SUMMARY OF OIG ACTIVITIES [including a description of

significant problems, abuses, and deficiencies and a description of OIG recommendations for corrective action (Mandated by Section 5(a)(1) and (2) of the

Act)] . . . . . . . . . . . . . . . . . . . . . . . . . . 1

AUDITS. . . . . . . . . . . . . . . . . . . . . . . . . . 1

INVESTIGATIONS. . . . . . . . . . . . . . . . . . . . . . 2

LEGISLATIVE AND REGULATORY REVIEWS. . . . . . . . . . . . 3

OIG RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . 3

OIG RESOURCES. . . . . . . . . . . . . . . . . . . . . . . . . 4

CFTC PROGRAMS AND OPERATIONS . . . . . . . . . . . . . . . . . 4

COMPLETED WORK . . . . . . . . . . . . . . . . . . . . . . . . 5

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

(Mandated by Section 5(a)(6) and (7) of the Act). . . . . 5 INVESTIGATIONS. . . . . . . . . . . . . . . . . . . . . . 7

LEGISLATIVE AND REGULATORY REVIEWS. . . . . . . . . . . . 8

AUDIT REPORTS OVER SIX MONTHS OLD. . . . . . . . . . . . . . . 10

CORRECTIVE ACTION NOT COMPLETED [including an

identification of each significant recommendation described in previous semiannual reports on which corrective action has not been completed (Mandated

by Section 5(a)(3) of the Act)] . . . . . . . . . . . . . 10

CORRECTIVE ACTION COMPLETED. . . . . . . . . . . . . . . 12

MANAGEMENT DECISION NOT MADE [including a summary of each audit report issued before the commencement of the reporting period for which no management decision has been made by the end of the reporting period (including the date and title of each such report), an explanation of the reasons such a management decision has not been made, and a statement concerning the desired timetable for achieving a management decision on each such report

(Mandated by Section 5(a)(10) of the Act)]. . . . . . . . 14

SUMMARY OF MATTERS REFERRED TO PROSECUTIVE AUTHORITIES and

the prosecutions and convictions which have resulted

(Mandated by Section 5(a)(4) of the Act). . . . . . . . . 14

SUMMARY OF EACH REPORT MADE TO THE AGENCY HEAD under

Section 6(b)(2) concerning information or assistance unreasonably refused or not provided (Mandated by

Section 5(a)(5) of the Act) . . . . . . . . . . . . . . . 14

REVISED MANAGEMENT DECISIONS [including description and explanation of the reasons for any significant revised management decision made during the reporting period

(Mandated by Section 5(a)(11) of the Act)]. . . . . . . . 15

INSPECTOR GENERAL DISAGREEMENT [including information

concerning any significant management decision with which the Inspector General is in disagreement

(Mandated by Section 5(a)(12) of the Act)]. . . . . . . . 15

CURRENT AUDITS . . . . . . . . . . . . . . . . . . . . . . . . 15

GAO LIAISON. . . . . . . . . . . . . . . . . . . . . . . . . . 18

STRATEGIC PLAN . . . . . . . . . . . . . . . . . . . . . . . . 19

CONTACTING THE OFFICE OF THE INSPECTOR GENERAL . . . . . . . . 24

TABLE 1 -- REPORTS ISSUED WITH QUESTIONED COSTS (Mandated

by Section 5(a)(8) of the Act). . . . . . . . . . . . . . 25

TABLE 2 -- REPORTS ISSUED WITH RECOMMENDATIONS THAT FUNDS

BE PUT TO BETTER USE (Mandated by Section 5(a)(9) of

the Act). . . . . . . . . . . . . . . . . . . . . . . . . 26

Section 5(a)(1). . . . . . . . . . . . . . . . . . . . . . . . 1

Section 5(a)(2). . . . . . . . . . . . . . . . . . . . . . . . 1

Section 5(a)(3). . . . . . . . . . . . . . . . . . . . . . . . 10

Section 5(a)(4). . . . . . . . . . . . . . . . . . . . . . . . 14

Section 5(a)(5). . . . . . . . . . . . . . . . . . . . . . . . 14

Section 5(a)(6). . . . . . . . . . . . . . . . . . . . . . . . 5

Section 5(a)(7). . . . . . . . . . . . . . . . . . . . . . . . 5

Section 5(a)(8). . . . . . . . . . . . . . . . . . . . . . . . 25

Section 5(a)(9). . . . . . . . . . . . . . . . . . . . . . . . 26

Section 5(a)(10) . . . . . . . . . . . . . . . . . . . . . . . 14

Section 5(a)(11) . . . . . . . . . . . . . . . . . . . . . . . 15

Section 5(a)(12) . . . . . . . . . . . . . . . . . . . . . . . 15

AUDITS

The primary objectives of the Office of the Inspector General (OIG) are to help promote long-term efficiency and effectiveness in the administration and operation of the Commission and to protect against fraud and abuse. This reporting period's OIG audit activities which are listed below reflect these objectives.

