U.S. Coins: The Federal Reserve Banks Are Fulfilling Coin Demand, but Optimal Inventory Ranges Are Undefined
Published: 2008-03-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Federal Reserve Banks fulfill the coin demand of the nation's depository institutions--which include commercial banks, savings and loan associations, and credit unions--by ordering new coins from the U.S. Mint and managing coins held in inventory at the Reserve Banks and in coin terminals. Reliably estimating the demand for coins and efficiently managing the inventory of circulated coins is important to ensure that depository institutions have enough coins to meet the public's demand and to avoid unnecessary coin production costs. Since late 2006, rising metal prices have driven the costs of producing pennies and nickels above the face values of the coins. This report addresses (1) the Reserve Banks' process for ordering and distributing coins to the nation's depository institutions and (2) the extent to which this process meets depository institutions' demand for coins. GAO interviewed officials responsible for coin distribution at each of the 12 Reserve Banks and met with representatives of 4 large operators of Federal Reserve coin terminals, 2 banking associations, the U.S. Mint, and the nation's largest coin recycling company. GAO also analyzed Reserve Bank data for fiscal years 1993 through 2007. Federal Reserve and U.S. Mint officials generally agreed with GAO's findings in the report and provided technical comments, which were incorporated as appropriate.
section_title: What GAO Found
paragraphs: The Reserve Banks' process for ordering and distributing coins uses new coins ordered from the U.S. Mint, circulated coins in inventory, and transfers of circulated coins to meet depository institutions' demand for coins. New coin orders begin each month with a recommendation generated by a forecasting tool. Each Reserve Bank office then refines this recommendation in light of its current inventory holdings and its knowledge of local factors that may affect demand, such as changes in a transit authority's use of coins. Each office next submits a request for coins to the Reserve Banks' national Cash Product Office (CPO). CPO seeks to fill the request with transfers of circulated coins from other offices before it consolidates the requests and submits a monthly order for new coins to the U.S. Mint. In fiscal years 2006 and 2007, CPO used transfers to reduce its new coin orders by approximately 10 percent. The Reserve Banks' process for ordering and distributing coins has met depository institutions' demand since fiscal year 2000, but the process does not define optimal coin inventory ranges. Currently, each Reserve Bank office sets and manages its own inventory levels, resulting in varying levels of inventory held relative to demand. Overall, inventory levels for most denominations have generally been decreasing since fiscal year 2001, yet inventory levels are more likely to be high than low relative to demand, because, for the Reserve Banks, the risk of not meeting depository institutions' demand for coins far exceeds the risk of holding too many coins in inventory. However, holding coins in inventory that could be used to fulfill demand elsewhere can be inefficient, resulting in new coin production costs that could have been avoided if coins held in inventory had been used instead. To increase the efficiency of the Reserve Banks' process, CPO plans this year to begin implementing a new approach to inventory management that it piloted in 2006 and found effective. Under this approach, CPO will determine the number of circulated and new coins each district will receive monthly and will be responsible for ensuring that the Reserve Bank offices maintain appropriate inventory levels.

section_title: Letter
paragraphs: The Federal Reserve Banks (Reserve Banks) and the U.S. Mint both play a  role in ensuring that the economy has an adequate supply of coins for  trade and commerce. The Reserve Banks fulfill the coin demand of the  nation’s depository institutions—which include commercial banks, savings  and loan associations, and credit unions—by ordering new coins from the  U.S. Mint and managing an inventory of circulated coins stored in Reserve  Banks and coin terminals throughout the nation. In 2007, the U.S. Mint  produced 15.4 billion coins, with a value of about $2 billion. According to  the Department of the Treasury, as of November 30, 2007, coins worth  approximately $37 billion were in circulation throughout the country.  Reliably estimating the demand for new coins and efficiently managing the  inventory of circulated coins is important—first, to ensure that the  depository institutions have enough coins to meet the public’s demand  and, second, to avoid unnecessary coin production costs. During the  fourth quarter of 2006, rising metal prices drove the costs of producing  pennies and nickels above the face values of these coins. According to the  U.S. Mint’s 2007 annual report, the penny costs 1.7 cents to produce and  the nickel costs 9.5 cents.
The Federal Reserve System is composed of a central, governmental  agency—the Board of Governors (Board)—and 12 regional Reserve Banks,  each of which is located in a Federal Reserve district. The Reserve Banks  are the operating arms of the central banking system. They carry out a  variety of Federal Reserve System functions, including operating a  nationwide payment system and distributing the nation’s currency and  coin. The Reserve Banks have 30 offices that, among other responsibilities,  provide coins to depository institutions. The Reserve Banks’ national Cash  Product Office (CPO), located at the Federal Reserve Bank of San  Francisco, coordinates coin distribution from a national perspective as  one of its responsibilities. The Reserve Banks store coins on-site and at  about 180 coin terminals located throughout the country. The coin  terminals provide additional storage space for coins and help to facilitate  their distribution. You asked us to examine the processes for ordering and  distributing all denominations of coins without creating excess inventory.  Accordingly, this report addresses (1) the Reserve Banks’ process for  ordering and distributing coins and (2) the extent to which this process  meets the depository institutions’ demand for coins.
