Money in the Bank

In September 1996, the U.S. General Accounting Office issued a report raising troubling questions about cash accounting procedures at the Los Angeles branch of the Federal Reserve Bank. The Fed took exception to the GAO’s audit findings of irregularities in the branch’s cash reports--discrepancies totaling $178 million over three months in 1995. Although the Fed argued that the GAO misunderstood the records, it promptly complied with the congressional watchdog agency’s recommendation that an outside audit be conducted.

Results of that external audit should calm any worries. The GAO, in a follow-up report, said the Fed’s outside auditor, the accounting firm of Coopers & Lybrand, found no irregularities in the financial reporting and handling of currency and coins at the L.A. branch. The external audit backed up the Fed’s initial contention that the L.A. branch had effective internal controls. The branch processes $80 billion in coin and currency every year, acting as a bank for commercial banks.

The Fed is going to follow up on another GAO recommendation of a year ago--that it conduct an annual examination of internal controls of each Federal Reserve bank. That makes good, cautious sense.