oversight

Information Gathering Practices of the Commodity Futures Trading Commission

Published by the Government Accountability Office on 1977-05-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUME

02136 - [A1572543]

(Information Gathering Practices of the Commodity Futures
Traling Commission]. GGD-77-52; B-184575. May 26, 1977. 6 pp. +
enclosure (2 pp.).
Report +o William T. Bagley, Chairman, Commodity Futures rading
Commission; by Henry Eschwege, Director, Commanity and Economic
Developmen'. Div.
Issue Area: Statistical and Paperwork Implications of
    Non-Federal Data (3100).
Contact: Community and Economic Development Div.
Budget Function: Commerce and Transportation: Other Advancement
    and Regulation of Commerce (403).
Congressional Relevance: House Comrittee on Agriculture; Senate
    Committee on Agriculture, Nutrition, and Forestry.
Authority: Trans-Alaska Pipeline Authorization Act of November
    1973. Commodity Futures Trading Commission Act of 1974.
         The Commodity Futures Trading Commission (FTC) dogs
not have a formal program prescribing the procedures and
critical management controls necessary for initiatiqq,
developing, and reassessing the reporting and recordkeeping
requirements of an effective information-gathering program.
Finlings/Conclusions: CFTC's regulatory role requires an
effective information-gathering process to prevent respondents
from compiling and submitting data that do not achieve the
desired objectives. CFTC does not have a formal
inf)rmation-gathering program, but it has begun to design an
integrated system for collecting, processing, and disseminating
information. CFTC is also presently reassessing some of its 14
forms, which require information from participants in the
commodity futures trading industry on an ad hoc basis. CFTC
needs a formal information-gathering program, incorporating the
management controls needed for developing reasonable reporting
and recordkeeping requirements and for periodically reassessing
their usefulness. A formal program clearly defining
organizational duties and responsibilities would make certain
that the management controls are applied on a uniform basis.
Recommendations: The CFTC should develop a formal
inf)rmation-gathering program that incorporates essential
management controls and that clearly defines duties and
responsibilities of CFTC organizations involved in the
management of information collection. CFTC should also
reconsider its position that reporting requirements adopted to
implement its regulatory judgments are not subject to GAO
clearance. (SC)
            +st.     (/obUNITED   STATES GENERAL ACCOUNTING OFFICE
               --wWASHINGTON,
                   f                            D.C.   20548



      COMMUNITY AND ECONOMIC                                     MAY 2 6 177
        DEVELOPMCNT DIVISION


r^j         B-184575



            The Honorable William T. Bagley
            Chairman, Commodity Futures
              Trading Commission

            Dear Mr. Bagley:

                    The Trans-Alaska Pipeline Authorization Act of November
            1973 requires us to (1) conduct clearance reviews of the
            information-collection plans and forms proposed by independent
            Federal regulatory agencies and (2) study the information-
            gatherin% practices of these regulatory agencies. We
            evaluated the effectiveness of the Commodity Futures Trading
            Commission's (CFTC's) information-gathering program.
                 An effective information-gathering program must include
            reviews of reporting and recordkeeping requirements at ke:
            intervals during development and following implementation.
            This provides the basis for continuing, changing, or stop-
            ping such activities. If a management system does not
            exist or is not functioning properly, unplanned and undesir-
            able results may occur.
                 CrTC does not have a formal program prescribing the
            procedures and critical management controls necessary for
            initiating, developing, and reassessing the reporting and
            recordkeeping requirements.
            MANAGEMENT ACTIONS AND CONTROLS
            NEEDEDFOR AN EFFECTIVE PROGRAM

                 The following four management actions and controls
            needed for an effective information-gathering program
            provide for developing reasonable requirements and periodi-
            cally reassessing their usefulness:




                                                                      GGD-77-52
B-184575



     -- The information requested should be needed to
        accomplish an assigned agency function and should
        actually meet that need.

     -- Alternative sources of data should be considered.

     -- Data collection (and alternatives) should be evaluated
        by comparing the need for the data with the burden
        imposed on the Government and respondents.

     -- The information-gathering process should be periodi-
        cally examined to reassess its effectiveness.
        (See enc. I.)

