a

GAO

United States General Accounting Office

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
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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 

April 2004

COINS AND CURRENCY 

How the Costs and Earnings Associated 

with Producing Coins and Currency Are 

Budgeted and Accounted For 

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 Treasury’s financial statements. According to the Federal 

Accounting Standards Advisory Board, seigniorage should be shown as a 

source of financing in Treasury’s statement of changes in net position, 

whereas interest returned by the Fed for currency is shown as revenue in 

Treasury’s 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 

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. 

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 Treasury’s comments, GAO 

revised its recommendation. 
Page i GAO-04-283 Coins and Currency

Contents

Letter 1

Results in Brief 2

Background 3

Budgeting and Accounting for the Costs of Production and Earnings 

from Coins and Currency Are Different 10

Operational Problems Identified at the Mint and BEP 15

Conclusions 28

Recommendation for Executive Action 29

Agency Comments 29

Appendixes

Appendix I: Objectives, Scope, and Methodology 31

Appendix II: History of Money in the United States 33

Appendix III: Comments from the Department of the Treasury 37

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

and Currency 6

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

through 2002 7

Table 3: Seigniorage Transferred and Interest Earnings Returned 

from the Fed for Currency, Fiscal Years 1998 through

2002 14

Table 4: Summary of Budgeting and Accounting for Coin and 

Currency Production and Issuance 15

Figures Figure 1: Mint’s Coin Production for Fiscal Years 1998 through 

2002 8

Figure 2: BEP Currency Production for Fiscal Years 1998 through 

2002 9
Contents

Page ii GAO-04-283 Coins and Currency

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

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Page 1 GAO-04-283 Coins and Currency

United States General Accounting Office

Washington, D.C. 20548

A

April 23, 2004 Letr

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 
Page 2 GAO-04-283 Coins and Currency

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. 
Page 3 GAO-04-283 Coins and Currency

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.1

 The Mint produces coins to meet public 

demand, and the BEP produces currency that the Fed orders. A more 

1

The Treasury Cash room in Washington, D.C., and the Puerto Rico Cash Depot, however, 

continued to distribute currency until the mid-1970s.
Page 4 GAO-04-283 Coins and Currency

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.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 

2

Article 1, Section 8, Clause 5; and Article 1, Section 10, Clause 1.
Page 5 GAO-04-283 Coins and Currency

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.
Page 6 GAO-04-283 Coins and Currency

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

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

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.

Coin Currency

Issuer Treasury Fed

Producer Mint BEP

Distributor Fed Fed

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

Face value goes to Mint Fed

Production costs paid by Treasury (which receives 

face value of coins from the 

Fed)

Fed
Page 7 GAO-04-283 Coins and Currency

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

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.

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.

Dollars in millions (current year dollars)

Fiscal year 

1998 1999 2000 2001 2002

Coins

Face value of circulating 

coins produced $923 $1,455 $3,220 $2,021 $1,364

Number of circulating 

coins shipped to the Fed 16,645 20,374 27,187 23,224 14,962

Mint’s cost of producing 

circulating coins $330 $421 $697 $564 $436

Fed’s costs of processing 

coinsa $32 $24 $25 $25 $30

Currencyb

Face value of Federal 

Reserve notes produced $173,930 $285,490 $67,460 $45,740 $103,520

Number of notes 

produced 9,200 11,357 9,030 7,005 7,005

BEP’s cost of producing 

currency $370 $501 $409 $327 $384

Fed’s costs of processing 

currencyc $261 $287 $304 $330 $342
Page 8 GAO-04-283 Coins and Currency

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

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. 

Dollar

Half Dollar

Quarter

Dime

Nickel

Penny

Source: U.S. Mint.

Coin denominations

Billions of coins

Fiscal year

0

5

10

15

20

1998 1999 2000 2001 2002
Page 9 GAO-04-283 Coins and Currency

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

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. 

$100

$50

$20

$10

$5

$1

Source: BEP.

Note denominations

Fiscal year

0

1

2

3

4

5

1998 1999 2000 2001 2002

Billions of notes
Page 10 GAO-04-283 Coins and Currency

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.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.

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.
Page 11 GAO-04-283 Coins and Currency

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 

funds4

 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 

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.
Page 12 GAO-04-283 Coins and Currency

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.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.6

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.
Page 13 GAO-04-283 Coins and Currency

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. 
Page 14 GAO-04-283 Coins and Currency

Table 3: Seigniorage Transferred and Interest Earnings Returned from the Fed for 

Currency, Fiscal Years 1998 through 2002 

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.

