Results Act: Observations on CFTC's Strategic Plan (Testimony, 10/22/97,
GAO/T-GGD-98-17).

Pursuant to a congressional request, GAO assessed the Commodity Futures
Trading Commission's (CFTC) strategic plan for compliance with the
Government Performance and Results Act.

GAO noted that: (1) CFTC's strategic plan contained all of the major
components required by the Results Act; (2) there are several areas in
which CFTC could improve its plan; (3) the plan defines goals and
objectives that supported CFTC's mission, but most of these could
benefit by being restated in a way that would facilitate future
assessment; (4) the plan identifies activities for achieving CFTC's
goals and objectives, but could be more informative by including the
resources needed for the activities, schedules for completing key
actions, and ways for assigning accountability to managers and staff;
(5) the plan's discussion of the relationship between goals in the
annual and strategic plans could be strengthened by including more
results-oriented performance measures that could be used to reflect
progress made toward achieving its goals; (6) the plan identifies some
key external factors that could affect the agency's ability to achieve
its goals, but the plan could be improved by describing how such factors
are linked to particular goals and how a particular goal can be affected
by a specific factor; (7) the plan indicates that CFTC will use its
existing processes to evaluate its programs, but the plan could be
expanded to include information on the timing and scope of future
evaluations; (8) the draft plan was made available to stakeholders late
in the process and reflects limited consultation with stakeholders
during plan development; (9) the plan does not discuss how CFTC will
incorporate stakeholders' views in the development of future plans, and
(10) although developing performance measures and measuring program
impacts present challenges to CFTC and to other regulatory agencies in
addressing the requirements of the Results Act, it is important that
CFTC and these agencies continue their efforts toward that end.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-98-17
     TITLE:  Results Act: Observations on CFTC's Strategic Plan
      DATE:  10/22/97
   SUBJECT:  Regulatory agencies
             Agency missions
             Program evaluation
             Strategic planning
             Internal controls
             Securities regulation
             Commodities exchanges
             Commodity futures
             Congressional/executive relations
IDENTIFIER:  Government Performance and Results Act
             GPRA
             
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Cover
================================================================ COVER


Before the Subcommittee on Risk Management and Specialty Crops,
Committee on Agriculture
House of Representatives

For Release on Delivery
Expected at
3:00 p.m., EDT
on Wednesday
October 22, 1997

RESULTS ACT - OBSERVATIONS ON
CFTC'S STRATEGIC PLAN

Statement of Richard J.  Hillman, Acting Associate Director
Financial Institutions and Markets Issues
General Government Division

GAO/T-GGD-98-17

GAO/GGD-98-17T


(233544)


Abbreviations
=============================================================== ABBREV

  GPRA - Government Performance and Results Act
  CFTC - Commodity Futures Trading Commission
  OMB - Office of Management and Budget
  CFO - Chief Financial Officers

RESULTS ACT:  OBSERVATIONS ON
CFTC'S STRATEGIC PLAN
====================================================== Chapter SUMMARY

Under the Government Performance and Results Act of 1993 (GPRA or
Results Act), executive agencies were to complete--not later than
September 30, 1997--strategic plans in which they define their
missions, establish results-oriented goals, and identify strategies
they will use to achieve those goals for the period of 1997 through
2002.  The House Subcommittee on Risk Management and Specialty Crops,
House Committee on Agriculture, asked GAO to assess the strategic
plan of the Commodity Futures Trading Commission (CFTC) for
compliance with the Results Act. 

On the basis of its review, GAO found that CFTC's strategic plan
contained all of the major components required by the Results Act. 
However, as discussed below, GAO identified several areas in which
CFTC could improve its plan. 

  -- The plan defines goals and objectives that supported CFTC's
     mission, but most of these could benefit by being restated in a
     way that would facilitate future assessment. 

  -- The plan identifies activities for achieving CFTC's goals and
     objectives, but it could be more informative by including the
     resources needed for the activities, schedules for completing
     key actions, and ways for assigning accountability to managers
     and staff. 

