U.S. CURRENCY

Actions Needed to 

Improve Coin Inventory 

Management

Statement of Lorelei St. James,

Director, Physical Infrastructure

Testimony 

Before the Subcommittee on

Monetary Policy and Trade, 

Committee on Financial Services,

House of Representatives

For Release on Delivery 

Expected at 11:30 a.m. ET

Wednesday, June 11, 2014.

GAO-14-601T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-601T, a testimony 

before the Subcommittee on Monetary Policy 

and Trade, Committee on Financial Services, 

House of Representatives

June 11, 2014

U.S. CURRENCY

Actions Needed to Improve Coin Inventory 

Management

Why GAO Did This Study

Efficiently managing the nation’s 

inventory of circulating coins helps to 

ensure that the coin supply meets the 

public’s demand while avoiding 

unnecessary production and storage 

costs. This testimony is based on 

GAO’s October 2013 report on the 

Federal Reserve’s management of the 

circulating-coin inventory. It addresses 

(1) how the Federal Reserve manages 

the circulating coin inventory and the 

related costs, (2) the extent to which 

the Federal Reserve follows key 

practices in managing the circulatingcoin inventory, and (3) actions taken to 

respond to potential changes in 

demand for currency (coins and notes).

What GAO Recommends

GAO’s October 2013 report included 

several recommendations to the 

Federal Reserve to ensure the efficient 

management of the coin inventory and 

potentially to reduce costs. These 

included recommendations (1) to

develop a process to assess factors 

influencing coin operations costs and 

identify practices that could lead to 

cost-savings and (2) to establish 

additional performance goals and 

metrics relevant to coin inventory 

management. The Federal Reserve 

generally agreed with the report’s 

recommendations and, in response, 

has developed a plan for addressing 

them.

What GAO Found

In 2009, the Federal Reserve centralized coin management across the 12 

Reserve Banks and established national inventory targets to track and measure 

the coin inventory. However, based on GAO’s analysis of Federal Reserve data, 

from 2008 to 2012, total annual Reserve Bank coin-management costs increased 

by 69 percent, and more specifically, costs at individual Reserve Banks 

increased at rates ranging from 36 percent to 116 percent. GAO found in October 

2013 that the Federal Reserve did not monitor coin management costs by each 

Reserve Bank—instead focusing on combined national coin and note costs—

thus missing potential opportunities to improve the cost-effectiveness of coinrelated operations. Furthermore, the agency had not taken steps to 

systematically assess factors influencing coin management costs and identify 

practices that could lead to cost savings. 

In managing the circulating-coin inventory, the Federal Reserve followed two of 

five key inventory management practices GAO identified and partially followed 

three. For example, the agency followed the key practice of collaboration 

because it has established multiple mechanisms for sharing information related 

to coin inventory management with partner entities such as depository 

institutions. The Federal Reserve partially followed the key practice of 

performance metrics, which involves identifying goals, establishing performance 

metrics, and measuring progress toward goals. While the Federal Reserve had 

developed some performance metrics of upper and lower national coin-inventory 

targets, it had not developed goals or metrics to measure other aspects of its 

coin supply-chain management, such as costs. Establishing goals and metrics, 

such as those related to coin management costs, could aid the Federal Reserve 

in using information and resources to identify additional efficiencies. 

To collect data and information on potential changes in the demand for currency 

(coins and notes), the Federal Reserve has conducted studies and outreach with 

groups such as depository institutions and merchants, and found a general 

consensus that the use of currency may decline slightly in the near term. This 

expectation is due, in part, to an increase in alternative payment options (e.g., 

additional forms of electronic payments), but interrelated factors—such as 

technological change and economic conditions—make it difficult to predict longterm currency demand. In 2010, the Federal Reserve began to develop a longterm strategic framework to consider potential changes to currency demand over 

the next 5 to 10 years and how this change could affect operations. This effort

includes, among other things, examining internal operations for distributing coins 

and processing notes as well as conducting research into the use of payment 

types to understand currency use in the United States to better position the 

agency to adapt to future changes in demand.

View GAO-14-601T. For more information, 

contact Lorelei St. James, (202) 512-2834, 

stjamesl@gao.gov.
Page 1 GAO-14-601T 

Chairman Campbell, Ranking Member Clay, and Members of the 

Subcommittee:

I am pleased to be here today to participate in this hearing that examines 

the Federal Reserve System’s management of the circulating coin 

inventory. Efficiently managing the nation’s inventory of circulating coins 

helps to ensure that the coin supply meets the public’s demand while 

avoiding unnecessary production and storage costs. The Federal 

Reserve System’s 12 Federal Reserve Banks (Reserve Banks) fulfill the 

coin demand of the nation’s depository institutions (e.g., commercial 

banks, federal savings associations, and credit unions) by managing 

coins held in inventory and ordering new coins from the United States 

Mint (U.S. Mint). In 2013, the U.S. Mint produced 10.7 billion coins.

