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Understanding the Financial Statements

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The CFTC presents financial statements and notes in the format required for the current year by OMB Circular A-136, Financial Reporting Requirements, which is revised annually by OMB in coordination with the U.S. Chief Financial Officers Council. The CFTC’s current year and prior year financial statements and notes are presented in a comparative format.

Balance Sheet

The Balance Sheet presents, as of a specific point in time, the economic value of assets and liabilities retained or managed by the Commission. The difference between assets and liabilities represents the net position of the Commission.

For the year ended September 30, 2009, the Balance Sheet reflects total assets of $56.6 million. This reflects a 73 percent increase from FY 2008. The Commission’s Fund Balance with Treasury was $16.3 million more in FY 2009 than it was at the end of FY 2008. A majority of the increase was attributable to obligated but unexpended contract funding for technology modernization and space renovations. For example, major upgrades in market surveillance systems are underway and market watch rooms are being implemented in Chicago and Washington, D.C. Moreover, budget increases received in FY 2009 and anticipated in FY 2010 allows the CFTC to increase staffing by approximately 200 new positions. Accordingly, existing space in Chicago and Washington, D.C. is being renovated to increase seating capacity and addition space has been acquired. Construction is scheduled to begin in FY 2010.

In FY 2009, the net book value of general property, plant, and equipment increased by $7.5 million. This is attributed to increases of $4.6 million, $2.3 million, and $600 thousand for equipment, software and leasehold improvements, respectively.

The CFTC litigates against defendants for alleged violations of the CEA and Commission regulations. Violators may be subject to a variety of sanctions including civil monetary penalties, injunctive orders, trading and registration bars and suspensions, and orders to pay disgorgement and restitution to customers. When collectible custodial receivables (non-entity assets) are high, the civil monetary sanctions that have been assessed and levied against businesses or individuals for violations of law or regulations dominate the balance sheet.

As should be expected from a small regulatory agency; payroll, benefits, and annual leave make up the majority of CFTC liabilities.

Statement of Net Cost

This statement is designed to present the components of the Commission’s net cost of operations. Net cost is the gross cost incurred less any revenues earned from Commission activities. The Statement of Net Cost is categorized by the Commission’s strategic goals.

The Commission experienced a 24.5 percent increase in the total net cost of operations during FY 2009. This is consistent with the 30.3 percent budget increase the Commission received for its appropriation.

Strategic Goal One, which tracks activities related to market oversight, continues to require a significant share of Commission resources at 31 percent of net cost of operations in FY 2009. The $40.7 million reflects a continuation of management’s effort to address market volatility.

Strategic Goal Two is representative of efforts to protect market users and the public. In FY 2009, the net cost of operations for this goal was $30.2 million or 23 percent. The funding for this goal is primarily to support DOE with new and ongoing investigations in response to market activity. Investigations into crude oil and related derivative contracts, and suspected Ponzi schemes have been extremely resource intensive.

Strategic Goal Three is representative of efforts to ensure market integrity. In FY 2009, the net cost of operations for this goal was $30.2 million or 23 percent. Productivity improvements continued to be achieved through the use of automated audit and reporting tools. Commission staff completed two reviews of financial surveillance programs of SROs, and a review of an SRO’s arbitration program. In addition, staff completed three compliance reviews of DCOs’ programs.

Strategic Goal Four is representative of efforts to achieve organizational excellence and accountability. Included in this goal are the efforts of the Chairman, Commissioners, and related staff to ensure more transparency in the commodity markets, address globalization, and lay the groundwork for the future. Additionally, these costs are reflective of the planning and execution of human capital, financial management, and technology initiatives. In FY 2009, the net cost of operations for this goal was $30.2 million or 23 percent.

Statement of Budgetary Resources

This statement provides information about the provision of budgetary resources and its status as of the end of the year. Information in this statement is consistent with budget execution information and the information reported in the Budget of the U.S. Government, FY 2009.

The $146.0 million appropriation level received in FY 2009 represented a 30.3 percent increase for the Commission. This permitted the Commission to continue to fund benefits and compensation, lease expenses, printing, services to support systems users, telecommunications, operations, and maintenance of IT equipment. In FY 2009, gross outlays were in line with the gross costs of operations due to increased hiring and technology spending.

Statement of Custodial Activity

This statement provides information about the sources and disposition of non-exchange revenues. Non-exchange revenue at the CFTC is primarily represented by fines, penalties, and forfeitures assessed and levied against businesses and individuals for violations of the CEA or Commission regulations. Other non-exchange revenues include registration, filing, appeal fees, and general receipts. The Statement of Custodial Activity reflects total non-exchange revenue collected (cash collections) in the amount of $17.9 million and a transfer of the collections to Treasury in the same amount. This amount represents a decrease of $123.9 million from FY 2008, during which the Commission collected $125 million assessed against British Petroleum (BP) Products North America.

Historical experience has indicated that a high percentage of custodial receivables prove uncollectible. The methodology used to estimate the allowance for uncollectible amounts related to custodial accounts is that custodial receivables are considered 100 percent uncollectible unless deemed otherwise. An allowance for uncollectible accounts has been established and included in the accounts receivable on the Balance Sheet. The allowance is based on past experience in the collection of accounts receivables and an analysis of outstanding balances. Accounts are re-estimated quarterly based on account reviews and a determination that changes to the net realizable value are needed.