  -- The plan's discussion of the relationship between goals in the
     annual and strategic plans could be strengthened by including
     more results-oriented performance measures that could be used to
     reflect progress made toward achieving its goals. 

  -- The plan identifies some key external factors that could affect
     the agency's ability to achieve its goals, but the plan could be
     improved by describing how such factors are linked to particular
     goals and how a particular goal can be affected by a specific
     factor. 

  -- The plan indicates that CFTC will use its existing processes to
     evaluate its programs, but the plan could be expanded to include
     information on the timing and scope of future evaluations. 

  -- The draft plan was made available to stakeholders late in the
     process.  As a result, the plan reflects limited consultation
     with stakeholders during plan development.  Also, the plan does
     not discuss how CFTC will incorporate stakeholders' views in the
     development of future plans. 

GAO recognizes that developing performance measures and measuring
program impacts present challenges to CFTC and other regulatory
agencies in addressing the requirements of the Results Act.  However,
it is important that CFTC and other regulatory agencies continue
their efforts toward that end.  Any new methods or research
approaches developed by one agency could also be useful to others. 

GAO also recognizes that CFTC's strategic plan is a dynamic document
that the agency intends to refine.  Improving management in the
federal sector will not be easy, but the Results Act can assist in
accomplishing this goal. 


RESULTS ACT:  OBSERVATIONS ON
CFTC'S STRATEGIC PLAN
==================================================== Chapter STATEMENT

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) strategic
plan.  Hearings such as this one are an important part of assuring
that the intent of the Government Performance and Results Act of 1993
(GPRA or Results Act) is met, and we commend you, Mr.  Chairman, for
holding this hearing.  The consultative process provides an important
opportunity for Congress and the executive branch to collectively
ensure that agency missions are focused, goals are results-oriented,
and strategies and funding expectations are appropriate.  As you
know, the Results Act required executive agencies to complete their
initial strategic plans by September 30, 1997, and CFTC met this
requirement. 

My testimony today discusses our review of CFTC's strategic plan.  We
specifically determined whether the plan contained each of the six
components required by the Results Act and assessed each component's
strengths and weaknesses.  We also reviewed the extent to which CFTC
consulted with stakeholders, including the other federal financial
market regulators.  Finally, we identified challenges that CFTC faces
in addressing the requirements of the Results Act. 

CFTC's strategic plan reflects a concerted effort by the agency to
address the requirements of the Results Act.  Although the plan could
be strengthened in some areas, it compares favorably with the plans
of other federal financial regulators that we have reviewed.\1 On the
basis of our review, we found that CFTC's plan contained all of the
components required by the Results Act but that some of the
components could be strengthened.  We also found that the plan could
be improved by additional stakeholder input, including interagency
coordination.  Finally, due to the complex set of factors that
determine regulatory outcomes, measuring program impacts presents
challenges to CFTC in addressing the requirements of the Results Act,
as it does for regulatory agencies in general.  However, the use of
program evaluations to derive results-oriented goals and to measure
the extent those goals are achieved is one key to the success of the
process.  Notwithstanding the need for improvements, we recognize
that CFTC's strategic plan is a dynamic document that the agency
intends to refine. 

My comments apply to the strategic plan that CFTC formally submitted
to Congress and the Office of Management and Budget (OMB) in
September 1997.  In general, our assessment of CFTC's plan was based
on knowledge of the agency's operations and programs; past and
ongoing reviews of CFTC; results of work on other agencies' strategic
plans and the Results Act; discussions with CFTC, OMB, and
Subcommittee 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 and OMB guidance on preparing strategic plans (OMB
Circular A-11, Part 2).  To assess CFTC's consultation with
stakeholders and to identify challenges in implementing the Results
Act, we relied on the results of our previous work and/or discussions
with CFTC and OMB officials. 


--------------------
\1 See The Results Act:  Observations on Draft Strategic Plans of
Five Financial Regulatory Agencies (GAO/T-GGD-97-164, July 29, 1997). 


