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Report to the Subcommittee on Domestic and International Monetary 
Policy, Trade, and Technology, Committee on Financial Services, House 
of Representatives:

April 2004:

COINS AND CURRENCY:

How the Costs and Earnings Associated with Producing Coins and Currency 
Are Budgeted and Accounted For:

GAO-04-283:

GAO Highlights:

Highlights of GAO-04-283, a report to the Subcommittee on Domestic and 
International Monetary Policy, Trade, and Technology, Committee on 
Financial Services, House of Representatives

Why GAO Did This Study:

The government produces billions of coins and currency notes each year. 
Coins are made by the U.S. Mint and issued by the Treasury Department. 
Currency notes are made by the Bureau of Engraving and Printing and 
issued by the Federal Reserve System (Fed). The Fed buys coins from the 
Mint at face value but pays the Bureau only the costs of printing 
currency. Coins on the books of the Fed are assets that are issued by 
the Mint, and notes are liabilities of the Federal Reserve Banks. In 
recent years congressional hearings have highlighted the confusion 
over differences in the budgetary and accounting treatment of coins 
and currency. In addition, the Treasury Inspector General and others 
have reported problems with Mint and Bureau operations. GAO was asked 
to review (1) how the costs and earnings from coins and currency are 
budgeted and accounted for and (2) whether any operational problems at 
the Mint and Bureau need further action.

What GAO Found:

The earnings from issuing both coins and currency reduce government 
borrowing costs; however, how these earnings are budgeted and accounted 
for differs. Production costs of coins and currency are generally 
treated the same in the budget and accounting statements. The 
difference between the face value of coins and the costs of minting 
them results in earnings, called seigniorage, which is shown in the 
budget as a reduction in needed borrowing for the government, after 
the deficit or surplus for the year is calculated. The budgetary 
impact of seigniorage is interest avoided from the borrowing it 
displaces and is not visible because it is neither quantified nor 
shown in the budget. The government also generates earnings by issuing 
currency, but it is handled differently. The difference between the 
face value of currency issued and its production cost goes to the Fed. 
The Fed buys collateral, usually Treasury securities, to back up the 
currency issued. The interest collected on those Treasury securities 
is used to pay for Fed costs, and the remainder is returned to 
Treasury. The budgetary impact of issuing currency comes from the 
interest returned by the Fed, which is shown as a budgetary receipt 
and counted in the calculation of the deficit or surplus. Production 
costs of both coins and currency are shown as costs of operations in 
Treasurys financial statements. According to the Federal Accounting 
Standards Advisory Board, seigniorage should be shown as a source of 
financing in Treasurys statement of changes in net position, whereas 
interest returned by the Fed for currency is shown as revenue in 
Treasurys statement of custodial activity. Treasury has not been 
reporting seigniorage this way but made the correction beginning with 
its fiscal year 2003 financial statements.

Both the Mint and the Bureau have had operational problems in recent 
years in contracting and acquiring property and equipment. The Mint 
has also had problems with forecasting demand, monitoring costs, and 
reporting to Congress. The Mint and Bureau have generally taken or 
started to take actions to address the problems. The Mint has 
clarified its first quarterly report for 2004 to include more 
information on how retained funds will be used. However, the Mint is 
still not explicitly stating whether the retained amounts are in 
excess of the estimated operating costs for the following year and, if 
so, it is not explaining how the retained earnings will be used, as 
required by law.

Examples of Currency and Coin: 

[See PDF for image]

[End of figure]

What GAO Recommends:

To comply with the purpose of the reporting requirement of the Public 
Enterprise Fund, GAO recommends that the Secretary of the Treasury 
ensure that the Mint identifies whether amounts are being retained in 
excess of the estimated operating costs of the following year and, if 
so, explains how they will be used. In response to Treasurys comments, 
GAO revised its recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-283.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Bernard Ungar, (202) 512-
2834, or ungarb@gao.gov.

[End of section]

Contents:

Letter: 

Results in Brief: 

Background: 

Budgeting and Accounting for the Costs of Production and Earnings from 
Coins and Currency Are Different: 

Operational Problems Identified at the Mint and BEP: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments: 

Appendixes:

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: History of Money in the United States: 

Appendix III: Comments from the Department of the Treasury: 

Tables:

Table 1: Agencies Involved in Production and Issuance of Coins and 
Currency: 

Table 2: Coin and Currency Production Data for Fiscal Years 1998 
through 2002: 

Table 3: Seigniorage Transferred and Interest Earnings Returned from 
the Fed for Currency, Fiscal Years 1998 through 2002: 

Table 4: Summary of Budgeting and Accounting for Coin and Currency 
Production and Issuance: 

Figures:

Figure 1: Mint's Coin Production for Fiscal Years 1998 through 2002: 

Figure 2: BEP Currency Production for Fiscal Years 1998 through 2002: 

Abbreviations: 

BEP: Bureau of Engraving and Printing:

FASAB: Federal Accounting Standards Advisory Board:

Fed: Federal Reserve System:

GSA: General Services Administration:

IG: Inspector General:

OMB: Office of Management and Budget:

Letter April 23, 2004:

The Honorable Peter T. King: 
Chairman: 
The Honorable Carolyn B. Maloney 
Ranking Minority Member: 
Subcommittee on Domestic and International Monetary Policy, Trade, and 
Technology: 
Committee on Financial Services: 
House of Representatives:

The government produces billions of coins and currency notes each year. 
Coins are manufactured by the U.S. Mint, a bureau within the Department 
of the Treasury, and issued by the Department of the Treasury. Currency 
notes are produced by the Bureau of Engraving and Printing (BEP), 
another bureau of the Department of the Treasury, and issued by the 
Federal Reserve banks, which are part of the Federal Reserve System 
(Fed), an independent government entity. Both coins and currency are 
physically distributed to depository institutions by the Fed. In recent 
years, the Department of the Treasury Inspector General and others have 
reported problems with Mint and BEP operations, and congressional 
hearings have highlighted the confusion over the differences in the 
budgetary and accounting treatment of coins and currency. Because of 
these issues, we agreed to review (1) how the costs and earnings from 
producing coins and currency are budgeted and accounted for and (2) 
whether there are any operational problems at the Mint and BEP needing 
further action.

To address these questions, we obtained and reviewed legislation, 
budgetary guidance, and financial reports for the Mint, BEP, Treasury, 
and the Fed concerning how funds for the production and issuance of 
coins and currency are obtained and used. To determine if there are 
operational problems at the Mint and BEP needing further action, we 
agreed with your offices to review areas that had been previously 
identified as having operational problems. These areas included 
forecasting demand for coins and currency, monitoring production costs, 
contracting for goods and services, acquiring property and equipment, 
and reporting operational plans and results to Congress. We obtained 
and reviewed recent Inspector General, GAO, congressional, and other 
reports in these areas. Because we did not have the resources to 
extensively evaluate each issue, we identified a few key measures that 
are commonly used to evaluate an organization's performance for each of 
these areas. We obtained information on each measure from the Mint and 
BEP and determined how the agencies had addressed or planned to address 
the problems we identified. We reviewed documentation; interviewed 
Mint, BEP, and Fed officials; and interviewed current and past 
congressional staff who worked in Mint and BEP oversight. We performed 
our work in Washington, D.C., from September 2002 through March 2004 in 
accordance with generally accepted government auditing standards. Our 
detailed scope and methodology are contained in appendix I.

Results in Brief:

The earnings resulting from issuing both coins and currency reduce the 
cost of government borrowing; however, how these earnings are budgeted 
and accounted for differs. The production costs of coins and currency 
are generally treated the same in the budget and accounting statements. 
The recognition of the government's earnings from coins--the difference 
between the Mint's production costs and face value called seigniorage-
-is shown in the federal budget as a reduction in needed borrowing, 
after the government's deficit or surplus is calculated. However, the 
interest avoided from the borrowing displaced by seigniorage is neither 
quantified nor shown in the budget. Because the operations of the 
Federal Reserve banks are not subject to the federal budget process, 
the Federal Reserve banks' earnings from the issuance of currency is 
treated differently from seigniorage in the federal budget. The Federal 
Reserve, in conducting monetary policy, in effect uses receipts from 
the issuance of Federal Reserve notes to buy Treasury securities on the 
open market. The securities serve as collateral for the Federal Reserve 
notes issued by the Federal Reserve banks. The Fed normally transfers 
to Treasury most of its revenues, including its interest earnings from 
securities that reserve banks hold. For securities, the transfer is net 
of its operating expenses, which include payments to BEP for producing 
the Federal Reserve notes. While the reserve banks' payments to 
Treasury are not subject to some federal budget procedures, these 
payments are shown as a miscellaneous receipt in the federal budget and 
are used in the annual calculation of the budget's deficit or surplus. 
Production costs of both coins and Federal Reserve notes have been 
accounted for as increases in the net cost of operation in Treasury's 
consolidated financial statements. However, seigniorage on coins is 
supposed to be shown on Treasury's consolidated statements as an "other 
source of financing." During our review, Treasury officials made the 
correction in the financial reporting of seigniorage beginning with 
their fiscal year 2003 financial statements.

