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CFTC Has Decade Of Audit Opinions Withdrawn After Massive "Error" Uncovered

As regular readers are likely aware, we like to give the CFTC a helping hand whenever possible.

For seven years, we’ve warned about the danger the market faces from the parasitic “strategies” of predatory HFTs and nefarious vacuum tubes and finally, the Commission as well as the DOJ listened, subsequently confirming that such practices are indeed illegal.

So concerned is the CFTC about rooting out any and all corruption and market manipulation that the Commission conducted an extensive investigation into the cause of 2010’s infamous flash crash on the way to uncovering the “mastermind” behind the madness that sent the Dow plunging nearly 1,000 points in minutes.

So impressed were we at the Commission’s dedication to preserving the integrity of our beloved “markets” that we sought last year to help the CFTC uncover further instances of manipulation in a series of articles (see here, here, and here) designed to help hapless regulators spot the very same type of tactics they swear Navinder Sarao used on the way to engineering the collapse of the entire US equity market from his basement.

Of course we jest and to the extent we believed there might be a shred of honesty and/or dignity buried somewhere in the bowels of the government body tasked with policing the derivatives market, our hopes were dashed on Tuesday when we learned that the Commission’s auditor has withdrawn “nearly a decade” of financial opinions after discovering that the books may be cooked.

The Commodity Futures Trading Commission understated liabilities by $194 million in fiscal 2014 and $212 million the following year,” Reuters reports, citing KPMG  documents. “The understatements are the equivalent to more than 75 percent of the CFTC's $250 million annual budget.”

Apparently, the agency conveniently avoided accounting for the full cost of leasing facilities in Washington, Chicago, New York, and Kansas City.

The government doesn’t see fit to give the Commission its own buildings, so the CFTC is forced to rent. “In its annual financial statements, the regulator was only accounting for a year's worth of rent payments,” Reuters says, before noting that KPMG claims the regulator is in violation of GAAP and may have run afoul of “the federal Anti-Deficiency Act, which prohibits government agencies from obligating or expending federal funds in excess of the amount available.”

“This is not the first time leasing issues have come up at the CFTC,” Reuters goes on to note. “In 2014, the inspector general criticized it for wasting taxpayer money on underutilized office space in Kansas City.” The inspector general's review of the Kansas City office space Reuters references is embedded below and anyone in need of some mid-week levity is encouraged to read it. In short, the inspector found that the CFTC was set to waste $3.6 million in taxpayer funds on vacant office space.

So essentially, the CFTC is not only renting space it doesn't need (because apparently there's not enough manipulation going on across markets to warrant fully staffing the Commission's various offices), it's also underreporting its rental costs. 

Put more simply: the Commission is disappearing rent it's paying for space it isn't using.

Needless to say, this begs the question of what else in the agency's books is fabricated or shall we say "manipulated", but fortunately for US citizens who have "invested" their tax dollars in the Commission, there's someone you can call for help...

CFTC OIG Review of Leasing

http://www.scribd.com/embeds/296075193/content