   BACKGROUND
-------------------------------------------------- Chapter STATEMENT:1

CFTC is an independent agency that administers the Commodity Exchange
Act, as amended,\2 and was created by Congress in 1974.  The
principal purposes of the act are to protect the public interest in
the proper functioning of the market's price discovery and
risk-shifting functions.  In administering the act, 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. 

As its title indicates, the Results Act focuses on results.  The Act
seeks to shift the focus of federal management and decisionmaking
from a preoccupation with the number of tasks completed or services
provided to a more direct consideration of the results of
programs--that is, the real differences those tasks or services make
in citizens' lives.  In crafting the Act, Congress recognized that
congressional and executive branch decisionmaking had been severely
handicapped in many agencies by the absence of the basic
underpinnings of well-managed organizations.  These agencies lacked
clear missions; results-oriented performance goals; well-conceived
agency strategies to meet those goals; and accurate, reliable, and
timely program performance and cost information to measure progress
in achieving program results.  In recent years, Congress has
established a statutory framework for addressing these long-standing
challenges and for helping it and the executive branch make the
difficult trade-offs that are necessary for effective policymaking.\3
Improving management in the federal sector will not be easy, but the
Results Act can assist in accomplishing this task. 

The Results Act requires executive agencies to prepare multiyear
strategic plans, annual performance plans, and annual performance
reports.  First, the Act requires agencies to develop a strategic
plan covering the period of 1997 through 2002.  As indicated in the
Results Act and OMB guidance, each plan is to include six major
components:  (1) a comprehensive statement of the agency's mission,
(2) the agency's long-term goals and objectives for all major
functions and operations, (3) a description of the approaches (or
strategies) for achieving the goals and the various resources needed,
(4) an identification of key factors, external to the agency and
beyond its control, that could significantly affect its achievement
of the strategic goals, (5) a description of the relationship between
the long-term strategic goals and annual performance goals, and (6) a
description of how program evaluations were used to establish or
revise strategic goals and a schedule for future evaluations.  In
developing their strategic plans, agencies are to consult with
Congress and solicit the views of stakeholders. 

Second, the Results Act requires executive agencies to develop annual
performance plans covering each program activity set forth in their
budgets.  The first annual performance plans, covering fiscal year
1999, are to be provided to Congress after the President's budget is
submitted to Congress in early 1998.  An annual performance plan is
to contain the agency's annual goals, measures to gauge performance
toward meeting its goals, and resources needed to meet its goals. 

And third, 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 the findings of program evaluations completed during
the year, and describe the actions needed to address any unmet goals. 


--------------------
\2 7 U.S.C.  1 et seq. 

\3 This framework includes as its essential elements the Chief
Financial Officers (CFO) Act; information technology reform
legislation, including the Paperwork Reduction Act of 1995 and the
Clinger-Cohen Act; and the Results Act.  The CFO Act was expanded and
amended by the Government Management Reform Act. 


   CFTC'S STRATEGIC PLAN CONTAINS
   ALL SIX REQUIRED COMPONENTS,
   BUT SOME COMPONENTS COULD BE
   STRENGTHENED
-------------------------------------------------- Chapter STATEMENT:2

Based on our review, we found that CFTC's strategic plan contains all
of the six major components required by the Results Act.  The plan
defines the agency's mission, establishes goals, lists activities to
be performed to achieve the goals, identifies key factors affecting
the achievement of the goals, discusses the relation between the
goals of the strategic and annual performance plans, and addresses
methods for evaluating the agency's programs.  However, we identified
several areas in which CFTC could improve the plan as it is revised
and updated. 


      MISSION STATEMENT
------------------------------------------------ Chapter STATEMENT:2.1

Consistent with the OMB guidance, the strategic plan contains a brief
mission statement that broadly defines CFTC's basic purposes:  to
protect market users and the public from abusive practices and to
foster open, competitive, and financially sound futures and option
markets.  In addition, the accompanying background of the mission
statement defines the agency's core responsibilities and discusses
the agency's enabling legislation. 