Although both the Mint and BEP have had problems in recent years in 
contracting and acquiring property and equipment, they have taken steps 
to address these problems. The Mint has also addressed problems it has 
had with forecasting demand for coins and monitoring costs; however, it 
has not completely complied with the requirement to report annually to 
Congress on seigniorage. When the Mint's revolving fund was established 
in 1995, the legislation required the Mint to report annually on the 
amount of seigniorage transferred to Treasury and the specific purposes 
for which amounts retained in excess of the estimated operating costs 
for the following year will be used. However, congressional intent 
indicated that this reporting requirement was not limited to the 
following year's estimated operating costs. The Mint has not been 
identifying whether amounts are being retained in the fund in excess of 
the estimated operating costs for the following year or how retained 
amounts will be used. We are recommending that the Treasury Secretary 
ensure that the Mint Director identifies whether amounts are being 
retained in excess of the estimated operating costs for the following 
year and, if so, explains the specific purposes for which retained 
amounts will be used in reports to Congress each year. In commenting on 
this report, Treasury noted that it is only required to report 
additional information on the retained amounts in certain 
circumstances, and we revised our recommendation accordingly. Treasury 
said the Mint revised the first quarter report in fiscal year 2004 on 
the revolving fund to be more responsive to the reporting requirement. 
However, the Mint still did not explicitly state in that report whether 
amounts are being retained in excess of the estimated operating costs 
of the following year. Both Treasury and the Fed also provided 
technical comments, which we included in the report, where appropriate.

Background:

The federal government has issued coins since its inception, but 
currency was originally issued by private banks that were chartered by 
the states. The federal government's issuance of currency began during 
the Civil War. Federal Reserve notes, which constitute virtually all 
U.S. currency we now use, were first issued in 1914, when the nation's 
central bank, the Fed, was established. Coins and federal currency 
other than Federal Reserve notes were distributed by the Treasury 
Department until 1920, when this function was transferred to the 
Fed.[Footnote 1] The Mint produces coins to meet public demand, and the 
BEP produces currency that the Fed orders. A more complete history of 
money and banking in the United States is discussed in appendix II.

Evolving Role of the Department of the Treasury:

The Constitution gave Congress the power to coin money and regulate its 
value and prohibited states from coining money, issuing bills of 
credit, or making anything but gold and silver coin a tender in payment 
of debts.[Footnote 2] The Mint was established in 1792 and delivered 
coins in 1793. The Mint was originally part of the Department of State 
and became part of the Department of the Treasury in 1873.

In 1846, the government separated its finances from commercial banks. 
Government monies were to be deposited in the main Treasury or in one 
of nine Subtreasuries--branches of the main Treasury--located 
throughout the United States. By 1863, when the national banking system 
was established, the government relied more on national banks than on 
the Subtreasuries, but the Subtreasuries and the main Department of the 
Treasury in Washington, D.C., were the only channels used to distribute 
coins and Treasury currency. Congress gave responsibility for designing 
U.S. currency to the Department of the Treasury and established the 
Secret Service as a Treasury bureau to guard against counterfeiting. In 
1920, the Secretary of the Treasury was authorized to delegate the 
duties of distributing currency and coin that had been handled by the 
Treasury and the Subtreasuries to the Fed.

The responsibilities of the Federal Reserve, as the central bank of the 
United States, fall into four general areas: conducting the nation's 
monetary policy; supervising and regulating banking institutions; 
fostering the stability of the financial system; and providing certain 
financial services to the U.S. government and to financial 
institutions, including playing a major role in operating the nation's 
payments system. The Fed's operations are carried out by 12 Federal 
Reserve district banks that are overseen by the Board of Governors. 
Federal Reserve notes in circulation are recorded as liabilities of the 
Federal Reserve district banks that issue them, and they are the banks' 
largest liabilities. Treasury securities are the largest assets of the 
Federal Reserve district banks. The Fed forecasts the amount of 
currency that will be needed to meet demand each year and submits an 
order to BEP for new Federal Reserve notes. On the basis of the new 
currency order, BEP establishes a billing rate to be paid by the Fed 
for the cost of manufacturing Federal Reserve notes. The Fed pays BEP 
the costs of developing and printing the currency. The Fed, through its 
district banks, distributes Federal Reserve notes to depository 
institutions to meet demand throughout the United States and the world.

The Fed has a more limited role with coins than it does with currency. 
Unlike Federal Reserve notes, coins are not liabilities of the Federal 
Reserve banks. The Mint determines its annual coin production and 
monitors Fed coin inventories to identify trends in coin demand. The 
Fed buys coins from the Mint for face value. Upon receiving coin orders 
from the Fed, the Mint distributes coins to the Federal Reserve banks 
from its Philadelphia and Denver production facilities, and the Federal 
Reserve banks distribute coins to satisfy depository institutions 
demand. In addition to the Federal Reserve banks and their branches, 
the Fed also contracts with about 175 coin terminals to distribute 
coins to the banking system. The terminals are generally operated by 
armored carrier companies, which may be paid by depository institutions 
and retailers to wrap coins and perform other services.

The primary mission of the Mint is to produce circulating coins in 
Philadelphia and Denver for trade and commerce. The Mint also produces 
and sells numismatic (collectors) coins and medals and gold and silver 
bullion coins and operates the government's primary gold bullion 
storage facility in Fort Knox, Kentucky. BEP, which was established in 
1862, operates facilities in Washington, D.C., and Ft. Worth, Texas, 
where it designs and prints the nation's currency, some postage stamps, 
and other security documents such as military identification cards. The 
agencies involved in issuing and producing coins and currency are 
summarized in table 1.

Table 1: Agencies Involved in Production and Issuance of Coins and 
Currency:

Issuer; Coin: Treasury; 
Currency: Fed.

Producer; Coin: Mint; 
Currency: BEP.

Distributor; Coin: Fed; 
Currency: Fed.

Locations produced; Coin: Philadelphia, Denver; 
Currency: Washington, D.C.; Ft. Worth.

Face value goes to; Coin: Mint; 
Currency: Fed.

Production costs paid by; Coin: Treasury (which receives face value of 
coins from the Fed); 
Currency: Fed.

Sources: BEP, Fed, and U.S. Mint.

[End of table]

In 2002, the Mint sold about 15 billion coins with a face value of $1.4 
billion that it produced at a cost of $436 million; BEP produced 7 
billion notes with a face value of $103.5 billion at a cost of $384 
million. The Fed spent about $30 million to process coins and $342 
million to process currency in 2002. The number and dollar value of 
coins and currency issued for the last 5 years are shown in table 2.

Table 2: Coin and Currency Production Data for Fiscal Years 1998 
through 2002:

Dollars in millions (current year dollars).

Coins; Face value of circulating coins produced; 
Fiscal year 1998: $923; 
Fiscal year 1999: $1,455; 
Fiscal year 2000: $3,220; 
Fiscal year 2001: $2,021; 
Fiscal year 2002: $1,364.

Coins; Number of circulating coins shipped to the Fed; 
Fiscal year 1998: 16,645; 
Fiscal year 1999: 20,374; 
Fiscal year 2000: 27,187; 
Fiscal year 2001: 23,224; 
Fiscal year 2002: 14,962.

Coins; Mint's cost of producing circulating coins; 
Fiscal year 1998: $330; 
Fiscal year 1999: $421; 
Fiscal year 2000: $697; 
Fiscal year 2001: $564; 
Fiscal year 2002: $436.

Coins; Fed's costs of processing coins[A]; 
Fiscal year 1998: $32; 
Fiscal year 1999: $24; 
Fiscal year 2000: $25; 
Fiscal year 2001: $25; 
Fiscal year 2002: $30.

Currency[B]; Face value of Federal Reserve notes produced; 
Fiscal year 1998: $173,930; 
Fiscal year 1999: $285,490; 
Fiscal year 2000: $67,460; 
Fiscal year 2001: $45,740; 
Fiscal year 2002: $103,520.

Currency[B]; Number of notes produced; 
Fiscal year 1998: 9,200; 
Fiscal year 1999: 11,357; 
Fiscal year 2000: 9,030; 
Fiscal year 2001: 7,005; 
Fiscal year 2002: 7,005.

Currency[B]; BEP's cost of producing currency; 
Fiscal year 1998: $370; 
Fiscal year 1999: $501; 
Fiscal year 2000: $409; 
Fiscal year 2001: $327; 
Fiscal year 2002: $384.

Currency[B]; Fed's costs of processing currency[C]; 
Fiscal year 1998: $261; 
Fiscal year 1999: $287; 
Fiscal year 2000: $304; 
Fiscal year 2001: $330; 
Fiscal year 2002: $342. 

Sources: BEP, Fed, and U.S. Mint.

[A] Fed cost data are on a calendar year basis and include expenses for 
wrapping and paying and receiving coins.

[B] Statistics for currency in 1999 reflect unusual demand from the 
century date change.

[C] Fed cost data are on a calendar year basis and include expenses for 
transportation, distribution, paying, receiving, and verification and 
destruction of currency.

[End of table]

The penny represents more than half of the Mint's yearly production of 
coins, as shown in figure 1. Figure 2 shows that BEP generally produces 
more $1 notes than other denominations; however, in 1999, more $20 
notes were produced than $1 notes as precautionary inventory for the 
century date change.

Figure 1: Mint's Coin Production for Fiscal Years 1998 through 2002:

[See PDF for image]

Note: In fiscal year 1998, the Mint did not produce the dollar coin. 
The number of half-dollar coins produced in fiscal year 2002 and the 
number of dollar coins produced in fiscal year 2001 are too small to 
depict on our scale.

[End of figure]

Figure 2: BEP Currency Production for Fiscal Years 1998 through 2002:

[See PDF for image]

Note: The volume for 1999 reflects the century date change. In fiscal 
year 2000, BEP did not produce $50 and $100 notes. In fiscal years 2001 
and 2002, the $50 note was not produced.

