  moving expenses for the CFTC offices. In addition, under the terms of  certain leases, unused portion of the TIA could be converted to rental  abatement and then used to offset rental payments. For example, the  Kansas City Regional Office lease sets the TIA at $35 per rentable  square foot. According to our analysis, at this rate, $852,670 was  available for tenant improvements, and for this particular lease, any  amount not expended in the first 6 months was available as a rebate  against the rent expense. As appendix II shows, CFTC used $78,222 of  TIA in fiscal year 2013 as a rent credit. CFTC did not state how it used  TIA for space planning.
section_title: CFTC Lease Costs Vary Compared to Those of Other Government Agencies
paragraphs: We compared CFTC’s lease costs for fiscal year 2013 through fiscal year  2015 to average lease costs of other federal agencies that lease through  GSA in privately owned buildings in the four markets where CFTC has  offices. We also compared the cost of private sector leases, as measured  by the Building Owner Management Association (BOMA) for 2013 and  2014, a widely recognized industry association. As table 3 below shows,  with the exception of the Washington, D.C., headquarters––where CFTC  2015 lease costs are about 18 percent higher than the average lease  costs for federal agencies leasing office space through GSA––CFTC’s  rentable square foot costs are lower or about the same as lease costs  among other federal agencies in the regional office locations. More  specifically, CFTC’s lease costs were lower than those of other federal  agencies in Kansas City and New York and slightly higher than those of  other federal agencies in Chicago (see table 3 below).
As discussed previously, the CFTC began planning space expansion  more than one year before the Dodd-Frank Act was signed into law and  entered into leasing decisions in response to anticipated requirements of  Dodd-Frank without fully assessing the risk of not receiving appropriations  sufficient to execute its plans. According to CFTC OIG estimates, the  failure to consider this risk has resulted in the agency possibly spending  as much as $74 million for vacant space, if current conditions persist  through the end of the current leases in fiscal years 2021 through 2025.  Thus, the CFTC is not carrying out its mission in an efficient and cost- effective manner.
section_title: CFTC Used Some Leading Government Guidance when Procuring Space but Lacked Comprehensive Policies and Procedures
paragraphs: Both CFTC’s guidance and GSA guidance share a common purpose: to  maximize the value for the government while also fulfilling the agency’s  mission. CFTC’s Statement of General Principles, which outlines the  actual lease acquisition process, states a goal of maximizing competition  to the extent practicable and making reasonable decisions to obtain  space that enable the Commission to accomplish its mission in an  efficient and cost-effective manner. Similar to CFTC’s Statement of  General Principles, GSA’s Leasing Desk Guide states that it aims to help  ensure that it leases quality space that is the best value for the  government. However, CFTC’s guidance is very high-level and lacks the  detail of GSA’s guide, which provides more comprehensive leasing  policies and procedures. According to federal standards for internal  control, policies and procedures help ensure that actions are taken to  address risks and are an integral part of an entity’s accountability for  stewardship of government resources. When we applied this standard,  we found that CFTC’s policies did not include guidance to assess the risk  of not receiving its full budget requests.
CFTC has two documents, the 2009 Program of Requirements and the  2011 Statement of General Principles, that comprise its leasing guidance.  The Program of Requirements, according to CFTC officials, is a space  planning document for all four of its office locations. It provides  information on projected employee and contractor staff size; and  requirements for offices, workstations, common use areas and other  space needs. Based on the Statement of General Principles, CFTC  follows select portions of leading government guidance, and regulation  that facilitate: maximizing competition to the extent practicable; avoiding  conflicts of interest; adhering to the requirements of procurement integrity;  and making reasonable decisions to obtain space that enables the  Commission to accomplish its mission in an efficient and cost-effective  manner. For example, CFTC officials told us that they followed select  portions of leading government guidance when they began expanding  space in 2009.