According to the Department of the Treasury (Treasury), coins worth 

approximately $42.6 billion were in circulation at the end of fiscal year 

2012. The Federal Reserve System is comprised of a Board of Governors 

(Board) and the Reserve Banks, which are self-funded entities that 

engage in a variety of activities that generate revenue, such as earnings 

from lending to financial institutions. The costs of operating the Federal 

Reserve System are deducted from these revenues, and the remaining 

amount is transferred to the General Fund of the U.S. Treasury (General 

Fund). In 2012, the Federal Reserve System transferred $88.4 billion to 

the General Fund.

In October 2013, we issued a report on the Federal Reserve’s 

management of the circulating coin inventory and made several 

recommendations to the Federal Reserve to ensure the efficient 

management of the inventory and potentially to reduce costs.1 My 

statement today is based on that report and addresses (1) how the 

Federal Reserve manages the circulating-coin inventory and the related 

costs, (2) the extent to which the Federal Reserve follows key practices in 

managing the circulating-coin inventory, and (3) actions taken to respond 

to potential changes in demand for currency (coins and notes). For the 

October 2013 report, we interviewed federal and foreign officials, experts, 

and industry representatives; reviewed documents and data on coin 

inventories; and compared the Federal Reserve’s coin inventory 

management practices to key practices in supply-chain management. 

 1

GAO, U.S. Currency: Coin Inventory Management Needs Better Performance 

Information, GAO-14-110 (Washington, D.C.: Oct. 28, 2013).
Page 2 GAO-14-601T 

More detailed information on our objectives, scope, and methodology for 

that work can be found in the issued report. We conducted the work on 

which this statement is based in accordance with generally accepted 

government auditing standards. Those standards require that we plan 

and perform the audit to obtain sufficient, appropriate evidence to provide 

a reasonable basis for our findings and conclusions based on our audit 

objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives.

In 2009, the Federal Reserve centralized coin management across the 12 

Reserve Banks and established national inventory targets. Previously, 

each Reserve Bank office set and managed its own inventory levels, 

resulting in varying levels of inventory held relative to demand. Under the 

centralized approach, the Federal Reserve’s Cash Product Office (CPO) 

manages distribution of the coin inventory, orders new coins, and acts on 

behalf of the Reserve Banks in working with stakeholders, such as 

depository institutions. From 2008 through 2012, the combined inventory 

for pennies, nickels, dimes, and quarters decreased 43 percent, due, in 

part, to the centralized program.2 (See fig. 1.) In 2009, CPO also 

established national upper and lower inventory targets for pennies, 

nickels, dimes, and quarters to track and measure the coin inventory. 

CPO officials noted that these targets help meet their primary goal in 

managing the nation’s coin inventory: ensuring a sufficient supply of all 

coin denominations to meet the public’s demand. The upper nationalinventory target serves as a signal for CPO to reduce future coin orders 

from the U.S. Mint to avoid the risk of approaching coin-storage capacity 

 2

Our October 2013 report focused primarily on inventory management of pennies, nickels, 

dimes and quarters. Due to the December 2011 Treasury decision to cease production of 

new $1 coins for circulation, the Federal Reserve’s current management of the $1-coin 

inventory is focused on managing those $1 coins already in storage or circulation.

Inventory 

Management Has 

Been Centralized; 

Rising Costs Have 

Not Been Analyzed

Coin Inventory 

Management
Page 3 GAO-14-601T 

limits and the lower national-inventory target serves as a signal to CPO 

that there is a need to increase future coin orders to avoid shortages. We 

analyzed national inventory targets from 2009 to 2012 and found that in 

most cases these targets were met.

Figure 1: Reserve Bank Coin Inventory, 2008-2012

In managing the coin inventory, CPO determines if coins should be 

transferred from an area with more coins than needed to fulfill demand or 

if additional coins should be ordered from the U.S. Mint. If there is an 

insufficient supply of coins to meet demand and transferring coins from 

another location would not be cost-effective, CPO orders new coins from 

the U.S. Mint based on its 2-month rolling forecast of expected demand.