[End of figure]

Budgeting and Accounting for the Costs of Production and Earnings from 
Coins and Currency Are Different:

The Mint's circulating coinage operations and BEP's currency operations 
are financed solely by payments from the Fed. Coins and Federal Reserve 
notes are treated differently in the budget, reflecting the entities 
that issue them. The Fed has never been included in the federal budget 
due to judgments that fiscal and monetary policy should be kept 
separate. The federal budget, by definition, proposes future amounts of 
revenues and outlays. Because the Mint, a part of Treasury, is included 
in the budget, the recognition of the earnings from coins--the 
difference between production costs and face value, called seigniorage-
-is shown in the federal budget as a reduction in needed borrowing for 
the government, after the deficit or surplus for the year is 
calculated. Earnings from Federal Reserve notes are realized by the 
nonbudgetary Fed. The Federal Reserve district banks use receipts from 
the issue of Federal Reserve notes to buy Treasury securities on the 
open market.[Footnote 3] The securities serve as collateral for the 
Federal Reserve notes issued by the banks. The Fed transfers to the 
Treasury its interest earnings on those securities, net of its 
operating expenses, including payments to BEP for producing Federal 
Reserve notes. The transferred interest earnings are shown as a 
miscellaneous receipt in the federal budget under "deposit of earnings, 
Federal Reserve System," and are counted in the federal budget's annual 
calculation of the deficit or surplus.

Production costs of both coins and Federal Reserve notes are accounted 
for as increases in the net cost of operations in Treasury's 
consolidated financial statements. Federal accounting standards 
provide that seigniorage be accounted for as a source of financing in 
Treasury's statement of changes in net position, whereas interest 
earned by the Fed for its open market operations is accounted for as 
revenue received on Treasury's statement of custodial activity. 
Treasury has not been reporting seigniorage correctly in its 
consolidated financial statements but corrected its misclassification 
beginning in fiscal year 2003.

Budgeting for Coin and Currency Production Costs:

The costs of producing coins by the Mint and currency by BEP are 
treated the same in the federal budget. Both the Mint and BEP have 
revolving funds[Footnote 4] that receive collections from the Fed. The 
Fed pays Treasury the full face value of coins that it buys, and 
Treasury then allocates the payments to the Mint. When Congress 
established the Mint's Public Enterprise Fund in 1996, the Senate 
Appropriations Committee noted that the production of coins was driven 
by demand and that the variability of annual appropriations placed a 
burden on production operations, so the Mint was allowed to operate 
without annual appropriations. All Mint revenues are deposited into its 
Public Enterprise Fund, including receipts from the Fed from the sale 
of circulating coins at face value, and all expenses for making coins 
are paid out of the Public Enterprise Fund. However, only the revenue 
sufficient to cover the Mint's costs of producing coins is included as 
a collection from the Fed in the federal budget, not the full face 
value of the coins. At least once a year, any amount that is determined 
by the Mint to be in excess of the amount required by the Public 
Enterprise Fund is to be transferred to Treasury's general fund.

The Fed pays BEP the production costs of Federal Reserve notes rather 
than the full face value. All BEP receipts are deposited into the 
Bureau of Engraving and Printing Fund and are used to pay for BEP's 
operating and capital equipment costs. BEP was authorized to establish 
reimbursement prices from customer agencies at a level intended to 
cover the costs of services provided and to provide funding for the 
acquisition of capital equipment and future working capital. Similar to 
the Mint, BEP operates without annual appropriations. At the beginning 
of each year, BEP establishes a billing rate for currency production, 
based on the annual Fed currency order, past costs, expected increases, 
capital needs and working capital needs.

Although the expected costs of Mint and BEP operations and collections 
from the Fed are both included in the Treasury budget submission, as a 
practical matter, the inclusion of the expected outlays and collections 
in the budget is only a notification to Congress that collections 
deposited in the revolving funds will be expended to produce the coins 
and currency in the amounts estimated. If outlays during the year are 
higher than what is in the budget, the Mint and BEP must notify 
Treasury and request an apportionment from the Office of Management and 
Budget (OMB), but congressional approval of the request is not 
necessary. An apportionment is a plan, approved by OMB, to spend 
resources provided by law.

Budgeting for Coin and Currency Earnings:

The profit earned from making coins, or seigniorage, is shown in the 
budget as a means of financing the government's borrowings and is not 
counted as revenue in calculating the deficit or surplus for the annual 
budget. Seigniorage reduces the government's requirement to borrow 
money from the public to finance the debt. Although the profit earned 
from making coins adds to the government's cash balance, it does not 
involve a payment from the public, which is considered a receipt.
[Footnote 5]

The use of seigniorage by governments to raise revenues goes back 
hundreds of years in world history. In the Middle Ages, for example, 
authenticated coinage made payment of debts convenient. Because of 
their convenience, coins commonly had a substantial premium--more than 
enough to cover the costs of minting--to pay for the authentication. 
Kings could turn this premium into personal profit, and to maximize the 
earnings, they recalled coinage every few years even if the coins were 
not worn.

The Federal Reserve banks' issuance of currency is treated differently 
in the federal budget. The Fed is not subject to the appropriations 
process and, aside from the recording of transfers of Fed earnings from 
its open market operations, its operations are excluded from the 
federal budget. This special budgetary status stems from the desire to 
protect the flexibility and independence of the central bank. On a 
weekly basis, the Fed transfers its interest earnings on government 
securities, net of its expenses such as payments to BEP for Federal 
Reserve note production, to the Treasury. Because the Fed is not 
included in the federal budget, these payments from the Fed to Treasury 
are treated as budgetary receipts, as if they were from the public, 
when the annual deficit or surplus in the budget is 
calculated.[Footnote 6] Interest paid by Treasury on all government 
securities is included in the Treasury budget as an outlay.

A report from the House Banking and Currency Committee in September 
1913, during its consideration of the bill that eventually established 
the Federal Reserve, gave two reasons why the government should share 
in the earnings that the Federal Reserve banks would make. First, the 
federal government gave the Fed the sole and exclusive function of note 
issuance, from which all other banks were prohibited. Second, the 
government's deposit of public funds with the Fed was larger than that 
of any other depositor. The committee anticipated that after the 
national bank notes that were in existence at that time had been 
replaced with Federal Reserve notes, the function of issuing currency 
would result in large earnings for the Fed that it could not earn were 
it to share this privilege with other banks. The committee believed the 
public was entitled to these earnings.

In summary, although the production of money by the government through 
both coins and currency generates earnings and saves interest costs, 
the recognition of the interest is different and less visible for 
coins. For coins, an increase in the cash available to Treasury because 
of seigniorage reduces borrowing and the interest that would have 
otherwise been paid. However, the interest avoided from the borrowing 
displaced by seigniorage is neither quantified nor shown in the budget. 
For currency, interest earnings generated from Fed open market 
operations are actually paid to the Fed, and earnings in excess of Fed 
expenses are then returned to the Treasury and recorded as a receipt in 
the budget.

In 2002, the Mint transferred $1 billion in seigniorage from coins and 
the Fed transferred about $24.5 billion in excess earnings, derived 
largely from holdings of U.S. government securities, which are 
attributable, in part, to the value of currency in circulation. 
Seigniorage transferred from Mint operations and interest earnings 
returned from open market operations for the last 5 years are shown in 
table 3.

Table 3: Seigniorage Transferred and Interest Earnings Returned from 
the Fed for Currency, Fiscal Years 1998 through 2002:

Dollars in millions.

Seigniorage from the Mint transferred to Treasury; 
Fiscal year 1998: $562; 
Fiscal year 1999: $1,020[A]; 
Fiscal year 2000: $2,280[B]; 
Fiscal year 2001: $1,380; 
Fiscal year 2002: $1,000.

Interest earnings returned to Treasury from the Fed for open market 
operations[C]; 
Fiscal year 1998: $26,561; 
Fiscal year 1999: $25,410; 
Fiscal year 2000: $25,344; 
Fiscal year 2001: $27,089; 
Fiscal year 2002: $24,495. 

Sources: Fed and U.S. Mint.

[A] The 50-State Quarters Program was introduced in 1999, accounting 
for most of the increase from 1998 to 1999.

[B] The Sacagawea dollar coin was introduced in 2000, accounting for 
most of the increase from 1999 to 2000.

[C] Fed interest data is on a calendar year basis.

[End of table]

Accounting for Coin and Currency Production Costs:

For the consolidated financial statements of the Department of the 
Treasury, the Mint's coin production costs and BEP's currency 
production costs are both accounted for as costs in the "net cost of 
operations" in Treasury's Consolidated Statement of Changes in Net 
Position and as a decrease in the net position (equity) in the 
Consolidated Balance Sheet.

Accounting for Earnings Made on Coins and Currency:

Seigniorage on coins should be shown as "other source of financing" in 
Treasury's Consolidated Statement of Changes in Net Position, as 
provided for in the Federal Accounting Standards Advisory Board 
(FASAB).[Footnote 7] However, Treasury has been accounting for 
seigniorage as a reduction in the net cost of operations in its 
Consolidated Statement of Changes in Net Position. Although Treasury's 
net cost of operations has included seigniorage as a reduction in 
costs, seigniorage had not been separately labeled in the statement. 
During our review, Treasury officials corrected the financial reporting 
treatment of seigniorage beginning with the fiscal year 2003 statements 
and reclassified the fiscal year 2002 statements. The effect of the 
reclassification of the 2002 statements was an increase in the net cost 
of operations by about $1 billion. However, there was no effect on the 
reported net position.

The earnings from interest on government securities the Fed returns to 
Treasury are reported as "deposit of earnings, Federal Reserve System," 
on the Statement of Custodial Activity for Treasury's financial 
statements.