Consistent with internal control standards, GSA’s guidance provides  comprehensive details on ways to formulate, document, and  operationalize lease procurement. For example, GSA’s Leasing Desk  Guide specifically states that confirming space requirements includes  verifying that the client has appropriate funding. By comparison, CFTC’s  guidance does not include this level of detail. The lack of this type of  specificity in CFTC’s guidance may have contributed to not executing its  lease procurements consistent with standards for internal control and  thereby not making cost-effective decisions. Although CFTC officials told  us that the agency relies on a commercial real estate broker for all  phases of the office space acquisition process—including (1) conducting  market surveys, advertising CFTC’s requirements and drafting  solicitations for offer; (2) analyzing offers received; and (3) reviewing  lease documents—this reliance did not prevent the agency from entering  into lease agreements before the agency had the funding necessary to  staff the space.
Federal internal control standards also state that significant decisions  need to be clearly documented and readily available for examination.  CFTC could only provide us with partial documentation and analysis of  how it made decisions to enter into new or expanded leases. CFTC  officials told us that they could not locate additional documentation  because the employees who had responsibility for leasing had left the  agency. Without this documentation, future decision makers may lack the  institutional knowledge they need to make informed decisions.
Utilizing leading government guidance could have helped CFTC to make  reasonable decisions to obtain space that enables the Commission to  accomplish its mission in an efficient and cost-effective manner—in  keeping with its Statement of General Principles. In its Fiscal Year 2014  Agency Financial Report, CFTC says it plans to review and revise its  space-related policies and procedures in keeping with OMB’s National  Strategy for efficient use of space and real property. As of February 2016,  CFTC officials told us that these policies and procedures are under  review, but could not provide any other details or a timeline for  completion. Further, when the current leases expire between April 2021  and September 2025, it will have been approximately 10 years since the  agency last undertook lease procurement. Without comprehensive  policies and institutional knowledge, the agency may be at risk of  continuing to make decisions that do not make the best use of limited  government resources.
section_title: Potential Options for Improving Cost- effectiveness of CFTC’s Leasing Include Relocating, Teleworking, and Consolidating Regional Offices
paragraphs: As noted above, based on an executive branch memo and initiatives, a  GSA study, and our own research, we have identified several options that  CFTC may pursue now and in the future to increase space utilization and  improve the cost-effectiveness of its leasing arrangements: (1) relocating  offices to less costly locations, (2) reducing office space required through  increased telework, and (3) consolidating two regional offices—Kansas  City and Chicago. CFTC officials told us that these options may not be  achievable before their current leases expire. However, they have not  fully examined the current feasibility of these options or their potential  impact on reducing leased space and increasing cost-effectiveness in the  future. Looking ahead, CFTC’s current leases are set to expire from fiscal  year 2021 through 2025, and CFTC officials said that a reasonable  practice is to begin planning for leasing activities 2 years prior to lease  expiration. In the case of high-value leases—those with an annual rent  above $2.85 million— GSA’s Leasing Desk Guide suggests the lease  acquisition process begin 3 to 5 years prior to lease expiration. In keeping  with these time frames, CFTC would begin planning for new leases in the  next few years; however, CFTC does not have a timeline for doing so.
subsections: section_title: Moving Offices to Less Costly Locations
paragraphs: CFTC’s offices in Washington, D.C., Kansas City, Chicago, and New York  City are located in privately owned buildings in close proximity to the  financial markets they oversee. According to CFTC, these locations  support the agency’s oversight role, as, for example, the Dodd-Frank Act  requires CFTC to perform annual examinations of two important  derivatives clearing organizations––organizations that process the  financial transactions involved in futures trading. The examination of  these organizations requires meetings with officials and routine on-site  examinations of their operations. However, there are federal buildings in  Chicago and New York City also conveniently located within walking  distance of the current locations of CFTC’s Chicago and New York City  offices. According to CFTC officials, they did not consider leasing space  in the federal buildings in these locations during the time they entered into  new or expanded leases. Without doing this analysis, CFTC officials  could not know whether the federal buildings may have had available  space at a lower rent per square foot at the time they entered into lease  agreements. As a result, they may not have acquired space in a cost- effective manner, per their Statement of General Principles.