Current Audits

The following are the audits being conducted during the current reporting period and continuing into the next reporting period. (For additional details, see the section on current audits on page 15.)

Review of the Use of American Express Cards for Official Travel. The review of CFTC employees' use of the American Express Cards which were issued for official travel was initiated in February 1996 to determine if the cards were being used for other than official travel related purposes. (For additional details, see the section on current audits on page 16.)

Peer Review of a Designated Federal Entity. The OIG has agreed to undertake the peer review of a Designated Federal Entity Office of the Inspector General to determine whether an effective internal quality control system has been established which complies with the Government Auditing Standards promulgated by the Comptroller General of the United States and whether established policies, procedures, and applicable auditing standards are being followed in practice. (For additional details, see the section on current audits on page 16.)

Audit of Compliance with the Federal Managers' Financial Integrity Act. 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. (For additional details, see the section on current audits on page 17.)

Lobbying Restrictions. Public Law 101-121, Section 319, prohibits payment of appropriated funds for lobbying (representation). The IG is required to review compliance and report on the implementation and results of the disclosure process. (For additional details, see the section on current audits on page 17.)

Imprest Funds. The OIG will review expenditures from the Chicago, Kansas City, New York, and Washington, D.C. imprest funds. (For additional details, see the section on current audits on page 18.)

Completed Audits

The following are the audits completed during this reporting period. (For additional details, see the section on completed audits on page 5.)

Review of the Rule Enforcement Review Program. The review resulted in findings in three areas: the time elapsed between initiation of rule enforcement reviews and the delivery of the reports to the Commission, the cost of staff hours associated with the reports, and the documentation supporting assertions contained in the reports. (For additional details, see the section on completed audits on page 5.)

Audit of Imprest Fund -- Los Angeles. The OIG determined that all funds were properly accounted for, the cashier was generally following procedures that adequately protect the funds from loss or misuse, and the cashier was not making unauthorized use of the fund. (For additional details, see the section on completed audits on page 6.)

Cash Verification of Imprest Fund -- Washington, DC. The OIG found that all funds were accounted for. (For additional details, see the section on completed audits on page 7.)

INVESTIGATIONS

The Inspector General Act of 1978, as amended, provides that the Inspector General may receive and investigate complaints or information from the Commission's employees concerning the possible existence of an activity constituting a violation 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.

One investigation was pending as of the opening of the reporting period. The OIG opened no investigations during the reporting period and completed one investigation. No investigations remained open at the end of the period. (For a more detailed description of this investigation, see the section on investigations on page 7.)

LEGISLATIVE AND REGULATORY REVIEWS

The OIG reviews proposed and final CFTC regulations and legislation and selected exchange rules using the following basic criteria: Whether the agency: (1) has identified specifically the problem(s) to be addressed by the proposal; (2) has defined through case study or data analysis a clear link between the proposed solution and the identified problem(s); (3) has 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 of the Regulatory Flexibility Act and the Paperwork Reduction Act.

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. (For more detailed descriptions of these reviews, see the section on legislative and regulatory reviews on page 8.)

Rules more prominently reviewed during this period include:

Audit Trail Review;

A case appeal; and

A proposed complaint.

The Office of the Inspector General in the Commodity Futures Trading Commission (CFTC) was created in accordance with the Inspector General Act of 1978 (P.L. 95-452), as amended by the Inspector General Act Amendments of 1988 (P.L. 100-504). The OIG was established to create an independent unit to:

Promote economy, efficiency, and effectiveness in the administration of CFTC programs and operations and to detect and prevent fraud and abuse in such programs and operations;

Conduct and supervise audits and, where necessary, investigations relating to the administration of CFTC programs and operations;

Review existing and proposed legislation and regulations and to make recommendations concerning their impact on the economy and efficiency of CFTC programs and operations or the prevention and detection of fraud and abuse; and

Keep the Chairman and Congress fully informed about any problems or deficiencies in the administration of CFTC programs and operations and provide recommendations for correction of these problems or deficiencies.

Given that the CFTC does not have extensive contracts or grant making authority, the OIG's efforts have been focused on the review of legislative and regulatory proposals and the monitoring of internal CFTC operations.

The OIG consists of the Inspector General, two professional staff members, and a secretary. The present Inspector General assumed his position on October 7, 1990.

The OIG, on December 4, 1989, signed a Memorandum of Understanding with the Office of General Counsel (OGC). This Memorandum details the procedures that will be used to provide the OIG with OGC legal services. An OGC staff member has been assigned to provide such services to the OIG on an as-needed basis.

The CFTC was established in 1974 as an independent agency to regulate commodity futures and options trading in the United States. The CFTC is headquartered in Washington, D.C., with additional offices in Chicago, New York, Kansas City, Los Angeles, and Minneapolis.