Summary of Budgeting and Accounting Treatments of Producing and Issuing 
Coins and Currency:

Table 4: Summary of Budgeting and Accounting for Coin and Currency 
Production and Issuance:

Budgeting: Production costs; 
Coin: Costs of production and the offsetting revenues from the Fed in 
the same amount are included in the Treasury's budget submission for 
information purposes; 
Currency: Costs of production and the offsetting revenues from the Fed 
in the same amount are included in the Treasury's budget submission 
for information purposes.

Budgeting: Issuance/earnings; 
Coin: Seigniorage is treated as a means of financing the deficit, 
resulting in a reduction in borrowing. The interest avoided by 
seigniorage is not quantified or shown in the budget; 
Currency: Fed interest earnings paid to the Treasury are treated as a 
budgetary receipt.

Accounting: Production costs; 
Coin: Treasury shows production costs in the net cost of operations 
and a decrease in the net position (equity) of Treasury; 
Currency: Treasury shows production costs in the net cost of 
operations and a decrease in the net position (equity) of Treasury.

Accounting: Issuance/earnings; 
Coin: Seigniorage is shown as a source of funding in Treasury's 
consolidated net position; 
Currency: Interest earnings exceeding Fed operating expenses that are 
returned by the Fed are reported as revenue in Treasury's Statement of 
Custodial Activity. 

Sources: BEP, Fed, U.S. Mint, and Treasury.

[End of table]

Operational Problems Identified at the Mint and BEP:

As agreed with your offices, we looked at the following areas of Mint 
and BEP operations: forecasting public demand for coins and currency, 
monitoring production costs, contracting for goods and services, 
acquiring plant and equipment, and reporting operational plans and 
results to Congress. These areas had been previously identified by the 
Treasury Inspector General or others as having problems. We did not 
have the resources to extensively evaluate each area. Therefore, for 
each area, we applied commonly used performance indicators as measures 
that addressed such issues as cost/efficiency, quality/effectiveness, 
customer satisfaction, and financial reporting. We also reviewed 
previous reports conducted by the Treasury Inspector General, GAO, and 
others and followed up with the agencies to see what action had been 
taken since the reports were issued.

In recent years, both the Mint and BEP have had some problems in 
contracting for and acquiring property and equipment. In addition, the 
Mint has had problems with forecasting demand, monitoring costs, and 
reporting plans and results to Congress. The Mint and BEP have 
generally taken action or have begun to address the problems 
identified. In addition, in commenting on a draft of this report, the 
Treasury Department said that the Mint began reporting on how 
seigniorage not transferred to Treasury will be used in the first 
quarterly report to Congress in fiscal year 2004.

Forecasting Demand:

To gauge whether the Mint and BEP have had any operational problems in 
forecasting demand for coins and currency, we determined (1) whether 
there have been any shortages in coins and currency in the last 3 years 
and (2) whether the agencies used validated models to forecast demand. 
We also reviewed a Treasury Inspector General report on addressing 
demand for the dollar coin.[Footnote 8]

The Mint was not able to fill some orders for pennies, dimes, and 
nickels it received from the Fed from August 1999 to February 2000. Fed 
officials said that during 1999, the Fed experienced exceptional demand 
for all denominations of coins. In several regions, the demand for 
pennies (and later in the year, for all other denominations) at times 
exceeded the Fed's ability to meet orders. The average number of coins 
flowing out of reserve banks during 1999 was nearly 30 percent higher 
than it was in 1998. That number, in turn, was about 27 percent higher 
than 1997. The Fed said the strong economy and the public's interest in 
collecting state quarters were likely contributing factors to the 
higher coin demand. The Mint said the shortages were caused by an 
unanticipated increase in coin demand beginning in 1999; the 
requirement to produce the 50 state quarters beginning in 1999; and the 
Fed not consolidating all of its coin orders during this period, which 
resulted in some Fed branches ordering coins when other Fed branches 
had a surplus of coins.

The Mint has recently added additional capacity to produce coins and 
has worked with the Fed to consolidate its coin orders. The Mint and 
Fed have also implemented new statistical long-range and short-range 
forecasting models. There have been no shortages of currency or coins 
during the last 3 years.

Statistical models are used for predicting future demand for both coins 
and currency. The models have been validated by a process in which past 
coin and currency demand data are tested with the model to see how well 
the model forecasts compare with the actual demand that occurred. For 
coins, both the Fed and Mint now use statistical models to estimate 
future coin demand and combine the results to predict demand. Fed and 
Mint officials said there are limits to statistical models, and there 
is always some risk the models will not be accurate for coin demand, 
given the volatility in coin use and demand. Because the new 
statistical models have been in use for a short time period, their 
accuracy in predicting changes in demand has not been fully tested.

In March 2002, the Treasury Inspector General (IG) recommended that the 
Mint suspend production of the new dollar coin during the balance of 
fiscal year 2002 because even though the Mint had about 42 months of 
inventory of dollar coins, it was still planning to produce 40 million 
new coins. Mint officials said they based their production plans 
primarily on demand for the new dollar coin the previous year. However, 
once they realized demand had declined considerably, they decided to 
suspend production, even before the IG provided the Mint with a copy of 
its findings.

Monitoring Production Costs:

We used three performance indicators to evaluate whether the agencies 
effectively monitor production costs: (1) Can the Mint and BEP track 
production costs by plant, denomination, and cost element and compare 
actual costs with standard costs? (2) Did nonmaterials[Footnote 9] 
costs increase more than the rate of inflation for the last 5 years? 
and (3) Did the agencies use productivity measures for equipment 
efficiency and labor productivity? We also reviewed a Treasury IG 
report on the Mint's cost accounting system.[Footnote 10]

Both the Mint and BEP have implemented cost accounting systems that 
track production costs by location, denomination, and cost element and 
compare actual costs with targeted costs. From fiscal year 1998 through 
2002, the Mint's production cost per thousand coins, excluding metal 
costs, increased 31 percent after adjusting for inflation, and BEP's 
cost to produce a thousand notes, excluding paper and ink costs, 
increased 4 percent after adjusting for inflation. BEP said the primary 
reason for its increased cost was a 25 percent decrease in note volume 
during that period, and fixed costs had to be allocated to a lower 
number of notes in fiscal year 2002.[Footnote 11] The Mint said its 
increased cost per thousand coins was due to higher depreciation costs 
and a change in the mix of coins produced from fiscal year 1998 through 
2002. Mint officials provided documentation showing that during this 
period, new machinery and equipment were bought to replace old 
equipment and to increase coin production capacity. The Mint said that 
depreciation costs also increased because it found the expected life of 
coin manufacturing equipment was shorter than what had been estimated. 
According to Mint data, depreciation expenses were $9.5 million in 1998 
and $19.8 million in 2002. The Mint also provided data that showed a 
17.5 percent increase in the number of full-time staff from 1998 
through 2002, and that the mix of coins changed during that period. 
More quarters were produced in 2002, and they are more costly to 
produce than other coins that were produced in 1998. The Mint data also 
showed that while the number of full-time staff rose 17.5 percent from 
1998 through 2002, the number of coin equivalents produced per employee 
changed only slightly (a 1 percent decrease).

Both the Mint and BEP have procedures and automated tools for assessing 
equipment efficiency and labor productivity. For example, the Mint 
collects data on each press for the number of coins produced and the 
number of coins scrapped. These data, along with standard production 
numbers and the amount of time the machine is operating, are used to 
compute an efficiency measure. The Mint measures labor productivity by 
collecting data on the number of coins produced per shift. It also uses 
data from maintenance logbooks and an online maintenance system to 
monitor failure rates and downtime of presses. BEP tracks machine 
efficiency, the amount of ink needed to produce notes, and the number 
of notes that have to be destroyed because of spoilage. In addition, 
BEP collects data on the number of currency sheets produced by each 
shift.

The Treasury IG reported in September 2000 that the Mint's newly 
installed automated information system was not able to provide all the 
data needed for its performance reporting requirements, including the 
average unit cost of producing 1,000 coins. The Mint generally agreed 
with the IG's recommendations to better define its performance 
measures, refine its cost allocations, and improve controls over data 
collection and reporting. However, it said that some of the findings 
were to be expected because the Mint had just implemented the new 
information system and a temporary degradation of reporting 
capabilities was common after the implementation of a complex system. 
Subsequent to the report, the Mint showed us that it had completed 
actions to correct some of the deficiencies noted by the IG and told us 
that the Mint is in the process of implementing activity-based costing. 
Mint officials said they anticipated that activity-based costing will 
be operational next year.

Contracting for Goods and Services:

To evaluate contracting at the Mint and BEP, we used three performance 
indicators: (1) Was competition used in the 10 largest procurements 
during the last 3 years? (2) Did the agencies document that prices paid 
were fair and reasonable for those procurements? and (3) Were reviews 
made in the last 5 years to determine if it would be advantageous to 
outsource some operations? We also reviewed a Treasury assessment of 
the Mint's procurement system[Footnote 12] and our 1998 report on BEP's 
procurement of currency paper.[Footnote 13]

Although the Mint and BEP are both part of the Treasury Department, the 
Mint has more flexibility in adhering to government procurement rules 
than BEP has. When Congress established the Mint's Public Enterprise 
Fund in 1995, the Mint was exempted from the provisions of federal law 
governing procurement or public contracts for goods and services 
necessary for carrying out Mint programs and operations. According to a 
House Appropriations Committee report issued in connection with the 
1995 legislation, the Mint was one of the federal government's last 
true production operations. The committee thought that Mint operations 
should use more basic business practices.

The Mint and BEP used competition for a majority of the 10 largest 
contracts at each agency. At the Mint, 6 contracts were open to 
competition, 2 contracts were competed between two metals suppliers, 
and 2 sole-source contracts had a justification for not using 
competition. BEP issued 7 contracts open to competition; 2 sole-source 
contracts that had justification for not using competition; and 1 
contract issued noncompetitively under the Javits Wagner-O'Day Act, 
which requires agencies to purchase selected products and services from 
nonprofit organizations employing individuals who are blind or have 
other disabilities.