CFTC’s Washington, D.C., headquarters is located in the Central  Business District submarket, which has one of the highest average rental  rates in the region. By comparison, some other federal agencies have  located their headquarters outside of downtown Washington, D.C. For  example, the Farm Credit Administration, an independent regulatory  agency that examines the banks, associations, and related entities of the  Farm Credit System, located its headquarters in suburban northern  Virginia. Further, the U.S. Department of Commerce’s Economics &  Statistics Administration announced, in January 2016, that it plans to  move its Bureau of Economic Analysis—approximately 590 employees— from private leased space in downtown Washington, D.C., to federally  owned space in suburban Maryland. According to the U.S. Department of  Commerce, the new location is expected to save taxpayers $66 million  over 10 years.
The 2010 presidential memorandum directs executive branch agencies to  dispose of unneeded federal real estate, including a specific directive to  “take immediate steps to make better use of remaining property assets as  measured by utilization and occupancy rates.” Additionally, a fiscal year  2016 House appropriations bill committee report directs CFTC “to find  ways to decrease space and renegotiate leasing agreements.” CFTC  has conducted some analysis of optimizing space and potential lease- cost reductions for its current locations. CFTC officials said that under  current lease agreements, the agency has limited options for negotiating  changes in the lease terms. For example, the leases lack provisions that  would allow CFTC to terminate leases prior to the agreed-upon term in  such a way that CFTC would not still be responsible for the remaining  rent payments. However, CFTC has not calculated the complete analysis  of potential costs and benefits of relocating offices. Without this type of  analysis, CFTC cannot make fully informed decisions about the cost-  effectiveness of relocating its offices in the near term nor fully assess  alternatives available to improve its space utilization.
section_title: Teleworking
paragraphs: According to a 2011 GSA study, federal agencies and private sector  organizations have been forced to continuously evaluate their current  workspace utilization. The Telework Enhancement Act of 2010 required  the head of each executive agency to establish and implement a telework  policy for eligible employees and requires the Office of Personnel  Management to assist agencies in establishing appropriate qualitative  and quantitative measures and teleworking goals. GSA’s study states  that federal agencies’ expanded use of telework could reduce their real  estate footprint and real estate costs. With wireless communication tools,  such as smart phones and wireless networking available, federal  agencies and private organizations have turned to alternative work  environments with the potential to reduce workspace costs and optimize  physical workspace. OMB’s National Strategy notes that employee  telework, among other things, has resulted in a need for less space. For  example, we found in 2013 that some agencies, such as GSA and the  U.S. Department of Agriculture’s Forest Service, have adopted “office  hoteling arrangements,” a practice of providing office space to employees  on an as-needed basis. This reduces the need for an additional amount of  physical space that an agency needs to purchase or rent. Specifically,  GSA implemented a hoteling program for all employees that allowed it to  eliminate the need for additional leased space at four locations in the  Washington, D.C., area, resulting in projected savings of approximately  $25 million in annual lease payments and about a 38 percent reduction in  needed office space. Further, the U.S. Forest Service uses hoteling,  among other alternative workplace arrangements, to save an estimated  $5 million in annual rent.
Currently, 77 percent of CFTC employees have agreements for either  recurring or episodic telework (see table 4).
According to GSA’s study, the average workspace typically costs  between $10,000 and $15,000 annually per person. Eliminating 100  workspaces, for example, could conceivably save an organization over $1  million a year. While CFTC officials told us that they do need an on-site  presence in certain cases, such as for oversight and enforcement  activities, since commodity futures trading is now wholly electronic,  according to CFTC officials, increased teleworking could be a possible  alternative to reduce CFTC’s rental space costs in future leases. CFTC  officials said that their current policy allows for recurring telework 1 to 2  days every 2 weeks but have not assessed the option of increasing  telework and reducing leased space as current leases expire and are  renewed. However, CFTC officials said they have efforts under way to  consider what policy makes sense for their operations.