To determine the Reserve Banks’ process for ordering and distributing  coins, we reviewed relevant reports and research papers on how the  Reserve Banks and the U.S. Mint determine the number of coins to be  produced and distributed. We interviewed Federal Reserve economists  and Board and Reserve Bank officials representing the 30 Reserve Bank  offices to understand how the Reserve Bank offices develop orders for  new coins from the U.S. Mint and manage their coin inventory levels. We  also interviewed key stakeholders—including officials from the U.S. Mint,  operators of coin terminals with agreements to store Reserve Bank coin  inventory, and representatives of banking associations—to determine how  the Reserve Banks work in collaboration with others to identify and fulfill  the depository institutions’ requests for coins. We analyzed information on  the costs paid by the U.S. Mint to transport circulated coins and analyzed  the number of transfers between Reserve Banks from fiscal years 2002  through 2007.
To determine the extent to which the Reserve Banks’ process meets the  demand for coins, we obtained data on the Reserve Banks’ coin payments  to depository institutions, receipts for coins deposited by the depository  institutions, orders for new coins, and inventory levels for fiscal years   1993 through 2007 for each coin denomination and Reserve Bank. We  analyzed these data to identify the demand for coins, the extent to which  the Reserve Banks order new coins to meet demand, and the amount of  inventory available to meet demand. We presented our data on a fiscal  year (October through September) basis because the U.S. Mint operates on  a fiscal year; however, the Reserve Banks operate on a calendar year. To  assess the reliability of the Reserve Banks’ coin data, we talked with  agency officials about data quality control procedures and reviewed  relevant documentation. We determined that these data were sufficiently  reliable for the purposes of this report. We interviewed Reserve Bank  officials to discuss factors affecting trends in the data and the Reserve  Banks’ approach to coin inventory management. We also interviewed two  banking associations and the four coin terminal operators with the most  agreements to store Reserve Bank coin inventory to obtain their views on  the Reserve Banks’ process for fulfilling depository institutions’ demand  for coins. We conducted this performance audit from April 2007 through  March 2008 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. More details about our  objectives, scope, and methodology appear in appendix I.
subsections: section_title: Background
paragraphs: One of the functions of the Reserve Banks is to fulfill the coin demand of  the nation’s depository institutions—which include commercial banks,  savings and loan associations, and credit unions—by distributing coin  inventories stored in the Reserve Banks’ vaults and at coin terminals,  including circulated coins and new coins ordered from the U.S. Mint. The  Reserve Banks have 30 offices that provide coins to depository institutions  and are responsible for an area within 1 of the Federal Reserve’s   12 districts. Figure 1 shows a map of the Reserve Bank districts (districts)  and the locations of the offices that provide coin services.
As figure 2 shows, the Reserve Banks hold and distribute coins from their  vaults and contract with armored carrier companies to hold the rest of the  Reserve Banks’ inventory.
As of December 31, 2007, 179 coin terminals held about 61 percent of the  Reserve Banks’ total coin inventory, in terms of volume. According to  Reserve Bank officials, the arrangement between the Reserve Banks and  the armored carrier companies that operate these coin terminals began  because both parties agreed that having more distribution points would be  more cost-efficient from a societal perspective. Federal Reserve officials  and coin terminal operators said that, historically, this has been a “win- win” arrangement because it has eliminated the need for armored carriers  to haul coins to and from the Reserve Banks before distributing them to  the depository institutions. The armored carrier companies store Reserve  Banks’ coin inventory in their coin terminals at no charge. The agreement  between the two entities (1) defines a limit on the value of inventory that a  particular coin operator can hold for a Reserve Bank at a particular  terminal and (2) requires the coin terminal operator to maintain liability  insurance for loss of or damage to the Reserve Bank’s coin inventory. The  coin terminal agreements can be canceled with prior notice and without  cause at any time by either party. The armored carrier companies also  maintain depository institutions’ coin inventories in the coin terminals at  no charge; however, the companies earn revenue from the coin  processing, wrapping, and transportation services that they provide to the  depository institutions.
In addition to the coins held in their inventory, the Reserve Banks  purchase new coins at face value from the U.S. Mint to fulfill depository  institutions’ demand. To develop an annual production schedule and fulfill  the Reserve Banks’ coin orders, the U.S. Mint uses national coin demand  forecasting models to determine how many new coins to produce.   U.S. Mint facilities in Philadelphia and Denver then produce the new coins,  and the Mint ships the new coins to the Reserve Bank offices or coin  terminals. Appendix II shows trends in the U.S. Mint’s coin production  data for fiscal years 2002 through 2007. The U.S. Mint also may transfer  circulated coins between Reserve Bank offices. We discuss this matter in  more detail later in the report.
