Academic journal article
By Hillery, Paula V.; Thompson, Stephen E.
Federal Reserve Bulletin , Vol. 86, No. 4
The Federal Reserve Act of 1913 provides that the Federal Reserve Banks will act as fiscal agents and depositories of the United States when required to do so by the Secretary of the Treasury. As fiscal agents, the Reserve Banks support the Department of the Treasury with services related to the federal debt. For example, they receive bids for auctions of Treasury securities to finance the debt and issue the securities in book-entry form. As depositories, the Reserve Banks maintain the Treasury's account, accept deposits of federal taxes and other federal agency receipts, and process checks and electronic payments drawn on the Treasury's account. The General Acounting Office certifies the Treasury's financial statements, including the effect of Reserve Bank operations (see box "Audits by the General Accounting Office").
Audits by the General Accounting Office The General Accounting Office (GAO) is required by statute to certify the annual consolidated financial statements of the United States. As a result, the GAO conducts an annual audit of the Treasury's key financial reporting and accounting systems so that it can certify the statements. Because many of the Treasury's systems are either operated by, or receive data from, Federal Reserve systems, these Federal Reserve operations also fall within the scope of GAO audit attention. In addition to the usual review of balances, the GAO conducts reviews of the physical and logical controls over access to Federal Reserve networks and systems that handle or process Treasury transactions. The GAO has concluded that Federal Reserve controls provide adequate safeguards.
Although the Federal Reserve Banks also provide services on behalf of many domestic and international government agencies, the majority of the fiscal agency and depository services the Banks provide are performed for the U.S. Treasury. In 1999, the Reserve Banks originated about 13 million book-entry transfers with a value of $179 trillion, collected $2.1 trillion in business taxes, processed 823 million government payments by direct deposit, and processed 288 million government checks.
The Reserve Banks' fiscal agency and depository services are related to their involvement in the broader payments system. The Reserve Banks provide payment services to depository institutions that include check processing, funds transfers, and automated clearinghouse (ACH) payments. Providing these services to the private sector gives the Federal Reserve a base for delivering similar services to the Treasury, for affording economies of scale, and for assisting the Treasury with improvements and innovations in its services.
Advances in technology have spurred changes to many services provided by the Federal Reserve. Paper-based systems have been automated or are approaching an all-electronic state. Reserve Bank software systems have been modified or replaced to meet the government's changing needs. Recent improvements have focused on making both the collection and the disbursement of government funds more effective and efficient. The Treasury and the Reserve Banks routinely modify, automate, or consolidate operations to achieve efficiencies and to reduce expenses over time.
Since the early 1990s, the technological environment has changed significantly.(1) Electronic services, such as direct deposit of government payments, are rapidly replacing government checks. Governments, businesses, and individuals rely increasingly on the Internet as a source of information and as a means of conducting business. Consumers have significantly increased their use of computers; many of them expect financial service providers, including the government, to use web-based technologies and voice response to process transactions. Over the years, the Federal Reserve Banks have worked closely with the Treasury to improve these services in a variety of ways, and they will continue to take advantage of new technologies. …