The basic objectives of the CFTC are to prevent manipulation of the markets, abusive trade practices, and fraudulent activities; to maintain effective oversight of the markets and self-regulatory organizations; and to enforce the Commodity Exchange Act and Commission rules without hindering the futures markets' provision of price discovery and risk shifting services. The CFTC regulates the futures activities of brokerage firms, salespersons, floor brokers, floor traders, commodity pool operators, commodity trading advisors, introducing brokers, and leverage transaction merchants. In addition, the agency ensures the effective enforcement of exchange rules, reviews the terms and conditions of proposed futures contracts and the registration of firms and individuals who provide advice or handle customer funds, and oversees the activities of the National Futures Association.

AUDITS

The OIG is required to conduct, supervise and coordinate audits of CFTC programs and operations and to ensure that the audits are conducted in accordance with generally accepted government auditing standards. The OIG is also required to recommend changes to existing and proposed CFTC programs and operations to promote economy, efficiency, and effectiveness and to prevent and detect fraud and abuse.

The purpose of these audits is to ensure that:

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

Resources have been managed effectively and efficiently;

Stipulated program objectives have been achieved; and

Resources have been safeguarded.

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

1. Review of the Rule Enforcement Review Program

Objectives.

The audit is designed to determine whether the Division of Trading and Markets (T&M), Contract Markets Section's rule enforcement review program is operating efficiently and to determine what changes, if any, should be made to the program.

Results.

On March 26, 1996, the OIG completed a review of the Division of Trading and Markets, Contract Markets Section's Rule Enforcement Review Program. After an extensive survey of the program, encompassing visits to four CFTC regional offices, the review was concentrated on three areas: the time elapsed between the initiation of the rule enforcement reviews and the delivery of the reports to the Commission, the cost of staff hours associated with the reports, and the documentation supporting assertions contained in the reports.

As a result of this review, the OIG found that the elapsed time from the initiation of the rule enforcement review until delivery of the reports to the Commission averaged approximately thirteen months and that the newly installed procedures delegating increased responsibility to the regional offices should continue to reduce the time taken to produce a report; the cost of the individual reviews is highly dependent on the size of the exchange being reviewed; and assertions contained in the rule enforcement review reports generally are supported by documentary or testamentary evidence but that evidence is not organized in a manner which allows it to be readily located in one place.

Accordingly, the OIG recommended that the Rule Enforcement Unit continue with its efforts to delegate responsibility for drafting major portions of the rule enforcement review report to the regional offices to continue the reduction in time between the initiation and completion of a review; organize and store the supporting documentation for the rule enforcement review reports in a manner which will allow the swift association of report assertions with the proper documents; and maintain documents relevant to report recommendations in the relating files until all action required to comply with the recommendations has been completed by the exchanges. T&M has undertaken to implement these recommendations.

2. Audit of Imprest Fund -- Los Angeles.

Objectives.

The purpose of the audit is to determine whether the

imprest fund is being administered in compliance with the

Department of the Treasury Manual of Procedures and Instructions for Cashiers (Treasury Manual), the Treasury Financial Manual

(I TFM 4-3000), and CFTC Instruction 344-1. The audit is designed to ensure that all funds are properly accounted for, the amount of the fund is not in excess of cash requirements, the cashier is following procedures that adequately protect the funds from loss or misuse, and the cashier is not making unauthorized use of the funds. The audit covered the period from January 31, 1995 through January 29, 1996.

Results.

A report issued on March 22, 1996 disclosed that all funds are properly accounted for, the cashier was generally following procedures that adequately protect the funds from loss or misuse, and the cashier was not making unauthorized use of the fund. However, in order to better protect the funds, OIG recommended that the cashier: 1) review the signature cards currently on hand and ensure that a signature card is on file for each authorizing official; 2) require that a signature be obtained from each authorizing official before disbursing money from the imprest fund; and 3) require that the alternate cashier return his cash advance when he expects to be absent for an extended period of time.

Although the fund continued to appear to be in excess of cash requirements, the OIG did not recommend that the amount of the fund be reduced.

3. Cash Verification of Imprest Fund -- Washington, D.C.

Objectives.

In accordance with the "Manual of Procedures and Instructions for Cashiers" distributed by the Department of the Treasury, the Commission is required to conduct an unannounced verification of the cash balance in each imprest fund at least once each quarter.

Results.

No deficiencies were noted in the December 15, 1995 cash verification of the Washington, D.C. imprest fund.

INVESTIGATIONS

The Inspector General Act of 1978, as amended, provides that the Inspector General may receive and investigate complaints or information from the Commission's employees concerning the possible existence of an activity constituting a violation 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.

One investigation was pending as of the opening of the reporting period. The OIG opened no investigations during the reporting period and completed one investigation. No investigations remained open at the end of the period.