Government contracting officers are responsible for ensuring that the 
government obtains fair and reasonable prices. This is done by either 
cost or price analysis. Cost analysis is an evaluation of the separate 
cost elements and proposed profit contained in an offerer's proposal. 
Price analysis is the process of examining and evaluating a prospective 
price without performing cost analysis. An example of price analysis is 
comparing one offer with other offers. Of the 10 Mint contracts we 
reviewed, 8 contained documentation that prices or costs had been 
analyzed, and 2 had little or no documentation describing how prices or 
costs were analyzed. When we asked the Mint about the lack of 
supporting documentation that the prices paid were fair and reasonable, 
Mint officials said that the contracting officers were knowledgeable 
about the prices paid in previous years on similar purchases for 1 of 
the 2 contracts, had reviewed catalog prices issued for equipment in 
the other contract, and were comfortable that the prices paid on the 2 
contracts were fair. However, this information was not included in the 
contract files. Mint officials provided new guidance dated September 
2002 regarding contracting matters, including price analysis. The 2 
contracts with inadequate documentation of cost and price analysis were 
awarded before the new guidance was issued. All of the 10 BEP contracts 
contained documentation describing how price or cost analysis was 
conducted.

In December 2001, Treasury's Office of Procurement reported on an 
Acquisition Management Assistance Review that it had made of the Mint. 
Treasury reported that the Mint did not always perform adequate 
research to help identify other sources in the competitive selection 
process and did not always ensure that the proper sole-source 
justifications were prepared and placed in files for simplified 
acquisitions. The report also noted that some Mint procurement files 
lacked evidence of cost or price analysis. In response to the Treasury 
report, the Mint said it had developed new procedures to conduct market 
research and hired additional procurement staff, including a cost/price 
analyst. In subsequent communications with the Mint, Treasury confirmed 
that the Mint had addressed these problems. Treasury officials in the 
Office of Procurement said that they planned to review BEP's 
acquisition system in the future; however, due to a loss of staff who 
were transferred to the Department of Homeland Security, they did not 
know specifically when the BEP review would be scheduled.

In August 1998 we reported that because of statutory restrictions and 
the unique market for currency paper, there was no competitive market 
in which a number of responsible sources could compete for BEP's 
currency paper requirements. BEP said that for the most recent paper 
contract, it took steps to obtain more competition, such as offering 
multiyear contracts instead of contract options and allowing offerers 
more time to gear up for production; nevertheless, only one proposal 
was received for the most recent solicitation.

The Mint and BEP both conducted reviews from 1999 to 2003 to determine 
if it would be advantageous to outsource selected operations. The Mint 
provided data showing that 13 areas were identified for review and, as 
of February 9, 2004, 4 Mint reviews were in progress, 5 were on hold or 
canceled, 3 had not been started, and 1 was completed. The completed 
review resulted in 2 custodial positions at the West Point Mint being 
outsourced. The reviews in progress involve Mint-wide human resource, 
accounting, and finance functions, and coin blanking/annealing/
upsetting and forklift operations at the Philadelphia and Denver Mints. 
BEP provided data showing that 16 areas were identified for public-
private competition review from 1999 to 2003 and, as of February 12, 
2004, 13 studies were completed and 3 were in progress. Of the 13 
completed studies, 11 resulted in 115 full-time equivalent (FTE) 
positions going to private-sector sources and 2 resulted in 40 FTE 
positions remaining in-house. Operations that went to private-sector 
sources included tour operations, personnel administrative support, law 
enforcement support services, and pest control. The reviews not yet 
completed involve ink production and custodial services.

Acquiring Property and Equipment:

We used two performance indicators to evaluate the Mint's and BEP's 
acquisition of property and equipment: (1) Did the agencies have a 
systematic process to determine when equipment should be replaced and 
if property is no longer needed? and 2) For all property and equipment 
purchases made over the last 7 years that individually cost more than 
$1 million, was the final amount of property or equipment acquired the 
same amount as originally planned? We also reviewed two Treasury IG 
reports concerning the acquisition of property and equipment at the 
Mint and BEP.

Both the Mint and BEP have systems in place to monitor the efficiency 
of machines and detect machine problems and to determine if property is 
no longer needed. Each quarter, plant managers at the Mint production 
facilities review and report on excess personal property to Mint 
headquarters. They report on excess, damaged, and obsolete equipment 
that has not been disposed of, as well as assets that are being used 
and not performing up to specifications. The Mint's Office of 
Management Services prepares a monthly space utilization report to 
track vacancy statistics for each floor of the Mint headquarters. BEP 
prepares an annual status report on the utilization and disposal of 
excess personal property. BEP also performs annual reviews and 
semiannual updates to identify use and needs of all capital assets used 
in currency production, production support, facilities, information 
technology, and security. BEP also has a policy to annually update a 
master space plan and a 5-year space utilization plan. In addition, the 
Treasury Department reviews major Mint and BEP capital projects. A 
major project is generally the acquisition of land, structures, or 
equipment that have an estimated life of 2 or more years, require an 
investment of $1 million or more each year, or have a total life-cycle 
cost of $10 million or more. For these projects, the Mint and BEP are 
required to submit to Treasury's Capital Investment Review Board a 
description of the project, an explanation of how the project meets 
organizational objectives, a description of how performance will be 
measured, an explanation of project costs, and a description of what 
alternatives were considered.

The Mint made eight acquisitions of property and equipment that cost 
more than $1 million each in the period we reviewed. For seven of the 
eight, the Mint acquired the same amount of property and equipment that 
it had originally planned to acquire. In one acquisition, the amount of 
equipment ultimately acquired was only 3 percent more than originally 
planned. Mint officials said the increase was due to an accelerated 
requirement for equipment needed to produce the new dollar coin, and 
they had not taken the time to revise the requisition. BEP made seven 
acquisitions of property and equipment that cost over $1 million each 
during this period. For five of the seven, BEP acquired the same amount 
of property and equipment that it originally planned to acquire. In 
one, BEP had planned to acquire four offset presses but actually 
acquired five, and in another it had planned to upgrade two currency 
inspection systems but actually made six upgrades. BEP said that the 
additional presses and additional upgrades were added because the Fed's 
needs for the new currency with anti-counterfeiting features increased 
while the procurements were under way, and BEP exercised options to 
meet that demand. In addition, BEP noted that the currency inspection 
upgrades were set up as a pilot project to minimize risks, and that 
additional upgrades were ordered after the successful completion of the 
pilot project. Fed officials said they encouraged BEP to improve its 
automated currency inspection system capacity, and BEP acquired an 
additional press to satisfy production requirements.

In March 2002, the Treasury IG reported that the Mint leased about 
257,000 more square feet of space for its headquarters in Washington, 
D.C., than it had originally requested. The IG recommended that the 
Mint Director analyze space needs for headquarters to identify excess 
space and develop a plan to use the space. The IG also recommended that 
the Mint Director improve record keeping for space acquisitions; make 
more use of competition; train staff in procurement; and develop a 
policy to use the expertise of other agencies, such as the General 
Services Administration, when making future space acquisitions. Mint 
officials showed us a revised space needs analysis and revised 
procedures. The Mint also said that it had leased out space it did not 
need. The space analysis showed that of the 381,647 square feet of 
space the Mint has leased in the two headquarters buildings, 139,910 
square feet, or 36.7 percent, has been subleased to other agencies. The 
Mint also provided a report showing that as of February 1, 2004, 14,217 
square feet of the total square feet in the two headquarters buildings, 
or 3.7 percent, was vacant.[Footnote 14] The leases and subleases 
showed that the Mint was recouping its leasing costs in its charges to 
the other tenants. In addition, the General Services Administration 
(GSA) provided data showing that a 2002 GSA lease rate for space in one 
of the buildings occupied by the Mint was $4.39 per square foot higher 
than the 1999 lease rate that the Mint had negotiated for space in the 
same building. Mint officials said they did not develop a policy to use 
other agencies in future space acquisitions because the Mint would not 
be leasing additional space.

In June 1999, the Treasury IG reported that BEP had purchased four 
intaglio currency presses and three overprinting and packaging machines 
costing about $50 million that were unnecessary and subsequently had to 
be placed into storage.[Footnote 15] The IG said that BEP had acquired 
the presses before it completed a study of the use of the new presses 
and had not analyzed the labor union opposition to the presses. After 
the audit was completed, the IG noted that demand for currency 
increased, and the least expensive option would be for BEP to install 
the presses in the Washington, D.C., facility. The IG recommended that 
the BEP Director improve its evaluations of equipment needs, perform 
pilot studies before making major manufacturing operations changes, 
better protect the stored equipment, and reconsider where to use the 
presses. In response to the report, BEP established a capital 
investment committee to evaluate equipment requirements and justify the 
need for future equipment; agreed to perform pilot studies, when 
applicable; and installed the presses in the Washington, D.C., 
facility. The IG concurred with BEP's actions.

Reporting Plans and Results to Congress:

We used two performance indicators to measure the adequacy of Mint and 
BEP reporting to Congress: (1) Were congressional staff satisfied with 
the reporting by Mint and BEP? and 2) Have the Mint and BEP submitted 
all required reports for the last 5 years? We also reviewed problems 
that were identified in congressional hearings regarding the Mint's 
reporting of the advertising campaign for the new dollar coin and in 
the independent auditors' reports for the Mint's 1998 to 2002 financial 
statements.

