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tem operations, I have reservations about this requirement. That is, if you construe it to mean a complete audit of the whole system.

I would like to say I have no problem at all on submitting an annual report on the work we have done during the course of that year. I recommend, therefore, that the requirement be changed to provide simply that the GAO be directed to audit the named entities of the Federal Reserve System. With this change, coupled with the provision that the audits be made under such rules and regulations as the Comptroller General shall prescribe, the bill would give us the needed flexibility to make selective reviews on a continuing basis of different aspects of the system without the need to perform a complete audit every year.

If you would like, we could also provide the Congress with an annual report of our activities separately.

This audit policy has proved to be a very satisfactory way of providing useful information and needed assistance to the Congress with respect to other agencies of the Government, and we believe that it should also apply to the Federal Reserve System.

In this connection, I would like to point out that under the Budget and Accounting Act of 1921, which established the GAO, and under the Budget and Accounting Procedure Act of 1950, the determination as to the frequency as well as the scope of auditing to be performed in other Government agencies is left to our judgment.

We exercise this judgment in the light of congressional interests in specific programs and problems as they become known to us, and, as the 1950 act requires, after giving "due regard to generally accepted principles of auditing, including the effectiveness of accounting organizations and systems, internal audit and control, and related administrative practices."

In summary, Mr. Chairman, I believe that S. 2418, with the changes suggested in this statement, would provide for an adequate audit of the various entities of the Federal Reserve System and enable us to provide substantial assistance to the Congress in carrying out its oversight responsibilities of the Federal Reserve System.

Now, with respect to the Comptroller of the Currency, the expenses of the Office of the Comptroller of the Currency are paid from assessments levied against national banks. With respect to funds derived from such assessments, the law—12 U.S.C. 481-specifically provides that such funds shall not be construed to be Government funds or appropriated moneys.

For this reason, the GAO has no authority at present to undertake an audit of the Comptroller of the Currency and the national banks.

However, for the same reasons discussed in connection with the Federal Reserve System, I believe such audits would prove extremely useful to the Congress, and I welcome the inclusion of new statutory authority to make this possible.

Now with respect to the Office of Alien Property. We point out that the Office of Alien Property was abolished as a separate organizational entity on June 30, 1966, although its functions remain in the Department of Justice. I suggest that the references in the bill be changed accordingly to refer to the alien properties activities of the Department of Justice.

This is a relatively minor activity which incurs expenses pursuant to annual congressional authorizations but operates with nonappropriated funds. For this reason, we do not believe that the GAO presently has the authority to audit these activities.

Whether an exception should be made to permit us to audit this particular nonappropriated fund activity is, of course, a matter of policy for the Congress to decide. If we are so authorized and directed, we will of course carry out that responsibility.

My previous recommendations discussed in connection with the Federal Reserve System audit apply as well to these additional activities.

Mr. STAATS. I have attached here, Mr. Chairman, something which most people don't generally understand. This is an attachment with respect to the Federal Reserve System, the number of activities that it carries on other than those activities relating to monetary policy.

Over a period of years the Federal Reserve System has been given additional responsibilities which are important and which now receive no audit of any kind that is made available to the Congress.

I might say, Mr. Chairman, that the Federal Reserve System spends about $500 million a year to carry on its operations. This is by any measure a very sizeable operation. About 99 percent of its revenues today are from interest on Government bonds that it holds.

There is as much public money as if you appropriated it through the Appropriations Committee. At the end of each year, after the expenses are taken care of, the other interest that they have earned goes back into the Treasury as a receipt. So that these are as much government moneys as if they were appropriated funds. Any operation of this size, I venture to say, we could find ways to save a great deal of money. We have found that to be the case in all other government agencies. We have no reason to believe it would not be the case here. The information referred to follows:]



Board of Governors supervision of Federal Reserve Banks :
Supervision of member banks of the Federal Reserve System.
Reserve bank advances to individuals, partnerships, and corporations.
Issuance and retirement of Federal Reserve notes.
Clearinghouse operations.
Acting as depositaries and fiscal agents of the United States.