section_title: Consolidating the Kansas City and Chicago Regional Offices
paragraphs: OMB’s National Strategy states that a key step in improving real property  management is to reduce the size of the inventory by prioritizing actions  to consolidate, co-locate, and dispose of properties. As discussed, the  Kansas City regional office currently has 31 staff working in office space  that accommodates 72. In addition, the Kansas City Board of Trade  merged with the Chicago Mercantile Exchange in 2012. According to  CFTC officials, the Kansas City Board of Trade only traded futures and  options for one product (hard-red winter wheat) during all or substantially  all the period from fiscal years 2008 through 2012. The majority of  Kansas City CFTC staff are involved with enforcement, swap dealer and  intermediary oversight, and market oversight––similar to the staff in the  Chicago office. Further, the Chicago Regional Office also has  underutilized office space and, according to our analysis, could possibly  accommodate staff from the Kansas City office. We found that CFTC’s  space could be better utilized in both of these regional offices. As noted  above, for the Kansas City regional office, CFTC officials have said that  they have been unable to return their unused space. According to CFTC  officials, they have not assessed the option of possibly consolidating  these two regional offices. As a result, CFTC may continue to pay for  vacant space through the duration of the Kansas City lease until 2021.
While not an exhaustive list, these options—relocation, telework, and  consolidation—are in keeping with OMB’s National Strategy to realize the  greatest efficiency, reduce portfolio costs, and conserve resources for  service and mission delivery.
section_title: Conclusions
paragraphs: CFTC began planning to substantially expand leased space in  anticipation of proposed requirements prior to the enactment of the Dodd- Frank Act. The agency renewed leases and expanded space in its four  office locations before fully assessing the risk of not receiving sufficient  funding to hire staff to use the space. By not considering this risk, CFTC  has taken on the obligation to potentially pay as much as $74 million for  unused space over the term of the current leases—a situation that could  span more than a decade, given the agency’s lease obligations. We  found that CFTC did not have comprehensive leasing policies or  procedures in place, but followed some leading government guidance  when procuring additional space. This lack of comprehensive policies and  procedures presents challenges in making sound management decisions  to obtain space in an efficient and cost-effective manner. OMB’s National  Strategy states that a key step in improving real property management is  to reduce the size of the inventory. Potentially cost-effective options  include relocating offices to less costly locations, enhancing teleworking,  and consolidating two regional offices—Kansas City and Chicago.  Exploring these possibilities and establishing a timeline for completion  could result in CFTC’s using its available funds in a more cost-effective  manner.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that the CFTC makes cost-effective leasing decisions,  and considers options for reducing future lease costs, we recommend  that the Chairman of the CFTC take the following two actions prior to  entering into any new or expanded lease agreements:
Ensure that as CFTC revises its leasing policies and procedures, it  includes comprehensive details on lease procurement that are  consistent with leading government guidance and standards to assure  cost-effective decisions.
Establish a timeline for evaluating and documenting options to  potentially improve space utilization and reduce leasing costs  including, but not restricted to, (1) moving offices to less costly  locations, (2) implementing enhanced telework, and (3) consolidating  the Kansas City and Chicago regional offices.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to CFTC for review and comment.  CFTC provided written comments, which are summarized below and  reprinted in appendix IV of this report. CFTC also provided technical  comments, which we incorporated as appropriate.
CFTC concurred with our first recommendation that prior to entering into  any new or expanded lease agreements, as CFTC revises its leasing  policies and procedures, it should include comprehensive details on lease  procurement that are consistent with leading government guidance and  standards to assure cost-effective decisions. CFTC stated that it intends  to review its procedures to address the recommendation and to ensure  that the agency makes cost-effective decisions. In addition, CFTC noted  that its staff will engage the General Services Administration (GSA)  regarding how the two agencies can work together to better leverage  GSA's leasing expertise in addressing current leasing issues and  assessing future space requirements. We are encouraged by these plans,  as they have the potential to help CFTC make sound leasing decisions to  obtain space in an efficient and cost-effective manner.