The investigation which was open at the beginning of the period related to an allegation that a CFTC employee had written a book that did not contain the standard disclaimer of attribution to the CFTC, that the employee had worked on the book on CFTC time, and had used CFTC resources. The OIG found that the standard disclaimer was not needed because of the brief nature of the references to the employee's association with CFTC as part of a biographical sketch in the dust jacket of the book. The OIG found no evidence that the employee did any substantial work on the book while on the CFTC payroll nor evidence that the employee converted other CFTC resources to personal use. Accordingly, the investigation was closed on October 6, 1996.

LEGISLATIVE AND REGULATORY REVIEWS

As specified in Section 4(a)(2) of the Inspector General Act of 1978, the OIG reviews the impact of existing and proposed legislation and regulations on CFTC programs and operations and makes recommendations regarding more effective or efficient alternatives or protections against fraud and abuse. The OIG also reviews exchange rule proposals and changes.

The OIG has notified the responsible Division as to any concerns with draft and final documents for the rules or investigations listed below. Formal comments were not filed with the Commission. A summary of the principal regulations and investigations reviewed and the OIG review results follows.

RULE REVIEWS INITIATED IN PREVIOUS REPORTING PERIODS

1. Proposed amendments to allow certain customer orders to be placed without specified customer account identification. (CFTC Rule 1.35(a-1)).

Summary of Rule.

The CFTC proposed amendments to Regulation 1.35 that would permit orders submitted on behalf of multiple customer accounts not to have individual identifying account numbers if the person placing the orders has investment discretion as to each account and the executing FCM has a single series designation for all the accounts. The designation has to contain a predetermined order allocation applicable to all listed individual accounts.

The amendments would also permit specified institutional accounts for certain futures and options orders to be exempt from the account identification requirement if executed as part of an intermarket strategy involving securities. Such orders would have to be allocated no later than the deadline for final submission of trade data to clearing on the day the order is executed.

OIG Review.

OIG commented on various sections of the rule and its accompanying explanation. The comments focussed on the coverage of the institutional accounts and the reach of disqualifying interest in the specified accounts. The proposed rule was published for comment in the Federal Register on May 3, 1993 with comments due by June 17, 1993. Staff continues to consider all comments received.

2. Exemption from Dual Trading Prohibition (CFTC Rule 155.5(d))

Summary of Rule.

Several exchanges submitted petitions for exemptions for various contracts from the dual trading prohibitions in Commission Regulation 155.5. The prohibition prevents a broker from trading for his own account and other specified accounts during the same trading session in which he has executed customers orders in an affected contract market.

OIG Review.

OIG discussed the issue with relevant staff and made comments and raised questions. Staff is examining a submission from the New York Cotton Exchange. Disposition of the dual trading petitions has been deferred pending resolution of audit trail issues.

RULE REVIEWS INITIATED THIS REPORTING PERIOD

1. Audit Trail Review

Summary of Action.

The CFTC continued its analysis of the sufficiency of two exchanges' audit trail constructions as required by the Futures Trading Practices Act of 1992. The CFTC prepared a follow-up test to determine such sufficiency.

OIG Review.

The OIG reviewed the follow-up test and had various suggestions about its design.

2. Case Appeal

Summary of Case.

An appeal was taken from a decision adverse to the CFTC involving the nonregistration of sellers of futures contracts.

OIG Review.

OIG suggested an alternative approach to an important issue in the appeal. Staff adopted the OIG position.

3. Proposed Complaint

Summary of Investigation.

A proposed complaint sought to decide if the respondents had engaged in manipulation affecting a futures market.

OIG Review.

OIG noted certain aspects of the complaint that merited amplification.

CORRECTIVE ACTION NOT COMPLETED

1. Review of Information Systems of the Division of Economic Analysis

Findings and Recommendations.

On August 31, 1994, the OIG submitted a report entitled, "Review of the Information Systems of the Division of Economic Analysis -- Market Analysis Section" to the Chairman.

The report stated that the OIG had determined that the staff of the Market Analysis Section is using the manual and automated information resources and technology available to them to best advantage in carrying out their responsibilities. However, the OIG also found that in situations where the standard retrieval system does not provide adequate information the staff of the Market Analysis Section relies on the sometimes fallible memories of long-time staff members to recall instances of the agency's past handling of issues in designations and rule reviews similar to those now being received by the Commission. These memories are then used to search paper files of past designations and rule reviews to find first the files, then the appropriate documents, and then the appropriate analyses and conclusions which may be relevant to the identification and resolution of current issues. The staff absorbs all of the successfully identified information and often uses the same approach to the analysis and sometimes the same reasoning and the same language to deal with current issues.