Depository institutions order coins from the Reserve Banks to meet  retailers’ and the public’s demand. These orders include requests for new  commemorative circulating coins from congressionally enacted programs,  such as the 50 State Quarters and the Presidential $1 Coins Programs, as  well as for other coins for day-to-day transactional use. Reserve Bank  offices fill these orders with new and circulated coins held in the offices’  vaults and at the coin terminals. Depository institutions contract with  armored carriers to process and deliver the coins to them; then depository  institutions provide coins to retailers and the general public. Depository  institutions also return coins to the Reserve Banks when they have more  coins in their inventory than they want to hold to meet demand. For  example, when the public’s demand for coins falls after the holiday season  and the depository institutions have accumulated more coins than they  want to hold for day-to-day transactions, the depository institutions  deposit the extra coins with the Reserve Banks. According to two  nationwide banking associations, the depository institutions have an  incentive to limit the number of coins they hold in inventory because the  institutions do not earn interest on coins held in their own vaults.
section_title: The Reserve Banks’ Process for Ordering and Distributing Coins Uses New Coins, Coin Inventories, and Coin Transfers to Meet Demand
paragraphs: The Reserve Banks’ process for ordering and distributing coins uses  orders of new coins from the U.S. Mint, the Reserve Bank offices’ coin  inventories, and transfers of circulated coins between Reserve Bank  offices to meet estimates of depository institutions’ demand. These  estimates are based on coin demand forecasts generated by a forecasting  tool. The offices prepare requests for coins on the basis of these estimates  and on their own assessments of demand and send the requests to CPO for  review. CPO then looks for opportunities to transfer circulated coins  between Reserve Bank offices to help fulfill the offices’ requests. CPO  reduces the offices’ requests for coins by the amounts of the transfers,  consolidates the adjusted requests, and monthly sends a final consolidated  order for new coins to the U.S. Mint.
subsections: section_title: Coin Demand Forecasts, Inventory Holdings, and Assessments of Local Market Demand Drive Reserve Bank Offices’ Requests for New Coins
paragraphs: According to Federal Reserve officials, forecasting coin demand is not an  exact science and requires judgment. Therefore, the Reserve Bank offices  use both a data-driven process and professional judgment to develop coin  orders. Specifically, the offices use an econometric inventory management  and forecasting (IMF) tool that the Federal Reserve developed in  consultation with the U.S. Mint to forecast coin demand at the Reserve  Bank office level and to recommend coin orders for each office. The IMF  tool analyzes historical data on coin payments to and receipts from  depository institutions and is maintained by the Economic Research  Group at the Federal Reserve Bank of San Francisco. According to  documentation for the IMF tool, the tool is able to predict the seasonal  fluctuations in coin demand fairly accurately because these fluctuations  tend to be fairly regular. For example, the demand for coin rises in  November in response to the public’s demand for coins over the holidays  and then decreases in January. While the timing of these fluctuations is  fairly regular, their magnitude is more difficult to project, according to  Federal Reserve officials. In addition, the IMF tool was developed about  the same time that the commemorative circulating coin programs were  beginning. Therefore, according to Reserve Bank officials, the tool  projects coin demand for economic transactions, but the tool does not  estimate demand for collecting commemorative circulating coins. Hence,  judgment is involved in estimating both the magnitude of seasonal  fluctuations in coin demand and the demand for collecting  commemorative circulating coins.
As shown in figure 3, currently, the 30 Reserve Bank offices receive data  from the IMF tool each month as a starting point for preparing their coin  orders. Most Reserve Bank officials told us that they start the monthly  coin ordering process by examining the orders recommended by the IMF  tool or their current inventory levels for each denomination.
Reserve Bank officials emphasized that although the IMF tool’s analysis is  a helpful starting point for the coin ordering process, assessments of local  market factors are important because the tool’s analysis is based on  historical payments and receipts data and may not consider unique factors  affecting future coin demand. Coin demand is affected by factors specific  to particular districts. For example, five districts noted that local casinos  were moving to coinless slot machines, which would reduce coin demand  in and coin orders for these districts. Conversely, several districts increase  their coin orders to account for collectors’ demand when new coins are  released for commemorative circulating coin programs, such as the 50  State Quarters Program. Reserve Bank officials noted that changes in the  U.S. Postal Service’s and local transit authorities’ use of coins also affect  coin demand. For example, in one district, the local transit authority  retrofitted its ticket machines to dispense dollar coins, which resulted in  greater demand for dollar coins in that district. Most of the districts cited  coin recycling companies, such as Coinstar, as a factor affecting the  number of coins returned by the depository institutions and the number of  new coins to be ordered from the U.S. Mint. Coin recycling machines  found in grocery stores, retail stores, and some depository institutions  have made it easier now than it was in the past for the public to trade in  coins for currency or some form of credit, such as a gift card. In some  districts, coin recycling has returned large volumes of coins to circulation  and to the Reserve Banks. Reserve Bank officials said that when more  coins are returned than are ordered by the depository institutions, they  reduce their orders of new coins from the U.S. Mint. According to data  from one major coin recycling company, the value of coins returned to  circulation through recycling grew from approximately $1 billion in 2000  to $2.6 billion in 2006.
