SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCTHE COMMODITY FUTURES TRADING COMMISSION'S FISCAL YEAR 2000 BUDGET ESTIMATE AND ANNUAL PERFORMANCE PLAN
THURSDAY, OCTOBER 8, 1998
House of Representatives,
Subcommittee on Risk Management
and Specialty Crops,
Committee on Agriculture,
The subcommittee met, pursuant to notice, at 9:12 a.m., in room 1302, Longworth House Office Building, Hon. Thomas W. Ewing (chairman of the subcommittee) presiding.
Present: Representatives Smith of Michigan, Moran of Kansas, Condit, and Boswell.
Staff Present: Dave Ebersole, senior professional staff; Stacy Carey, subcommittee staff director; Callista Bisek, assistant clerk/scheduler; Ryan Weston, subcommittee legislative assistant, and John Riley, minority staff consultant.
Mr. EWING. The Subcommittee on Risk Management and Specialty Crop will come to order.
I want to notify everybody that this is the first time, at least a hearing in this subcommitteeto be broadcast live on the Internet.
I welcome you all this morning and we will get started and move our hearing along just as fast as we can today because I know many members and all of you have a lot to do in this final week.
OPENING STATEMENT OF HON. THOMAS W. EWING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
Page 2 PREV PAGE TOP OF DOC Mr. EWING. The subcommittee is meeting this morning to discuss the CFTC's fiscal year 2000 budget estimate and annual performance plan. The strategic planning process for the Commodity Futures Trading Commission is an important oversight issue for this committee.
Four years ago, Congress passed the Government Performance and Results Act to hold Federal agencies accountable for efficiency and achieving results. The goal of the act is to improve Federal program effectiveness, congressional decision making, internal management of the government, and to improve the confidence of the American people in the Federal Government.
Last year was the first time CFTC's strategic planning process was required to meet the goals of the Government Performance and Results Act. The subcommittee met on October 22, 1997 and on October 29, 1997 to review the CFTC's 1999 plan. While the CFTC was successful in meeting the many requirements of the GPRA, many areas needed to be strengthened.
The GAO identified six areas of improvement, including, (1) additional consultation with stakeholders; (2) restatement of goals and objectives in a way that facilitates future assessment; (3) resources for activity schedules for completing key actions and assigning accountability to managers and staff; (4) more result-oriented performance measures; (5) better links between external factors and goals, and finally, (6) information on the timing and scope of future evaluations.
The purpose of today's hearing is to review the CFTC's budget and annual performance plan for the year 2000. This year's submission is the second planning cycle under the Government Performance and Results Act. We are hopeful that the CFTC sought to improve this year's plan by incorporating some of last year's recommendations.
I would like to welcome today's witnesses, and on behalf of the subcommittee, would like to thank you for your time and effort.
Are there other members who wish to put in an opening statement?
Page 3 PREV PAGE TOP OF DOCOPENING STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA
Mr. BOSWELL. Thank you, Mr. Chairman, just very short. I think it's very good timing that you have done this and I commend you for having this update and coming together. It seems like with the condition of the country and the world, we've got to be really up to speed on all aspects, including here. So I appreciate Chairperson Born and all the rest who have come to share with us, and I am hoping we will learn from this, and hopefully, something that we can do that will be constructive and go forward with it. So thank you, Mr. Chairman. I am glad to be here.
Mr. EWING. Yes, Mr. Smith.
OPENING STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. SMITH of Michigan. Thank you, Mr. Chairman. The Government Performance and Results Act encourages greater efficiency, effectiveness and accountability in Federal spending by establishing a new framework for management, and subsequently, budgeting in Federal agencies.
As we review the Commodity Futures Trading Commission's fiscal year 2000 budget and annual performance plan, it is a way that allows this subcommittee and the full committee in Congress to make sure that we can review the efficiency and effectiveness and accountability of organizations that CFTC oversees.
So my interest is in making sure that CFTC's analysis and provisions and annual performance and the plan on how you are going to achieve this also allows, if you will, an extension to allow this committee to have some assurance that what's taking place in the agencies and organizations such as the Chicago Board of Trade also is performing in such a way that it best accomplishes the goal of helping farmers and ranchers in this country.
Page 4 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Mr. EWING. Thank you, Mr. Smith. Mr. Moran.
Mr. MORAN. I have no statement, Mr. Chairman.
Mr. EWING. To the members of the committee that are here, on just a little different subject, but all of you, I think, are certainly concerned and involved. We are going to do a crop insurance hearing November 12 in the State of South Dakota. The exact location hasn't been determined, but put that down and have your staff contact Stacy at the staff office for details. We'd like to have your participation.
Our first witness today is Brooksley Born, the Chairperson of the Commodity Futures Trading Commission. Brooksley, welcome, and we look forward to your testimony, as always.
STATEMENT OF BROOKSLEY BORN, CHAIRPERSON, COMMODITY FUTURES TRADING COMMISSION
Ms. BORN. Thank you very much, Mr. Chairman and members of the subcommittee. I would ask that my written testimony be placed in the record, and I will summarize it.
Mr. EWING. Without objection, it will be.
Ms. BORN. Thank you very much. I am very pleased to be here on behalf of the Commodity Futures Trading Commission and to discuss the CFTC's fiscal year 2000 OMB budget estimate and annual performance plan, and to report on the Commission's efforts fully to comply with the Government Performance and Results Act of 1993, or GPRA.
With me today is Madge Bolinger, who is the director of the Commission's Office of Financial Management and who has played an active role in overseeing our staff task force on strategic planning.
The Commission's fiscal year 2000 budget estimate to OMB requests $67.7 million, which represents a $4.3 million or 7 percent increase over the fiscal year 1999 President's Budget. Approximately $2.9 million of this increase is necessary for the Commission to maintain its current level of operations and services. The remaining $1.4 million would support the addition of 21 full-time equivalent staff members, a 4 percent increase in staff.
Page 5 PREV PAGE TOP OF DOC As I stated last year at this subcommittee's GPRA hearing, the Commission strongly endorses the goals of GPRA and believes that the activities required by the act can help agency officials plan and administer programs more effectively. GPRA should also enable us to allocate Federal resources more efficiently and effectively.
We have made certain changes designed to strengthen our annual performance plan during the past year to make it more meaningful and to increase its utility. As I indicated to this subcommittee last year, the Commission used strategic planning and annual performance planning as an ongoing, evolving process.
Let me outline briefly the changes we have made during the past year. First, a substantial effort has been made to rewrite the detailed narrative that supports each of the three agency goals to make it clear and more concise. Second, in the past year, our strategic planning task force met to consider improvements to the summary of annual performance targets table in the annual performance plan. This table provides for each activity the performance goals, indicators, and annual targets required to meet each outcome objective.
Third, the agency is in the process of adapting its established quarterly objectives review to conform with the annual performance plan. The goal here is to use the performance data in our existing quarterly objectives review to evaluate whether we are meeting performance targets in our annual performance plan.
Fourth, the Commission is working to improve its capacity to account for budgetary resources by activity, outcome objective, and goal. Finally, the agency continues to recognize that the successful implementation of our strategic and annual performance plans requires input from persons and entities potentially affected by, or interested in, our regulatory activities.
It also requires that we balance competing interests in a manner consistent with our statutory mandate and agency mission. In this regard, during the past year, the Commission has been engaged in a comprehensive regulatory reform effort, in cooperation with our regulated persons, to update, modernize, and streamline regulations in order to improve market integrity and to protect market participants.
Page 6 PREV PAGE TOP OF DOC I would like to conclude by once again thanking the chairman for your interest in these matters and for holding these hearings. I would also like to assure all members of the subcommittee that we remain committed both to GPRA and to improving our planning and self-evaluation.