We interviewed six current and former congressional committee staff 
involved with coin and currency matters on their satisfaction with 
reporting done by the Mint and BEP. In general, staff were satisfied 
with BEP's reporting of budget and program information, but some said 
the Mint had not provided timely information on significant programs 
and activities in the past. An example cited was the Mint's failure to 
give Congress advance notice of closing the Philadelphia Mint in 
February 2002 for repairs. However, the staff also stated that the 
Mint's reporting had improved in the last 2 years under the new 
Director of the Mint.

The Mint and BEP are both required to disclose the results of their 
operations in a number of reports to Congress and have done so. For 
example, they are required to estimate costs and revenues in the 
Treasury budget submissions annually and to issue financial statements 
that are subsequently audited. The Mint and BEP have historically 
prepared financial statements that comply with generally accepted 
accounting principles set forth by the Financial Accounting Standards 
Board, the body that sets accounting standards for private sector 
entities. The Federal Accounting Standards Advisory Board, which sets 
accounting standards for federal entities, has stated that federal 
government corporations and certain other federal entities, such as the 
Mint and BEP, can continue to follow the Financial Accounting Standards 
Board guidance.

When Congress established the Mint's Public Enterprise Fund in 1996 and 
exempted the Mint from government procurement rules, the House 
Appropriations Committee noted that Congress was not abdicating its 
oversight of Mint operations. The committee report stated that the Mint 
was required to submit quarterly reports on the implementation of the 
fund and its impact on operations.[Footnote 16] The law stated that the 
Mint was required to provide an annual report on the amounts it 
transferred to Treasury for deposit as miscellaneous receipts, a 
statement of the amount in the fund that exceeds the estimated 
operating costs for the following year, and an explanation of the 
specific purposes for which amounts were being retained.[Footnote 17] 
In explaining this requirement, the House report accompanying the 
legislation did not refer to the following year and stated that the 
report submitted to Congress shall include an explanation of the 
specific purposes for which the excess amounts in the fund shall be 
used.[Footnote 18] Mint officials said the annual reports required by 
the act have not been filed separately, but the information is provided 
in the Mint's annual reports on operations and that any seigniorage 
collected that was not transferred to Treasury was retained for future 
operational costs. In reviewing the annual Mint reports, we noted they 
included the amount of seigniorage collected and the amount that was 
transferred to Treasury, but they did not include information on how 
retained amounts will specifically be used. Mint officials agreed that 
the total amount of seigniorage collected could be better reconciled 
with how seigniorage was used.

The annual Mint and BEP reports also include opinions on their 
financial statements from their independent auditors and reports on 
their internal controls and compliance with laws and regulations. The 
Mint and BEP both issued annual reports containing financial statements 
for fiscal years 1998 through 2002, and both received unqualified 
(clean) audit opinions from their independent auditors. The reports for 
all 5 years contained the auditors' reports on internal controls and 
compliance with laws and regulations for the Mint and BEP. BEP audit 
reports had no reportable conditions[Footnote 19] and no reported 
instances of noncompliance with laws and regulations. The Mint, 
however, had one reportable condition of internal controls in the 1998, 
1999, and 2000 audit reports and three reportable conditions in the 
2001 and 2002 reports. Most of the reported problems at the Mint dealt 
with various information system controls, such as inadequate disaster 
recovery plans, inadequate access controls, unclear definitions of 
business processes, and inadequate system documentation. In addition, 
because of these internal control weaknesses, the independent auditor 
reported that the Mint did not comply with Office of Management and 
Budget (OMB) circulars on federal financial management in 1998, 2001, 
and 2002. Mint officials said they have taken action to correct each of 
the reported weaknesses and believe they were all mitigated by the end 
of fiscal year 2003. The Mint provided copies of directives, 
procedures, risk assessments, and other documentation of actions it has 
taken or started that, if effectively implemented, should address the 
problems that have been reported. The Mint also provided a copy of the 
independent auditor's report for the fiscal year 2003 audit that stated 
no material internal control weaknesses were found.

As we reported in September 2002,[Footnote 20] the act that authorized 
the new dollar coin required Treasury to report to Congress by March 
31, 2001, on the progress of the new dollar coin marketing program. The 
Mint submitted a report to Congress on March 30, 2001. In reports 
accompanying the 2002 Treasury and general government appropriations 
bill, the Senate and House Committees on Appropriations expressed 
concern that the Mint's 2001 report to Congress did not adequately 
describe the nature and extent to which the new dollar coin was being 
used. The House report directed the Mint to submit a new report by 
March 31, 2002. In addition, the Senate report accompanying the 2002 
Treasury appropriations expressed concern that the committee had not 
received information on the contracts and agreements between the Mint 
and others mentioned in the Mint's 2001 report. The Mint submitted its 
second report on March 29, 2002. We reported that the 2002 report gave 
much more information on the marketing efforts for the dollar coin and 
the barriers to increasing use of the new coin that the 2001 report had 
failed to provide, but the 2002 report did not address what would be 
done to overcome the barriers or how efforts to overcome the barriers 
would affect circulation. Mint officials said that they had contracted 
for a study of the barriers to the dollar coin and expected the study 
to be done later this year. We reviewed the Mint's budget submission 
for fiscal year 2004 and saw that no expenditures were planned for 
promoting the dollar coin that year, consistent with our prior 
recommendation.

Conclusions:

Although revenues associated with the issuance of coins and currency 
reduce the amount of borrowing from the public to finance government 
operations, the budgetary and accounting treatment of the revenues 
differs. The issuance of coins results in an avoidance of government 
borrowing, but the amount of borrowing displaced by coins and the 
interest avoided through reduced borrowings are not quantified or 
visible in the federal budget. In contrast, the issuance of currency 
results in the Fed holding securities that would otherwise be held by 
the public. The amount of interest paid to the Fed, and subsequently 
returned by the Fed to Treasury, is quantified and visible in the 
budget. The net effect on the budget of the treatment of costs and 
revenues associated with the issuance of either coins or currency is 
basically the same.

The Mint and BEP have generally taken action to address the operational 
problems identified in the past few years by Treasury's Inspector 
General and others. The exception is the requirement that the Mint 
report each year on the specific purposes for which seigniorage 
retained will be used. Congress intended for the Mint to report this 
information when it established the Mint's Public Enterprise Fund in 
1995 and did not receive all of the required information until 2004. We 
believe the Mint should report this information each year in its annual 
report to Congress on operations.

Recommendation for Executive Action:

To comply with the purpose of the reporting requirement of the Public 
Enterprise Fund, we recommend that the Secretary of the Treasury ensure 
that the Director of the Mint identifies whether amounts are being 
retained in excess of the estimated operating costs of the following 
year and, if so, explains how they will be used in reports to Congress 
each year.

Agency Comments:

We provided a draft of this report to the Secretary of the Treasury and 
to the Chairman of the Federal Reserve Board for their review and 
comment. We received written comments, reproduced in appendix III, from 
the Acting Chief Financial Officer of the Department of the Treasury. 
We also received technical comments from the Director of Reserve Bank 
Operations and Payment Systems of the Federal Reserve, which we 
incorporated, where appropriate.

The Treasury Department stated that the Mint generally agreed with the 
information in the report related to the budgetary, accounting, and 
reporting treatment for coins and currency and expressed appreciation 
for the report's discussion of its operational improvements. With 
respect to our recommendation, the Mint started providing additional 
information in its first quarter report for fiscal year 2004 on the 
Public Enterprise Fund. We reviewed that report and agreed that it 
responded to our recommendation to provide a more complete explanation 
of specific purposes for which retained earnings will be used by the 
Mint. The Treasury official also stated that the law only required a 
report on the amount of funds retained that exceeded the following 
year's estimated operating costs. We revised the report to be more 
clear as to the law's requirements and added the legislative history 
that does not refer to the following year's estimated operating costs. 
We also revised our recommendation to reflect this. The Treasury 
official also provided some clarifying language from BEP that we 
included in this report.

:

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Banking, Housing, and Urban 
Affairs and the House Committee on Financial Services; the Chairman of 
the Board of Governors of the Federal Reserve System; the Secretary of 
the Treasury; the Directors of OMB, the Mint and BEP; and other 
interested parties. We will also make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at [Hyperlink, http://www.gao.gov].

Major contributors to this report were John Baldwin, Christine Bonham, 
Tonnye Conner-White, Brad Dubbs, Fred Lyles, Susan Michal-Smith, Jose 
Oyola, Paula Rascona, and Kathleen Scholl. If you have any questions, 
please contact me at (202) 512-2834 or at [Hyperlink, ungarb@gao.gov].

Signed by: 

Bernard L. Ungar, Director:

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology:

To better understand how the nation's coins and currency are produced 
and issued, we reviewed (1) how the production costs of and earnings 
from coin and currency are budgeted and accounted for and (2) whether 
there are any operational problems at the Mint and BEP needing further 
action.

To determine how production costs and earnings from coin and currency 
are budgeted and accounted for, we reviewed the history of coins and 
currency in the United States and the agencies involved in producing 
and distributing coins and currency; legislation and accompanying 
hearings and reports concerning coins and currency; the U.S. budget for 
the last 5 years; financial reports of the Fed; the consolidated 
financial statements of the Department of the Treasury for the last 5 
years; annual reports for the last 5 years issued by the Federal 
Reserve System (Fed), the Mint and the Bureau of Engraving and Printing 
(BEP); accounting guidance issued by the Financial Accounting Standards 
Board and the Federal Accounting Standards Advisory Board; and 
budgeting guidance issued by the Office of Management and Budget (OMB). 
We traced the transactional flows of the budgetary and accounting 
treatment for coins and currency issuance through the 2002 U.S. budget 
and Treasury's consolidated financial statements. We interviewed 
officials at the Fed, OMB, Treasury, BEP, and the Mint.