To obtain information on local market factors, officials at the Reserve  Bank offices talk with coin terminal operators and sometimes with  officials at depository institutions in their districts. The coin terminal  operators provide the Reserve Bank offices with daily inventory data on  the Reserve Bank coins held by the terminals. The coin terminal operators  hold inventory for both the depository institutions and the Reserve Banks  and may provide the Reserve Banks with insight into changes in the  depository institutions’ coin demand. Some Reserve Bank officials also  obtain information on coin demand through conversations with depository  institution officials, usually in the course of discussing currency issues.  During these conversations, the depository institutions can provide  advance notice of any circumstances that may change coin demand, such  as upcoming festivals or state fairs, which typically would increase their  demand for coins. The conversations with coin terminal operators and  depository institutions are important because officials at the Reserve Bank  offices can obtain information on potential coin requests or deposits back  with the Reserve Banks, which could affect the Reserve Banks’ inventory  levels or orders for new coins.
According to the Reserve Bank officials with whom we spoke, before the  offices finalize and send their orders to CPO, they look for opportunities to  transfer coins within their district to meet projected demand. For example,  one Reserve Bank office may want additional coins, while another office  may have more coins than it wants to hold to meet short-term demand.  The Reserve Bank office works with the coin terminal operators to move  the coins as needed. According to Reserve Bank and coin terminal  officials, as part of their normal business, the coin terminal operators  transport coins to and from the Reserve Banks and are able to absorb the  costs of the transfers by combining them with previously scheduled  pickups and deliveries for their depository institution customers.
section_title: CPO Coordinates the Reserve Banks’ Coin Order and Identifies Opportunities for Reducing the Order through Transfers
paragraphs: In 2001, CPO began coordinating coin distribution from a national  perspective on behalf of the Reserve Banks to enhance coordination with  the U.S. Mint and look for opportunities to redistribute coin inventories.  Historically, the Reserve Banks individually developed and submitted their  own coin orders to the U.S. Mint without any insight into coin inventories  in other districts or consideration of whether coins could be transferred  from other districts to meet demand, rather than ordering new coins. In  1999, shortages of pennies occurred in some regions of the country  because some depository institutions were hoarding pennies and the   U.S. Mint could not fulfill the Reserve Banks’ increased orders for pennies.  During this time, the Reserve Banks moved coins from one district to  another to satisfy demand but did not have a centralized coordination  process in place to facilitate these transfers, according to Federal Reserve  officials. Following this experience, the Reserve Bank of San Francisco  assumed responsibility for coordinating coin operations at Reserve Banks  through its CPO. CPO is now the Reserve Banks’ primary liaison with the  U.S. Mint and is responsible for finalizing and submitting a monthly  consolidated coin order for the Reserve Banks. According to Federal  Reserve officials, CPO has focused on achieving system efficiencies by  implementing more centralized coin management strategies, including  enhancing coordination with the U.S. Mint; improving distribution  channels by increasing the number of Reserve Bank coin terminals; and  redistributing national inventories of coins, as appropriate, to meet  demand, thereby reducing the need for new coins from the Mint.
With the exception of new releases of commemorative circulating coins,  CPO determines whether the Reserve Banks’ requests for coins can be  filled with circulated coins in Reserve Banks’ inventories or whether new  coins need to be ordered from the U.S. Mint. CPO compares the Reserve  Bank offices’ requests for coins with the IMF tool’s recommended orders  and the offices’ current inventory levels. According to CPO officials, if an  office’s request differs significantly from the order recommended by the  IMF tool, CPO contacts the Reserve Bank office to discuss the reasons for  the difference. CPO also compares current inventory levels with historic  inventory data to determine whether the Reserve Banks have enough  coins to meet seasonal changes in demand. While the Reserve Bank offices  make the final decision on how many coins they request, a recent  agreement will allow CPO, with input from the Reserve Bank offices, to  make the final decision. We discuss this agreement in more detail later in  the report.