Document management technology currently available in the Commission provides an opportunity to greatly improve on this time-consuming and imperfect process. Accordingly, the OIG recommended that the Chairman direct the Director, Office of Information Resources Management, subject to the availability of resources and in consideration of existing OIRM priorities, to use available technology to provide the Market Analysis staff with access on their personal computers: to optical images of all paper contract market designation and rule review documents which can be searched by categories or key words input by Market Analysis staff at the time the documents were scanned; to optical character recognition (OCR) scans of all paper documents which can be searched by other words not identified at the time of scanning; to machine-readable, internally created, contract market designation and rule review documents which can be searched by categories or key words input by Market Analysis staff or by other words not identified at the time of scanning; and to the currently available machine-readable version of the Commodity Exchange Act. The OIG recommended that the Director, Division of Economic Analysis assign staff to scan the old, current, and prospective paper documents relating to designations and rule reviews and store them in the optical system; assign staff to associate categories or key words with each of the old, current, and prospective paper documents relating to designations and rule reviews which are scanned and stored in the optical system; and establish a system for insuring that newly created, internal contract market designation and rule review documents are transmitted in machine-readable form to OIRM for inclusion in an automated system which can be accessed by Market Analysis staff. If, at some future time, the exchanges and/or the Commission produce their rules and the updates to those rules in machine-readable form, the OIG recommended that they too be incorporated into the document management system and made available to the Market Analysis staff.

Status.

In a memorandum dated March 27, 1995, the Chairman concurred with the recommendations of the report and directed implementation of those recommendations.

OIRM staff completed development of the Market Regulation and Rule Review System for the Division of Economic Analysis (DEA). Current designations and rule review documents are being processed for DEA by the system and viewing and retrieval capability is available from all desktop workstations in the Market Analysis Section.

In addition, more than 50,000 documents have been scanned and added to the database of information. Work is underway to convert the scanned documents to a text format which can be accessed by the retrieval software. By the end of the Third Quarter 1996, OIRM expects to have completed this process and to have the system fully available to employees of the Market Analysis Section.

CORRECTIVE ACTION COMPLETED

1. Review of the CFTC Recruitment Process

Findings and Recommendations.

The OIG issued a report on May 8, 1992. The report recommended that the Chairman request that the Office of Personnel Management (OPM) delegate nation-wide examining authority to the Commission for all of the non-status applicants for all Futures Trading Specialist and Futures Trading Investigator vacancy announcements. (This delegation could be supplemented with delegated authority to hire economists and/or others at a future date.) The report recommended that the Director, Office of Personnel arrange that she, or a member of her staff, travel at least once each year to each Commission regional office to insure that all supervisors are aware of the recruitment options available to them. These trips should also be used to give supervisors feedback concerning the results of their decisions concerning selective placement factors, geographic limitations, and sources of recruitment. The report also recommended that the Director, Office of Personnel establish a position, within the Office of Personnel, devoted to carrying out the functions required by the delegation of examining authority from OPM.

Action.

The CFTC Office of Human Resources (OHR) now has the authority to fill all CFTC's General Schedule positions independently. As of March 13, 1996, OHR received authority and the needed training to begin operating its own Delegated Examining Unit. The Director of Human Resources will be traveling in the next few months to the New York and Chicago offices to brief managers on this new flexibility. An article has been published in the agency news letter, the "Link", in April notifying employees and managers about the new authority.

2. Review of Reparations Case Processing

Findings and Recommendations.

In an April 19, 1993 report, the OIG determined that: excessive backlogs of reparations cases have not, during the period of the review, existed in the Office of Proceedings; excessive backlogs of appealed reparations cases developed in the Office of General Counsel and the Offices of the Chairman and the Commissioners through the beginning of Fiscal Year 1992; backlogs in the Office of General Counsel and the Offices of the Chairman and the Commissioners were reduced significantly during FY 1992 as the result of high level attention to the problem; the Office of Proceedings and the Office of General Counsel count the number of appeals differently and these differences result in the reporting of inconsistent data; the reparations process can be improved by changes in the rules relating to timing of the filing of the response and the initiation of the discovery process; the automated systems available to track the progress of reparations cases in the Office of Proceedings, while labor intensive, costly to maintain, and antiquated, still function to produce accurate individual case and summary information; the overall automated systems available to track the progress of cases from receipt to completion are insufficient to provide all relevant program managers with the information necessary to determine if their programs are being operated effectively and efficiently.

As a result of this review, the Office of the Inspector General recommended that: subject to the availability of resources and in consideration of existing Office of Information Resources Management priorities, the Executive Director instruct the Director, OIRM to develop a unified reparations case tracking system to replace the existing systems; the Chairman, based upon advice from the General Counsel and the Executive Director, decide on a single method of counting appeals for management reporting purposes to insure consistency of reporting to the Commission, Congress, and the public and as a precursor to the development of a unified system; the Chairman authorize the Office of General Counsel to prepare a Commission sign-off sheet recommending changes in the reparations rules, relating to the time for filing a response to a complaint and the initiation of discovery, along with the necessary documents for notice and comment for publication in the Federal Register; and the Chairman regularly monitor the level of the backlog of reparation appeals to insure that excessive backlogs do not reappear.

Action.