     According to the National Archives and Records Service,
an information management authority, information-gathering
programs should be clearly stated in wcing and distributed
to all personnel concerned.
CFTC'S INFORMATION GATHERING PROGRAM

     Fourteen CFTC forms require information from partici-
pants in the commodity futures trading industry. CFTC also
requires commodity traders to maintain various financial and
operating records. Its regulatory role requires an effective
information-gathering process to prevent respondents from
compiling and submitting data which does not achieve the
desired objectives.
     CFTC does not have a formal information-gathering
pro4ram. It has, however, begun to design an integrated
system for collecting, processing, and disseminating
information. In addition, CFTC is presently reassessing
some of its forms on an ad hoc basis.
     We believe that a formal program is needed for CFTC's
information-gathering process to be fully effective. A
formal program would help insure the uniform and consistent
application of essential management controls in developing
and reassessing each data requirement. Also, a proper dele-
gation of responsibilicy would make certain that necessary
and timely management actions are taken.
     CFTC's forms were developed before the formal transfer
in April 1975 uf regulatory responsibility from the Depart-
ment of Agriculture to CFTC under the Commodity Futures
Trading Commission Act of 1974.




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B--184575



     We were unable to trace the development of reporting
requirements within CFTC. However, our review of six forms
developed before the formal transfer in April 1975 provides
several examples of the importance of applying management
controls during development and reassessment of each data
requirement.

Series 03 reports

     CFTC requires all traders who hold a reportable posi-
tion 1/ in a commodity to file series 03 reports, showing
transactions and positions and deliveries and exchanges of
futures for cash on each day that they trade the particular
commodity. A June 1976 CFTC market information study
recommended (1) discontinuing the series 03 reports and
(2) replacing the essential information it now collects with
information from other sources providing useful and timely
data. The CFTC study found that series 03 reports

      -- lacked timeliness for some surveillance purposes,

      -- duplicated some information collected by other
         reports, and

      -- were not essential for the surveillance effort or
         useful for other purposes because they were
         incomplete.

This study illustrates the desirability of a formal program
which includes management controls.    During development and
following  implementation of  a reporting requirement, an
agency should,  as standard  practice (as opposed  to selective
special study), assess the need foi the information,     eter-
mine if the information collected satisfies   that  ned   and
determine if the requirement duplicates informationr already
available.




1/ A reportable position means any position in any one future
   on any contract market which equals or exceeds the reporting
   level. The reporting levels are currently fixed at 200,000
   bushels for grain and soybeans, 5,000 bales for cotton,
   50 contracts for silver, and 25 contracts for all other
   commodities.




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B-184575



Forms 2-R and 94

     CFTC requires floor brokers to submit both form 2-R
(application for registration as floor broker) and form 94
(biographical information) at initial iLgistration.  These
forms have seven data elenents in common, and combining  the
forms would eliminate the collection of duplicate informa-
tion and the administrative burden of handling two forms.
CFTC, after recognizing the duplication, proposed combining
the forms. By reviewing alternative sources that may provide
the needed information, duplication can be detected during
development or reassessment of a reporting requirement.

Series 01 reports
      CFTC requires traders to submit daily the series 01
reports, which list all accounts above the minimum reportable
level. CFTC's staff reassessment efforts recommended the
following alternative means of submitting and collecting the
data.

     -- Submit data in its original machine readable form,
        thereby increasing efficiency and decreasing the
        possibility of error in transcribing data.  This
        recommendation was approved by the Commission.

     -- Submit data only for accounts whose positions have
        changed because of the day's transactions.  In
        addition, these submissions would be made as daily
        updates to a CFTC computerized printout of the
        previous day's positions, rather than to an existing
        series 01 report. A sample of traders reacted favor-
        ably to this recommendation because of the increased
        efficiency and reduced burden.

     Although these alternative data collection procedures
may not have been available or practical when the series was
developed, we believe that the positive results of the rec-
ommended revisions demonstrate the importance of periodic
reassessment.

CLEARANCE REVIEWS

     The Trans-Alaska Pipeline Authorization Act requires us
to conduct clearance reviews of the information plans and
forms proposed by the independent Federal regulatory agencies
before their use. CFTC believes that forms adopted in the
performance of its regulatory duties are not subject to GAO's




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B-184575


clearance, and it does not submit these forms for clearance.
As stated in our May 28, 1976, report to the Congress,
"Status of GAO's Responsioilities Under the Federal Reports
Act," we disagree with CF''C's position.

CONCLUSIONS

     We believe that CFTC needs a formal information-gathering
program, incorporating the management controls needed for
developing reasonable reporting and recordkeeping requirements
and for periodically reassessing their usefulness. A formal
program clearly defining organizational duties and responsi-
bilities would make certain that the management controls are
applied on a uniform basis.  Furthermore, a program that
includes advance clearance reviews by GAO would help insure
that CFTC is minimizing the compliance burden on respondents
and would assist in identifying and eliminating unnecessary
duplication.