CPO looks for opportunities to reduce the new coin order to the U.S. Mint  by transferring coins from one district to another. CPO officials noted that  using circulated inventory rather than purchasing new coins reduces the  number of new coins that the U.S. Mint produces and the Mint’s costs of  production. Yet according to a U.S. Mint official, continuing demand for  new coins means that using circulating inventory does not avoid the  production of coins, but merely delays it. To determine whether coins can  be transferred, CPO considers such things as constraints on storage space,  the distance between the office or terminal that requests additional coins  and the one that has available inventory, and insurance limits at the coin  terminals. CPO then works with the U.S. Mint to transfer circulated coins  between Federal Reserve offices that are more than 100 miles apart. The  U.S. Mint paid about $1.3 million for 638 coin transfers in fiscal year 2006  and about $915,000 for 404 coin transfers in fiscal year 2007. According to  U.S. Mint officials, the Mint contracts and pays for these coin transfers  because balancing inventories among the Reserve Banks helps to lower  the volatility of production for the Mint and the Mint has ongoing  contracts for shipping large quantities of coins. However, according to a  U.S. Mint official, the U.S. Mint is looking to phase out the practice of  paying for transfers. The official recognizes that coin inventories may  occasionally expand in some areas or regions, but believes that such  conditions are temporary. Therefore, transferring coins from existing  inventories may only temporarily delay the production of additional coins  to meet the demands of commerce. See appendix V for data on the  number of transfers and the corresponding budget for fiscal years 2002  through 2007. Our analysis of Reserve Banks’ order data shows that CPO  reduced orders by about 10 percent in fiscal years 2006 and 2007 by  fulfilling Reserve Bank offices’ coin requests with circulated inventory.  Specifically, the Reserve Banks submitted requests to CPO for  approximately 18 billion coins in fiscal year 2006 and for approximately  16 billion coins in fiscal year 2007, and CPO was able to reduce these  requests through transfers by over 2.2 billion coins in fiscal year 2006 and  by over 1.5 billion coins in fiscal year 2007.
Once CPO makes adjustments and consolidates the Reserve Bank offices’  orders, CPO submits a final new coin order to the U.S. Mint 1 month  before the coins are scheduled to be delivered. The order includes a  shipping schedule outlining when and where the coins should be shipped  as well as a 5-month coin order forecast. Upon receiving the order from  CPO, the U.S. Mint ensures that it will have the coins to fulfill the order  and then distributes coins to the Reserve Banks and coin terminals from  its production facilities in Philadelphia and Denver. Both U.S. Mint and  Federal Reserve officials said that they continually communicate  throughout the month on the coin order, and that the Reserve Banks have  the flexibility to adjust the coin order and delivery destination.
CPO has several working groups of coin stakeholders, including  depository institutions, vending machine operators, and armored carriers,  to help address any potential or current coin distribution issues. For  example, CPO interacts with depository institutions through its Customer  Advisory Council, which currently consists of the 16 largest depository  institutions in the country in terms of cash volume. Coins are typically not  the primary focus of the council’s meetings, but the meetings give the  depository institutions an opportunity to discuss any concerns about  coins, such as the distribution of newly released commemorative  circulating coins. As mandated by law, the Secretary of the Treasury and  the Federal Reserve’s Board of Governors are taking steps to ensure that  an adequate supply of dollar coins is available for commerce and  collectors. The U.S. Mint and the Federal Reserve are consulting with  coin users and holding forums to identify stakeholders’ ideas for the  efficient distribution and circulation of dollar coins as well as other  circulating coins.
section_title: The Reserve Banks’ Process Fulfills Coin Demand, but Optimal Inventory Ranges Are Undefined
paragraphs: The Reserve Banks’ process for ordering and distributing coins has  fulfilled depository institutions’ demand for the coins, but does not define  optimal ranges for the Reserve Banks to hold in inventory to meet  demand. Our analysis of Reserve Bank data showed that the Reserve  Banks maintained enough inventory to meet demand, even when demand  was greater than anticipated. Coin stakeholders confirmed that the  Reserve Banks’ process has fulfilled depository institutions’ demand for  coins in recent years. However, the Reserve Banks have taken a  decentralized approach to inventory management that allows the Reserve  Bank offices to use their own judgment to set inventory levels that they  think are appropriate to meet future demand and avoid the risk of  shortages. Reserve Bank officials expressed no concern about holding too  many coins and told us that excess inventory is an issue only when coin  inventories approach storage capacity limits. However, with rare  exceptions, the Reserve Banks have more storage capacity than they need  to maintain their current inventories, and, therefore, storage capacity does  not serve as an incentive for the banks to evaluate and manage to optimal  coin inventory ranges. To increase the efficiency of the distribution  process, CPO has received approval from the Reserve Banks to centralize  the development and placement of coin orders, and CPO will be  responsible for ensuring that the offices maintain appropriate inventory  levels.
subsections: section_title: The Reserve Banks’ Ordering and Distribution Process Has Met Demand for Coins
paragraphs: The Reserve Banks’ process has ensured that enough coins are available  through orders of new coins and the Reserve Banks’ inventories of  circulated coins to meet the depository institutions’ demand for coins. In  each year since 1993, the number of coins demanded by the depository  institutions has generally exceeded the number of coins deposited back to  the Reserve Banks for all denominations, except the half-dollar. For  example, as figure 4 shows, in fiscal year 2007, the Reserve Banks paid out  76 billion coins to the depository institutions (payments) and received   62 billion coins back from the depository institutions (receipts). This  difference between payments and receipts is called “net pay.” For  example, net pay for fiscal year 2007 was about 14 billion coins. See  appendix III for payments and receipts data, by denomination, for fiscal  years 1993 through 2007.
