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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, 2011, the Balance Sheet reflects total assets of $134.1 million. This is a 70 percent increase from FY 2010. The increase is primarily due to large increases in Commission funds held by the U.S. Department of the Treasury and in the Plant, Property, and Equipment balance.

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. Section 748 of the Dodd-Frank Act amended the CEA by adding Section 23, entitled "Commodity Whistleblower Incentives and Protection." Among other things, Section 23 establishes a whistleblower program that requires the Commission to pay an award, under regulations prescribed by the Commission and subject to certain limitations, to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the CEA that leads to the successful enforcement of a covered judicial or administrative action, or a related action. The Commission's whistleblower awards are to equal, in the aggregate amount, at least 10 but not more than 30 percent of the monetary sanctions actually collected in the Commission's action or a related action. To provide funding for the Commission's whistleblower award program, the Dodd-Frank Act established the Commodity Futures Trading Commission Customer Protection Fund. In addition, the Fund can be used to finance customer education initiatives. As of September 30, 2011, the Fund had a balance of $23.8 million. In FY 2011, the Commission, for the first time, received a two-year appropriation to ensure fiscal certainty in the implementation of the Dodd-Frank Act. The Commission carried over $9.9 million of its FY 2011 / 2012 appropriation and is using these funds to continue operations during the first quarter of FY 2012.

The Commission's General Property, Plant and Equipment balance was $17.1 million more in FY 2011 than it was at the end of FY 2010. The increase was attributable to technology modernization and space renovations made in Kansas City, MO. and Washington, D.C.

The Commission enters into commercial leases for its headquarters and regional offices. In FY 2011, the agency entered into a new lease agreement in Kansas City, MO and expanded its Washington, DC lease. These leasing arrangements 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 five strategic goals which were revised in FY 2011 to add a new goal: Enhance the integrity of U.S. Markets by engaging in cross-border cooperation to promote strong international regulatory standards. Moreover, for clarity, management realigned most DCR and DSIO work into Strategic Goal Two and most DOE work into Goal Three. The comparative presentation in the financial statements uses an allocation to reclassify FY 2010 to conform to the FY 2011 presentation.

The Commission experienced a 10.7 percent increase in the total net cost of operations during FY 2011.

Strategic Goal One, which tracks activities related to market oversight, continues to require a significant share of Commission resources at 26 percent of net cost of operations in FY 2011. The $48.4 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 2011, the net cost of operations for this goal was $43.7 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 2011, the net cost of operations for this goal was $61.1 million or 33 percent, an increase of eight percent from FY 2010. The increase is reflective of the emphasis necessary to develop concrete measures that will bring transparency, openness and competition to the swaps markets while lowering the risk they pose to the American public.

Strategic Goal Four is representative of efforts to increase cross-border cooperation to promote strong international regulatory standards. The net cost of this work, in prior years was subsumed within Goal Five. In FY 2011, the net cost of operations for this goal was $8.4 million or four percent. CFTC is dramatically expanding its cross-border presence through cooperative agreements and active participation on international standards setting organization committees.

Strategic Goal Five 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, 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 2011, the net cost of operations for this goal was $25.9 million or 14 percent.

Statement of Changes in Net Position

The Statement of Changes in Net Position presents the agency's cumulative net results of operation and unexpended appropriations for the fiscal year. CFTC's Net Position increased by $44.5 million, or 106 percent, in FY 2011. The dramatic increase is primarily attributed to cumulative net results of operations which rose by $30.3 million (the earmarked funds of Consumer Protection Fund accounted for $23.8 million of that balance) and Total Unexpended Appropriations which reflects a yearly increase of $14.2 million in the cumulative amount of Unexpended Appropriations as of September 30, 2011. This is not unexpected as the earmarked funds for the Customer Protection Fund were not deposited until late September. The Commission had also been operating under a continuing resolution for about seven months and obligated most of its non-compensation and benefit budget in the fourth quarter of the fiscal year.

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 2011.

The $202.7 million appropriation received in FY 2011 represented a 20 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 information technology (IT) equipment. In FY 2011, 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 collections. With the inception of the CFTC Customer Protection Fund, CFTC transfers earmarked funds to it and Non-exchange revenue to the Treasury general fund. Collections are primarily represented by fines, penalties, and forfeitures assessed and levied against businesses and individuals for violations of the CEA or Commission regulations. They also include non-exchange revenues include registration, filing, appeal fees, and general receipts. The Statement of Custodial Activity reflects total cash collections in the amount of $13.5 million. Of which $7.7 million was transferred to Treasury and $5.8 was transferred into the Customer Protection Fund. This amount represents a decrease of $62.4 million from FY 2010, when the Commission collected $75.9 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 2011 and FY 2010 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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