      GENERAL GOALS AND OBJECTIVES
------------------------------------------------ Chapter STATEMENT:2.2

Consistent with the OMB guidance, the strategic plan describes CFTC's
goals and general objectives, providing staff with direction for
fulfilling the agency's mission.  The agency's three goals are to (1)
protect the economic functions of the commodity futures and options
markets, (2) protect market users and the public, and (3) foster
open, competitive, and financially sound markets.  The plan further
defines each goal in terms of a number of outcome objectives.  For
example, under goal two, the plan includes the outcome objectives of
promoting compliance with and deterring violations of federal
commodities laws as well as requiring commodities professionals to
meet high standards. 

The OMB guidance notes that a strategic plan's general goals and
objectives should be stated in a manner that allows for future
assessment of whether the goals and objectives are being achieved. 
Although the general goals and outcome objectives support the
agency's mission, most could benefit by being restated in a way that
facilitates future assessment of whether they have been achieved. 
Examples of objectives that could be restated include overseeing
markets used for price discovery and risk shifting as well as
promoting markets free of trade practice abuse. 


      DESCRIPTION OF HOW THE
      GENERAL GOALS AND OBJECTIVES
      WILL BE ACHIEVED
------------------------------------------------ Chapter STATEMENT:2.3

Consistent with the OMB guidance, the strategic plan lists key
activities that staff are to perform to accomplish the outcome
objectives and, in turn, general goals.  For example, an outcome
objective of goal three is to facilitate the continued development of
an effective, flexible regulatory environment.  The specific
activities to be performed for this objective include providing
regulatory relief, as appropriate, to foster the development of
innovative transactions and participating in the President's Working
Group on Financial Markets\4 to coordinate efforts among U.S. 
financial regulators. 

The plan also discusses actions for communicating accountability to
CFTC managers and staff.  These actions include instituting a
performance management system to create a more effective
communication tool for mangers and staff and using the annual
performance plan to better communicate specific goals and performance
levels to staff. 

The OMB guidance notes that a strategic plan should briefly describe
the resources needed to achieve its goals and objectives, for
example, in terms of operational processes, staff skills, and
technologies, as well as human, capital, and other resources.  The
guidance further notes that a plan should include schedules for
initiating and completing significant actions as well as outline the
process for communicating goals and objectives throughout the agency
and for assigning accountability to managers and staff for achieving
objectives. 

Although CFTC's plan lists specific activities to be performed to
achieve its goals and objectives, it could be made more informative
by discussing the resources needed to perform the activities and by
providing schedules for initiating and completing significant
actions.  Similarly, the plan's discussion of communicating
accountability could be expanded to address how CFTC will assign
accountability to managers and staff for achieving objectives. 


--------------------
\4 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. 


      RELATIONSHIP BETWEEN GOALS
      IN THE ANNUAL PERFORMANCE
      AND STRATEGIC PLANS
------------------------------------------------ Chapter STATEMENT:2.4

Consistent with the OMB guidance, the strategic plan discusses the
annual plan activities in relationship to each of the strategic
plan's goals.  Many of the identified annual plan activities reflect
CFTC's ongoing regulatory responsibility to protect market
participants and oversee the markets.  The strategic plan also
includes a discussion on measuring the activities to be performed to
accomplish each goal.  Finally, the strategic plan mentions that the
annual plan establishes indicators and targets with the goal of
ensuring that day-to-day activities are appropriately defined and
measured. 

According to the OMB guidance, a strategic plan should briefly
outline the type, nature, and scope of the annual performance goals
and the relevance and use of these goals in helping determine whether
the strategic plan's goals and objectives are being achieved.  The
linkage between the two plans is important because a strategic plan's
goals and objectives establish the framework for developing the
annual performance plan.  Moreover, annual performance goals indicate
the planned progress in that particular year toward achieving the
strategic plan's goals and objectives. 