We welcome the opportunity to work with this committee, the Office of Management and Budget, the General Accounting Office, other financial agencies, users of the futures markets, and interested members of the public in refining our Strategic Plan and our annual performance plan. Thank you very much.
[The prepared statement of Ms. Born appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Chairperson Born. And Ms. Bolinger is with you as a consultant and resource?
Ms. BORN. Indeed. She knows a lot more about our finances than I do.
Mr. EWING. Right. Welcome.
Our second witness is Mr. Hillman, and he is the Acting Associate Director, Financial Institutions and Markets Issues, the General Government Division of the General Accounting Office. That's a long title.
Mr. HILLMAN. Well, I have taken the ''Acting'' part of the Associate Director position off recently, so I'm happy to say that.
Mr. EWING. Well, congratulations. You are the Associate Director. I will correct the record. And Ms. Trop is with you as one of your assistants. So Mr. Hillman, welcome, and thank you for being here.
STATEMENT OF RICHARD J. HILLMAN, ASSOCIATE DIRECTOR, FINANCIAL INSTITUTIONS AND MARKETS ISSUES, GENERAL GOVERNMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE
Page 7 PREV PAGE TOP OF DOC Mr. HILLMAN. Thank you, Mr. Chairman. We are very pleased to be here this morning to assist the subcommittee in its review of the Commodity Futures Trading Commission's fiscal year 2000 annual performance plan.
Hearings like this one and the one you held last year on the Commission's 5-year strategic plan continue to be an important means of ensuring that the intent of the Government Performance and Results Act is met.
Let me start by introducing Cecile Trop, Assistant Director of our Financial Institutions and Markets Issues Area. I also have with us this morning, Sharon Caudle, one of our performance management specialists.
Since our written statement provides the details of our assessment of the Commission's performance plan, I will only briefly summarize our observations this morning, so that we may move on to questions that may be of interest to you and members of the subcommittee.
Actions to date show a good faith effort on the part of the Commission in developing a plan that complies with the Results Act and related OMB guidance. In discussions with Commission staff, we found them to be seriously committed to meeting congressional expectations that the plan inform Congress and the public about the Commission's performance goals, including how the Commission will accomplish its goals and measure its results.
However, successful implementation of a performance-based management system as envisioned by the Results Act represents a significant challenge requiring sustained agency attention.
Our observations on the Commission's annual performance plan are focused on five areas of improvement. First, and most notably, the Commission's performance goals, measures, and targets could be substantially improved to provide a clearer picture of intended performance. At the most basic level, an annual performance plan is to provide a clear picture of intended performance across the agency.
Page 8 PREV PAGE TOP OF DOC Such information is important to Congress, agency managers, and others for understanding what the agency is trying to achieve, identifying subsequent opportunities for improvement, and assigning accountability. To CFTC's credit, the plans defines goals and measures that are supportive of its mission.
However, our prepared statement provides several avenues the Commission could explore to improve the usefulness of the plan. Specifically, the plan could be improved if one, performance goals and measures were more results oriented and goals were provided for all measures and internal management challenges.
Two, some performance goals were made self-measuring and others were made more objective. Three, certain performance measures were replaced, restated, or deleted. And finally, four, if baselines were established against which annual targets could be compared, to provide decisionmakers with a better context for assessing whether such targets are appropriate and reasonable.
I would like to briefly elaborate on the first point that the plan could be made more results oriented. We found that the majority of the Commission's performance goals and measures focused almost exclusively on program outputs, such as the number of meetings attended and the number of investigations or reports completed.
The Results Act allows agencies to include output goals such as these in their plans, as such goals provide important information for Commission managers to use in managing programs. However, the Results Act is clearly outcome oriented and outcome goals should be included in annual performance plans whenever possible.
Our second observation is that the plan's mission, goals, and activities could be better connected to more fully demonstrate how the Commission will chart annual progress toward achieving its long-term strategic goals.
On the positive side, the plan uses an array of tables that connect each strategic goal and its accompanying set of performance goals, measures, and annual targets. The plan also ranks the agency's outcome objectives by dollars budgeted, which is a good starting point for providing useful information about its priorities.
Page 9 PREV PAGE TOP OF DOC However, the performance plan's presentation of many separate program areas, program activities, and performance goals, measures, and targets makes it difficult to link strategic goals, mission and performance goals across the entire agency.
The plan's 31 performance goals and 228 performance measures support three strategic goals and nine strategic objectives, covering five program areas. With this level of complexity, it is difficult to identify the agency's key priorities among the multitude of goals and measures, differentiate efforts to meet those priorities, and understand what will be achieved if all the performance goals are met.
Our third observation is that the Commission's cross-cutting efforts could be more completely addressed. CFTC's plan recognizes the need to address cross-cutting efforts, however, it could more completely address such efforts if the agency worked with the cognizant Federal agencies to develop performance goals and measures that better reflect the nature and extent of their common interests.
For example, the continued growth and development of the over-the-counter derivatives market has raised a number of potential regulatory concerns that affect CFTC and other members of the President's Working Group on Financial Markets.
In addition, the potential need to develop a Financial Markets Contingency Plan to address the year 2000 computer dating problem could involve coordination among CFTC and other Federal regulators.
Our fourth observation is that the annual performance plan could more clearly show how the strategies and resources would be used to achieve goals. While CFTC's plan provides some useful information in this area, expanding this discussion could better enable Congress and other decisionmakers to judge the reasonableness of the Commission's strategies and anticipated resource deployments.
Our final observation is that the annual performance plan could be improved by discussing the means for verifying and validating that performance information is sufficiently complete, accurate, and consistent, as well as the extent to which such information and the means for collecting, maintaining, and analyzing it are reliable.
Page 10 PREV PAGE TOP OF DOC In summary, Mr. Chairman, it is important to recognize that while CFTC's performance planning can be further improved, the Results Act anticipated that the process for developing an effective planning process and plans could take several planning cycles.
We look forward to continuing to work with the Congress and the CFTC to help to ensure that the requirements of the Results Act are met.
Mr. Chairman, this concludes my prepared statement. My colleagues and I would be pleased to answer any questions that you or members of the subcommittee may have.
[The prepared statement of Mr. Hillman appears at the conclusion of the hearing.]
Mr. EWING. Thank you very much for your testimony.
Ms. Born, and Mr. Hillman, what results has the CFTC achieved based no last year's strategic plan? Generally, how would you rate how well we have done? Let's start with Mr. Hillman, 1 to 10.
Mr. HILLMAN. Our assessment was looking at the extent to which their annual performance plan met the requirements of the Results Act and related OMB guidance. In our view, we found what we considered to be some serious shortcomings in developing a results-oriented plan such as the act requires.
Recognizing though, that it should be expected to take more than one or two planning cycles to develop an effective plan, we feel that the CFTC is working judiciously toward that goal.
Mr. EWING. Brooksley, would you like to respond.
Ms. BORN. Well, as you know, a year ago, we had adopted our very first strategic plan, which was a 5-year plan and had adopted our very first annual performance plan, which actually is for fiscal year 1999, and we are just starting, therefore, to look at measuring our performance against that plan.
Page 11 PREV PAGE TOP OF DOC During the past year, the task force on strategic planning in the Commission, which consists of deputy directors of, I think, all of our divisionsvery high-level, operating staff peoplelooked at input from our stakeholders, both from the hearing that was held a year ago and from public comments we have received on the annual performance plan and the strategic plan. They adapted the annual performance plan for the year 2000 in part based on those comments, being able to consolidate, for example, the number of performance activities from 50 down to 44.
We also did a great deal of outreach at meetings with the exchanges at speeches before the Futures Industry Association, at board meetings of the exchanges and through a number of advisory committee meetings we have held throughout the year to reach out to our stakeholders in a more effective way to get their input.
Mr. EWING. GAO has identified five areas in which the CFTC could improve its performance plan. Would you like to comment on those.
