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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, 2010, the Balance Sheet reflects total assets of $78.8 million. This reflects a 39 percent increase from FY 2009. The Commission’s General Property, Plant and Equipment balance were $21.1 million more in FY 2010 than it was at the end of FY 2009. The increase was attributable to technology modernization and space renovations made in FY 2010, which included major upgrades in market surveillance systems and performed space renovations, including market watch rooms in Chicago and Washington, D.C.

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.

The Commission enters into commercial leases for its headquarters and regional offices. In FY 2010, the agency extended its lease agreements in Chicago and Washington DC. The extensions allowed for monthly rent payments to be deferred until future years as well as provided for landlord contributions to space renovations. These amounts are reflected as a Deferred Lease Liability on the Balance Sheet. Additionally, as should be expected from a small regulatory agency; payroll, benefits, accounts payable and annual leave make up the majority of the remaining 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 29 percent increase in the total net cost of operations during FY 2010.

Strategic Goal One, which tracks activities related to market oversight, continues to require a significant share of Commission resources at 32 percent of net cost of operations in FY 2010. The $54.2 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 2010, the net cost of operations for this goal was $39 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 2010, the net cost of operations for this goal was $42.4 million or 25 percent, an increase of two percent from FY 2009. Productivity improvements continued to be achieved through the use of automated audit and reporting tools. Commission 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 2010, the net cost of operations for this goal was $33.9 million or 20 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 2010.

The $168.8 million appropriation level received in FY 2010 represented a 15.6 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 2010, gross outlays were in line with the gross costs of operations due to increased hiring, space renovations, 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 $75.8 million and a transfer of the collections to Treasury in the same amount. This amount represents an increase of $57.9 million from FY 2009, of which the Commission collected $17.9 million.

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.

Limitations of Financial Statements

Management has prepared the principal financial statements to report the financial position and operational results for the CFTC for FY 2010 and FY 2009 pursuant to the requirements of Title 31 of the U.S. Code, section 3515 (b).

While the statements have been prepared from the books and records of the Commission in accordance with GAAP for Federal entities and the formats prescribed by OMB Circular A-136, Financial Reporting Requirements, the statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records.

The statements should be read with the realization that they are a component of the U.S. government, a sovereign entity.


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