While CFTC's strategic plan discusses performance measures, it does
not include performance goals that could be used to indicate the
planned progress made each year toward achieving the general goals
and objectives.  Moreover, its measures focus on activities that are
generally not stated in a manner that allows for future assessments
and that may not always measure the intended outcomes.  Examples of
such measures include "potential violators deterred," "informed
market users," and "high level of compliance fostered." CFTC could
strengthen its plan by discussing performance goals and developing
more results-oriented performance measures against which actual
performance can be compared.  As discussed below, regulatory
agencies, such as CFTC, face barriers in developing such measures. 


      KEY EXTERNAL FACTORS
      AFFECTING ACHIEVEMENT OF
      GENERAL GOALS AND OBJECTIVES
------------------------------------------------ Chapter STATEMENT:2.5

Consistent with the OMB guidance, the strategic plan discusses some
external challenges that could alter CFTC's ability to meet its goals
and objectives, and it also discusses the strategies for meeting such
challenges.  The external challenges include the growing use of
over-the-counter derivatives; structural changes in the financial
services industry, including the convergence of the securities,
futures, insurance, and banking industries; and globalization of
financial markets.  Strategies to address such challenges include
fostering strong relationships with foreign authorities and
responding to structural changes to ensure a level playing field as
the futures, insurance, securities, and banking industries become
more integrated. 

The plan also discusses four internal, or management, challenges that
could alter CFTC's ability to meet its goals and objectives, and it
discusses strategies for meeting such challenges.  Internal
challenges include diminishing resources, recruiting and retaining
qualified staff, and remaining abreast of technology.  Strategies to
address such challenges include reviewing resource requirements for
operations and programs to ensure sound fiscal management, setting
standards for staff recruitment, and implementing the agency's data
processing plan. 

According to OMB guidance, a strategic plan should not only discuss
key external factors but also indicate their link to particular goals
and describe how the factors could affect the achievement of the
goals.  While the plan discusses external factors and strategies for
addressing them, the link between particular factors and goals is not
clear.  CFTC could strengthen its plan by describing how the external
factors are linked with particular goals and how a particular goal
could be affected by the external factors.  Also, the plan might
benefit from a discussion of external factors that represent
significant challenges for the financial industry, such as those
relating to the "year 2000" computer dating problem\5 and those
relating to proposals for revising the Commodity Exchange Act that
could affect CFTC's jurisdiction and that of other federal financial
market regulators.\6


--------------------
\5 The year 2000 computer dating problem relates to the need for
computer systems to be changed to accommodate dates beyond the year
1999. 

\6 See The Commodity Exchange Act:  Legal and Regulatory Issues
Remain (GAO-GGD-97-50, April 7, 1997). 


      PROGRAM EVALUATIONS AND
      STRATEGIC PLANS
------------------------------------------------ Chapter STATEMENT:2.6

The strategic plan specifies that CFTC will use methods and processes
that are already in place to evaluate how well it is implementing its
strategic and annual performance plans for the first 3 years. 
According to the plan, these processes are to provide information on,
among other things, program accomplishments, staff activities, and
CFTC's financial condition and resource usage.  However, the plan
also explains that the reporting process related to program
accomplishments will be evaluated to determine how it may be used for
reporting on program progress toward meeting the goals, outcome
objectives, and activities in the strategic plan as well for setting
overall priorities and allocating resources consistent with those
priorities.  Similarly, reviews and evaluations are described for the
systems related to staff activities and resource usage.  As such, we
note that CFTC's evaluations are to be of its existing measurement
and monitoring systems and that CFTC does not appear to be planning
any evaluations of the manner and extent to which its programs
achieve their objectives. 

The OMB guidance notes that a strategic plan should briefly describe
program evaluations used to prepare the plan and provide a schedule
for future evaluations outlining the methodology, scope, and issues
to be addressed.  CFTC's plan does not mention whether any
evaluations were used to prepare the plan; however, CFTC officials
told us that no evaluations were used.  As CFTC revises and updates
its plan, the plan could be made more useful by including the results
of program evaluations used to prepare the plan.  It could also be
made more informative by discussing the timing and scope of future
program evaluations as well as the particular issues to be addressed. 