Ms. BORN. Well, we very much appreciate that evaluation. Clearly, the staff task force is going to be analyzing these recommendations in depth. We hope that GAO will be willing to work with that staff task force. As I'm sure the subcommittee members are aware, we are a very small agency. We have been held most likely with our appropriations for next year at our current level of services and will not be able to hire anyone who is an expert in strategic planning.
Our staff is learning strategic planning as it goes along because we can't afford to hire professional strategic planners, which a number of the other larger agencies have done. Therefore, we are particularly open to suggestions from this subcommittee and from GAO for help.
But I do think that, in my view and in the view of the other commissioners, an enormous amount of work has gone into this. It has been a significant diversion of staff time from our regular operations and we feel that they performed very well.
Page 12 PREV PAGE TOP OF DOC Let me say that we have talked with other Federal regulatory agencies about the need under the act to try to have outcome measures, rather than output measures. I think all the independent regulatory agencies are having a very hard job doing that. Our job is to prevent fraud and manipulation. Does the fact that there is manipulation in our markets or that there is fraud in our markets mean that we are not achieving proper output? It is very difficult to say whether the fact that we detect and prosecute fraud is a demonstration that we are doing or job or that we have failed in our job.
Mr. EWING. Chairperson Born, I guess I would have to say from my observation that your agency is there to prevent the fraud, absolutely, to protect the customer, to see that the system works right.
And my observation in the last year, though, is that it would seem to me that too much time has been spent in some types of disagreements and bantering with those being regulated over less than significant problems which don't really relate to the absolute purpose for your being there.
And I think that is one of the things we need to get at, how do we make it more efficient for CFTC to work with those being regulated so that less time is spent doing unproductive negotiations on matters that should be settled quickly, and more time is spent on the real crux of why the organization exists.
Ms. BORN. Well, I'm not sure what issues you are referring to, Mr. Chairman. Certainly, the issues that we have had controversy with, for example, the exchanges on our enforcement of congressional mandates on issues like dual trading and audit trail. And I suppose that, in my view, that's an issue of whether we enforce the law or don't enforce the law.
Mr. EWING. Well, without getting into a debate on the issues, I would just throw out the delivery points and the way that was handled, I think was not effective and not efficient, and it was a matter that could have been done in a better way from at least this congressional viewpoint.
Page 13 PREV PAGE TOP OF DOC Ms. BORN. Again, that was enforcing a statutory mandate that requires the Commission to notify an exchange if the delivery capacity on one of its contracts does not meet the statutory standards, which is what the Commission unanimously found.
Mr. EWING. I understand that, and I do not intend to debate that with you. From my viewpoint, the exchange was required to meet that, and they tried to meet it. The way it was handled after it was delivered to your office and back and the time taken was unacceptable. It was not done in a very effective manner, and I think we weren't talking about the safety issue there, we were talking about an administrative issue. And I think it could have been handled
Ms. BORN. No, that was an issue of manipulation, Mr. Chairman. The statute is designed to protect users of markets against contracts that have so little deliverable supply that they are susceptible to manipulation and price distortion. We found that those contracts were vulnerable to those problems.
We were using enormous staff resources of our market surveillance staff to try to make sure that the corn and soybean contracts were going to settlement without significant price distortions that would hurt the agricultural interest that used those markets. I think that was the very center of our core responsibilities.
Mr. SMITH of Michigan. Will the chairman yield?
Mr. EWING. The chairman will yield. Mr. Smith.
Mr. SMITH of Michigan. Well, Mr. Chairman, somewhat of a different outlook. My frustration with, specifically, the Chicago Board of Trade is trying to make sure that farmers and producers have the ability to use CBOT to their greatest advantage in minimizing that individual farmer's risk.
So I personally have been concerned when points of delivery are reduced to the extent that it makes it even more difficult for a farmer to either deliver or take delivery on a hedge contract that they might have with CBOT.
Page 14 PREV PAGE TOP OF DOC As we look at options, I hope the Agriculture Committee and the future of this subcommittee in the next session of Congress can even look more carefully at changes that might be initiated so that farmers have greater flexibility in utilizing the Chicago Board of Trade, to help hedging and other forms of reducing risk management to assure that those particular farmers can minimize their risk and maximize their use of such units as Chicago Board of Trade.
Mr. EWING. Regaining my time, my time is up on this round. We will go to you, Mr. Boswell. Do you have any questions?
Mr. BOSWELL. Not at this time.
Mr. EWING. Mr. Smith, you've used two-thirds of your time.
Mr. SMITH of Michigan. That was one third yours and two-thirds mine. I guess my question is trying to figure out, Chairperson Born, what is the golden mean, if you will, where your efforts are not too intrusive on the rights of a private organization, but at the same time, that you go far enough to help assure that there is a compliance with the law.
And I know the testing over these last two years of how much authority you might have and your Commission might have in relation to how much laissez faire rights units such as CBOT have. Just bring this committee up to date, maybe, where you are in your dealings with CBOT, and is there evolving some kind of a compromise on what is the right efforts in your jurisdiction?
Ms. BORN. Well, I think the Commission sees its primary role as an oversight role over CBOT. We rely very heavily on their own self-regulatory activities and oversee those activities and supplement them when necessary, as we felt it was with respect to the corn and soybean contracts. I think we have made significant efforts to work cooperatively with them.
I have met with their entire board of directors. I think, the first time a Chair of the CFTC has ever met with their board. We have undertaken a great deal of regulatory reform efforts at the suggestion of the exchanges as well as commodity professionals. And that's been the main thrust of the Commission's work during the last two years, to streamline the burdens on the exchanges while, at the same time, maintaining the important protections for market integrity and market users.
Page 15 PREV PAGE TOP OF DOC Mr. SMITH of Michigan. Mr. Hillman, in terms of the Results Act and trying to make sure that the ultimate goal is met, it seems to me that you indicated that you thought your responsibility was to make sure there was a good plan in place. Are we lacking in the oversight to make sure that the implementation of that plan ends up with results, and somehow measuring the results and activity against the plan in the first place to see how well it's complied with.
Mr. HILLMAN. In our view, Congressman, the plan as it is laid out identifies a great deal of activities, goals, performance indicators, or measures, which, in our view, are very useful from a day-to-day manager's standpoint in knowing what they are supposed to be doing and managing to that workload.
However, from a GPRA standpoint, where we are hoping that we would rise above the idea of documenting outputs or processes and actually plan towards achievement of results, we found the plan to be less than useful in understanding what the key priorities of the Commission are, what they would hope to achieve, and in particular, the strategies that they would employ to accomplish them.
So our hope is that in future efforts to develop an annual performance plan, as well as a new round in the strategic planning process, that we would rise above the level of looking at processes and outputs and more towards results.
Ms. BORN. Mr. Smith, if I might just add something.
Mr. SMITH of Michigan. Yes, sure.
Ms. BORN. You know, under GPRA, the first time the Commission is supposed to submit an evaluation of our performance is March 2000. During this coming fiscal year, 1999, our staff task force's main job is to take the annual performance plan for 1999 as we have it and work on how to measure and evaluate and collect the data demonstrating what the agency has achieved.
Page 16 PREV PAGE TOP OF DOC We see this as a step-by-step process. And the performance evaluation in the act is slated for March 2000.
Mr. SMITH of Michigan. Mr. Chairman, thank you. So what is the status of the new plan? Have you and GAO come to some meetings of the mind on the final plan for next year?
Ms. BORN. Actually, OMB is the agency that looks at our plan for fiscal year 2000 in the first instance. We have submitted one, the plan, at the beginning of this month. Let me say, it's a plan that was based on the assumption that we would get the resources asked for in the budget request for year 2000.
