Internal Auditing Can Be Strengthened in the Federal Reserve System

Although the Federal Reserve System's Board of Governors has recognized the need for independent evaluations of its operations, it has not established a permanent, independent internal audit group. An external auditor hired by the Board and the Board's Operations Review Program makes periodic reviews of Board activities. Each of the Board's current review efforts has limitations restricting either its independence or scope of activities. Components of the Office of the Controller make reviews designed primarily to carry out the Controller's responsibilities and enjoy no independent, direct reporting or operating relationship with the Board. Although the external auditor reports directly to the Board, its reviews are confined primarily to financial control areas.