Mistakes in a Sea of Money
When a clerk is supposed to credit a bank account with $432,000 but mistakenly enters $8.6 million, should he be allowed to correct the mistake without notifying a supervisor? Common sense would say no, but such adjustments are permitted at the Los Angeles branch of the Federal Reserve, according to a draft audit by the General Accounting Office.
The congressional watchdog agency launched the audit after irregularities in the branch’s cash reports--discrepancies totaling a mind-boggling $178 million during a three-month period in 1995--were disclosed in June.
Fed officials took umbrage at the GAO’s findings. They asserted absolute confidence in their accounting system and said GAO auditors misunderstood the cash records at issue. The Los Angeles branch, second in size to the New York Fed, processes $80 billion in coin and currency every year,
The Federal Reserve said an audit of the branch this summer found that “the account- ing for the cash handled by the branch was accurate and that proper safeguards and controls exist. . . . “
Friday the Fed sent staffers from Washington to conduct an unannounced weekend vault count and again found the physical inventory of cash and coin balanced with the branch’s stated position.
Still, the GAO report raises troublesome questions about controls at the bank. For example, its so-called general ledger, the primary accounting tool to track the massive flows of cash in and out of the branch, is subject to arbitrary deletions by clerks with no documented supervisory approval required.
The report recommends that Fed officials undertake a comprehensive review of the L.A. bank’s operations as well as those of two other Fed banks that use similar accounting systems. The Fed has said if the GAO makes the recommendation in its final report, it will direct its external auditors to do so. Why wait?