It also assumed that the President's budget request for 1999 was going to be adopted because the plan had to be submitted before Congress acted on the 1999 budget. Congress still hasn't acted finally on the bill, at least the President hasn't acted on the bill, but the 1999 budget is a great deal lower than what the President had requested for us. That's going to mean our 1999 performance plan has to be completely reworked, and our year 2000 performance plan will similarly have to be completely reworked.
Mr. SMITH of Michigan. Mr. Chairman, thank you.
Mr. EWING. Thank you.
Mr. Hillman, many activities outlining the outcome objectives do not have performance goals. Should the CFTC address this in their next submission?
Mr. HILLMAN. Yes. We identified that issue as well, Mr. Chairman, in that while the organization does have 31 performance goals, there are 16 activities identified that have not yet had established a performance goal for them.
One more point on that, though. Given the size of the organization and the responsibilities that it has, the organization of this plan, in our view, could be somewhat improved if they were to not only address the 16 areas where there are holes, but also, in doing so, rise to a slightly higher level and collapse some of the performance goals that they currently have. Rather than the 31 performance goals, something on the order of 15 to 20 may be more appropriate, in our view.
Page 17 PREV PAGE TOP OF DOC Ms. BORN. Mr. Chairman, if I could address that. That is one of the primary issues that the staff task force has on its agenda for this current 1999 fiscal year, to work on the performance goals, to work on performance measures, and to actually begin the evaluative process.
Mr. EWING. To Mr. Hillman again, the CFTC reauthorization process is expected to begin next year. Do you consider this an external factor that would impact the Commission's strategic planning? And if so, how could CFTC incorporate this into their plan?
Mr. HILLMAN. We discussed that topic last year, Mr. Chairman, in that there were a number of external events that really were not discussed in their strategic plan. Moving forward from that strategic plan into the annual performance plan, if it was not discussed in the strategic plan, it is difficult for it to be incorporated within the annual performance plan.
In our view, as we stated last year, it would be useful to discuss the relevance of external events, as well as internal events, in a strategic plan and then address those components as you implement that plan within the annual performance plans.
Ms. BORN. If I just may add something, the strategic plan does discuss a number of external factors that the Commission needs to take into account. We assumed, perhaps incorrectly, that changes in governing law would necessarily be understood to be something that would change our mission, change our goals, and change our strategy since Congress has the ultimate authority to determine through statute what those goals and responsibilities are.
Certainly, I could have the strategic planning task force add to our strategic plan that we will be guided by our statutory mandate. We thought that was sine qua non.
Mr. EWING. In the area of your annual performance plan, outcome objective 1.1, I noticed that there was a suggestion that handling responses to the applications and rule changes within 1045 days, there was, according to the review that I see, we have the number handled and do we have the time? No amount of time.
Page 18 PREV PAGE TOP OF DOC But it doesn't tell us whether the applications were approved, disapproved, just the number of applications handled. We had thought that we would get more information about the outcome of those applications with that review. Could you?
Ms. BORN. Well, as you know, we are talking about applications that we may receive in the fiscal year 2000 from the exchanges. These are applications which I assume haven't even begun to be formulated by the exchanges themselves.
Our job when we get those applications is to see whether or not they meet the legal standards in the act. They get disapproved rarely because they almost always meet the legal standards of the act, which certainly the exchanges are very sophisticated about and are making a good faith effort to meet those standards.
It's very hard for us to predict for the year 2000 how often the exchanges will fall down on their responsibility of designing contracts that meet the standards of the act. That's why an outcome result is very difficult to predict, or make any estimate.
For example, I don't think there have been any contract designation applications in this past fiscal year that didn't eventually get approved. Some of them needed to be amended by the exchanges, but to the extent that the exchanges were interested in having us act, we acted and approved all the contracts.
Mr. EWING. I guess our suggestion would be that we think that might be improved if we knew the number that were approved and the timetable within which they were approved.
Ms. BORN. This is for the year 2000? I mean, I could give you that for the year 1997.
Mr. EWING. Well, we have 1998, 1997. They are not in there, either.
Ms. BORN. Well, 1997 is
Page 19 PREV PAGE TOP OF DOC Mr. EWING. And 1999.
Ms. BORN. What I thought we were discussing was the year 2000 estimates. For the year 1997, we have put in what our estimates are for that year. We are not required to have an annual performance plan for fiscal year 199798, which is, I think, the column that you are talking about.
We don't have final data yet. The year just ended last week, and that data is being compiled. This data was put in there as an estimate at the beginning of September, and we will certainly put in the final actuals. But what this APP or annual performance plan is designed to do is not look backward. We are just using that as a baseline for estimates for next year and the year after that.
What the purpose is, is to predict out into the future. And while we can say for the past how many contract applications the exchanges actually gave us and how many we approved and how many we disapproved, it is only an estimate as to how many they will give us in fiscal year 2000. And I would hate to put an estimate in there of how many they would submit that did not meet the legal standards.
If that's what's being suggested, I think we assume and hope that they will meet the legal standards in each and every one of them; and we don't have as a goal or an expectation that we will be disapproving contracts because the exchanges will submit illegal ones to us.
Mr. EWING. Mr. Hillman.
Mr. HILLMAN. This particular example was one you raised last year and registered a concern that the performance indicator measured only the applications received. In looking at the fiscal year 2000 annual performance plan, there really was no change in the performance goal or the performance measure.
In our view, the measure does not directly determine if the review was done adequately to determine economic viability and preventing disruptions in the markets, as is called for in the activity area.
Page 20 PREV PAGE TOP OF DOC Quite frankly, what we would be looking for in this example, and really in their other performance goals and measures, is the incorporation of additional results oriented avenues, such as attempts to improve quality, timeliness, or reduce costs. A better performance goal in this instance maybe would be to, during the year, review Xx percent of all applications and change rule requests against CFTC economic viability and disruption likelihood standards, and issue an approval or deficiency letter within 45 days of the date the request was received.
In that example, you would be assessing the quality of the process and also the timeliness of the process, which would give us an indicator as to whether or not we were seeing real improvements in that activity.
Mr. EWING. Thank you, Mr. Hillman. It's a good suggestion.
I want to touch on one other matter before we conclude here. I do want to acknowledge that Mr. Condit, the ranking member of the committee is here, and he can jump in at any time.
I wanted to talk about Agricultural Trade Option and the pilot program. How many companies have registered for the Agricultural Trade Option?
Ms. BORN. You mean as Agricultural Trade Option merchants?
Mr. EWING. Right.
Ms. BORN. I'm not certain. We've had a number of inquiries and sent out a number of application packages to interested parties. I am not sure. The NFA is the entity that receives the applications. I don't have current information on that, but I could provide that to the subcommittee.
Mr. EWING. Would you provide that and the number that have registered, and if there have been any comments or suggestions submitted with the program.
Ms. BORN. We had put this out for public comment for quite a period and had a lot of comments, including two public meetings. We would be happy to provide that.
Page 21 PREV PAGE TOP OF DOC Mr. EWING. Well, that wouldn't be necessary. I mean, if it's public comment, that's available to us.
Ms. BORN. I think it's all on the public record, Mr. Chairman, but I could check.
Mr. EWING. Have there been some pretty good suggestions made in the public record? Have you changed the program at all?
Ms. BORN. Well, these were suggestions that were made going up to creating the program, and many of those suggestions were adopted in the final rule.
Mr. EWING. Are there any other plans in the works for changes for the program?
Ms. BORN. Yes, it was adopted as a 3-year pilot program. It's called an interim final rule because it is intended to be a program that's being continuously evaluated by the Commission during the 3-year period. We will have to decide at the end of that period whether or not to permit it to continue; and at any point during the course of the 3-year pilot program, based on experience with the pilot program, we have the capability of proposing changes in the rules.
Mr. EWING. Well, we will forward to getting further information on that.
We have a vote on the House floor, and I would like to give either of you the opportunity to make any final comment, and we should be able to conclude without holding you over till after the vote.
