Risk & Compliance

KPMG Withdraws Audit Opinions on Regulator

The firm says the CFTC understated its lease obligations by about $212 million in 2014 and $194 million in 2015 because of an accounting error.
Matthew HellerJanuary 21, 2016

KPMG has withdrawn nearly a decade of audit opinions about the U.S. Commodity Futures Trading Commission’s accounts, citing an error in the agency’s accounting for lease payments for its offices.

According to a KPMG opinion included in the CFTC’s 2015 financial report, the commission understated its lease obligations by about $212 million in fiscal 2014 and $194 million in fiscal 2015. Unlike some federal agencies, it does not own its own buildings and rents space in Washington, D.C., Chicago, New York, and Kansas City, Mo.

The CFTC said it “does not concur” with KPMG’s position and that it is awaiting the results of an audit by the Government Accountability Office.

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But Reuters, which first reported KPMG’s actions, said the issue “is adding to tensions between the CFTC, which was given broad powers to regulate the derivatives market in the aftermath of the financial crisis, and Republican lawmakers who have criticized it for creating unnecessary regulatory burdens.”

“The CFTC needs to get its books in order, whether that requires more inspector general recommendations or legislative changes from Congress,” Sen. Chuck Grassley, Iowa Republican, said.

Another critic of the agency, Sen. John Boozman, Republican from Arkansas, had asked the GAO to look into various issues involving CFTC leases in February 2015.

The leases generally cover a period of several years, Reuters said. However, in its annual financial statements, the CFTC was only accounting for a year’s worth of rent — and not the full cost of the lease over time.

KPMG alleged the CFTC violated GAAP and it is possible the agency is in violation of the federal Anti-Deficiency Act, which prohibits government agencies from obligating or spending federal funds in excess of the amount available.

The auditor has asked the CFTC to remove copies of KPMG’s audit opinions from fiscal years 2005-2008 and fiscal years 2010-2014 from the CFTC’s website.

“KPMG and the CFTC should have got this accounting right the first year,” said Lynn Turner, former chief accountant at the U.S. Securities and Exchange Commission.