The Reparations Case Tracking System was placed in production in the Office of Proceedings on October 1, 1995. It is fully integrated into the work process of the office and has enhanced their ability to manage the myriad of activities associated with a reparations case filing.

In addition, in late November 1995 an integrated subsystem was developed for the Reparations Case Tracking System for the Office of the General Counsel to support the reparations case appeals process.

On March 20, 1996, the remaining piece of the Reparations Case Tracking System was completed and placed in operation for the Office of the Secretary. This subsystem supports the Commission approval process.

MANAGEMENT DECISION NOT MADE

There were no instances of reports issued before the commencement of the reporting period for which a management decision had not been made by the end of the reporting period.

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

SUMMARY OF EACH REPORT MADETO 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.

No management decisions were revised during the reporting period.

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

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

Statutory and regulatory requirements;

Adequacy of internal 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 of the 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 of CFTC 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.

The audit agenda and summary of progress for each audit which has not yet been completed is summarized below. New agenda items periodically will be added, as appropriate, along with a description of the audit objective for each.

1. Review of the Use of American Express Cards for Official Travel

Objectives.

The review of CFTC employees' use of the American Express Cards which were issued for use for official travel related expenses was begun following an inquiry by Congressman William F. Clinger, Jr., Chairman of the Committee on Government Reform and Oversight concerning whether the cards were being used for other than official travel related purposes. Following a conversation with a member of Mr. Clinger's staff about his inquiry, the OIG determined to review CFTC employees' use, over the period from July 1, 1995 through December 31, 1995, of the American Express cards issued under the American Express Government Travel Payment Program. The OIG determined to aggregate the findings under the following categories of employee: Executive Level, Senior Executive Service (Non-Career), Senior Executive Service (Career), Schedule C, General Schedule, and Wage Grade.

Status.

At the close of the reporting period, the basic data on all charges had been collected for all CFTC users of the American Express Cards. The uses of the cards were compared to the listings of official travel for each card user to identify questionable charges. In the coming weeks, the OIG will track down the questionable charges to determine if the cards have been used for purposes not related to official travel. The findings will then be arrayed into the categories of employees listed in the objectives above.

2. Peer Review of a Designated Federal Entity

Objectives.

The OIG has agreed to undertake the peer review of a Designated Federal Entity Office of the Inspector General to determine whether an effective internal quality control system has been established which complies with the Government Auditing Standards promulgated by the Comptroller General of the United States and whether established policies, procedures, and applicable auditing standards are being followed in practice.

Status.

The OIG has received the completed questionnaire on the organization's quality control policies and procedures. In the coming months, the OIG will conduct on-site interviews of the audit officials and select a sample of the work of the office. The sample will be analyzed to determine if the office procedures reflect the design of the quality control system.

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

Objectives.

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.

Status.

The OIG participated in the 1996 planning meeting of the CFTC Internal Control Committee and offered its services as advisor and consultant on conducting and reporting on internal control reviews. In the next reporting period the OIG expects to review all draft internal control reviews produced by the Commission and provide guidance on perfecting the reviews. At the completion of the audit, the OIG will report the results of its review to the Chairman in its annual assurance letters.

4. Lobbying Restrictions

Objectives.

Public Law 101-121, Section 319, prohibits payment of appropriated funds for lobbying (representation). The law requires that persons receiving government funds in excess of $100,000 certify that appropriated funds were not and will not be used for lobbying activities and disclose when non-appropriated funds are used for lobbying activities. The IG is required to review compliance and report on the implementation and results of the disclosure process.

Status.

The OIG will begin this review during the third quarter of FY 1996. It is scheduled for completion during the next reporting period.

5. Imprest Funds

Objectives.

The OIG will review expenditures from CFTC imprest funds to determine compliance with CFTC Instruction 344-1 and the Department of the Treasury Manual of Procedures and Instructions for Cashiers. Specifically, the audits are designed to verify that all funds are properly accounted for; the amount of each fund is not in excess of the cash requirements; the cashier is following procedures that will adequately protect the funds from loss or misuse; and the cashier is not making unauthorized use of the funds. The imprest funds are maintained in Washington, D.C.; Chicago, Illinois; New York, New York; Los Angeles, California; and Kansas City, Missouri.

In addition, the Department of the Treasury Manual of Procedures and Instructions for Cashiers requires CFTC to verify cash balances of imprest funds at least once each quarter.

Status.

The OIG has scheduled audits of the Chicago, Kansas City, New York, and Washington imprest funds for the next reporting period. Additionally, verifications of cash balances are scheduled for each fund during each quarter.

The OIG is charged with providing policy direction for, and conducting, supervising, and coordinating audits and investigations relating to CFTC programs and operations. In addition, the OIG is required to recommend policies for, and conduct, supervise, and coordinate with other Federal agencies, state and local Governmental agencies, and nongovernmental entities, audits, investigations, and evaluations regarding the economy, efficiency, and effectiveness of CFTC programs and operations.

