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When A Government Agency’s Watchdog Fails

Among their other duties, Inspectors General at the federal government level are charged with preventing waste, fraud and abuse. Consequently, when an agency’s internal watchdog, or Inspector General, flunks a peer review, it’s obviously beyond a matter of embarrassment. However, that’s just what the Center for Public Integrity’s iWatch News reported last Friday:

“The internal watchdog for the Commodity Futures Trading Commission (CFTC) flunked a recent review of its auditing operations, raising questions about its ability to prevent fraud, waste, and abuse within the agency that will soon police the multi-trillion-dollar derivatives market. (link or URL added)

“The embarrassing grade was disclosed by Inspector General A. Roy Lavik in his semiannual report to Congress, which included a summary of a review conducted by another federal inspector general. “OIG submitted to a peer review of our audit function, conducted by the Federal Election Commission Office of Inspector General. We failed, with a scope limitation,” Lavik’s semiannual report said.”

The iWatch News article went on  to report:

“ It is “exceptionally rare” for a federal inspector general to fail this kind of review, said Michael Smallberg, an investigator at the nonprofit Project on Government Oversight. The grade casts doubt not only on the CFTC watchdog’s effectiveness, but also on the authority and credibility of the CFTC’s own reports, said Smallberg, who monitors the world of inspectors general.

“The inspector general needs to be well equipped “especially as the CFTC takes on a larger role under the Dodd-Frank Act,” Smallberg added.

“Smallberg said he could recall only one other inspector general who received a flunking grade in the past five years — Arnold Fields, the Special Inspector General for Afghanistan Reconstruction, who resigned in January. A peer review of his office’s investigative operations, released last August, found they were “not in compliance” with applicable standards.

“The failing grade for the CFTC’s internal watchdog comes at a time when the agency is rapidly becoming a more important regulator of financial markets. Created in 1974 to oversee mostly agricultural futures and options, the CFTC’s work now includes complex financial futures and the agency is writing rules to begin policing the $600 trillion derivatives market by the end of this year.”

CFTC currently has 667 employees while its OIG has four employees, including the IG. The CFTC’s IG received a “passing grade” in a September 2007 peer review performed by the National Endowment for the Humanities’ IG. However, three of the four recommendations “had yet to be corrected.”

Since CFTC is set to take on a larger roll under the Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, 2010, do you think Congress was irresponsible in passing Dodd-Frank without knowing that agencies had all internal controls in-place? If so, the switchboard number on Capitol Hill is (202) 224-3121. Ask to be connected with the offices of Senator Warner, Senator Webb, or Representative Jim Moran. Call all three offices, and tell them that ACTA sent you.


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