The CFTC is an independent agency of the executive branch of the Federal government. Congress created the CFTC in 1974 under the authorization of the Commodity Exchange Act (CEA or Act) with the mandate to regulate commodity futures and option markets in the United States. The agency’s mandate was renewed and expanded under the Futures Trading Acts of 1978, 1982, and 1986; under the Futures Trading Practices Act of 1992; and the CFTC Reauthorization Act of 1995, and under the Commodity Futures Modernization Act of 2000. Congress passed the Food, Conservation, and Energy Act of 2008 (Farm Bill), which reauthorized the Commission through FY 2013. Since its inception, the CFTC has continuously operated through authorized appropriations.
The CFTC is responsible for ensuring the economic utility of futures markets by encouraging their competitiveness and efficiency; ensuring their integrity; and protecting market participants against manipulation, abusive trade practices, and fraud.
The financial statements have been prepared to report the financial position and results of operations for the CFTC, as required by the Chief Financial Officers’ (CFO) Act of 1990 along with the Accountability of Tax Dollars Act of 2002, and the Government Management Reform Act of 1994. They are presented in accordance with the form and content requirements contained in OMB Circular No. A-136, “Financial Reporting Requirements,” dated June 10, 2009.
The principal financial statements have been prepared in all material respects from the agency’s books and records in conformity with U.S. GAAP, as prescribed for the Federal government by the Federal Accounting Standards Advisory Board (FASAB). The application and methods for applying these principles are appropriate for presenting fairly the entity’s assets, liabilities, net cost of operations, changes in net position, and budgetary resources.
The financial statements report on CFTC financial position, net cost of operations, changes in net position, budgetary resources, and custodial activities. The books and records of the agency served as the source of information for preparing the financial statements in the prescribed formats. All agency financial statements and reports used to monitor and control budgetary resources are prepared from the same books and records. The statements should be read with the understanding that they are for a component of the U.S. government, a sovereign entity.
The Balance Sheets present the financial position of the agency. The Statements of Net Cost present the agency’s operating results; the Statements of Changes in Net Position display the changes in the agency’s equity accounts. The Statements of Budgetary Resources present the sources, status, and uses of the agency’s resources and follow the rules for the Budget of the United States Government. The Statements of Custodial Activity present the sources and disposition of collections for which the CFTC is the fiscal agent, or custodian, for the U.S. Treasury (Treasury) General Fund Miscellaneous Receipt accounts.
Throughout these financial statements, assets, liabilities, revenues and costs have been classified according to the type of entity with whom the transactions were made. Intragovernmental assets and liabilities are those from or to other Federal entities. Intragovernmental earned revenues are collections or accruals of revenue from other Federal entities, and intragovernmental costs are payments or accruals to other Federal entities. The CFTC does not transact business among its own operating units, and therefore, intra-entity eliminations were not needed.
Historically, the Commission treated restitution receivables as non-entity assets and related activities as custodial. However, the Commission is no longer named in civil injunctive and administrative proceedings as the collector of restitution sanctions. Accordingly, the Commission changed its method of accounting and reporting for restitution assets stemming from actions against violators of the CEA and Commission regulations. Beginning in FY 2009, the Commission no longer records restitution sanctions as custodial receivables and now reports on these non-Federal assets in the Management’s Discussion and Analysis section of its Performance and Accountability Report. Also, the Commission only includes in its Statement of Custodial Activity those collections it anticipates forwarding to the Treasury’s general fund. Since the current presentation reflects a change from one that was acceptable to another that is preferred, prior year amounts in Note 3 “Accounts Receivable” are presented as previously reported.
Certain FY 2008 amounts have been reclassified to conform to the FY 2009 presentation.
The CFTC is funded through congressionally approved appropriations. The CFTC is responsible for administering the salaries and expenses of the agency through the execution of these appropriations.
Congress annually enacts one-year appropriations that provide the CFTC with the authority to obligate funds within the respective fiscal year for necessary expenses to carry out mandated program activities. In addition, Congress enacted a permanent indefinite appropriation that is available until expended. All appropriations are subject to quarterly apportionment as well as congressional restrictions.
The CFTC budgetary resources for FY 2009 consist of:
Unobligated balances associated with resources expiring at the end of the fiscal year remain available for five years after expiration only for upward adjustments of prior year obligations, after which they are canceled and may not be used. All unused monies related to canceled appropriations are returned to Treasury and the canceled authority is reported as a line item on the Statements of Budgetary Resources and the Statements of Changes in Net Position.
Assets consist of entity and non-entity assets. Entity assets are those assets that the CFTC has authority to use for its operations. Non-entity assets are those held by the CFTC that are not available for use in its operations. Non-entity assets held by the CFTC include deposit fund balances, custodial fines, interest, penalties, and administrative fees receivable, net.
Fund Balance with Treasury is the aggregate amount of CFTC funds with Treasury in expenditure, receipt, and deposit fund accounts. Appropriated funds recorded in expenditure accounts are available to pay current liabilities and finance authorized purchases. Custodial collections recorded in the deposit fund account and miscellaneous receipts accounts of the Treasury are not available for agency use. At fiscal year end, receipt account balances are cleared and returned to Treasury.
