The Federal Reserve is being criticized by its own
investigators for conducting shoddy audits of itself.
I'm jumping into a dispute that has been going on privately for
some months. But the gist of the argument is that the Fed has
apparently been auditing the books of its own banks - i.e., the New
York Federal Reserve Bank - by a set of standards unique to itself.
The Fed isn't playing by the same rules as General Motors or
Citicorp or, for that matter, any company that is required to use
Here is some of the language used in a letter to Fed Gov. Wayne
Angell, who is in charge of the Fed's bank activities committee,
from Brent Bowen, the Fed's own inspector general. Bowen said the
Fed's methods of auditing "raise significant issues related to the
financial examination independence and (Federal Reserve) Board
compliance with generally accepted auditing standards."
Bowen said "the Board should carefully consider whether it
wishes to represent to the public and others that the Reserve Bank
examinations are conducted in accordance with its own standards, as
is suggested in the director's response, rather than auditing
standards that are accepted and recognized by the auditing
profession and the public."
As a result of the complaint by the inspector general, the
government's General Accounting Office - which is not under the
jurisdiction of the Fed - is likely to conduct its own audit of one
of the Fed's banks.
The bank to be audited isn't yet known. But if the audit
reveals any improprieties, then other Fed banks are likely to come
The request for an independent audit came from the office of
Henry Gonzalez, the chairman of the House Banking Committee, who
has been in a running feud with the Fed. Gonzalez wants the Fed to
be more open on its policy moves; the Fed likes secrecy.
The bitterness increased a few months ago when Gonzalez's
committee found out that the Fed had been taping deliberations at
its policy-making meetings. Fed officials had never before owned up
to the existence of such tapes.
When Gonzalez got wind of the criticism of the Fed's auditing
procedures - coming from inside the Federal Reserve, no less - he
sent a letter to Charles Bowsher, comptroller general of the United
States, requesting that one of the Fed's 12 regional banks be
Meanwhile, Gonzalez says that the Fed has already started an
audit of two of its banks using an outside agency. So he wants the
General Accounting Office to review the way those audits are being
The inspector general's report, which goes on for more than 40
pages, says that "to achieve full compliance with audit standards,
the Board will need to implement a number of significant changes to
the financial examination program, including a major realignment of
the program's organizational structure. …