CFTC generally concurred with the second recommendation, which  states that prior to entering into any new or expanded lease agreements,  CFTC establish a timeline for evaluating and documenting options to  potentially improve space utilization and reduce leasing costs including,  but not restricted to, (1) moving offices to less costly locations, (2)  implementing enhanced telework, and (3) consolidating the Kansas City  and Chicago regional offices. Specifically, CFTC stated that it will develop  a timeline and plans for evaluating, initiating, implementing, and  documenting space-related actions, especially as the various lease  expiration dates approach. CFTC further stated that it will continue to look  for actions it can take to make the most efficient use of space. However,  CFTC noted that it does not believe it can reduce leasing costs in the  near term without incurring significant expense and likely increasing the  agency's overall space-related expenses. According to agency officials,  CFTC’s leases generally lack provisions that would allow CFTC to  terminate leases prior to the agreed-upon term. CFTC also did not  specifically agree or disagree to consider the three specific potential  options we suggested for consideration. We continue to believe that  CFTC should consider these options to make the most efficient use of  space prior to entering into any new or expanded lease agreements. The  options we suggested are in keeping with OMB’s National Strategy and  other agencies’ actions to realize the greatest efficiency, reduce portfolio  costs, and conserve resources for service and mission delivery.
We will send copies of this report to the appropriate congressional  committees and the Commissioner of the Commodity Futures Trading  Commission. In addition, the report will be available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at 202-512-2834 or wised@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found at the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the extent to which CFTC made cost-effective  decisions and followed leading government guidance in planning for  additional space for fiscal years 2008 through 2015; and (2) what  potential options exist to improve the cost-effectiveness of CFTC’s  leasing. To identify leading government practices and guidance on  leasing, we reviewed GAO reports on real property and held discussions  with GSA officials. To identify requirements applicable to CFTC leasing,  we reviewed federal laws, and regulations. To address the extent to  which CFTC followed leading government practices and guidance for  leasing additional space, we reviewed and analyzed CFTC’s strategic  plans, lease procurement policies, and space-planning documents  covering fiscal years 2008 through 2015. We also reviewed, analyzed and  evaluated the extent to which CFTC’s leasing practice aligned with: the  Office of Management and Budget’s (OMB) National Strategy for the  Efficient Use of Property, (National Strategy) its Reduce the Footprint  policy; GSA’s leasing practices and guidance on lease procurement and  pricing; and evaluated the extent that CFTC leasing processes were  consistent with the Standards for Internal Control in the Federal  Government. In addition, we also reviewed and analyzed relevant CFTC’s  Office of Inspector General (OIG) reports on space utilization among  three of the four CFTC offices. We also obtained and analyzed CFTC  data on lease payments, rentable square feet (rsf) and lease expansions,  and CFTC’s staffing history.
To assess the reliability of CFTC data, we determined which CFTC data  were derived from computerized data systems, interviewed cognizant  CFTC officials about these systems, and reviewed system  documentation. We determined that these data were sufficiently reliable  for the purposes of our report. To determine costs per rsf, we divided the  lease costs for each CFTC office by its total rentable square footage for  fiscal years 2008 through 2015. To determine the impact of CFTC’s  excess space on its utilization, we converted the leased space from rsf to  useable square feet (usf). We calculated the average rsf per staff member  (including CFTC employees and on-site contractors) for fiscal years 2008  through 2010––the period before CFTC expanded existing or entered into  new leases—and then determined the conversion factor to align this  average with the 300 usf per staff member cited in CFTC’s 2009 Program  of Requirements. Using this factor (21.17 percent), we calculated the  average usf per staff member for fiscal years 2011 through 2015––the  period after CFTC expanded existing or added new leases. To determine  how CFTC lease costs compare to the average cost per rsf of other  federal agencies leasing space in commercial buildings in the four  markets where CFTC offices are located, we analyzed data from GSA’s  lease inventory for fiscal years 2013 through 2015––the years for which  these data are available. We combined the monthly GSA lease inventory  reports into fiscal years and then sorted the data by leases by state and  county matching those where CFTC maintains offices. Next, to better  approximate CFTC leases, we sorted the data to include only those  offices that were 100 percent office space and “fully serviced,” before  dividing rsf by lease costs to determine the cost per square foot for each  lease. We then sorted the leases by size to approximate the size range of  CFTC leases and by location to include only the cities in which CFTC  maintains offices.