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).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 

Dollars in millions

Fiscal year 

1998 1999 2000 2001 2002

Seigniorage from the Mint 

transferred to Treasury $562 $1,020a $2,280b $1,380 $1,000

Interest earnings returned 

to Treasury from the Fed 

for open market 

operationsc $26,561 $25,410 $25,344 $27,089 $24,495

7

The Mint shows the earnings from circulating coins, by denomination, in its annual reports 

as a supplementary schedule.
Page 15 GAO-04-283 Coins and Currency

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

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

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 

Coin Currency

Budgeting

Production costs 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. 

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.

Issuance/earnings 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.

Fed interest earnings paid to the Treasury 

are treated as a budgetary receipt.

Accounting

Production costs Treasury shows production costs in the net 

cost of operations and a decrease in the net 

position (equity) of Treasury.

Treasury shows production costs in the net 

cost of operations and a decrease in the net 

position (equity) of Treasury.

Issuance/earnings Seigniorage is shown as a source of funding 

in Treasury’s consolidated net position.

Interest earnings exceeding Fed operating 

expenses that are returned by the Fed are 

reported as revenue in Treasury’s Statement 

of Custodial Activity.
Page 16 GAO-04-283 Coins and Currency

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.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 

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).
Page 17 GAO-04-283 Coins and Currency

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.
Page 18 GAO-04-283 Coins and Currency

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 nonmaterials9

 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.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 2002.11 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).

9

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

10U.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).

11Note production was 7 billion in 2002 and 9.1 billion in 1998, a decrease of 23.2 percent.
Page 19 GAO-04-283 Coins and Currency

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 activitybased costing will be operational next year. 
Page 20 GAO-04-283 Coins and Currency

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 system12 and our 1998 report on BEP’s procurement of 

currency paper.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 

12U.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).

13U.S. General Accounting Office, Currency Paper Procurement: Meaningful Competition 

Unlikely under Current Conditions, GAO/GGD-98-181 (Washington, D.C.: Aug. 28, 1998).
Page 21 GAO-04-283 Coins and Currency

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 
Page 22 GAO-04-283 Coins and Currency

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 
Page 23 GAO-04-283 Coins and Currency

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.
Page 24 GAO-04-283 Coins and Currency

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.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.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, 

14In commenting on a draft of this report, Treasury said that no permanent excess office 

space would exist once existing planned moves are complete.

15U.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).
Page 25 GAO-04-283 Coins and Currency

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. 
Page 26 GAO-04-283 Coins and Currency

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.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.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.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.

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

1731 U.S.C. 5134 (c) (4).

18H.R. Rep. No. 104-183, at 24 (1995).
Page 27 GAO-04-283 Coins and Currency

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 

conditions19 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 2002,20 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 

19Reportable 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.

20U.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).
Page 28 GAO-04-283 Coins and Currency

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. 
Page 29 GAO-04-283 Coins and Currency

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 

http://www.gao.gov.
Page 30 GAO-04-283 Coins and Currency

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 ungarb@gao.gov.

Bernard L. Ungar

Director 
Page 31 GAO-04-283 Coins and Currency

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

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 
Appendix I

Objectives, Scope, and Methodology

Page 32 GAO-04-283 Coins and Currency

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.
Page 33 GAO-04-283 Coins and Currency

Appendix II

History of Money in the United States ApendxiI

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,1

 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. 

1

Article 1, Section 8, Clause 5.
Appendix II

History of Money in the United States

Page 34 GAO-04-283 Coins and Currency

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.
Appendix II

History of Money in the United States

Page 35 GAO-04-283 Coins and Currency

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 statechartered 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.2

 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.3

 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. 

2

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

3

The reserve requirement for gold was reduced to 25 percent in 1945.
Appendix II

History of Money in the United States

Page 36 GAO-04-283 Coins and Currency

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. 
Page 37 GAO-04-283 Coins and Currency

Appendix III

Comments from the Department of the 

Treasury ApendxiI
Appendix III

Comments from the Department of the 

Treasury

Page 38 GAO-04-283 Coins and Currency

Now on p. 21.
Appendix III

Comments from the Department of the 

Treasury

(543025) Page 39 GAO-04-283 Coins and Currency
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