After submitting orders to the U.S. Mint, CPO may increase an order or 

defer shipments to later months based on updated information. In part to 
Page 4 GAO-14-601T 

respond to these changes, each month the U.S. Mint produces a safety 

stock of coins.3

Our analysis found that in 2012, Reserve Bank costs related to coin 

management were approximately $62 million.4 To monitor costs related to 

currency management, including coins as well as notes, CPO officials 

said they review these costs at the national level because individual 

Reserve Banks may vary in their accounting for operational costs related 

to coins and notes. In October 2013, we found that from 2008 through 

2012 total annual Reserve Bank currency-management costs increased 

by 23 percent at the national level.

While cost information for coins and notes is available separately, CPO 

does not separately monitor the Reserve Bank’s coin management costs. 

Looking specifically at coin management costs, which include direct and 

support costs, our analysis found that they increased by 69 percent from 

2008 through 2012. More specifically, Reserve Bank direct costs for coin 

management increased by 45 percent during this period, about $5 million 

across the 28 offices, and support costs increased by 80 percent, about 

$19.6 million across these offices. Direct costs include personnel and 

equipment. CPO officials attributed the increase in coin management 

costs mainly to support costs. Support costs include utilities, facilities, and 

information technology as well as other local and national support 

services such as CPO’s services.

Although Reserve Bank coin management costs have risen since 2008, 

we found in October 2013 that CPO had not taken steps to systematically 

assess factors influencing direct and support costs related to coin 

management and assess whether opportunities exist to identify elements 

of its coin inventory management that could lead to cost savings or 

greater efficiencies across the Reserve Banks. We also found that the 

rates of increasing coin management costs differ across Reserve Banks. 

Specifically, using data provided by CPO on individual Reserve Banks’

 3

Producing a safety stock helps the U.S. Mint respond to changes in monthly coin orders 

as well as seasonal changes in coin demand. If the safety stock is not applied to the 

current coin order, it can be used to fill future orders.

4

Reserve Bank costs include the CPO’s administration, coin handling, and interbank coin 

transfer costs. U.S. government costs related to coin management also include costs for 

the U.S. Mint’s production and distribution of new coins.

Coin Management Costs
Page 5 GAO-14-601T 

costs, from 2008 through 2012, coin management costs increased for all 

Reserve Banks, with the increases ranging from a low of 36 percent to a 

high of 116 percent. The Federal Reserve’s 2012–2015 strategic plan 

includes an objective to use financial resources efficiently and effectively.5

In addition, according to a leading professional association that provides 

guidance on internal controls, as part of the internal control process, 

management should ensure that operations, such as managing an 

inventory, are efficient and cost effective, and this process includes 

monitoring costs and using this information to make operational 

adjustments.6 Without taking steps to identify and share cost-effective 

coin management practices across Reserve Banks, the Federal Reserve 

may be missing opportunities to support more efficient and effective use 

of Reserve Bank resources. To address this issue, in our October 2013 

report we recommended that the Federal Reserve develop a process to 

assess the factors that have influenced increasing coin-operations costs 

and the large differences in costs across Reserve Banks and to use this 

information to identify practices that could lead to costs savings. We 

concluded that taking these actions may help the Federal Reserve 

identify ways to improve the cost-effectiveness of its coin management, 

potentially increasing the revenues that are available for the Federal 

Reserve System to transfer to the General Fund. The Federal Reserve 

generally agreed with the recommendations in our report, including the 

above recommendation as well as recommendations discussed below, 

and has developed a plan for addressing them. In response to the 

recommendations, the Federal Reserve also noted that it would define a 

new metric that measures the productivity of Reserve Bank coin 

operations and that will enable it to monitor coin costs and identify cost 

variations across Reserve Banks. We will continue to monitor the Federal 

Reserve’s progress in addressing our recommendations.

 5

Federal Reserve System, Strategic Framework 2012-15 (2013). 

6

Committee of Sponsoring Organizations of the Treadway Commission (COSO), Internal 

Control—Integrated Framework (1992). COSO is a joint initiative of five professional 

associations dedicated to providing thought leadership through the development of 

frameworks and guidance on enterprise risk management, internal control, and fraud 

deterrence.
Page 6 GAO-14-601T 

In October 2013, we found that the Federal Reserve, in managing the 

circulating-coin inventory, follows two of five key inventory management 

practices we identified and partially follows three. Establishing, 

documenting, and following these key practices contributes to a more 

effective inventory-management system.7 Specifically, the Federal 

Reserve follows key practices for collaboration and risk management and 

partially follows key practices for performance metrics, forecasting 

demand, and system optimization. For example, it follows the key practice 

of collaboration because it has established multiple mechanisms for 

sharing information related to coin inventory management with partner 

entities such as depository institutions. In addition, the Federal Reserve 

follows the risk management key practice because it has identified 

sources of potential disruptions, assessed the potential impact of risk, and 

developed plans to mitigate risk at multiple levels of its operations.