Since the number of coins received by the Reserve Banks is less than the  number of coins sent to the depository institutions to meet their demand,  the Reserve Banks have to order new coins or use circulated inventory to  meet demand. When depository institutions demand more coins than they  return over a month or a year, net pay is positive for that period and  additional coins have to be ordered or coin inventory has to be used to  meet the demand. When depository institutions return more coins to the  Reserve Banks than they order over a month or a year, net pay is negative  for that period and the Reserve Banks’ inventory of coins can grow. Net  pay fluctuates throughout the year, depending on the public’s spending  patterns. Specifically, Reserve Bank data show that net pay was generally  positive for all denominations, except the half-dollar, throughout the year,  except in January when the demand for coins declines. Net pay for the  half-dollar has been negative since fiscal year 2004 because the Reserve  Banks received more half-dollars back than they paid out. Understanding  and predicting net pay is critical to the Reserve Banks’ ability to meet coin  demand. According to Federal Reserve officials, net pay is positive for  many reasons. For example, the public stores coins that it receives in jars  and dresser drawers and sometimes discards coins. Collectors’ demand for  coins can also increase the Reserve Banks’ payments for commemorative  circulating coins, while limiting the Reserve Banks’ receipts because the  coins are kept out of circulation. When coins leave “active” circulation— that is, the coins are stored and not deposited or used for commerce—they  are not available to meet depository institutions’ demand.
During fiscal years 1993 through 2007, the Reserve Banks’ aggregate  orders for new coins tracked together with net pay fairly closely. For  example, in fiscal year 2002, total orders for new coins—14.72 billion  coins—were a little lower than the total net pay for all coins—15.11 billion  coins—and resulted in a decrease in inventory for some denominations. In  fiscal year 2007, total orders for new coins—14.63 billion coins—were a  little higher than the total net pay for all coins—14.02 billion coins,  suggesting the Reserve Banks ordered enough coins to fulfill net pay for  the year and increased total inventory. Federal Reserve officials suggest  that this aggregate annual increase of nearly 600 million coins can, in part,  be explained by the introduction of the Presidential $1 Coin Program.  After the first year of the program, the Reserve Banks report inventories of  at least 300 million Presidential dollar coins. Orders for the penny  constituted over half of the total orders for new coins. In fiscal year 2007,  orders for the penny were 7.76 billion coins, while net pay was 7.79 billion  coins. According to Reserve Bank officials, the difference between orders  for new pennies and net pay resulted in an aggregate decline of about   30 million pennies in Reserve Banks’ inventories.
The Reserve Banks strive to maintain sufficient inventories of coins to  fulfill demand, despite seasonal and unanticipated changes and potential  interruptions in the supply of new coins. First, inventory is important in  handling the seasonal fluctuations in demand for coins. According to  documentation on the IMF tool and Reserve Bank officials, this fluctuating  demand can be met by either (1) adjusting the number of coins ordered to  keep pace with known seasonal changes in demand or (2) keeping orders  constant and allowing inventory to fluctuate in response to these changes  in demand. The Reserve Banks place orders to keep the U.S. Mint’s  production schedule fairly consistent and allow inventories to fluctuate  with the seasonality of coin demand. For example, Reserve Bank officials  said they ensure that they have enough coins on hand to meet the high  coin demand leading into the summer and holiday months. According to  Federal Reserve officials, a Reserve Bank office may not transfer coins out  of its area if the office knows that those coins will be needed in the next  week or month. Federal Reserve officials also noted that although the  Reserve Banks can predict the timing of seasonal changes in demand for  coins, it is more difficult for them to predict the magnitude of the changes  from one year to the next. Predicting demand is important because the  U.S. Mint may not be able to produce enough coins within a short time  frame to keep up with heavy demand. Second, since there is some  uncertainty in the actual demand for coins in any given month, the Reserve  Banks’ coin inventory provides a buffer against any changes in demand  that may occur between the times the coins are ordered and received.  Third, the Reserve Banks want to hold enough inventory to handle  disruptions in supply from the U.S. Mint. For example, when the   U.S. Mint’s production facilities in Philadelphia shut down, starting in  March 2002, for 7 weeks to correct safety concerns, the Mint worked with  the Reserve Banks to ensure that coins were available to fulfill demand.
Figure 5 shows that when compared with expected demand, expressed as  days of payable inventory, the Reserve Banks’ overall inventory for the  penny, nickel, dime, and quarter has generally decreased since fiscal year  2001. For example, the penny inventory declined from an average of   32 days of payable inventory, or 3.0 billion coins, in fiscal year 2001 to an  average of 16 days of payable inventory, or 2.2 billion coins, in fiscal year  2007. The nickel inventory declined from 37 days of payable inventory in  fiscal year 2001 to 25 days of payable inventory in fiscal year 2007.  Inventory levels throughout the year vary around these averages because  of fluctuations in the public’s spending patterns.
Figure 6 shows that the days of payable inventory for the half-dollar and  dollar coins greatly exceed the levels for the other denominations and  have generally increased in recent years. According to Federal Reserve  officials, there is little demand for these denominations. Federal Reserve  officials said that dollar coin inventories have also grown as a result of the  Presidential $1 Coin Program, which requires the Federal Reserve to  ensure that, during an introductory period, an adequate supply of each  newly minted design (there are four new coins each year) is made  available for commerce and collectors.
