There's great concern about the internal watchdog for the CFTC which monitors complex financial futures and soon will add the $600 trillion derivatives markets to its responsibilities. The Office of the Inspector General for the CFTC flunked a recent review of its auditing operations, and was cited for sloppy procedures. 

Inspector General A. Roy Lavik disclosed the results in his semiannual report to Congress, including a summary of the peer review conducted by the Inspector General for the Federal Election Commission.  Mr. Lavik noted that his office had "failed, with a scope limitation.”

Judith Ringle, an attorney advisor in the CFTC’s Office of Inspector General (OIG) said the office takes the review very seriously, and “we have hired an outside consultant to help with remediation.”  Ms.  Ringle didn't elaborate on what fixes were planned, but said the office asked to hire one new full-time employee.  The CFTC watchdog is now reviewing an improvement plan prepared by the outside consultant, and hopes to adopt it this summer, she said.

Inspector General Lavik's Tenure at CFTC.   Mr. Lavik, who's been inspector general since October 1990, was criticized for sloppy procedures that fell short of the high standards of audit preparation and documentation required for watchdogs within federal government agencies.  Among the many failures detailed:

• failing to meet government audit standards for quality control;
• failing to properly oversee independent accountants hired by the watchdog;
• failing to document annual budget requests;
• failing to use electronic audit software to create and maintain audit files;  and,
• failing to regularly make reports available to the public on the Internet.

The review was especially critical of the CFTC inspector general’s 15-month audit of whether the agency was hiring contractors to replace staff in government jobs.  That audit, released in August 2008, “was insufficient to support assertions made to the CFTC Chairman and Congress regarding the cost analysis of CFTC contracts,” the review said.  It further noted that:  the OIG failed to perform a cost comparison analysis and reached its conclusions based only on interviews;  and, along with quality control problems meant that the audit “failed to meet the stated standards. The 2008 audit of some 65 CFTC contractors is not available on the agency’s website.

The peer review recommended more than two dozen improvements. They ranged from using electronic workpapers, to boosting the staff training budget, to improving quality control with better documentation and enforcement.

Such a low grade is “very unusual and troublesome,” veteran inspector general Earl Devaney told iWatch News.  Mr. Devaney, who currently chairs the Recovery Accountability and Transparency Board, had spent 10 years as inspector general for the U.S. Interior Department.

The CFTC inspector general’s office currently has four full-time employees: the inspector general, a senior program analyst, a secretary, and Ringle. The office must report by 9/30/11 on its progress in addressing the problems identified in the review.

For further details, go to:   [iWatch News, 6/17/11]