II

105TH CONGRESS

2D SESSION S. 2153

To require certain expenditures by the Federal Reserve System to be made

subject to congressional appropriations, to prohibit the maintenance of

surplus accounts by Federal reserve banks, to provide for annual independent audits of Federal reserve banks, to apply Federal procurement

regulations to the Federal Reserve System, to reform the pricing practices of the Federal Reserve System for services provided to the domestic

banking system, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 10, 1998

Mr. DORGAN (for himself and Mr. REID) introduced the following bill; which

was read twice and referred to the Committee on Banking, Housing, and

Urban Affairs

A BILL

To require certain expenditures by the Federal Reserve System to be made subject to congressional appropriations,

to prohibit the maintenance of surplus accounts by Federal reserve banks, to provide for annual independent

audits of Federal reserve banks, to apply Federal procurement regulations to the Federal Reserve System,

to reform the pricing practices of the Federal Reserve

System for services provided to the domestic banking

system, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘Federal Reserve Fiscal

3 Accountability Act of 1998’’.

4 SEC. 2. DEFINITIONS.

5 For purposes of this Act—

6 (1) the term ‘‘Board’’ means the Board of Gov7 ernors of the Federal Reserve System; and

8 (2) the term ‘‘Federal reserve bank’’ has the

9 same meaning as in the third undesignated para10 graph of section 1 of the Federal Reserve Act.

11 SEC. 3. NON-MONETARY POLICY SPENDING SUBJECT TO

12 CONGRESSIONAL APPROPRIATIONS.

13 (a) DETERMINATION BY COMPTROLLER GENERAL.—

14 (1) IN GENERAL.—The Comptroller General of

15 the United States, in consultation with the Board,

16 shall specifically identify the functions and activities

17 of the Board and of each Federal reserve bank that

18 are directly related to the establishment and conduct

19 of the monetary policy of the United States.

20 (2) REPORT.—Not later than 6 months after

21 the date of enactment of this Act, the Comptroller

22 General of the United States shall submit a report

23 to the Congress containing the information referred

24 to in paragraph (1).

25 (b) CERTAIN SPENDING SUBJECT TO APPROPRIA26 TIONS.—
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1 (1) IN GENERAL.—Beginning with the first fis2 cal year that commences after the date on which the

3 report referred to in subsection (a) is submitted to

4 the Congress, and in each fiscal year thereafter, all

5 expenditures by the Board or any Federal reserve

6 bank shall be made only as provided in advance in

7 an appropriations Act.

8 (2) EXCEPTION.—Notwithstanding paragraph

9 (1), funds used to pay expenditures directly related

10 to the establishment and conduct of monetary policy,

11 as identified under subsection (a), shall not be sub12 ject to appropriations in advance.

13 (c) ANNUAL REPORT.—Not later than 6 months after

14 the end of each fiscal year to which subsection (b) applies,

15 the Comptroller General of the United States shall submit

16 a report to the Congress on the compliance of the Board

17 and the Federal reserve banks with the requirements of

18 this section during the preceding fiscal year.

19 SEC. 4. TREATMENT OF SURPLUS ACCOUNT.

20 (a) TERMINATION OF SURPLUS ACCOUNT AUTHOR21 IZATION.—

22 (1) AMENDMENTS TO THE FEDERAL RESERVE

23 ACT.—Section 7(a) of the Federal Reserve Act (12

24 U.S.C. 289) is amended—
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1 (A) in the subsection heading, by striking

2 ‘‘AND SURPLUS FUNDS’’;

3 (B) by striking paragraphs (2) and (3);

4 (C) in paragraph (1)—

5 (i) by striking ‘‘(1) STOCKHOLDER

6 DIVIDENDS.—’’; and

7 (ii) by redesignating subparagraphs

8 (A) and (B) as paragraphs (1) and (2), re9 spectively, and moving the margins 2 ems

10 to the left; and

11 (D) in paragraph (2), as redesignated, by

12 striking ‘‘subparagraph (A)’’ and inserting

13 ‘‘paragraph (1)’’.

14 (2) RETURN OF FUNDS.—Not later than 30

15 days after the date of enactment of this Act, each

16 Federal reserve bank shall transfer to the Board for

17 transfer to the Secretary of the Treasury for deposit

18 in the general fund of the Treasury, all funds held

19 on the date of enactment of this Act by that Federal

20 reserve bank in a surplus account established under

21 section 7(a) of the Federal Reserve Act, as that sec22 tion existed on the day before the date of enactment

23 of this Act.

24 (b) DETERMINATION BY COMPTROLLER GENERAL.—
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1 (1) IN GENERAL.—The Comptroller General of

2 the United States shall determine what percentage,

3 if any, of the net earnings of the Federal reserve

4 banks should be transferred on an annual basis to

5 the Secretary of the Treasury for deposit in the gen6 eral fund of the Treasury.

