Exclusive: KPMG withdraws audit opinions on CFTC over accounting error - documents

Thu Jan 21, 2016 2:17pm EST
 
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By Sarah N. Lynch and Lisa Lambert

WASHINGTON (Reuters) - The U.S. regulator that polices the complex derivatives markets is struggling to keep its own books in order and has made a material error that its auditor found so significant that it withdrew nearly a decade of its financial opinions, according to documents seen by Reuters.

The Commodity Futures Trading Commission (CFTC) understated liabilities by $194 million in fiscal 2015 and $212 million the previous year, the agency's auditor KPMG KPMG.UL estimated in the documents. The understatements are the equivalent to more than 75 percent of the CFTC's $250 million annual budget.

CFTC's management responded to KPMG’s report by saying that it is investigating whether accounting rules were broken. It added that it did not concur with KPMG's findings and is still awaiting results of an official government audit, according to a series of documents exchanged between the CFTC and KPMG which were reviewed by Reuters.

It was not clear when the auditor became aware of the matter but in its response the CFTC said it had notified KPMG of potential issues involving its accounting in October. KPMG declined to comment.

At issue is how the agency has accounted for costs associated with leasing office space, the documents show.

Unlike some federal agencies, it does not own its own buildings and rents space in Washington, D.C., Chicago, New York and Kansas City, Missouri. The leases generally cover a period of several years. However, in its annual financial statements, the regulator was only accounting for a year's worth of rent - and not the full cost of the lease over time.

A CFTC spokesman said the agency sees this as a technical accounting issue that does not affect current lease payments or its obligation to creditors.

KPMG alleges the CFTC violated Generally Accepted Accounting Principles, or GAAP, the accounting rules used in the United States.   Continued...

 
A KPMG logo is seen on their down town office tower in Los Angeles, California May 13, 2014.  REUTERS/Mike Blake