The CFTC does not maintain bank accounts of its own, has no disbursing authority, and does not maintain cash held outside of Treasury. Treasury disburses funds for the agency on demand. Spending authority from offsetting collections is recorded in the agency’s expenditure account and is available for agency use subject to certain limitations.
Accounts receivable consists of amounts owed by other Federal agencies and the public to the CFTC and is valued net of an allowance for uncollectible amounts. The allowance is based on past experience in the collection of receivables and analysis of the outstanding balances. Accounts receivable arise from reimbursable operations, earned refunds or the Civil Monetary Sanctions program.
Furniture, fixtures, equipment, information technology hardware and software, and leasehold improvements are capitalized and depreciated or amortized over their useful lives.
The CFTC capitalizes assets annually if they have useful lives of at least two years and an individual value of $25,000 or more. Bulk or aggregate purchases are capitalized when the individual useful lives are at least two years and a value of $25,000 or more. Property, equipment, and software that do not meet the capitalization criteria are expensed when acquired. Depreciation for equipment and software is computed on a straight-line basis using a five-year life. Leasehold improvements are amortized over the remaining life of the lease. The Commission’s assets are valued net of accumulated depreciation.
Payments to Federal and non-Federal sources in advance of the receipt of goods and services are recorded as prepayments, and recognized as expenses when the related goods and services are received. Intragovernmental prepayments reported on the Balance Sheet were made primarily to DOT for transit subsidy services. Prepayments to the public were primarily for software and subscription services.
CFTC liabilities consist of actual and estimated amounts that are likely to be paid as a result of transactions covered by budgetary resources for which Congress has appropriated funds or funding, or are otherwise available from reimbursable transactions to pay amounts due.
Liabilities include those covered by budgetary resources in existing legislation and those not yet covered by budgetary resources. The CFTC liabilities not covered by budgetary resources include:
CFTC liabilities that are covered by budgetary resources are considered current liabilities.
Accounts payable consists primarily of contracts for goods or services, such as leases, utilities, telecommunications, and consulting and support services.
The accrued payroll liability represents amounts for salaries and benefits owed for the time since the payroll was last paid through the end of the reporting period. The annual leave liability is the amount owed employees for unused annual leave as of the end of the reporting period. At the end of each quarter, the balance in the accrued annual leave account is adjusted to reflect current balances and pay rates. Sick leave and other types of non-vested leave are expensed as taken.
The agency’s employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees’ Retirement System (FERS). On January 1, 1987, FERS went into effect pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to January 1, 1984, could elect to either join FERS and Social Security or remain in CSRS.
For employees under FERS, the CFTC contributes an amount equal to one percent of the employee’s basic pay to the tax deferred Thrift Savings Plan and matches employee contributions up to an additional four percent of pay. FERS and CSRS employees can contribute a portion of their gross earnings to the plan up to the Internal Revenue Service limits; however, CSRS employees receive no matching agency contribution.
The CFTC does not have any capital lease liabilities. The operating leases consist of commercial property leases for the CFTC headquarters and regional offices. Lease expenses are recognized on a straight-line basis.
Deposit funds are expenditure accounts used to record monies that do not belong to the Federal government. They are held awaiting distribution based on a legal determination or investigation. The CFTC deposit fund is used to record and later distribute collections of monetary awards to the appropriate victims as restitution. The cash collections recorded in this fund are offset by a Deposit Liability. Activities in this fund are not fiduciary in nature because they are not legally enforceable against the government.
Net position consists of unexpended appropriations and cumulative results of operations. Unexpended appropriations are appropriations that have not yet been used to acquire goods and services or provide benefits. Appropriations are considered expended, or used, when goods and services have been acquired by the CFTC or benefits have been provided using the appropriation authority, regardless of whether monies have been paid or payables for the goods, services, or benefits have been established. Appropriations are used primarily to acquire goods and services to operate CFTC programs or to provide benefits.
Cumulative results of operations represent the excess of financing sources over expenses since inception. Cumulative results of operations are derived from the net effect of capitalized assets, expenses, exchange revenue, and unfunded liabilities.
The CFTC receives reimbursement and earns revenue for the following activities:
Net cost of operations is the difference between CFTC expenses and earned revenue. The presentation of program results by strategic goals is based on the current CFTC Strategic Plan established pursuant to the Government Performance and Results Act (GPRA) of 1993.
The mission statement of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets. The mission is accomplished through four strategic goals, each focusing on a vital area of regulatory responsibility:
The CFTC collects penalties and fines levied against firms for violation of laws as described in the CEA as codified at 7 U.S.C. § 1, et seq, and the Commodities Futures Modernization Act of 2000, Appendix E of P.L. 106-554, 114 Stat. 2763. Unpaid fines, penalties and accrued interest are reported as custodial receivables, with an associated custodial liability. The receivables and the liability are reduced by amounts determined to be uncollectible. Revenues earned and the losses from bad debts are reported to Treasury.
Collections made by the CFTC during the year are deposited and reported into designated Treasury miscellaneous receipt accounts for:
At fiscal year end, custodial collections made by the CFTC are returned to Treasury. The CFTC does not retain any amount for custodial activities including reimbursement of the cost of collection.
The preparation of the accompanying financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenues, and expenses. Actual results could differ from these estimates.
In accordance with OMB Circular No. A-136, the Commission reconciles its change in budgetary obligations with its net cost of operations.