7 (2) REPORT.—Not later than 6 months after

8 the date of enactment of this Act, the Comptroller

9 General of the United States shall report its deter10 mination under paragraph (1) to the Congress, to11 gether with any recommendations for necessary leg12 islative action.

13 SEC. 5. ANNUAL INDEPENDENT AUDITS OF RESERVE

14 BANKS.

15 (a) AUDIT REQUIRED.—Each Federal reserve bank

16 shall annually obtain an audit using generally accepted ac17 counting principles from an independent auditor that

18 meets the requirements of subsection (b).

19 (b) AUDITOR’S QUALIFICATIONS.—The independent

20 auditor referred to in subsection (a) shall—

21 (1) be a certified public accountant who is inde22 pendent of the Federal Reserve System; and

23 (2) meet any other qualifications that the

24 Board may establish.
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1 (c) CERTIFICATION REQUIRED.—In each audit re2 quired under subsection (a), the auditor shall certify to

3 the Federal reserve bank and the Board, under penalty

4 of perjury that the auditor—

5 (1) is a certified public accountant and is inde6 pendent of the Federal Reserve System; and

7 (2) conducted the audit using generally accept8 ed auditing principles.

9 (d) CERTIFICATION BY FEDERAL RESERVE BANK.—

10 Not later than 30 days after the completion of each audit

11 required under subsection (a), the Federal reserve bank

12 shall provide to the Comptroller General of the United

13 States—

14 (1) a certification, under penalty of perjury,

15 that—

16 (A) the Federal reserve bank has obtained

17 the audit required under subsection (a);

18 (B) the Federal reserve bank has received

19 the certifications of the auditor required under

20 subsection (c); and

21 (C) the audit fully complies with sub22 section (a); and

23 (2) proof that the Federal reserve bank and the

24 Board have each received a copy of the audit report.

25 (e) DETECTION OF ILLEGAL ACTS.—
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1 (1) AUDIT PROCEDURES.—Each audit required

2 by this section shall include procedures designed to

3 provide reasonable assurances of detecting illegal

4 acts that would have an effect on the determination

5 of financial statement amounts.

6 (2) REPORTING POSSIBLE ILLEGALITIES.—If,

7 in the course of conducting an audit required by this

8 section, the independent auditor detects or otherwise

9 becomes aware of information indicating that an ille10 gal act (whether or not perceived to have an effect

11 on the financial statements of the Federal reserve

12 bank) has or may have occurred, the auditor—

13 (A) shall determine whether it is likely that

14 the illegal act has occurred; and

15 (B) shall, if the auditor determines that

16 the illegal act is likely to have occurred—

17 (i) determine and consider the pos18 sible effect of the illegal act on the finan19 cial statements of the Federal reserve

20 bank; and

21 (ii) as soon as practicable, inform the

22 Board that an illegal act is likely to have

23 occurred or has otherwise come to the at24 tention of the auditor.
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1 (3) REPORT TO COMPTROLLER GENERAL.—The

2 independent auditor under this section shall, as soon

3 as practicable, directly report its conclusions to the

4 Comptroller General of the United States with re5 gard to any possible illegal act that has been de6 tected or has otherwise come to the attention of the

7 auditor during the course of the audit required by

8 this section, if, after determining that the Board is

9 adequately informed with respect to such possible il10 legal act, the auditor concludes that—

11 (A) the possible illegal act has an effect on

12 the financial statements of the Federal reserve

13 bank;

14 (B) the Board has not taken timely and

15 appropriate remedial actions with respect to the

16 possible illegal act; and

17 (C) the failure to take remedial action is

18 reasonably expected to warrant departure from

19 a standard report of the auditor when made, or

20 warrant resignation from the audit engagement.

21 (4) RESIGNATION OF AUDITOR.—If an inde22 pendent auditor resigns from its engagement to

23 audit a Federal reserve bank under paragraph (3),

24 the auditor shall furnish to the Comptroller General

25 of the United States, not later than 1 business day
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1 after such resignation, a copy of the report of the

2 auditor (or documentation of any oral report given).

3 (f) COMPLIANCE WITH FEE SCHEDULE REQUIRE4 MENTS.—

5 (1) IN GENERAL.—As part of each audit of a

6 Federal reserve bank required by this section, the

7 auditor shall make a determination of whether, in

8 the opinion of the auditor, the Federal reserve bank

9 is meeting the requirements of section 11A(c)(3) of

10 the Federal Reserve Act (as amended by this Act)

11 with respect to each service referred to in section

12 11A(b) of the Federal Reserve Act (as amended by

13 this Act).