To illustrate how CFTC lease costs may compare to the private sector,  we analyzed data from the Building Owners and Managers Association  (BOMA). Specifically, using BOMA’s Experience Exchange Report (EER)  survey data for the four markets, we sorted the data to include privately  owned buildings within the city limits where CFTC maintains offices and  choose the BOMA average cost per rsf for Office Rent Income category.  We confirmed with BOMA officials that “Office Rent Income” from the  building owners’ perspective was the equivalent of cost per rsf from the  tenant perspective. BOMA’s EER survey data have not yet been compiled  for fiscal year 2015. To assess the reliability of these data, we interviewed  GSA and BOMA officials about how they collect and maintain the data, as  well as the completeness of the data, and we determined that the data  were sufficiently reliable for the purposes of our report. However, BOMA  does not collect EER survey data in a way that allows for an assessment  of survey coverage, that is, there is no information available to measure  the percentage of buildings in any given market that are included in the  data, nor is there any information available to measure the extent to  which particular types of buildings may be under-or over-represented.  Therefore, the measures of lease cost per square foot resulting from  BOMA’s EER survey data are not generalizable to other buildings in  those markets for which no BOMA survey data were reported. However,  when reporting measures of cost per square foot from the BOMA EER  survey data, we include the number of buildings with reportable data from  which the measure was derived. We attempted to use Federal Real  Property Profile (FRPP) data to determine per-square-foot lease costs  between fiscal years 2008 through 2014, but based on our analysis of the  data and meetings with GSA, we determined that the data were  unsuitable for that purpose.
To identify what potential options exist that CFTC could consider towards  improving the cost-effectiveness of future lease procurement, we  reviewed and analyzed CFTC’s legal authority to lease properties. We  also obtained and analyzed CFTC leases and conducted site visits at  each of the four offices (Washington, D.C., headquarters, (Kansas City,  MO; Chicago, IL; and New York, NY). We interviewed CFTC officials at  CFTC Headquarters and all of the regional offices about their business  processes, staffing, and space procurement planning and management  procedures. Additionally, we interviewed CFTC Office of Inspector  General (OIG) officials about their findings and ongoing reviews on CFTC  space utilization. Furthermore, we interviewed GSA officials to  understand their perspectives on lease procurement, including those by  agencies with independent leasing authority. Using our analysis of CFTC  leases, space procurement planning documents, policies and procedures,  our interviews with agency officials, along with our review of a current  presidential memorandum, OMB real property management initiatives  and GSA leasing guidance, we identified several potential options CFTC  may consider to improve the cost-effectiveness of its lease portfolio.
We conducted this performance audit from June 2015 to April 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: CFTC Leasing Costs from Fiscal Years 2008 through 2015
section_title: Appendix III: CFTC’s Statement of General Principles and Practices Pertaining to the Award and Administration of CFTC’s Office Space Leases, 2011
subsections: section_title: I.
paragraphs: A.  General Principles:  The general principles governing Commodity Futures Trading Commission (“CFTC” or “Commission”)  acquisition of office space include:
Maximizing competition to the extent practicable;
Avoiding conflicts of interest;
Adhering to the requirements of Procurement Integrity; and
Reasoned decision-making to obtain space that enables the Commission to accomplish its mission in  an efficient and cost-effective manner.
Although neither the Federal Acquisition Regulation (FAR) nor the General Services Acquisition Manual  (GSAM) specifically apply to the acquisition of office space by CFTC, the principles cited above are  embodied in those documents. Accordingly, CFTC has chosen to comply with aspects of their  requirements that facilitate these ends. This is discussed further below.