Ms. BORN. Well, let me just say again, thank you for holding this hearing. The transcript of the hearing will certainly go to our task force on strategic planning, which will consider it and study it in the process of their work on our strategic planning during the forthcoming year.
Page 22 PREV PAGE TOP OF DOC Mr. HILLMAN. We were pleased to be here today, Mr. Chairman, and want to thank you for giving the Government Performance and Results Act the attention it deserves. I believe hearings like this help to keep this topic on the front burner and that is one of the ways we can help improve government.
Mr. EWING. Well, thank you. My final comment is that this isn't a simple subject. It is difficult when you deal with procedures, and the bureaucracy has its way of doing things over the years. But the Congress passed the Government Performance and Results Act not because we thought we just needed another law, but because we thought we as government servants could do it better.
So there is a reason for the law and the only thing I can think of is it's like playing golf, which is one of the things I have the biggest problem with. And I find that I don't keep my eye on the ball. The goal is to get down the fairway with the business of serving the people in this country and the business community and all of it that we want to make our economy strong. And when we get the eye off the ball, we knock it off to the right or the left and we get ourselves into a lot of, I guess, bureaucratic high grass.
I would just encourage you to keep your eye on the ball. The reason why we have the Performance Act is to make this agency, the one that this committee is responsible for, act and perform as efficiently as possible. I know you are trying. I guess you just keep your head down when you do that swing.
Ms. BORN. Thank you very much for the advice, Mr. Chairman. We certainly will try to do that.
Mr. EWING. The subcommittee is adjourned.
[Whereupon, at 10:07 a.m., the subcommittee adjourned subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Page 23 PREV PAGE TOP OF DOCTestimony of Brooksley Born
Mr. Chairman and Members of the Subcommittee:
I am pleased to represent the Commodity Futures Trading Commission before this subcommittee today to discuss the CFTC's fiscal year 2000 OMB Budget Estimate and Annual Performance Plan and to report on the Commission's efforts fully to comply with the Government Performance and Result's Act of 1993 (GPRA or the Act.). Before I begin, I should note two points regarding the budget figures. First, the fiscal year 2000 Budget represents the Commission's Budget Estimate for OMB and may change before the President's Budget is submitted to Congress in February 1999. Second, the increase requested for fiscal year 2000 is an increase to the fiscal year 1999 President's Budget instead of the fiscal year 1999 appropriation. The Commission's fiscal year 1999 appropriation is undetermined as of this date. However, the fiscal year 1999 Agriculture Appropriations Bill, recently approved by the House and Senate Conference Committee, includes $61 million for the CFTC, or $2.4 million less than the President's Budget request.
The Commission's fiscal year 2000 OMB Budget Estimate requests $67.7 million which represents an increase of $4.3 million, or seven percent, over the fiscal year 1999 President's Budget. Approximately $2.9 million of the increase is necessary for the Commission to maintain its current level of services and operations. The remaining $1.4 million would support the addition of 21 full-time equivalents (FTE)a four percent increase in staff. The $4.3 million increase, when distributed by agency goal, represents a seven percent increase in Goal One: Protect the economic functions of the commodity futures and option markets; a 5 percent increase in Goal Two: Protect the market users and the public; and a 7 percent increase in Goal Three: Foster open, competitively and financially sound markets. The requested increase will strengthen the Commission and increase its ability to oversee the growing vital futures and option markets that are critical to our Nation's economy. The growth and expansion of the Commission's oversight and regulatory responsibility have been caused by increased contract trading volume, growth in over-the-counter derivatives and managed funds, expansion of Congressionally mandated responsibilities, increased internationalization of the markets and growth in market innovations and technological innovations.
Page 24 PREV PAGE TOP OF DOC As I stated last year at this subcommittee's GPRA hearing, the Commission strongly endorses the goals of the GPRA and believes that activities required by the Act can help agency officials plan and administer programs more effectively. GPRA also should enable us to allocate Federal resources more efficiently and effectively.
As you know, last year the Commission unanimously adopted, as part of the GPRA process, a Mission Statement that incorporates the fundamental principles embodied in our statutory mandate. The mission of the Commodity Futures Trading Commission is
to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity futures and options, and to foster open, competitive, and financially sound commodity futures and option markets.
The Commission also adopted the three agency goals that I mentioned earlier. Our mission statement and these three agency goals continue to provide the basis for the Commission's Strategic Plan and the Annual Performance Plan and remain unchanged from last year.
However, we have made other changes designed to strengthen our Plan, to make it more meaningful, and to increase its utility. As I indicated to this subcommittee last year, the Commission views strategic planning and annual performance planning as an ongoing, evolving process.
Let me outline briefly the changes we have made. First, a substantial effort has been made to rewrite the detailed narrative that supports each of the three agency goals. We sought to make it clearer and more concise. The narrative we developed last year reflected some strains we encountered in our first attempt to develop an Annual Performance Plan. It was a challenge for us to focus on agency goals rather than program goals since for years our staff have budgeted and conducted evaluations by program, but I am pleased to say that the Commission has made great strides in this effort and is now taking a broader view. We think the fiscal year 2000 narrative summary of accomplishments by goal reflects a higher level of agency comfort with this goal-based approach to planning for the agency. This is a subtle change, but an important milestone for us in our effort to adopt the principles of the GPRA.
Page 25 PREV PAGE TOP OF DOC Second, in the past year the Commission's Strategic Planning Task Force met to consider improvements to the ''Summary of Annual Performance Targets'' table in the Annual Performance Plan. This table provides for each activity the performance goals, indicators and annual targets required to meet each outcome objective. We identified two majors challenges: (1) the need to reexamine the 50 work activities that directly support the agency's mission in order more precisely to state the activity performed and to eliminate possible duplication and (2) the need to reexamine the performance goals and indicators to identify more clearly what we are hoping to achieve by performing these activities. This past year, the Task Force examined the work activities, modifying and consolidating several of them and reducing the total number from 50 to 44. In the coming year, it will focus on strengthening performance goals and indicators by addressing such questions as: What is the ''added value'' of performing these activities? To what extent are the goals and indicators helpful in assessing whether program activities are achieving their intended purposes?
Third, the agency is in the process of adapting its established Quarterly Objectives review to conform with the Annual Performance Plan. The goal here is to use the performance data in the Quarterly Objectives review to evaluate whether we are meeting performance targets in our Annual Performance Plan. The Task Force has developed a draft template for linking these two processes. Once we test the validity of the template, we will synchronize the reports, a process that should begin this fiscal year.
Fourth, the Commission is working to improve its capacity to account for budgetary resources by activity, outcome objective, and goal. The Commission's financial reporting system currently has the capability of attributing staff hours to hundreds of Commission projects and activities. This capability has enabled us to provide budget data in both program-based and goal-based formats. Now we will attempt to link the activities in the current financial reporting system with the 44 activities in the Annual Performance Plan to streamline and to automate the process of accounting for staff resources by activity. We plan to test this linkage during the current fiscal year and, if the test is a success, to use it to formulate the fiscal year 2001 Budget and Annual Performance Plan.
Page 26 PREV PAGE TOP OF DOC Finally, the agency continues to recognize that the successful implementation of our Strategic and Annual Performance Plans requires input from persons and entities potentially affected by, or interested in, our regulatory activities. It also requires that we balance competing interests in a manner consistent with our statutory mandate and agency mission. One of the ways the Commission obtains input is through regular meetings of the Commission's advisory committees. This input is reflected in actions taken by the Commission to be responsive to the competitive challenges facing the US futures industry and its customers, while at the same time preserving important customer protections and market safeguards. In this regard, during the past year, the Commission has been engaged in a comprehensive regulatory reform effort to update, modernize, and streamline regulations to improve market integrity and to protect market participants. These efforts include:
Implementing fast-track procedures for expedited processing and approval of new contract market designations and exchange rule changes. In fiscal year 1998, the Commission used its fast-track review procedures for 38 of the 58 applications for new futures and option contracts. Of the 38 approved, 19 were approved on a 10-day fast-track and 19 on a 45-day fast-track. These procedures reduced the burden on exchanges and streamlined the processing of new designation applications and certain rule changes.