Acting as fiscal agents of Government departments and agencies in guaranteeing loans made by banks and other private financing institutions to finance procurement of materials and services for national defense.

Involvement in issue and redemption of U.S. Government securities.

Regulating and supervising the foreign operations of U.S. commercial banks. (12 U.S.C. 601-631)

Administration of the Bank Holding Act which is designed to control bank holding company expansion and prevent the expansion of bank holding companies into businesses not related to banking. (12 U.S.C. 1841-1850)

Approval of bank mergers. The Board shares this responsibility with the FDIO and the Comptroller of the Currency. The Board is required to approve mergers in which the acquiring, assuming, or resulting bank is a State member bank. (12 U.S.C. 1828c)

Establishing rules and regulations for carrying out the provisions of the Truth in Lending Act whose purpose is to assure meaningful disclosure of credit terms to consumers. Enforcement is shared with the other bank regulatory agencies and the Federal Trade Commission. (15 U.S.C. 1601)

Establishing rates of interest which may be paid by member banks on time and savings deposits. (12 U.S.C. 371b)

Senator METCALF. There are two bills that relate to the same subject matter. Senator Chiles' bill is a little different. That is if and when we decide the desirability of the various audits, I am certain we can work out appropriate language.

Mr. KELLER. Insofar as S. 2352 is concerned, I have testified before the House committee on a similar bill. I have been in negotiations on the language. If the committee does decide to move, I think we have a workable product here that everybody has agreed to technically.

Senator METCALF. Senator Chiles had planned to be here this morning, General. He has a couple questions, I think, to ask you. I am going to ask you to respond to those if he submits those in writing.

Mr. STAATS. We would be very happy to.

Senator METCALF. Senator Brock has a continuing interest in this legislation, especially Senator Brock on this subcommittee. He may examine your statement and ask for a couple questions.

A Member of the House of Representatives has asked me to propound some questions regarding unvouchered spending authority. It is allrelated to the same material or certificates as against other types of spending.

I think that it would be better to have an opportunity to examine the questions and then return them to the committee with your answers.

Mr. STAATS. I would be very happy to.
[The information subsequently supplied follows:]



1. Question: Various executive officials have been given authority

by law to spend Federal funds and account for them by certificate,

rather than by the usual system of vouchers.

Does the GAO have

access to records of such unvouchered expenditures?


No. We do perform a review of some of these funds

which is limited to ascertaining, on a test-check basis,

whether the certificates indicate that the payments are for

the purposes authorized, are certified by duly authorized

persons, and show that the correct appropriations are being

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Foreign Assistance, the Attorney General, the Secretary of Defense,

the Secretaries of the Army, Navy and Air Force, the Director of

the Central Intelligence Agency, the Director of the Peace Corps,

and the President are authorized to account for certain expenditures

solely on their own certificate.

(1) Department of State

Administration of Foreign Affairs.

Section 291 of the Revised Statutes, 31 U.S.C.

§ 107 provides that funds appropriated for

"purposes of intercourse or treaty with foreign

nations" may be settled by certificate of the

Secretary of State.

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Public Law 93-433, approved October 5, 1974, included

$2,100,000 for this purpose.

Foreign Assistance.

Section 636(a)(8) of the Foreign Assistance Act of

1961, as amended, 22 U.S.C. § 2396(a)(8), provides

for expenditures not to exceed $50,000 from appro

priations pursuant to or for purposes of the Act

of a confidential character other than entertain

ment, to be accounted for by the head of the agency

primarily responsible for administering part I of

the Act, or his designee.

Inspector General, Foreign Assistance.

Section 624(d)(7) of the Foreign Assistance Act of

1961, as amended, 22 U.S.C. § 2384(a)(7), provides

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that the Inspector General, Foreign Assistance, may

make expenditures (not in excess of $2,000 in any

fiscal year) of a confidential nature when he finds

that such expenditures are in aid of his inspections,

audits, or reviews, and to account for such expendi

tures only on his certificate.

61-502 0.75 - 6

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