Several factors affected trends in the Reserve Banks’ inventory levels  during fiscal years 1993 through 2007. For example, inventory levels for all  denominations dropped from fiscal years 1997 to 1999. Reserve Bank  officials said that the demand for all coin denominations grew in 1999 in  anticipation of the new millennium (Y2K). In fiscal year 2001, inventory  levels for all denominations increased. According to the U.S. Mint’s 2001  annual report, the economy, which is directly related to the demand for  coins, took a downturn in the middle of fiscal year 2000, resulting in a  decrease in coin demand and a buildup of coin inventories. According to  Reserve Bank officials, the inventory trends for the quarter and dollar coin  reflect the challenges posed by the commemorative circulating programs  associated with these coins. The officials noted that commemorative  circulating coin programs, such as the Presidential $1 Coin Program,  create uncertainty about the demand for those denominations. These  programs involve the distribution of multiple coin designs and require the  Reserve Banks to order enough commemorative circulating coins to meet  the normal demand for coins for commercial transactions as well as the  potential demand from collectors when the coins are first introduced.  According to Reserve Bank officials, the Reserve Banks did not initially  have experience in working with commemorative circulating coins and  placed large orders for state quarters to ensure that they would have  enough on hand to meet both normal transactional demand and potential  collector demand. As a result, more quarters flowed back to the Reserve  Banks than Reserve Bank officials expected for the first several releases.  Reserve Bank officials noted that their forecasts of demand for state  quarters have improved, and that their inventory of quarters has declined.  The officials also noted that even with more experience, however,  programs, such as the Presidential $1 Coin Program, require the Reserve  Banks to order more coins than they would otherwise use for  transactional purposes, thereby increasing Reserve Banks’ coin inventory  levels beyond the levels they would ordinarily hold.
The coin terminal operators, banking associations, and Reserve Bank  officials with whom we spoke confirmed that the Reserve Banks’ process  has fulfilled the depository institutions’ demand for coins in recent years.  Reserve Bank and CPO officials told us that they have been able to fill all  depository institutions’ requests for coin. The four coin terminal operators  that we spoke with also noted that the Reserve Banks have been able to  meet the demand of the depository institutions in their terminals. Finally,  representatives from two banking associations said that constituent banks  across the country have voiced no concern about the Reserve Banks’  ability to distribute coins to the depository institutions.
section_title: Optimal Inventory Ranges Are Undefined, but the Reserve Banks Are Taking Steps to Manage Coin Inventory More Efficiently
paragraphs: The Reserve Banks have taken a decentralized approach to managing coin  inventory, under which the Reserve Bank offices have decided what  inventory levels are appropriate to keep on hand to meet forecasted  demand and avoid the risk of coin shortages. Each Reserve Bank office  has defined its own inventory levels on the basis of professional judgment  and historical data, to meet demand and avoid running out of coins, and  has used the capacity of its storage facilities as the key determinant of its  maximum inventory levels. According to Reserve Bank officials, insurance  limits at the coin terminals also help to define maximum inventory levels,  but they can be adjusted, if necessary. Reserve Banks we spoke with had  no specific levels for maximum inventory other than storage capacity and  coin terminal insurance limits.
Because each Reserve Bank sets its own inventory levels, the districts  manage to different inventory levels and hold varying levels of inventory  relative to demand. For example, according to Reserve Bank officials, 3 of  the 12 Reserve Banks generally try to hold at least 10 days of payable  inventory for all denominations, while 6 of the 12 districts generally try to  hold at least 20 or more days of payable inventory. Table 1 shows that for  fiscal year 2007, the districts held varying levels of inventory relative to  demand for the different denominations. For example, the penny  inventories ranged from an average of 8 days in the Boston district to   26 days in the San Francisco district, while the quarter inventories ranged  from 17 days in the St. Louis district to 40 days in the Philadelphia district.
Table 2 shows how the inventories for the penny, nickel, dime, and quarter  have varied across Reserve Banks from fiscal years 1996 through 2007.
According to Federal Reserve officials and documentation of the Reserve  Banks’ IMF tool, the districts hold varying levels of inventory relative to  demand because of the differences in the variability in coin demand and  because some offices have more storage capacity. To be able to respond to  the variability in demand, some Reserve Bank offices need to hold more  coins than other offices relative to demand to ensure that they have  enough coins to meet demand at all times. See appendix IV for the  inventory levels relative to demand, by district and denomination, for  fiscal years 2005 through 2007.