In the key practice area of performance metrics, we found that the 

Federal Reserve has developed some metrics in the form of upper and 

lower national coin-inventory targets. However, it has not developed other 

goals or metrics to measure other aspects of its coin supply-chain 

management—such as costs. Characteristics of this key practice include 

agencies’ identifying goals, establishing performance metrics, and 

measuring progress toward those goals. We concluded that establishing 

goals and metrics, such as those related to coin management costs, 

could aid the Federal Reserve in using information and resources to 

identify additional efficiencies. To address this issue, we recommended 

that CPO establish, document, and annually report to the Board 

performance goals and metrics for managing the circulating coin 

inventory and measure performance toward those goals and metrics. In 

its response, as noted previously, the Federal Reserve said that it 

planned to define a new metric that measures the productivity of the 

Reserve Bank’s coin operations and use this metric to monitor coin costs.

In the key practice area of forecasting demand, we found that the Federal 

Reserve forecasts future coin demand and uses this information to make 

decisions, but does not systematically track the accuracy of its monthly 

 7

To effectively manage inventory, private and governmental organizations involved in 

production and distribution operations use supply-chain and operations-management 

practices. We identified five key supply-chain practices and selected supporting 

characteristics for each that are applicable to coin inventory management to assess the 

Federal Reserve’s management of the circulating-coin inventory.

The Federal Reserve 

Follows Some

Key Practices in 

Managing the 

Circulating-Coin 

Inventory but Lacks 

Others
Page 7 GAO-14-601T 

forecasts compared to the final coin orders. Our analysis of initial monthly 

CPO coin orders and final orders (actual U.S. Mint coin shipments) from 

2009 through 2012 indicated that initial orders were consistently less than 

the final orders. A leading operations management industry association 

that offers professional certifications recommends that forecasting results 

must be continuously monitored and a mechanism should be in place to 

revise forecasting models as needed, and that if the forecast consistently 

exhibits a bias, the forecast should be adjusted to match the actual 

demand. We concluded that taking additional steps to assess forecast 

accuracy could help CPO identify the factors influencing forecast 

accuracy and then adjust forecasts to improve accuracy. To address this 

issue, we recommended that CPO establish and implement a process to 

assess the accuracy of forecasts for new coin orders and revise the 

forecasts as needed. In its response, the Federal Reserve reported that in 

addition to implementing a more formal program for assessing new coin 

order forecasts, CPO has begun working to refine the accuracy of its coin 

forecasts.

In the key practice area of system optimization, we found that CPO does 

not fully use available information and resources to optimize system 

efficiencies within the supply chain. Specifically, it does not use the range 

of information available to establish and track performance metrics to 

measure progress. Better information related to forecast accuracy and 

costs—such as the types of information we recommended that the 

Federal Reserve develop—could aid CPO in using its information and 

resources to identify inefficiencies and further support the interrelated key 

practice of system optimization. For example, the U.S. Mint’s monthly 

production of new coins could be more efficient with improvements to the 

accuracy of initial new-coin orders. In part to improve this linkage, we 

concluded that optimizing U.S. Mint’s and individual Reserve Bank’s 

operations could potentially contribute to reducing U.S. Mint or Federal 

Reserve costs related to circulating coins.
Page 8 GAO-14-601T 

To collect data and information on potential changes in the demand for 

currency, the Federal Reserve has conducted studies and outreach with 

groups such as depository institutions and merchants, and found a 

general consensus that the use of currency may decline slightly in the 

near term. According to the Federal Reserve, this expectation is due, in 

part, to an increase in alternative payment options (e.g., additional forms 

of electronic payments), but interrelated factors—such as technological 

change and economic conditions—make it difficult to predict long-term 

(i.e., 5 to 10 years) currency demand. According to many agency officials, 

stakeholders, and foreign government officials we spoke to, while there 

may be changes in the use of various types of payments in the coming 

years, the effect on currency demand is likely a gradual decline.

Federal Reserve officials expect that their current procedures and 

approach to managing the coin and note inventory—including their 

forecasting and monitoring of the coin inventory targets discussed 

previously—will allow the agency to accommodate gradual shifts in 

demand. For example, to respond to increasing or decreasing demand for 

coins, CPO can decrease or increase coin orders from the U.S. Mint. 