GAO also conducts audits of CFTC 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 of reaching the goals so as to minimize the requirements placed on CFTC resources.

INTRODUCTION

The Office of the Inspector General (OIG) in the Commodity Futures Trading Commission (CFTC) was created in accordance with the Inspector General Act of 1978 (P.L. 95-452), as amended by the Inspector General Act Amendments of 1988 (P.L. 100-504). The OIG was established to create an independent unit to:

. Promote economy, efficiency, and effectiveness in the administration of CFTC programs and operations and to detect and prevent fraud and abuse in such programs and operations;

. Conduct and supervise audits and investigations relating to the administration of CFTC programs and operations;

. Review existing and proposed legislation and regulations and to make recommendations concerning their impact on the economy and efficiency of CFTC programs and operations or the prevention and detection of fraud and abuse; and

. Keep the Chairman and Congress fully informed about any problems or deficiencies in the administration of CFTC programs and operations and provide recommendations for correction of these problems or deficiencies.

Accordingly, the OIG has established three programs to carry out its responsibilities: audit, investigation, and legislative and regulatory review. A summary of those programs follows.

AUDIT

The primary objectives of the OIG are to promote long-term efficiency and effectiveness in the administration and operation of the Commission and to protect against fraud and abuse.

The key to effectively and efficiently managing the Commodity Futures Trading Commission is information. Top level managers and decision makers require a steady stream of organized data on the effects of their policy decisions and resource allocations on the operations of the Commission. Once having made the decision to change resource levels or policy, managers must receive accurate and timely reports of the operational effects of their decision so they can determine if the change is in the direction and of the magnitude predicted. In the absence of such information, top level managers cannot adequately perform their jobs.

A number of obstacles to acquiring and transmitting the desired information to decision makers may exist in some programs. Principal among them is the Commission's apparent difficulty in many instances in tracking the progress of a particular action across organizational lines within the Commission.

A simple example is the Reparations Program prior to the installation of an OIG recommended unified, Commission-wide tracking system. Complaints are received and processed and hearings are held in the Office of Proceedings; appeals of initial decisions in reparations cases are transmitted to the Office of General Counsel where proposed Commission opinions are drafted; and appeals are decided by the Commission with the paperwork being handled by the Office of the Secretariat. Each office involved in the process had a separate tracking system without ties to the tracking systems in the offices preceding them or following them in the process. Each office treated the case as if it were brand new to the Commission when they received it. As a result, there was no provision for tracking information across organizational lines. If the Chairman wanted to know how much time was spent on the average reparations case of a particular description at each stage in the process, that information was unavailable without an extensive expenditure of manual labor.

A related problem is the difficulty the Commission has in associating resources devoted to an activity with the results of that activity. The Commission does a good job of tracking resources expended. It can determine how much staff time and material at what cost was spent in a particular activity. Some Commission organizations can even associate costs with particular projects. What a program manager may have great difficulty doing, however, is telling a decision maker that for a specific level of increase in resources, the program manager will deliver a specific level of increased output. Without this information from all programs competing for limited resources, decision makers cannot make reasoned resource allocation judgements. Decision makers are forced to rely on intuition and anecdotal evidence.

To increase the efficiency and the effectiveness of the management of CFTC programs and operations, the OIG will, in addition to the conduct of mandatory audits, concentrate its audit resources on the identification of information voids and the lack of continuity in the flow of information across organizational lines from the beginning of a process until its conclusion. The OIG will recommend the implementation of any system improvements where the benefits of implementing the changes exceed the costs.

INVESTIGATION

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 of law, rules or regulations, or mismanagement, gross waste of funds, abuse of authority or a substantial and specific danger to the public health and safety.

The OIG has to date conducted only a reactive investigative program relying on unsolicited employee complaints as the source of investigative leads. This reactive program has resulted in only a handful of investigations per year. This strategy was followed because the OIG believed that an independent regulatory agency such as CFTC without grant money or substantial contracts to award was not likely to generate a substantial investigative workload.

To insure that employee complaints could easily reach the OIG, a 24 hour hotline was established in February 1993 to receive complaints. The hotline's existence is publicized on the back cover of the agency-wide telephone book and in this semiannual report.

Because of the reactive nature of the OIG's investigative program, no investigative agenda has been established.

LEGISLATIVE AND REGULATORY REVIEW

Because of the importance of this activity in an economic regulatory agency, the OIG reviews proposed and final CFTC regulations and legislation and selected exchange rules using five basic criteria: Whether the agency: (1) has identified specifically the problem(s) to be addressed by the proposal; (2) has defined through case study or data analysis a clear link between the proposed solution and the identified problem(s); (3) has specified clearly the means to effectively and efficiently enforce the proposal; (4) has assessed the likely efficiency and effectiveness of alternative solutions; (5) can reasonably document that the proposal will yield positive net benefits over the long term; and (6) has met the requirements of the Regulatory Flexibility Act and the Paperwork Reduction Act.