   CFTC'S STRATEGIC PLAN REFLECTS
   LIMITED CONSULTATION
-------------------------------------------------- Chapter STATEMENT:3

In developing their strategic plans, agencies are to consult with
Congress and solicit the views of stakeholders--those potentially
affected by or interested in the plan.  Agencies have discretion in
determining how this consultation is conducted.  The OMB guidance
notes that some general goals and objectives will relate to
cross-agency functions, programs, or activities.  In such cases, it
instructs agencies to ensure that appropriate and timely consultation
occurs with other agencies during the development of strategic plans
with cross-cutting goals and objectives. 

CFTC's strategic plan identifies numerous stakeholders, stating that
they are valuable resources that must be tapped to provide critical
feedback on the agency's goals and priorities.  The stakeholders
identified in the plan include futures exchanges, the National
Futures Association, market users, and other federal departments and
agencies.  The plan also discusses CFTC's working relationships with
other organizations and jurisdictions.  For example, it notes that
CFTC staff work through various intergovernmental partnerships to
consult on issues of importance to CFTC and other federal financial
regulators, including federal securities and bank regulators. 

The draft plan was made available to stakeholders late in the
process.  As a result, the plan reflects limited consultation with
stakeholders during plan development.  Also, the plan does not
discuss how CFTC will incorporate stakeholders' views in the
development of future plans.  CFTC published its draft strategic plan
in the Federal Register on September 16, 1997, to solicit comments.\7
The comment period ended on October 16, 1997.  In addition, CFTC made
the draft plan available on its internet home page and provided
copies of the draft plan to present and former members of its
advisory committees.  Furthermore, every former CFTC commissioner and
chairperson was contacted and asked to provide feedback on the draft
plan, and CFTC officials told us that the draft plan had been
provided to the other federal financial market regulators for
comment.  Nonetheless, CFTC officials told us that there were only
two parties outside of Congress, OMB, and at your request, the GAO
that had provided the agency feedback on the plan, as of October 16,
1997. 

CFTC officials told us that they plan to use the same approach in
developing future plans as they did in developing the current plan. 
CFTC's lack of success with this approach suggests that the agency
should consider alternative approaches. 


--------------------
\7 62 Fed.  Reg.  48613. 


   CFTC FACES CHALLENGES IN
   IMPLEMENTING THE RESULTS ACT
-------------------------------------------------- Chapter STATEMENT:4

In enacting the Results Act, Congress realized that the transition to
results-oriented management would not be easy.  Moving to a results
orientation could be especially difficult for CFTC and other
regulatory agencies.  We analyzed a set of barriers facing certain
regulatory agencies in their efforts to implement the Results Act in
a June 1997 report.\8 These barriers included the following:  (1)
problems collecting performance data, (2) complexity of interactions
and lack of federal control over outcomes, and (3) results realized
only over long time frames.  To some extent, each of these barriers
is applicable to CFTC. 

As implementation of the Results Act proceeds, CFTC, like other
regulatory agencies, is likely to continue encountering barriers to
establishing results-oriented goals and measures and, as a result, in
evaluating program impact.  Although developing performance measures
and evaluating program impact are difficult, it is important that
CFTC and other regulatory agencies continue their effort toward that
end.  Any new methods or research approaches developed by one agency
could also be useful to others. 


--------------------
\8 Managing for Results:  Regulatory Agencies Identified Significant
Barriers to Focusing on Results (GAO/GGD-97-83, June 14, 1997). 


------------------------------------------------ Chapter STATEMENT:4.1

In summary, it is important to recognize that while CFTC's strategic
plan can be further improved, the Results Act anticipated that the
process of developing an effective strategic plan could take several
planning cycles.  Nonetheless, we are pleased that CFTC's strategic
plan reflects improvements based on the suggestions that we made
during informal meetings with agency officials as well as suggestions
that the agency received from congressional committees and OMB.  We
look forward to continuing to work with the Congress and CFTC to
ensure that the requirements of the Results Act are met. 

Mr.  Chairman, this concludes my prepared statement.  I will be
pleased to respond to any questions that you or Members of the
Subcommittee may have. 

*** End of document. ***