Capital Briefs: Fed Advised to Alter How It Counts Cash

The General Accounting Office wants the Federal Reserve Board to change the way it accounts for all denominations of currency.

The GAO said in a report last month that the Fed currently relies too heavily on each note's serial number when calculating the amount of cash in circulation. Relying on serial numbers, which identify the reserve bank that issued the currency, made sense when the law required the Fed to back each note with gold, the GAO said. But today it just wastes money, the GAO said.

The Fed could accurately determine the amount of cash in circulation by subtracting the amount of notes in its vaults from the amount issued, the audit agency said. The Fed never needs to look at serial numbers, it said.

The GAO praised the Fed's decision to hire external auditors for reviewing operations at the reserve banks. But the GAO proposed that the auditors use generally accepted government auditing standards rather than generally accepted auditing standards. Government auditing standards would require the auditors to test each reserve bank's internal controls and to check whether the reserve bank was complying with the law.

The agency also recommended making publicly available the Fed's audited combined financial statements and independent auditor's report. It said other central banks, including those in France, Germany, and the United Kingdom, currently release their financial records.

The Fed agreed to consider the GAO's recommendation.

The audit was requested by Rep. Henry B. Gonzalez, ranking Democrat on the Housing Banking Committee.