Implementing substantive reforms through modifying, eliminating, or enhancing current rules, such as: (1) approval of new rules that will allow exchanges to permit futures-style margining of options contracts; (2) approval of new rules to permit post-execution allocation of bunched orders of sophisticated customers of a commodity trading advisor or investment advisor; and (3) amendment of the net capital rule to eliminate the ''short option value charge'' against the capital of a futures commission merchant.
Implementing a pilot program to permit the trading of agricultural trade options, thereby responding to the increasing need of the agricultural community for risk management tools.
Page 27 PREV PAGE TOP OF DOC Permitting the use of electronic media technology when adequate measures exist to safeguard the public interest. For example, proposing amendments to recordkeeping requirements that expand the opportunities for registrants to use micrographic and electronic storage media for recordkeeping and eliminate the current requirement that paper records be maintained for two years.
Reducing the regulatory burden on futures commission merchants and introducing brokers by eliminating, for certain defined categories of financially sophisticated customers, risk disclosure previously required at the time these customers open an account.
Improving the fairness and efficiency of the administrative process: (1) by proposing new rules to establish a specific procedure for filing requests for no-action, exemptive, and interpretative letters to give structure to the process, to provide greater guidance to requesters, and to make the process more transparent to all interested parties and (2) by proposing amendments to CFTC Part 10 rules, which update procedures in administrative enforcement actions brought under the Commodity Exchange Act.
These are several of the reforms the agency has undertaken in response to concerns raised by regulated entities and persons.
Mr. Chairman, I would like to conclude by once again thanking you for your interest in these matters. I would also like to assure all members of this Subcommittee that we remain committed both to GPRA and to improving our planning and self-evaluation. We welcome the opportunity to work with Congress, the Office of Management and Budget, the General Accounting Office, other financial agencies, the regulated industry, users of the futures markets, and interested members of the public in refining our Strategic and the Annual Performance Plans.
Statement of Richard J. Hillman
Mr. Chairman and members of the subcommittee:I am pleased to be here today to assist the Subcommittee in its review of the Commodity Futures Trading Commission's (CFTC) fiscal year 2000 annual performance plan. Hearings like this one and the one you held last year on CFTC's 19972002 strategic plan continue to be an important means of ensuring that the intent of the Government Performance and Results Act of 1993 (Results Act) is met.
Page 28 PREV PAGE TOP OF DOC As you know, annual performance plans can be an invaluable tool for making policy decisions, improving program management, enhancing accountability, and communicating to both internal and external audiences on how the long-term direction outlined in strategic plans is translated into the day-to-day activities of managers and staff. Successful implementation of a performance-based management system, as envisioned by the Results Act, represents a significant challenge requiring sustained agency attention.
My testimony today focuses on five areas in which CFTC could improve its performance plan to make it a more useful tool for congressional and executive branch decisionmakers. Although opportunities exist to improve CFTC's fiscal year 2000 performance plan, CFTC actions to date clearly show a good faith effort to comply with the Results Act and the Office of Management and Budget (OMB) guidance in developing its plan. In our discussions with CFTC staff, we found CFTC fully committed to meeting both the requirements of the Act and congressional expectations that the plan inform Congress and the public about CFTC performance goals, including how the agency will accomplish these goals and measure results. In addition, the areas in which CFTC could improve its plan are some of the same areas in which we found that many other Federal agencies, including Federal financial regulators, could improve their plans.
Specifically, CFTC could improve its plan in the following five areas:
Performance goals, measures,CFTC's plan uses the term ''performance indicator'' instead of ''performance measure'' to refer to the measures used to assess progress toward achieving performance goals. and targets could provide a clearer picture of intended performance.
Mission, goals, and activities could be better connected to more fully demonstrate how CFTC will chart annual progress toward achieving its long-term strategic goals.
Crosscutting efforts could be addressed more fully if CFTC worked with the affected Federal agencies to develop performance goals and measures that reflect the nature and extent of their common efforts.
Page 29 PREV PAGE TOP OF DOC Strategies and resources used to achieve goals could be discussed in greater detail to better enable congressional and other decisionmakers to judge their reasonableness.
The means for verifying and validating that performance information is sufficiently complete, accurate, and consistent, as well as the extent to which such information and the means for collecting, maintaining, and analyzing it are reliable, should be discussed.
My comments today apply to the fiscal year 2000 annual performance plan that CFTC prepared for OMB in September 1998. Our assessment of CFTC's plan was based on knowledge of the agency's operations and programs; past reviews of CFTC, including a review of its 19972002 strategic plan; results of work on other agencies' performance plans and the Results Act; discussions with CFTC staff; and other information available at the time of our assessment. The criteria we used to determine whether CFTC's plan complied with the requirements of the Results Act were the Results Act itself; OMB guidance on preparing strategic and performance plans (OMB Circular A11, Part 2); and GAO guidance on assessing agency performance plans.See The Results Act: An Evaluator's Guide to Assessing Agency Annual Performance Plans (GAO/GGD-10.1.20, Apr. 1998).
CFTC, an independent agency created by Congress in 1974, administers the Commodity Exchange Act (CEA), as amended.7 U.S.C. 1-25.
The principal purposes of the CEA are to protect the public interest in the proper functioning of the market's price discovery and risk-shifting functions. In administering the CEA, CFTC is responsible for fostering the economic utility of the futures market by encouraging its efficiency, monitoring its integrity, and protecting market participants from abusive trade practices and fraud.
The Results Act seeks to improve the management of Federal programs, as well as their effectiveness and efficiency, by establishing a system under which agencies set goals for program performance and measure their results. The Results Act is intended to shift the focus of government decisionmaking and accountability away from a preoccupation with activitiessuch as the number of market surveillance reports preparedto a focus on the results of those activities, such as protecting the economic functioning of the commodity futures and option markets.
Page 30 PREV PAGE TOP OF DOC Under the Results Act, strategic plans are the starting point for setting goals and measuring progress towards them. The Results Act requires virtually every executive agency to develop a strategic plan, covering a period of at least 5 years forward from the fiscal year in which the plan is submitted. In September 1997, CFTC formally submitted its fiscal years 19972002 strategic plan to Congress and OMB. This plan established three strategic goals: (1) protect the economic functions of the commodity futures and option markets; (2) protect market users and the public; and (3) foster open, competitive, and financially sound markets.
The Results Act also requires a Federal agency to prepare an annual performance plan covering the program activities set out in its budget. In establishing the requirement for a performance plan, the Results Act establishes the first statutory link between an agency's budget request and its performance planning efforts. The performance plan is to reinforce the connections between the long-term strategic goals outlined in the agency's strategic plan and the daily activities of program managers and staff.
Finally, the Results Act requires executive agencies to prepare annual reports on program performance for the previous fiscal year. The performance reports are to be issued by March 31 each year, with the first (for fiscal year 1999) to be issued by March 31, 2000. In each report, the agency is to compare its performance against its goals, summarize findings of program evaluations completed during the year, and describe the actions needed to address any unmet goals.