14 (2) REPORT TO BOARD.—The auditor shall re15 port its determinations under paragraph (1) to the

16 Board in written form.

17 (3) REPORT TO CONGRESS.—The Board shall

18 annually compile reports received under paragraph

19 (2) and annually submit those reports to the Con20 gress.

21 (g) RECORDKEEPING.—To facilitate compliance with

22 this section, each Federal reserve bank shall—

23 (1) ensure that the books, records, and ac24 counts of the Federal reserve bank are maintained

25 and kept in sufficient detail to accurately and fairly
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1 reflect the transactions and dispositions of the assets

2 of the bank;

3 (2) devise and maintain a system of internal ac4 counting controls sufficient to provide reasonable as5 surances that transactions are recorded as necessary

6 to permit preparation of financial statements in con7 formity with generally accepted accounting principles

8 and to maintain accountability for assets;

9 (3) ensure that access to assets of the Federal

10 reserve bank is permitted only in accordance with

11 the general or specific authorization of the Board;

12 and

13 (4) ensure that—

14 (A) the recorded accountability for assets

15 is compared with the existing assets at reason16 able intervals; and

17 (B) appropriate action is taken with re18 spect to any differences.

19 (h) REPORTS TO BOARD.—Not later than December

20 31 of each year, each Federal reserve bank shall submit

21 a copy of each audit conducted under this section to the

22 Board.
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1 SEC. 6 INDEPENDENT AUDITS OF FEDERAL RESERVE SYS2 TEM AND FEDERAL RESERVE BOARD.

3 (a) AUDIT OF RESERVE SYSTEM.—The Board, in

4 consultation with the Comptroller General of the United

5 States, shall annually obtain an audit of the consolidated

6 financial statements of the Federal Reserve System from

7 an independent auditor, using generally accepted account8 ing principles, based on reports of audits of Federal re9 serve banks submitted to the Board under section 5(h)

10 and the audit of the Board under subsection (b) of this

11 section.

12 (b) AUDIT OF BOARD.—

13 (1) IN GENERAL.—The Board shall annually

14 obtain an evaluation of the management and admin15 istration of the Board and an audit of the financial

16 statements of the Board from an independent audi17 tor, using generally accepted accounting principles.

18 (2) FEE SCHEDULE CONSIDERATIONS.—

19 (A) IN GENERAL.—As part of each audit

20 of the Board required by this subsection, the

21 auditor shall make a determination of whether,

22 in the opinion of the auditor, the Board has

23 prescribed fee schedules under section 11A(b)

24 of the Federal Reserve Act (as amended by this

25 Act) based on information contained in the re-
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1 ports submitted to the Board under section 5(f)

2 of this Act.

3 (B) REPORT TO BOARD.—The auditor

4 shall report its determinations under subpara5 graph (A) to the Board in written form.

6 (3) AVAILABILITY TO THE PUBLIC.—The re7 sults of each evaluation and audit performed in ac8 cordance with this subsection shall be made available

9 to the public.

10 (4) LIMITATION.—The evaluations and audits

11 required by this subsection shall be conducted in a

12 manner that does not impair or otherwise directly

13 affect any monetary policy function of the Board.

14 (c) AUDITOR’S QUALIFICATIONS.—An independent

15 auditor referred to in subsections (a) and (b) shall—

16 (1) be a certified public accountant who is inde17 pendent of the Federal Reserve System; and

18 (2) meet any other qualifications that the

19 Board may establish.

20 (d) CERTIFICATION REQUIRED.—In each audit re21 quired under this section, the auditor shall certify to the

22 Board, under penalty of perjury that the auditor—

23 (1) is a certified public accountant and is inde24 pendent of the Federal Reserve System; and
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1 (2) conducted the audit using generally accept2 ed auditing principles.

3 (e) DETECTION OF ILLEGAL ACTS.—

4 (1) AUDIT PROCEDURES.—Each audit required

5 by this section shall include procedures designed to

6 provide reasonable assurances of detecting illegal

7 acts that would have an effect on the determination

8 of financial statement amounts.

9 (2) REPORTING POSSIBLE ILLEGALITIES.—If,

10 in the course of conducting an audit of the Federal

11 Reserve System or the Board required by this sec12 tion, the independent auditor detects or otherwise

13 becomes aware of information indicating that an ille14 gal act has or may have occurred, the auditor—

15 (A) shall determine whether it is likely that

16 the illegal act has occurred; and

17 (B) shall, if the auditor determines that

18 the illegal act is likely to have occurred—

19 (i) determine and consider the pos20 sible effect of the illegal act on the finan21 cial statements of the Federal Reserve Sys22 tem or the Board, as applicable; and

23 (ii) as soon as practicable, inform the

24 Board that an illegal act is likely to have
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1 occurred or has otherwise come to the at2 tention of the auditor.