To determine whether any operational problems at the Mint and BEP 
warrant further action, we agreed with your staffs to concentrate our 
work in the following operational areas: forecasting demand for coins 
and currency, monitoring production costs, contracting for goods and 
services, acquiring property and equipment, and reporting operational 
plans and results to Congress. For each operational area, we obtained 
and reviewed relevant GAO, Treasury Inspector General, Treasury Office 
of Procurement, financial audit, and other reports to Congress. Because 
we did not have the resources to extensively review all areas, we also 
selected commonly used measures of performance and obtained information 
from BEP and the Mint to determine how they performed for each measure. 
In selecting the performance measures, we judgmentally selected 
indicators that would generally address the cost/efficiency, quality/
effectiveness, customer satisfaction, and financial reporting. For 
example, in contracting, we selected as performance measures the 
agencies' use of competition for major acquisitions and how they 
determined that the prices paid were fair and reasonable. Because of 
resource constraints, we used judgmental samples for some of the 
measures. For forecasting demand, we selected a 5-year period to 
determine if there were any coins or currency shortages. We selected 5 
years as the period to review for monitoring production costs. For 
contracting, we looked at the 10 largest procurements made by the Mint 
and BEP during the last 3 years. We looked at property and equipment 
purchases made over the last 7 years that individually cost over $1 
million. For reporting to Congress, we selected reports issued in the 
last 5 years.

In determining how the Mint and BEP performed for the indicators, we 
obtained and reviewed documents from the Mint, BEP, and the Fed 
regarding coin and currency orders and deliveries, models used to 
forecast demand, cost accounting reports, procurement solicitations, 
justifications for sole-source contracts, cost and price analysis, 
lease agreements, annual performance reports for the Mint and BEP, and 
audit reports of Mint and BEP financial statements. We analyzed the 
documentation to determine how the Mint and BEP performed for each of 
the measures and to determine the possible causes. We discussed the 
performance of the Mint and BEP measures with BEP, Mint, Fed, Treasury, 
and OMB officials.

We performed our work in accordance with generally accepted government 
auditing standards from September 2002 through March 2004 in 
Washington, D.C.

[End of section]

Appendix II: History of Money in the United States:

Money came about to replace bartering in the buying and selling of 
goods and services. Money serves as a convenient way to exchange goods 
and services by creating a medium of exchange, establishing a common 
unit of account, and creating a store of value that allows transactions 
to be deferred into the future. Money is what people will accept to 
carry out these functions.

Before the United States declared its independence from Great Britain 
in 1776, the United States followed the British monetary system. 
British money, as a medium of exchange, was scarce, and the individual 
colonies began to issue their own currency. Public warehouses in some 
of the colonies issued certificates representing that a specified 
amount and quality of commodities, such as tobacco, had been weighed 
and graded. These certificates, as well as certificates for other 
commodities, circulated from hand to hand. These bearer certificates 
were an early form of paper money and avoided the need for each owner 
to sign over a note for the payment of debts. The commodity backing the 
certificates became a reserve currency that did not pass from hand to 
hand, but could be delivered on demand if required. The colonies tried 
a variety of paper money arrangements, but in many cases the paper 
money was a promise to pay in coin at a future date or was backed by 
land. Also, foreign coins were used. In 1764, the British completely 
banned paper money in the colonies because some colonies had issued 
excessive quantities of paper money, which caused inflation. The 
constitutional struggle between Britain and the colonies over the right 
to issue paper money was a factor in provoking the American Revolution. 
To finance the Revolutionary War, the Continental Congress issued paper 
continental dollars, as well as some coins. The continental dollar, as 
well as paper money issued by the colonies, depreciated rapidly during 
the war.

Although under the Constitution the federal government has the 
exclusive right to issue coins,[Footnote 21] most money used until the 
Civil War was in the form of paper promissory notes, known as 
banknotes, issued by private banks that were chartered by the states. 
Banknotes were generally issued in a bearer form, promising to pay to 
the holder gold or silver on demand. Individuals with surplus stocks of 
gold deposited, or lent, their commodity to banks, which paid interest. 
Banks created both assets and liabilities by creating and issuing 
bearer notes, or money, to borrowers, who in turn issued interest-
bearing notes back to the bank in the form of a loan agreement. For the 
bank, the notes became a liability and the loan agreement an asset. 
Generally, banks were allowed to create paper money on their physical 
reserve of about 5 times greater than they actually possessed. 
Therefore, the total amount of money in the system became much larger 
than the gold used for monetary purposes.

The banknotes were supposed to be convertible, on demand, to gold or 
silver. State bank examiners were to assure and certify that banks had 
enough gold or silver on hand to redeem their outstanding currency. 
However, this was not always done and many banknote holders found 
themselves stuck with worthless paper. Each state-chartered bank could 
issue currency with its own design. Because designs were not consistent 
and there was no central control over the issuance of currency, 
counterfeiters saw opportunities to deceive the public. By 1860, as 
much as one-third of currency in circulation may have been counterfeit, 
leading to the creation of the U.S. Secret Service.

Partly because of the counterfeit problem and partly to obtain 
financing, four different laws were enacted during the Civil War: (1) 
an 1862 act establishing Treasury notes, (2) an 1863 National Banking 
Act, (3) an 1864 National Banking Act, and (4) an 1865 act imposing a 
10 percent tax on state banknote issues. The 1862 act authorized the 
Treasury to issue currency notes in such form as the Secretary 
directed; the notes were printed in green ink and commonly referred to 
as greenbacks. Greenbacks were not backed by gold or silver but by the 
federal government, which put the U.S. on a fiat monetary standard.

The 1863 National Bank Act established a system of federally chartered 
national banks, each of which was given the power to issue standardized 
national banknotes secured by the deposit of United States bonds. It 
also established the Comptroller of the Currency, whose job was to 
supervise the new banking system through regulations and periodic bank 
examinations. For each $90 of notes they issued, national banks were 
required to purchase $100 in government bonds to be deposited for 
safekeeping. In contrast to the banknotes issued by the private banks 
supervised by the states, the national banknotes were uniform in 
design.

The 1864 National Banking Act required banks to hold reserves of gold 
or, in some cases, deposits at other banks as a fraction of their 
liabilities. Government bonds continued to be required to back note 
issues.

The 1865 act imposed a 10 percent tax on state-chartered banknotes and 
assured that state banks could no longer deprive the federal government 
of potential revenues from bond sales to federally chartered banks. 
However, checking accounts were developed around this period, 
substantially reducing the need for banknotes and allowing to a great 
extent the state-chartered banks to avoid the banknote tax.

By 1866, the U.S. currency supply consisted of legal tender money 
issued by the federal government in the form of greenbacks and 
banknotes issued by national banks and secured by U.S. government 
bonds. From the Civil War to 1879, Congress made greenbacks and 
national banknotes redeemable in gold and silver coin. The Coinage Act 
of 1873 set the terms of convertibility and moved the U.S. from a 
bimetallic (gold and silver) standard to a gold standard. Another type 
of paper currency, the silver certificate, was authorized in 1878 when 
the country's economy was booming and the demand for silver coins in 
daily business surpassed the supply. A silver certificate certified to 
the holder that there was a specified amount of silver on deposit in 
the United States Treasury that would be paid to the bearer of the bill 
on demand.

In 1913, the Federal Reserve Act established the Federal Reserve Board 
of Governors, as well as Federal Reserve banks as the nation's central 
bank and gave the Fed authority to issue Federal Reserve notes as 
currency for the United States. National banks became members and 
shareholders of the Federal Reserve System.[Footnote 22] At that time, 
the law stipulated that Federal Reserve notes were obligations of the 
United States and were redeemable in gold on demand at the Treasury 
Department, or in gold or lawful money at any Federal Reserve bank. 
Initially, Federal Reserve notes were not legal tender in private 
debts. The Federal Reserve banks were required to maintain reserves in 
gold of not less than 40 percent of Federal Reserve notes in 
circulation.[Footnote 23] Today, each Federal Reserve bank must hold 
collateral equal to at least 100 percent of the value of the currency 
it issues. The reserve banks back up the notes primarily with Treasury 
securities. Therefore, the Fed issues noninterest bearing obligations 
(currency) and uses the proceeds to acquire interest-bearing assets.

Before the Federal Reserve Act was passed, currency in circulation 
could not always accommodate changes in demand that arose from changes 
in seasonal and cyclical factors and periods of financial crisis. For 
example, in the economic panic of 1907, national banks were not able to 
issue more currency because they were not able to obtain further bonds 
until the government issued more bonds tied to the backing of the 
currency, but the Treasury at the time had a surplus of currency and 
did not need to borrow money. The Federal Reserve Act remedied this 
problem by mandating an elastic currency that would expand and contract 
based on public demand. As public demand changed, depository 
institutions would either order currency from or deposit surplus 
currency with the Federal Reserve banks.

In 1920, Federal Reserve notes constituted about half of the currency 
in circulation. The other half was made up of gold certificates and 
national banknotes (which were retired in the 1930s), silver 
certificates (which were retired in the 1960s), and U.S. notes (which 
were last produced in 1971). Since 1971, the Federal Reserve has been 
the sole note-issuing authority in the United States.

During the 19th century, many countries introduced laws to regulate the 
activities of commercial banks and restrict some of their freedoms due 
to bank panics and failures. The appearance of government-issued 
banknotes reflects these changes.

