Efficiently managing the nation’s inventory of circulating coins helps to ensure that the coin supply meets the public’s demand while avoiding unnecessary costs. The Federal Reserve System is composed of an independent government agency—the Board of Governors (Board)—and 12 regional Federal Reserve Banks (Reserve Banks). The Reserve Banks carry out a variety of functions for the Federal Reserve, including ensuring that coins and notes are available in quantities sufficient to meet the public’s needs by managing coins held in inventory and ordering new coins from the U.S. Mint. The 12 Reserve Banks provide coins and notes to depository institutions (e.g., commercial banks, federal savings associations, and credit unions), among other responsibilities. The Federal Reserve System’s Cash Product Office (CPO) manages the Reserve Banks’ coin inventory from a national perspective, working closely with the Reserve Banks. Since 2009, on behalf of the Reserve Banks, the Federal Reserve has taken steps to standardize its management of the circulating coin inventory from a national perspective.
The Board and Reserve Banks are self-funded entities that engage in a variety of activities that generate revenue, such as earnings from lending to financial institutions. The costs of operating the Federal Reserve System are deducted from these revenues and the remaining amount is transferred to the General Fund of the U.S. Treasury (General Fund). In 2012, the Federal Reserve System transferred $88.4 billion to the General Fund. Federal Reserve System revenues contribute to total U.S. government revenues, and therefore, if coin-inventory management can become more efficient, more of its revenue could potentially be transferred to the General Fund.
In 2012, Reserve Bank costs related to coin management were approximately $62 million. To monitor costs related to coin and note management, CPO officials said they review currency management costs—which include costs related to both coins and notes—at the national level because individual Reserve Banks may vary in their accounting for operational costs related to coins and notes. In October 2013, GAO found that from 2008 through 2012 total annual Reserve Bank currency management costs increased by 23 percent at the national level. While cost information for coins and notes is available separately, CPO does not separately monitor coin management costs. Looking specifically at coin management costs, GAO’s analysis indicates that coin management costs increased by 69 percent from 2008 through 2012. CPO officials attributed the increase in coin management costs to support costs, which increased by 80 percent during that period (approximately $19.6 million from 2008 to 2012). Support costs include utilities, facilities, and information technology as well as other local and national support services such as CPO’s services. According to CPO officials, direct costs—which include personnel and equipment—represent their primary measure of Reserve Bank coin management costs. GAO found that direct costs for coin management increased by 45 percent during this period, about $5 million across the 28 Reserve Bank offices.
Although Reserve Bank coin management costs have risen since 2008, CPO has not taken steps to systematically assess factors influencing direct and support costs related to coin management and assess whether opportunities exist to isolate elements of their coin inventory management that could lead to cost savings or greater efficiencies across the Reserve Banks. In October 2013, GAO also found that the rates of increasing coin management costs differ across Reserve Banks. Using data provided by CPO on individual Reserve Banks’ costs, from 2008 through 2012, coin management costs increased for all Reserve Banks, with the increases ranging from a low of 36 percent to a high of 116 percent. The Federal Reserve’s 2012-2015 strategic plan includes an objective to use financial resources efficiently and effectively. In addition, according to a professional association that provides guidance on internal controls, as part of the internal control process, management should ensure that operations, such as managing an inventory, are efficient and cost- effective, and this process includes monitoring costs and using this information to make operational adjustments. Without taking steps to identify and share cost-effective coin management practices across Reserve Banks, the Federal Reserve may be missing opportunities to support more efficient and effective use of Reserve Bank resources. In addition, more efficient management of the coin inventory may enhance revenues and contribute additional funds to the General Fund.
Coin management includes the CPO’s administration, coin handling, and interbank coin transfer costs. Reserve Bank costs related to coin management include, for example, support costs (e.g. utilities and information technology) and direct costs (e.g., personnel and equipment).
Federal Reserve, Strategic Framework 2012-15 (2013).
Committee of Sponsoring Organizations of the Treadway Commission (COSO), Internal Control—Integrated Framework (1992). COSO is a joint initiative of five professional associations dedicated to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control, and fraud deterrence.
GAO recommended in October 2013 that the Board of Governors of the Federal Reserve System should direct the Cash Product Office to
Taking these actions may help the Federal Reserve identify ways to improve the cost-effectiveness of its coin management, potentially increasing the revenues that are available for the Federal Reserve System to transfer to the General Fund. Estimating the extent of potential increased revenues requires the Federal Reserve System to assess specific coin management practices at each Reserve Bank.
The information contained in this analysis is based on findings from GAO‑14‑110. GAO reviewed documentation and interviewed officials from the Board, Reserve Banks, CPO, and U.S. Mint. In addition, GAO obtained and analyzed Reserve Bank currency management cost data from 2008 through 2012. Table 12 in appendix IV lists the programs GAO identified that might have opportunities for cost savings.
We provided a draft of GAO‑14‑110 to the Chairman of the Board of Governors of the Federal Reserve System and the Secretary of the Treasury for review and comment. In written comments, the Board generally agreed with the report’s recommendations. Treasury had no comments.
GAO provided a draft of this report section to the Chairman of the Board of Governors of the Federal Reserve System and the U.S. Mint for review and comment. The Board provided written comments and noted that the CPO has agreed to define a new metric that measures the productivity of Reserve Bank coin operations and will enable them to monitor coin costs and identify cost variations across Reserve Banks.The U.S. Mint did not provide comments on this issue.
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