According to the officials we met with, CPO is continually working to 

identify ways to streamline its processes to be more flexible and 

adaptable to changes, and CPO and the Reserve Banks have established 

plans and procedures, such as risk management plans, to address the 

effects associated with short-term, unexpected changes in coin and note 

demand. Experts we interviewed agree that well-managed currency 

systems are capable of handling major trend-based changes. According 

to inventory management experts we consulted, dependable forecasts—

that take both trends and cyclical demand changes into account—are key 

to effectively managing a supply chain. Therefore, we concluded in our 

October 2013 report that combining forecasts with continual tracking of 

demand and inventory levels should allow the Federal Reserve to be able 

to adapt to any major trend-based changes in coin and note demand. As 

discussed earlier, this makes accurate forecasting by the Federal 

Reserve even more important.

While Federal Reserve officials we met with indicated their current 

processes should enable them to adapt to gradual changes in coin and 

note demand, a significant and unexpected change could affect the 

management of the coin and note inventories. CPO officials said that if a 

large decline in coin usage occurs, they would adapt their management of 

the inventory in response. For example, if demand for coins were to 

decrease suddenly, leaving too many coins in circulation, the Federal 

Reserve would first stop ordering new coins from the U.S. Mint and would 

Demand for Currency 

Expected to Decline 

Gradually in the Near 

Term, but a Variety of 

Factors Make 

Predicting LongerTerm Change Difficult
Page 9 GAO-14-601T 

then focus on storing the excess coin inventory. Coin attrition would 

reduce this inventory over time, and CPO officials anticipate that they 

would have sufficient storage capacity available to accommodate the 

excess coins. CPO officials told us that inventory levels would need to be 

well in excess of the existing targets before they would have an effect on 

storage capacity and related costs. While coin terminal operators did not 

expect a decrease in coin demand significant enough to exceed their 

storage capacity, additional storage could be needed to accommodate 

and store the coins returned by depository institutions to the Reserve 

Banks if there is a substantial decrease in public demand for coins.8

In 2010, CPO began to develop a long-term strategic framework to 

consider potential changes to currency demand over the next 5 to 10 

years and how this change could affect CPO’s operations. According to 

Federal Reserve officials, this framework is an internally focused effort to 

help share information, refine internal operations, and monitor trends. 

One component of this effort includes examining internal operations for 

distributing coins and processing notes as well as seeking to increase 

efficiency in these areas to better position the agency to adapt to future 

changes in demand. Conducting research is another component of this 

framework. For example, as part of a broader effort to look at trends in 

various payment types, one Reserve Bank is examining the detailed 

spending habits of a selection of consumers, who were asked to 

document their transactions and payment decisions over a period of time 

in a shopping “diary.” Because determining how much of the currency in 

circulation is being used for transactions is difficult, this type of study may 

help officials better understand currency use in the United States. 

Australian, Austrian, and Canadian officials we interviewed for our 2013 

report were also exploring the potential impact of alternative payment 

technologies and collecting new data to inform research efforts. For 

example, Austrian and Canadian officials have also conducted diary 

studies to better understand individuals’ use of various payment options. 

Collecting detailed consumer-payment information through these types of 

studies may help officials better understand consumers’ payment and 

currency management habits.

 8

Coin terminal operators are armored carrier companies such as Brink’s and Dunbar that 

hold both Reserve Bank and other customers’ coins in their facilities. 
Page 10 GAO-14-601T 

In conclusion, the Federal Reserve has taken steps to standardize its 

management of the circulating-coin inventory from a national perspective, 

steps that have led to improvements such as reductions in national coin 

inventories. The actions that it has planned to address our

recommendations could potentially contribute to reducing federal costs 

related to circulating coins, a reduction that could increase the amount of 

money returned to the General Fund. While the Federal Reserve has a 

framework that it believes can adapt to expected gradual changes in coin 

demand, a significant and unexpected decrease in demand could lead to 

increased storage needs.

Chairman Campbell, Ranking Member Clay, and members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to answer any questions at this time.

For further information on this testimony, please contact Lorelei St. 

James, at (202) 512-2834 or stjamesl@gao.gov. In addition, contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this statement. Individuals making key 

contributions to the work this testimony is based on include Teresa 

Spisak and John Shumann (Assistant Directors); Maria Wallace; Amy 

Abramowitz; Lawrance Evans, Jr.; David Hooper; Delwen Jones; Sara 

Ann Moessbauer; Colleen Moffatt Kimer; and Josh Ormond.

GAO Contact and 

Staff 

Acknowledgments

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