B.  Applicability of Regulations and Policies:  The FAR does not apply to the acquisition of leased office space. Specifically, the scope of the FAR’ s  coverage is defined in Section 1.104 as follows: “The FAR applies to all acquisitions as defined in: Part 2  of the FAR, except where expressly excluded.” According to Part 2.101(b), the term “acquisition” is  defined as the “acquiring by contract with appropriated funds of supplies or services (including  construction) by and for the use of the Federal Government through purchase or lease, whether the  supplies or services are already in existence or must be created, developed, demonstrated, and  evaluated.” The term “supplies” is defined as “all property except land or interest in land.” Because a lease  of real property, including a lease of office space, is an interest in land, it is not a “supply” and the FAR  does not apply.
The GSAM is also inapplicable to the lease of office space by CFTC. The GSAM applies to the acquisition  of leased office space by GSA and any agencies delegated independent leasing authority by GSA and so  required by GSA to use the GSAM. CFTC’s independent leasing authority was mandated by its  authorizing legislation and not by GSA. Accordingly the GSAM is not required for use by CFTC in its  acquisition of office space for lease.
In the absence of explicit regulatory direction, CFTC has chosen to comply with aspects of these  documents that facilitate the principles cited above. The GSAM is used specifically for its guidance as to  the considerations and findings necessary to support a lease procurement by other than full and open  competition. Additional guidance and processes that may be applicable to lease acquisition are contained  in CFTC’s acquisition policy.
The acquisition process for all lease awards begins with requirements definition and completion of market  research. Market research is used to determine whether CFTC is best served by an open market  competitive acquisition or a follow-on award to the incumbent lessor.
I. Steps in a competitive acquisition of leased office space are as follows:
Develop Program of Requirements
Conduct market survey
Define delineated area
Formulate an acquisition strategy
Advertise requirement
Review expressions of interest
Tour properties
Develop a solicitation list
Draft and issue a Solicitation for Offers
Draft a Technical Evaluation Plan
Designate a Technical Evaluation Committee (TEC)
Evaluate initial offers
Complete initial TEC report
Complete price analysis
Complete Phase II Determination (assumes negotiation, otherwise, the Contracting Officer will draft a  Source Selection Statement at this time)
Conduct negotiations
Solicit and evaluate revised offers
Complete Final TEC Report
Contracting Officer completes Source Selection Statement
Memorialize terms of agreement between the parties in a lease document  2. Steps in award of a lease by other than full and open competition are as follows:
Develop Program of Requirements
Conduct market survey
Complete Justification for Other Than Full and Open Competition
Conduct negotiations
Memorialize terms of agreement between the parties in a lease document  The functional objective of the acquisition process described herein is to acquire office space in a building  that efficiently supports CFTC’s mission; provides a high quality work environment; and offers a  satisfactory breadth and variety of amenities. This outcome must be met in a manner that maximizes  value to the Commission, considering price and technical factors. It must be provided at a price that is fair  and reasonable.
II.  Construction of Space:  CFTC’s office space is constructed in accordance with the terms of its office space lease agreements.  Construction contracts and trade subcontracts, as appropriate, are awarded based on a competitive  process that results in fair and reasonable pricing. CFTC’s Contracting Officer is privy to bid information  and, in consultation with CFTC’s architect, project manager, and other knowledgeable Commission  personnel, approves project pricing as well as any required contract change orders.
III.  Administration of Leases:  CFTC’s Contracting Officer is responsible for analyzing rent-related charges and authorizing payment as  appropriate. The Contracting Officer is also responsible for addressing with the landlord any issues  pertaining to lease compliance. The Office of Management Operations is responsible for day-to-day facility  operational matters and consults with the Contracting Officer on lease-related issues as appropriate.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Amelia Bates Shachoy (Assistant  Director), Lindsay Madison Bach, Dwayne Curry, Lawrance Evans,  Terence Lam, Hannah Laufe, Sara Ann Moessbauer, Minette Richardson,  Amelia Michelle Weathers, and Crystal Wesco made key contributions to  this report.