PERFORMANCE GOALS, MEASURES, AND TARGETS COULD BE IMPROVED
The Results Act requires that annual performance plans establish performance goals that (1) define the levels of performance to be achieved; (2) express these goals in an objective, quantifiable, and measurable form; (3) establish performance indicators to be used in measuring or assessing progress toward achieving the goals; and (4) provide a basis for comparing actual program results with the established goals. CFTC's performance plan makes great strides in addressing these requirements. However, the performance plan could provide a clearer picture of intended performance and be of greater use in assessing progress toward achieving intended performance if performance goals, measures, and targets were improved. Specifically, the plan could be improved if (1) performance goals and measures were more results-oriented, and goals were provided for all measures and internal management challenges; (2) some performance goals were made self-measuringSelf-measuring goals are expressed objectively and quantifiably and thus do not require the use of additional measures. and others were made more objective; (3) certain performance measures were replaced, restated, or deleted; and (4) baselines were established against which annual targets could be compared.
Page 31 PREV PAGE TOP OF DOCGOALS AND MEASURES COULD BE MORE RESULTS-ORIENTED AND COMPLETE
Results-oriented, or outcome, goals and measures provide the clearest picture of intended and actual performance. However, most of CFTC's performance goals and measures focus on program outputssuch as the number of meetings attended and number of research projects or reports completed. In our testimony before this Subcommittee last year, we highlighted a similar problem with CFTC's strategic plan.Results Act: Observations on CFTC's Strategic Plan (GAO/T-GGD-98-17, Oct. 22, 1997). Although we recognize that establishing outcome measures is particularly challenging for regulatory agencies as they move from a focus on the activities they undertake to the results they are trying to achieve, a key shortcoming of CFTC's performance plan is that it relies on output measures that describe completed activities, not program results. Also, these measures are weighted toward measuring the quantity of completed activities, rather than the quality, cost, or timeliness of performance outcomes. As mentioned earlier, the Results Act is intended to shift the focus of government decisionmaking and accountability away from a preoccupation with completed activities to a focus on the results of such activities.
The focus of CFTC's performance plan on output measures appears to flow from its strategy of deriving performance goals from program activities. For example, one performance goal is to aggressively identify, investigate, and take action against individuals engaged in fraudulent Internet and media activities. This goal is associated with the program activity of monitoring the Internet and other media for fraudulent activities and other possible violations of the CEA. The measure for the goal is the number of referrals to enforcement authorities generated from Internet and media monitoringan output of the activity, not an outcome of a program.
CFTC could refer to the narrative sections of its performance plan that discuss CFTC's fiscal year 1998 accomplishments to identify more results-oriented performance goals. For example, the Enforcement Program accomplishment section discusses the effectiveness of its quick-strike abilitythe ability to file injunctive actions quickly after detecting fraudto, among other things, obtain timely injunctive relief and enhance the possibility that customer funds will be recovered. This accomplishment section describes cases, filed within days or weeks of CFTC's discovering an illegal activity, that stopped fraud at an early stage and preserved customer funds. CFTC's performance measures could be made more results-oriented by replacing measures, such as reports on activities related to bringing injunctive actions and sanctioning violators, with more outcome-related measures, such as the percentage of quick-strike cases filed within a certain number of days of starting an investigation that resulted in sanctions and the percentage of funds recovered.
Page 32 PREV PAGE TOP OF DOC CFTC could also learn from the plans of other Federal financial regulators that are attempting the transition to results-oriented goals. For example, the National Credit Union Administration is developing new outcome performance goals. One outcome goal of the National Credit Union Administration is to ensure that federally insured credit unions are adequately capitalized. A performance goal is to reduce the percentage of federally insured credit unions that are undercapitalized by 10 percent, from 372 to 335.
CFTC's plan could also be improved if performance goals were provided for all activities and performance targets as well as for internal management challenges. Currently, the plan has 16 activities for which no performance goals exist. For example, no performance goal exists for the activity of reviewing and overseeing self-regulatory organization audit and financial practices. Without a performance goal, it is not clear what performance is expected. Also, CFTC's strategic plan identifies several internal management challenges that the performance plan does not address. These challenges include diminishing resources, recruiting and retaining qualified professionals, remaining abreast of current technology, and remaining educated and informed as innovation changes the industry. To better respond to the intent of the Results Act, CFTC could add agencywide performance goals to the plan to address these challenges or incorporate these challenges in existing performance goals and measures.
SOME GOALS COULD BE MADE SELF-MEASURING, AND OTHERS COULD BE MADE MORE OBJECTIVE
Although not required by the Results Act, CFTC could redefine some performance goals so that they are self-measuring, thereby reducing the complexity of the plan. Currently, all but 2 of CFTC's 31 performance goals are stated as abstract goalsthat is, as goals requiring that specific performance measures be defined to assess progress toward their achievement.
Performance goals that can be redefined so that they are self-measuring generally have one measure or two or more measures that can be combined. For example, the performance goal for the activity of reviewing the adequacy of self-regulatory organization disciplinary actions might be restated in the following way: On an annual basis, review a certain percentage of self-regulatory organization disciplinary actions to ensure compliance with CFTC standards. This approach, which has been taken by other Federal financial regulators, such as the National Credit Union Administration and Federal Deposit Insurance Corporation, clearly defines performance expectations. For example, the Federal Deposit Insurance Corporation has the following performance goal: Market 80 percent of a failing financial institution's assets based on book value at the time of resolution or within 90 days.
Page 33 PREV PAGE TOP OF DOC CFTC's performance plan could also be improved by reducing the extent to which performance goals require interpretation. To the extent possible, goals should not require subjective considerations to dominate measurement. For example, one performance goal is defined as follows: Bring important cases (including matters involving ongoing conduct and complex transactions) aggressively. The performance goal does not define what an important case is or what it means to aggressively bring a case.
CERTAIN PERFORMANCE MEASURES COULD BE REPLACED, RESTATED, OR DELETED
CFTC's performance plan has 31 performance goals with 228 performance measures to address them. CFTC could replace, restate, or delete performance measures for certain performance goals to strike a better balance between too few and too many measures and to enhance its ability to assess the progress made in achieving performance goals.
First, CFTC could replace certain performance measures to better capture key aspects of the performance they are trying to assess. For example, one of the plan's performance goals is to review every designation application and rule change request within 10 to 45 days. This goal's performance measures are the number of designation applications processed and the number of contract market rule changes processed. Because neither measure captures the amount of time it takes to process applications or changes, they could be replaced with one measure that captures the percentage of applications and changes processed in 45 days or less.
Second, CFTC could restate or delete certain performance measures, because they do not appear to be clearly related to their performance goals and/or appear to be unduly affected by external factors. For example, the number of active futures and option markets is used to measure, in part, two goals: (1) identify traders who can influence futures prices and (2) determine whether traders are influencing futures prices. The number of active futures markets is determined by futures exchanges and other external factors and has little direct bearing on the two goals. As a result, the measure could be deleted.
Page 34 PREV PAGE TOP OF DOC Third, CFTC could restate or delete certain performance measures, because they may have limitations that preclude them from accurately capturing intended performance and may promote unintended consequences. For example, one of the plan's performance goals is to conduct important investigations and refer potential violations to other authorities as appropriate. The performance measures for this goal include the number of documents obtained through subpoena or inspection, number of witnesses from whom testimony was taken, and number of witnesses interviewed. These output-oriented measures could provide an incentive for staff to conduct more interviews, take more testimonies, and obtain more documents than necessary, which could add cost and time to investigations without necessarily contributing commensurately to their success.
BASELINES COULD BE ESTABLISHED AGAINST WHICH TO COMPARE ANNUAL TARGETS
Although CFTC's performance plan includes annual targets for performance goals, it could make such information more useful by providing baselines, or a context, for assessing the reasonableness and appropriateness of such targets. As we recently reported, agencies that go beyond the requirements of the Results Act and include baseline or trend data for their goals provide a more informative basis for assessing expected performance.
