Pursuant to a congressional request, GAO discussed the limits on its audit authority over the Federal Reserve System (FRS), focusing on the provisions of H.R. 28 that remove all restrictions on its authority to examine Federal Reserve activities. GAO noted that: (1) under H.R. 28, it would have full authority to examine FRS activities; (2) FRS financial audits are extremely important because of the nature and volume of FRS daily transactions; (3) although the FRS financial examination program has been subject to some scrutiny by public accounting firms, it is not equivalent to a full independent audit; (4) removing audit restrictions would allow GAO to assess the quality of FRS financial controls and auditing and make recommendations for improvements; (5) access restrictions limit GAO ability to conduct performance audits, since it cannot analyze data on actual transactions; and (6) safeguards that prohibit GAO from disclosing confidential information will not necessarily jeopardize FRS independence.

Status Legend:

Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

• In Process
• Open
• Closed - implemented
• Closed - not implemented

Recommendations for Congressional Consideration

Recommendation: If Congress decides to remove the existing restrictions on GAO audit authority, it should include certain safeguards in the legislation. These safeguards, which are similar to those that already exist under GAO present authority, should: (1) prohibit GAO from disclosing the identity of foreign central banks or governments; (2) prohibit GAO from disclosing confidential documents and requires safekeeping of confidential information; and (3) specify delays in GAO access to certain types of confidential information.

Agency Affected: Congress

Status: Open

Comments: GAO believes that this recommendation will remain valid and should be considered as part of any future congressional oversight of the Federal Reserve System.