Federal Reserve Banks: Inaccurate Reporting of Currency at the Los Angeles Branch
AIMD-96-146
Published: Sep 30, 1996. Publicly Released: Sep 30, 1996.
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Highlights
Pursuant to a congressional request, GAO reviewed currency activity reports prepared by the Los Angeles Federal Reserve Bank, focusing on: (1) problems in reporting currency activity for Federal Reserve System (FRS) note receipts, payments, and amount on hand; and (2) corrective actions planned or taken by FRS to resolve those problems.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Board of Governors | The Chairman of the Board of Governors of the Federal Reserve System should require that the management of the Federal Reserve Bank of Los Angeles, working with its internal auditors, perform an immediate internal control assessment of its cash operations and reporting practices, including a review of the underlying systems. Bank management should prepare a report on the results of its assessment, including a written assertion on the effectiveness of its internal controls to ensure that the money it manages is appropriately accounted for, reported, and controlled. Also, as a component of the 1996 audit of the combined financial statements of the Federal Reserve Banks, require that the independent external auditors examine and provide an opinion on management's assertion about the effectiveness of the internal controls over cash operations at the Los Angeles Bank. |
Closed – Implemented
The Federal Reserve Board hired Coopers & Lybrand L.L.P., an independent public accounting firm, to examine and report on managements' assertions about the effectiveness of the internal control structure over financial reporting and safeguarding for cash at three banks -- the Federal Reserve Bank of Atlanta's Home Office, the Federal Reserve Bank of San Francisco's Los Angeles Branch, and the Federal Reserve Bank of Philadelphia. These three banks use the same system to provide inventory and management control and accounting for cash-related activities. In addition, the Federal Reserve devotes considerable resources, including the Board's financial examiners, external auditors, and the Banks' internal auditors to audit the cash operations of the Reserve Banks and the integrity of their financial accounting records.
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| Board of Governors | The Chairman of the Board of Governors of the Federal Reserve System should require that the San Francisco District Bank and the other two district banks--Philadelphia and Atlanta--that use the same systems as the San Francisco Bank and their branches conduct reviews of their cash inventory systems and reporting practices to determine whether they have problems similar to those identified at the Los Angeles Bank. |
Closed – Implemented
The Federal Reserve Board hired Coopers & Lybrand L.L.P., an independent public accounting firm, to examine and report on managements' assertions about the effectiveness of the internal control structure over financial reporting and safeguarding for cash at three banks -- the Federal Reserve Bank of Atlanta's Home Office, the Federal Reserve Bank of San Francisco's Los Angeles Branch, and the Federal Reserve Bank of Philadelphia. These three banks use the same system to provide inventory and management control and accounting for cash-related activities. In addition, the Federal Reserve devotes considerable resources, including the Board's financial examiners, external auditors, and the Banks' internal auditors to audit the cash operations of the Reserve Banks and the integrity of their financial accounting records.
|
| Board of Governors | The Chairman of the Board of Governors of the Federal Reserve System should, for the remaining federal reserve banks, consider conducting internal control assessments to ensure the effectiveness of internal controls over their cash operations. |
Closed – Implemented
The Deputy Director of Reserve Bank Operations advised GAO that the Federal Reserve has contracted for internal control examinations as a component of the 1997 annual financial statement audits of three Federal Reserve Banks as a pilot project. General training was done at the other nine banks on internal control awareness and assessment. The pilot project will be extended to all banks for their 1998 financial statements audits.
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| Board of Governors | The Chairman of the Board of Governors of the Federal Reserve System should, taking into account the continuing importance of proper controls and accountability for currency, consider conducting annual internal control assessments at all federal reserve banks, including formal reporting by management and independent external auditor examination of management's assertion regarding the effectiveness of internal controls. |
Closed – Implemented
The Deputy Director of Reserve Bank Operations advised GAO that the Federal Reserve contracted for internal control examinations as a component of the 1997 annual financial statement audits of three Federal Reserve Banks as a pilot project. General training was done at the other nine banks on internal control awareness and assessment. The pilot project will be extended to all banks for their 1998 financial statements audits.
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| Board of Governors | The Chairman of the Board of Governors of the Federal Reserve System should, to strengthen internal controls and provide for more accurate reporting, re-examine its policy that allows for the currency activity reports to be prepared within a plus or minus $3-million tolerance for accuracy. |
Closed – Not Implemented
The Board of Governors considered the recommendation and made a policy decision not to change the $3-million tolerance between the currency statistical reports and the financial statements. According to the Board, the costs associated with the additional effort required to achieve more precision outweighs the benefits that would be derived.
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Topics
Accounting proceduresAccounting systemsBank examinationBank managementCash managementFederal reserve banksFinancial management systemsFinancial recordsInternal controlsU.S. Currency