Summary: GAO's work at the Federal Reserve Bank of Dallas, its three branches, and the Federal Reserve Automation Services has found internal control issues significant enough to warrant management's attention. These issues include how (1) the accounting records of the Dallas Federal Reserve Bank and its branches are reconciled, reviewed, maintained, and reported on; (2) accountability over assets is maintained; and (3) automated systems are used by the Dallas Federal Reserve Bank and its branches. GAO also identified an opportunity for the Federal Reserve to improve the consistency and the efficiency of its note-accounting procedures. The Board has contracted with a public accounting firm for annual audits of the Federal Reserve Banks' combined financial statements for each of the next five years. The firm is also required to audit each of the individual Federal Reserve Banks once during this period. GAO concurs in this audit strategy. The auditor, however, faces significant challenges arising from (1) the lack of independent parties to confirm the ownership and the original cost of U.S. Treasury securities, which results from the Federal Reserve Banks' unique role as Treasury's fiscal agent; (2) the impossibility of confirming amounts held by hundreds of millions of note holders; and (3) the notes' unusual characteristics (for example, they never mature or expire and can be destroyed by events not under the control of the Federal Reserve Banks).