CFTC's performance plan provides many quantitative annual targets for each fiscal year from 1998 through 2000. Many are set at the same performance level as or at a lower performance level than in prior fiscal years without an explanation. For example, the performance measures for assessing sanctions under CFTC's first strategic goal are the same in each year covered by the plan for the number of cease and desist orders, registration sanctions, and trading prohibitions. However, the basis for setting the specific targets and the contributions of these targets to the outcome objective are not readily apparent.The outcome objective is to foster futures and option markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity. Without this contextual information, the reader does not know if CFTC's output-oriented performance targets are reasonable.
Page 35 PREV PAGE TOP OF DOCMISSION, GOALS, AND ACTIVITIES COULD BE BETTER CONNECTED
Consistent with the Results Act, CFTC's performance plan attempts to show the relationship between the agency's annual performance goals and its fiscal years 1997 through 2002 mission and strategic goals. To do so, the plan uses tables that connect each strategic goal to its accompanying set of performance goals, measures, and annual targets. The plan also ranks the agency's outcome objectives by dollars budgeted, which is a starting point for providing useful information about its priorities. However, the plan could better connect mission, goals, and activities by more fully demonstrating how CFTC will chart annual progress toward achieving its long-term strategic goals.
As we found with other agency performance plans, CFTC's plan associates one performance goal with multiple program activities and strategic goals. Such associations make it difficult to determine whether all activities are substantially covered or to understand how specific program activities are intended to contribute to CFTC's strategic goals. For example, the performance goalassess sanctions that are remedial and deter violatorsis associated with three different program activities and three different strategic goals. Moreover, the measures and targets for this performance goal differ with each program activity and strategic goal.
Similarly, the performance plan's presentation of many separate program areas, program activities, and performance goals, measures, and targets makes it difficult to link CFTC's mission and strategic goals to performance goals across the entire agency. The plan's 31 performance goals and 228 performance measures support 3 strategic goals and 9 strategic objectives, covering 5 program areas. Although the plan's ranking of outcome objectives offers a useful perspective on CFTC's priorities, given the high level of complexity, it is difficult to (1) identify the agency's key priorities among the many goals and measures, (2) differentiate efforts to meet these priorities, and (3) understand what will be achieved if all the performance goals are met.
Page 36 PREV PAGE TOP OF DOCCROSSCUTTING EFFORTS COULD BE MORE FULLY ADDRESSED
The Results Act seeks to ensure that crosscutting goals of Federal programs are consistent; strategies are mutually reinforcing; and, as appropriate, progress is assessed through the use of common performance measures. OMB guidance tasks performance plans with identifying those performance goals that are being mutually undertaken with other Federal agencies in support of programs or activities of a crosscutting nature.OMB Circular A-11 guidance states that, at a minimum, the performance plan should indicate those programs or activities that are being undertaken with other agencies to achieve a common purpose or objective. An agency should also review the performance plans of other agencies participating with it in a crosscutting program or activity to ensure that goals and indicators are consistent and harmonious. CFTC's plan recognizes the need to address crosscutting efforts. However, it could more fully address such efforts if the agency worked with the cognizant Federal agencies to develop performance goals and measures that better reflect the nature and extent of their common efforts.
CFTC's performance plan could be expanded to include performance goals and measures to more adequately address crosscutting efforts, such as those identified in its budget justification that accompanied its performance plan to OMB. These include CFTC's participating in the President's Working Group on Financial Markets;The President's Working Group on Financial Markets was created following the October 1987 stock market crash to address issues concerning the competitiveness, integrity, and efficiency of the financial markets. The Secretary of the Treasury chairs the group, and other members include the chairs of CFTC, the Federal Reserve System, and the Securities and Exchange Commission. sharing information with other financial regulators; working with the U.S. Department of Agriculture on a risk management education program; contributing to a Department of the Treasury initiative that encourages global financial stability; as well as cooperative enforcement efforts with the Department of Justice, the Federal Bureau of Investigation, the Federal Reserve Board, the Federal Trade Commission, the Securities and Exchange Commission, and the U.S. Postal Inspection Service.
Page 37 PREV PAGE TOP OF DOC CFTC's performance plan briefly discusses CFTC's need to work with other U.S. financial regulators through, among other means, the President's Working Group on Financial Markets. However, the related performance goals and measures do not directly address the type of crosscutting performance that the Working Group was created to address. For example, CFTC's performance goal covering the Working Group is for CFTC to contribute to the performance of the group. The measure for this goal is the number of meetings attended, and the fiscal year 2000 target is two meetings.
As supported by OMB guidance, CFTC could strengthen its performance plan by participating with the members of the Working Group and other Federal regulators involved in crosscutting programs to develop common performance goals and measures. For example, the continued growth and development of the over-the-counter (off-exchange) derivatives market has raised a number of potential regulatory concerns that affect CFTC and other members of the Working Group. In addition, the potential need to develop a financial markets contingency plan to address the Year 2000 computer dating problemThe Year 2000 computer dating problem relates to the need for computer systems to be changed to accommodate dates beyond the year 1999. could involve coordination among CFTC and other Federal financial regulators.
STRAEGIES AND RESOURCES USED TO ACHIEVE GOALS COULD BE DISCUSSED IN GREATER DETAIL
CFTC's plan provides important information on how strategies and resources will be used to achieve goals. However, expanding this discussion could better enable congressional and other decisionmakers to judge the reasonableness of CFTC's strategies and anticipated resource deployment.
Consistent with the Results Act and OMB guidance, CFTC's performance plan attempts to address the strategies that CFTC will use to achieve its performance goals. Although this discussion should cover operational processes, skills, and technologies, CFTC's discussion focuses on the agency's operational processes and, to a much lesser extent, on skills and technologies. Aligning its discussion with CFTC's strategic goals, the plan briefly describes the major activities of each program in relation to its performance goals and measures. In a few cases, the plan also discusses skills or technologies that programs will use in relation to performance goals and measures. The plan could be made more useful by providing additional information on the skills and, if appropriate, technologies used in connection with operational processes to achieve program goals.
Page 38 PREV PAGE TOP OF DOC Also, consistent with the Results Act, CFTC's performance plan discusses the resources that will be applied to achieve the agency's performance goals. Using tables and graphics, the plan shows the amount of budget funding and the number of full-time equivalent employees that will be needed to achieve each strategic goal and the individual outcome objectives covering each strategic goal. CFTC's plan could be further improved by describing the resources required to achieve each performance goal.
THE MEANS FOR VERIFYING AND VALIDATING PERFORMANCE INFORMATION SHOULD BE DESCRIBED
Although required by the Results Act and OMB guidance, CFTC's fiscal year 2000 performance plan does not describe the procedures that the agency will use to verifyVerify means to check or test performance data to reduce the risk of using data that contains significant errors. and validateValidate means to test the data to ensure that errors do not create significant bias. that performance information is sufficiently complete, accurate, and consistent. Nor does the plan discuss the extent to which the performance information and the means for collecting, maintaining, and analyzing it are reliable. CFTC's performance plan should be expanded to address these requirements.
In addition, to assess progress toward achieving its goals, CFTC will need to collect information on the over 200 performance measures in its plan. For some of these measures, the amount of information to be collected is voluminous and covers activities across CFTC headquarters and regional offices. Errors can occur in collecting, maintaining, processing, and reporting such informationpotentially introducing bias and resulting in inaccurate estimates of program performance. As a result, CFTC should have procedures for ensuring that its performance information is free of significant levels of error and that bias is not introduced. Such procedures can include internal controls over data collection, maintenance, and entry, as well as audits, evaluations, and peer reviews.
In summary, Mr. Chairman, it is important to recognize that although CFTC's performance planning can be further improved, the Results Act anticipated that the process of developing an effective planning process and plans could take several planning cycles. We look forward to continuing to work with Congress and CFTC to ensure that the requirements of the Results Act are met.
Page 39 PREV PAGE TOP OF DOC Mr. Chairman, this concludes my prepared statement. My colleagues and I would be pleased to answer any questions that you or Members of the subcommittee may have.