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 the OIG does not initiate legislation or, generally, regulations, the OIG legislative and regulatory review program is reactive to the legislative and regulatory proposals developed by others. Accordingly, no independent legislative and regulatory review agenda has been established.

ANNUAL AUDITS

The Inspector General is required to complete annually the first audit listed. Others listed in this annual audit section are those which the OIG believes are best accomplished on an annual basis.

1. Lobbying Restrictions

Public Law 101-121, Section 319, prohibits payment of appropriated funds for lobbying (representation). The law requires that disclosure forms be filed with contracts, grants, cooperative agreements and other forms of government awards. The IG is required to review compliance and report on the implementation and results of the disclosure process.

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

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.

3. Audit of Imprest Funds -- New York, Chicago, Kansas City, Los Angeles, and Washington

CFTC maintains imprest funds in Washington D.C., Chicago, Illinois, New York, N.Y., Kansas City, Missouri, and Los Angeles, California. These funds have been established primarily to make small purchases and travel advances. OIG has determined that an annual audit of funds is appropriate because of the detailed accountability requirements of the Treasury Manual, the personal risk of each cashier, and the potential for errors and irregularities.

4. Cash Verifications of Imprest Funds -- New York, Chicago, Kansas City, Los Angeles, and Washington.

Treasury requires that unannounced verifications of cash balances in imprest funds be made at least quarterly. Only the cash verifications of the imprest funds in Washington, D.C. will be completed by the Office of the Inspector General. Quarterly cash verifications at other locations will be completed by on site regional CFTC personnel who will send reports of their findings to the Office of the Inspector General.

OTHER AUDITS

The OIG intends to focus the balance of its audit resources on insuring that the Chairman, the Commissioners, and program managers have timely, useful information on the progress of CFTC's programs in meeting their goals and objectives. For example, emphasis will be placed on determining whether all managerial levels engaged in a process can track the progress of their various programs. The tracking systems required in many, though not all, programs will cross formal organizational lines.

These audits will entail a cataloging and description of all of the manual and automated systems used by an organization to gather information on its use of resources, the results of the devotion of those resources (including definitions of measurements of accomplishment), and the reporting of results and associated costs to the upper level managers in the Division and to the Chairman and the Commissioners. Cataloging of these decision support systems will be followed by an assessment of whether all concerned officials are timely receiving the information they require to efficiently allocate resources to those uses which best accomplish the priorities of the Commission. If any elements are lacking in the information systems, they will be identified and improvements will be recommended if they can be implemented in a cost/beneficial manner.

If recommendations are successfully implemented, the proposed systems should allow the Chairman, the Commissioners, and concerned program managers to track progress of a particular program across organizational lines and to quickly determine the effects, if any, of changes in policy, procedure, or staffing.

The first step in accomplishing this goal will be to concentrate on documenting, and recommending the improvement and/or development of tracking systems in every program element throughout the Commission.

RESOURCES REQUIRED

The OIG estimates that approximately one and one-half staff years of effort will be devoted over each of the next five years to the audits described in "Other Audits" above. The "Annual Audits" are expected to consume approximately one-half staff year per year.

The OIG is located in Room 4092 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. Confidential mail may be sent to P.O. Box 33906, Washington, D.C. 20033-0906. Regular business hours are between 8:30 AM and 5:00 PM, Monday through Friday, except Federal holidays.

Dollar Value

Number (Thousands)

------- --------------------- Questioned Unsupported Costs Costs

---------- -----------

A. For which no management decision

has been made by the commencement

of the reporting period............... 0 0 0

B. Which were issued during the

reporting period...................... 0 0 0

Subtotals (A + B)..................... 0 0 0

C. For which a management decision

was made during the reporting

period................................ 0 0 0

(i) dollar value of

disallowed costs................. 0 0

(ii) dollar value of

costs not disallowed............. 0 0

D. For which no management decision

has been made by the end of the

reporting period...................... 0 0 0

Dollar Value

Number (Thousands)

------ ------------

A. For which no management decision

has been made by the commencement

of the reporting period............... 0 0

B. Which were issued during the

reporting period...................... 0 0

Subtotals (A + B)..................... 0 0

C. For which a management decision

was made during the reporting

period................................ 0 0

(i) dollar value of

recommendations that

were agreed to by

management........................ 0 0

(ii) dollar value of

recommendations that

were not agreed to by

management........................ 0 0

D. For which no management decision

has been made by the end of the

reporting period...................... 0 0

April 30, 1996

TO: John E. Tull

Acting Chairman

FROM: A. Roy Lavik

Inspector General

SUBJECT: Semiannual Report of the Office of the Inspector General

Attached is the Semiannual Report of the Office of the Inspector General for the period from October 1, 1995 through March 31, 1996. This report is submitted to you in accordance with the requirements of Section 5 of the Inspector General Act of 1978, as amended.

I appreciate your support of this office.

Attachment