AGENCY COMMENTS

     CFTC officials provided no specific comments on our
conclusions and recommendations although they indicated   our
                                                    4 on-
suggestions would assist in improving their informat
gathering efforts.

     CFTC's Acting General Counsel reiterated the Commission's
position that reporting requirements adopted to ilement its
regulatory judgments are not subject to GAO c'ear ce.      GAO
does not view its responsibility for  conducting   advance clear-
ance reviews as an intrusion on the authority   :f  the regulatory
agencies. Further, we believe our reviews provide a useful
control over unnecessary duplication and excessive burden
consistent with congressional .ntent.

RECOMMENDATIONS

     We recommend that CFTC develop a formal information-
gathering program that (1) incorporates essential management
controls discussed in enclosure I and (2) clearly defines
duties and responsibilities of CFTC organizations involved
in the management of information collection. We also rec-
ommend that CFTC reconsider its position regarding GAO's
clearance reviews of information-collection plans and forms.



      Section 236 of the Legislative Reorganization Act of
 1970 requires the head of a Federal agency to submit a written



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B-184575



statement on actions taken on our recommendations to the
House Committee on Government Operations and the Senate
Committee on Gover,nmental Affairs not later than 60 days
after the date of the report and to the House and Senate
Committees on Appropriations with the agency's first request
for appropriations made more than 60 days after the date
the report.

     We are sending copies of this report to the Director
of the Office of Management and Budget and the Chairmen of
the House Committee on Government Operations, the Senate
Committee on Governmental Affairs, and the House and Senate
Committees on Appropriations.

                              Sincerely yours,




                              Henry Eschwege
                              Director
Enclosure




                              6
ENCLOSURE I                                       ENCLOSURE I


                CRITICAL MANAGEMENT CONTROLS

ASSESSMENT OF NEED AND DEFINITION
OF DATA RQUTREMENTS

     A clear statement of information needed is fundamental
and necessary to the development of data collection. Without
first determining and validating the need, much money and
effort could be unnecessarily expended by the agency and the
respondents.  Unless an agency has taken adequate steps to
determine exactly what it wants, a requirement that produces
less than optimum results may be developed.

     A reporting requirement should be implemented only under
the conditions that (1) information is needed, (2) the infor-
mation to be collected will help satisfy that need, and (3)
the agency can determine whether the need is being satisfied.

AVOIDING AND ELIMINATING
UNNECESSARY DUPLICATION
     Determining whether the information to be collected is
already available can most efi ctively be accomplished by
(1) reviewing existing reportig requirements for similar
data and (2) contacting othrr agencies and/or those respon-
dents who will be required to rovide the informatior. This
process can identify information which can fulfill the stated
need either in its present form or with certain changes.
Such an effort should avoid collection of duplicative infor-
mation, which ultimately results in unnecessary costs to the
Government and undue burden on respondents.
OBTAINING ASSURANCE THAT THE
DATA REQUIREMENT IS-EASONABLE
AND FEASIBLE
     Determining whether the data requirement being developed
is reasonable and feasible is an involved process.       It begins
with preliminary  contact   with potential  respondents,  intra-
agency offices,  and  other  interested organizations   and pro-
ceeds through such   steps  as soliciting  comments and  field
testing the proposal before implementation. This should insure
that the proposal does not duplicate other requirements and is
acceptable in terms of costs and anticipated benefits.
      Good management practices dictate that, as an agency
 develops proposed information-gathering requirements, it be
 in contact with potential respondents and consider alternate
 methods of data collection, such as selective sampling. This



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ENCLOSURE I                                       ENCLOSURE I



should insure that the final product is reasonable, easily
complied with, and ultimately results in a minimal burden
on the respondents.

     Field testing is one technique which can be used to
insure that the development process has produced a reasonable
and feasible proposal.  Potential respondents voluntarily
participate in field testing. This can provide invaluable
information on:

     -- Data availability, as a result of the respondents
        completing the form rather than a superficial analysis
        based on mere inspection of the form.

     -- Problems associated with ambiguous terms and complex
        instructions.

REASSESSMENT OF DATA
COLLECTION AND USAGE

     For an agency to insure that the reported data is being
used fully and effectively, it must continually evaluate nd
reassess its data collection.  This would show whether the
development process is functioning properly and is resulting
in the development and implementation of the best possible
product. Based on the results of such an evaluation,
decisions could be made to:

     -- Continue collecting the information.

     -- Modify the requirements to meet the stated need.

     -- Consolidate requirements that obtain essentially the
        same information.

     -- Eliminate the requirement.




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