The National Emergency Banking Act of 1933 declared that Federal 
Reserve notes were to be considered legal tender for all public and 
private debts. The dollar was no longer tied to any commodity, such as 
gold. In 1934, the Gold Reserve Act stipulated that all gold coin be 
withdrawn from circulation and formed into gold bars. The Coinage Act 
of 1965 restated earlier legislation making all coins and currencies of 
the U.S., regardless of when coined or issued, legal tender for all 
debts, public and private, public charges, taxes, duties, and dues. The 
law was intended to eliminate silver as a component of our coinage 
system. In 1971, the federal government stopped supplying gold to 
foreign central banks, and in 1973 the U.S. officially abandoned the 
gold standard.

[End of section]

Appendix III: Comments from the Department of the Treasury:

DEPARTMENT OF THE TREASURY WASHINGTON, D.C. 20220:

MAR 18 2004:

Mr. Bernard L. Unger:

Director, Physical Infrastructure Issues 
U.S. General Accounting Office:

441 G Street, N.W. 
Washington, D.C. 20548:

Dear Mr. Unger:

The Department of the Treasury has received for comment a copy of the 
draft report (GAO-04-283), entitled, "Coins and Currency: How the Costs 
and Earnings Associated with Producing Coins and Currency Are Budgeted 
and Accounted For." We circulated your report to the United States Mint 
(Mint) and the Bureau of Engraving and Printing (BEP) for their 
comments. The following comments are forwarded for your consideration.

In addition to comparing how coins and currency are budgeted and 
accounted for, the GAO was asked to report on operational problems that 
were identified in Congressional hearings, Treasury Office of Inspector 
General audits, and other reports. The Mint has made improvements to 
address these operational problems, and appreciates that the GAO 
reported on many of these improvements in its draft audit. For example, 
the GAO report credits the Mint with developing new procedures for 
goods and services contracting, and reports that the Mint subsequently 
received Treasury confirmation that the contracting issues mentioned in 
a December 2001 Acquisition Management Assistance Review had been 
addressed.

The report addresses difficulties the Mint had in forecasting demand 
for circulating coinage, and notes that the Mint was unable to fill 
some orders it received from the Federal Reserve from August 1999 to 
February 2000. The report correctly states that, while some individual 
orders could not be filled, this was because of distribution 
difficulties and supply imbalances. In an effort to improve coin 
forecasting and ordering, the Mint and the Federal Reserve have 
implemented new statistical long-range and short-range forecasting 
models. The Mint is also working with the Federal Reserve to 
consolidate coin orders, and to facilitate interbank transfers and 
system efficiency.

The report indicates that excess space was acquired by the Mint for its 
Headquarters facility, as reported by the Treasury Office of Inspector 
General within a March 2002 report. Even before the March 2002 report, 
the United States Mint had begun efforts to recoup its leasing costs by 
aggressively marketing the excess space to other Government agencies. 
Since then, a significant amount of the excess space has been subleased 
to two agencies, and the Mint is in the process of subleasing 
additional space to two other agencies. No permanent excess office 
space will exist at its Headquarters once the planned moves are 
completed.

Increased costs per thousand coins are reported for Fiscal Years 1998 
through 2002. As the report indicates, increased costs reflected the 
purchase of new machinery and equipment in response to increased coin 
demand and the resulting increased depreciation costs. Increased demand 
was fueled in part by the introduction of the 50 State Quarters  
program and the Golden Dollar.

As indicated above, the Mint appreciates that the GAO incorporated the 
information they provided on operational improvements into the 
"Operational Problems" section of the draft report. The Mint generally 
agrees with the information contained in the other section of the 
report, which discusses budgeting, accounting, and reporting on coin 
and currency expenses. However, the Mint would like to comment on the 
recommendation to report planned usage of excess earnings.

The legislation that established the Mint's nonappropriated revolving 
fund (Public Enterprise Fund - PEF) requires that certain information 
be reported to Congress. The Mint reports this information in its 
Annual Report to Congress and in its annual budget submissions. The 
Mint thought that this reporting was sufficient to meet the intent of 
the legislation and, until issuance of the GAO's report, had not heard 
otherwise from Congressional recipients of these documents. However, in 
order to be more responsive to the reporting requirement cited by the 
GAO, the Mint started providing this information in the PEF report, 
beginning with the first quarter FY 2004 report. It should be noted, 
however, that the GAO is recommending that the Mint provide information 
on the specific purposes for which retained amounts of earnings will be 
used. The PEF legislation requires reporting if earnings are retained 
that exceed the following year's estimated operating costs (i.e., "the 
amount on deposit in the PEF at the end of the period covered by the 
report exceeds the estimated operating costs of the PEF for the 1-year 
period beginning at the end of such period"). 31 U.S.C.  
5134(c)(5)(B)(ii). In prior years, the Mint retained some earnings, but 
these earnings were retained to cover the following year's anticipated 
operating costs, including existing and contingent liabilities. The 
Mint understands that they did not constitute amounts on deposit that 
exceeded the agency's estimated operating costs. Thus, the Mint 
believes the reporting requirement is being fulfilled.

In addition, the Bureau of Engraving and Printing (BEP) offers the 
following changes to clarify your report:

Page 24. Third paragraph, line 8, sentence beginning with "The BEP" and 
forward to page 25 should be revised to read as follows. The changes 
are bold and underlined.

The BEP provided data showing that 16 areas were identified for public-
private competition review from 1999 to 2003 and, as of February 12, 
2004, 13 studies were completed and 3 were in progress. Of the 13 
completed studies, 11 resulted in 115 full-time equivalents (FTE's) 
going to private-sector sources and 2 resulted in 40 FTE's remaining 
in-house. Operations that went to private-sector sources included tour 
operations, personnel administrative support, law enforcement support 
services, and pest control.

Thank you for the opportunity to respond to this draft GAO report. If 
you have any questions or wish to discuss these comments further, 
please contact Tom Moschetto (Mint, Assistant Director for Management 
Services) at (202) 772-7705 or Gregory Boutin (BEP, Chief - Office of 
Management Control) at (202) 874-2097.

Sincerely,

Signed by: 

Barry K. Hudson:

Acting Chief Financial Officer: 

[End of section]

(543025):

FOOTNOTES

[1] The Treasury Cash room in Washington, D.C., and the Puerto Rico 
Cash Depot, however, continued to distribute currency until the mid-
1970s.

[2] Article 1, Section 8, Clause 5; and Article 1, Section 10, Clause 
1.

[3] The Federal Reserve System buys and sells securities in the course 
of implementing monetary policy. The Federal Reserve's purchase and 
sale of Treasury securities are influenced by, among other things, 
increases and decreases in currency in circulation. In particular, as 
more currency is placed into circulation, reserves are drained from the 
banking system as depository institutions pay for the additional notes. 
The Federal Reserve increases its holdings of Treasury securities to 
offset this drain on reserves.

[4] The Mint's revolving fund is set forth at 31 U.S.C. 5136, and BEP's 
revolving fund is set forth at 31 U.S.C. 5142.

[5] Because it is not considered a receipt, seigniorage is not counted, 
or scored by the Congressional Budget Office or the Office of 
Management and Budget, for purposes of determining the budgetary 
effects of legislation.

[6] Because the interest payments from the Fed are considered receipts, 
they are scored by the Congressional Budget Office and the Office of 
Management and Budget when determining the budgetary effects of 
legislation.

[7] The Mint shows the earnings from circulating coins, by 
denomination, in its annual reports as a supplementary schedule.

[8] U.S. Department of the Treasury, Office of Inspector General, 
Manufacturing Operations: The Mint Suspends Its FY 2002 Planned 
Production of Golden Dollar Coins, OIG-02-066 (Washington, D.C.; March 
19, 2002).

[9] We excluded materials costs because they are generally not 
controlled by the Mint or BEP.

[10] U.S. Department of the Treasury, Office of Inspector General, 
Review of the Results Act Implementation through the Consolidated 
Information System at the United States Mint, OIG-00-123 (Washington, 
D.C.; Sept. 15, 2000).

[11] Note production was 7 billion in 2002 and 9.1 billion in 1998, a 
decrease of 23.2 percent.

[12] U.S. Department of the Treasury, Office of Procurement, 
Acquisition Management Assistance Review (AMAR) Report: U.S. Mint, 
AMAR-02-01-Mint (Washington, D.C.; Dec. 10, 2001).

[13] U.S. General Accounting Office, Currency Paper Procurement: 
Meaningful Competition Unlikely under Current Conditions, GAO/GGD-98-
181 (Washington, D.C.: Aug. 28, 1998).

[14] In commenting on a draft of this report, Treasury said that no 
permanent excess office space would exist once existing planned moves 
are complete.

[15] U.S. Department of the Treasury, Office of Inspector General, The 
Bureau of Engraving and Printing Placed $43 Million of New Equipment in 
Storage, OIG-99-091 (Washington, D.C.; June 9, 1999).

[16] H.R. Rep. No. 104-183, at 24 (1995).

[17] 31 U.S.C. 5134 (c) (4).

[18] H.R. Rep. No. 104-183, at 24 (1995).

[19] Reportable conditions are matters coming to the auditor's 
attention that, in the auditor's judgment, should be communicated 
because they represent significant deficiencies in the design or 
operation of internal control that could adversely affect the entity's 
ability to record, process, summarize, and report financial data 
consistent with the assertions by management in the financial 
statements.

[20] U.S. General Accounting Office, New Dollar Coin: Marketing 
Campaign Raised Public Awareness but Not Widespread Use, GAO-02-896 
(Washington, D.C.: Sept. 13, 2002).

[21] Article 1, Section 8, Clause 5.

[22] State-chartered banks may become members and shareholders at the 
discretion of the Fed.

[23] The reserve requirement for gold was reduced to 25 percent in 
1945.

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