3 (3) REPORT TO COMPTROLLER GENERAL.—An

4 independent auditor under this section shall, as soon

5 as practicable, directly report its conclusions to the

6 Comptroller General of the United States with re7 gard to any possible illegal act that has been de8 tected or has otherwise come to the attention of the

9 auditor during the course of an audit of the Federal

10 Reserve System or the Board required by this sec11 tion, if, after determining that the Board is ade12 quately informed with respect to such possible illegal

13 act, the auditor concludes that—

14 (A) the possible illegal act has an effect on

15 the financial statements of the Federal Reserve

16 System or the Board, as applicable;

17 (B) the Board has not taken timely and

18 appropriate remedial actions with respect to the

19 possible illegal act; and

20 (C) the failure to take remedial action is

21 reasonably expected to warrant departure from

22 a standard report of the auditor when made, or

23 warrant resignation from the audit engagement.

24 (4) RESIGNATION OF AUDITOR.—If an inde25 pendent auditor resigns from its engagement to
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1 audit the Federal Reserve System or the Board

2 under paragraph (3), the auditor shall furnish to the

3 Comptroller General of the United States, not later

4 than 1 business day after such resignation, a copy

5 of the report of the auditor (or documentation of

6 any oral report given).

7 (f) RECORDKEEPING.—To facilitate compliance with

8 this section, the Board shall—

9 (1) ensure that the books, records, and ac10 counts of the Board are maintained and kept in suf11 ficient detail to accurately and fairly reflect the

12 transactions and dispositions of assets;

13 (2) devise and maintain a system of internal ac14 counting controls sufficient to provide reasonable as15 surances that transactions are recorded as necessary

16 to permit preparation of financial statements in con17 formity with generally accepted accounting principles

18 and to maintain accountability for assets;

19 (3) ensure that access to assets of the Board is

20 permitted only in accordance with the general or

21 specific authorization of the Board; and

22 (4) ensure that—

23 (A) the recorded accountability for assets

24 is compared with the existing assets at reason25 able intervals; and
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1 (B) appropriate action is taken with re2 spect to any differences.

3 SEC. 7. APPLICABILITY OF FEDERAL PROCUREMENT PRO4 CEDURES.

5 Beginning on the first day of the first fiscal year fol6 lowing the date of enactment of this Act, the following

7 provisions of law apply to the Board and to each Federal

8 reserve bank as if the Board and such banks were execu9 tive agencies for the purposes of such provisions of law:

10 (1) Title III of the Federal Property and Ad11 ministrative Services Act of 1949 (41 U.S.C. 251 et

12 seq.).

13 (2) The Brooks Architect-Engineers Act (40

14 U.S.C. 541 et seq.).

15 (3) The Office of Federal Procurement Policy

16 Act (41 U.S.C. 401 et seq.).

17 (4) The Clinger-Cohen Act of 1996 (Division E

18 of Public Law 104–106; 40 U.S.C. 1401 et seq.).

19 SEC. 8. AMENDMENTS RELATING TO FEDERAL RESERVE

20 ACT.

21 (a) CLARIFICATION OF FEE SCHEDULE REQUIRE22 MENTS.—

23 (1) IN GENERAL.—Section 11A(b) of the Fed24 eral Reserve Act (12 U.S.C. 248a(b)) is amended—
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1 (A) by redesignating paragraphs (4)

2 through (8) as paragraphs (5) through (9), re3 spectively; and

4 (B) by inserting after paragraph (3) the

5 following new paragraph:

6 ‘‘(4) transportation of paper checks in the

7 clearing process;’’.

8 (2) PUBLICATION OF REVISED SCHEDULE.—

9 Not later than 60 days after the date of enactment

10 of this Act, the Board shall publish a revision of the

11 schedule of fees required under section 11A of the

12 Federal Reserve Act that reflects the changes made

13 in the schedule in accordance with the amendments

14 made by paragraph (1) of this subsection.

15 (b) CLARIFICATION OF APPLICABLE PRICING CRI16 TERIA.—

17 (1) IN GENERAL.—Section 11A(c) of the Fed18 eral Reserve Act (12 U.S.C. 248a(c)) is amended by

19 striking paragraph (3) and inserting the following:

20 ‘‘(3)(A) In each fiscal year, fees shall be estab21 lished for each service provided by the Federal re22 serve banks on the basis of all direct and indirect

23 costs actually incurred (excluding the effect of any

24 pension cost credit) in providing each of the services,

25 including interest on items credited prior to actual
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1 collection, overhead, and an allocation of imputed

2 costs, which takes into account the taxes that would

3 have been paid and the return on capital that would

4 have been provided had the services been provided

5 by a private business firm.

6 ‘‘(B) The pricing principles referred to in sub7 paragraph (A) shall be carried out with due regard

8 to competitive factors and the provision of an ade9 quate level of such services nationwide.’’.

Æ