Most Reserve Bank officials said that they were generally comfortable  with their current inventory levels and expressed no concerns about  having too many coins. Several Reserve Bank officials told us that they  ordered conservatively—that is, they erred, if at all, on the side of ordering  too many coins—because they were more concerned about not having  enough coins to meet depository institutions’ demand during high demand  periods than about having too many coins at other times. CPO officials  said it would be easier to deplete coin inventories than to build them up.  Furthermore, most Reserve Bank officials were not concerned about   having too many coins because they said they have ample on-site and off- site storage capacity and insurance levels at the coin terminals to store  their coin inventory. For example, two districts have new, on-site coin  vaults that were built within the last 10 years and were designed to  accommodate the entire coin inventory for the district, even without coin  terminals. Reserve Bank officials said that if the coin inventory level at a  particular location approaches the storage limits, they work to move coins  to another Reserve Bank or terminal.
CPO and Reserve Bank officials noted that the risk of not meeting  depository institutions’ demand for coins far exceeds the risk of having  too many coins in inventory, as long as storage capacity exists. For  example, Federal Reserve officials told us that in 1999, they had problems  fulfilling the depository institutions’ demand for pennies. During this time,  the U.S. Mint could not produce enough pennies to fill Reserve Banks’  orders. In addition, the Reserve Banks were not yet coordinating coin  distribution nationally and, therefore, could not easily identify sources of  inventory available for redistribution. According to Federal Reserve  officials and coin terminal operators, some depository institutions became  concerned that coins would not be available to meet their demand and  began hoarding coins, which further exacerbated the problem. Federal  Reserve officials noted that since 2001, CPO has coordinated Reserve  Bank coin distribution from a national perspective to help ensure  confidence in the availability of coins, and, since that time, the Reserve  Banks have experienced no shortages.
Although we only heard about storage capacity concerns from Reserve  Bank officials in one district, some coin terminal operators expressed  concerns about coin inventory levels in their terminals. Officials from one  Reserve Bank told us that, on rare occasions, they have had to negotiate  with depository institutions on when the Reserve Bank could accept coin  deposits because storage space was not immediately available. Reserve  Bank officials also said that every effort is made to redistribute coins  before insurance levels are reached at the coin terminals, and that the  Reserve Bank offices work with the coin terminal operators to stay under  the insurance limits. However, two of the four coin terminal operators  with whom we spoke said that the Reserve Banks maintain higher  inventory levels than the operators consider sufficient to respond to  changes in demand. CPO and Reserve Bank officials said that they were  sensitive to the numbers of coins being held at the coin terminals, but the  officials noted that the Reserve Banks work to stay within the limits  established in their agreements with the operators. One coin terminal  operator noted that it did not have concerns about the Reserve Banks’  coin inventory levels or the distribution process. However, this operator  noted that high volumes of coin recycling activity posed a challenge in  some of its terminals. This operator also said that CPO was helping to  move some of the coins out of the terminals, but that the high volumes  would continue to be a problem until coin stakeholders—coin terminal  operators, depository institutions, and CPO—find a solution to equitably  redistribute the recycled coins.
Although we recognize the importance of minimizing the risk of not having  sufficient coins to meet demand at all times, the Reserve Banks’ current  approach to inventory management does not define an optimal range of  inventory for the offices to meet demand. Inventory levels that greatly  exceed likely future demand could result in the overproduction of new  coins and in potential storage concerns for the coin terminal operators.  Data show that the Reserve Banks’ overall inventory levels relative to  demand for all denominations, except the half-dollar and the dollar coins,  have generally decreased since 2001. However, the Reserve Banks and  coin terminals have sufficient capacity for the Reserve Banks to hold  higher levels of inventory for some denominations than are likely to be  used to meet demand. Moreover, the storage capacity at the coin terminals  is provided to the Reserve Banks at no charge. As a result, the Reserve  Banks lack an incentive to evaluate and manage to optimal coin inventory  ranges. In addition, the current approach to inventory management could  lead to the overproduction of new coins in the short term or to the  retention in some districts of coin inventory that could be redistributed to  meet demand in another district. Thus, a Reserve Bank may incur few or  no charges for storing high inventory levels, but the U.S. Mint may incur  costs for producing new coins when circulated coins may be available to  fulfill demand. Producing new pennies and nickels when circulated coins  could be used instead is particularly inefficient, since these denominations  cost more to produce than they are worth. According to Federal Reserve  officials, to mitigate this risk, CPO has been working with the Reserve  Banks to manage inventories from a national perspective by transferring,  where appropriate, inventories from one Reserve Bank to another one.  According to a U.S. Mint official, a continuing demand for new coins  means that producing coins when there is production capacity is not a  concern because these coins will eventually be needed. In fact, he  indicated that delaying production when there is production capacity may  actually increase costs in the long run because production costs, like other  costs, tend to increase over time.
CPO has recognized the importance of further centralizing and increasing  the efficiency of the Reserve Banks’ approach to coin inventory  management and has identified opportunities for doing so. In 2006, the  Reserve Banks and the U.S. Mint co-chartered a 6-month pilot of a new  inventory management approach in one district. During the pilot, CPO   (1) managed the inventory using vendor software that forecasts coin  demand at the Reserve Bank office or terminal level to provide consistent  upper and lower bounds for inventory levels at each terminal site in the  district and (2) used this information to maintain inventory levels to meet  demand in the district. The Reserve Bank office was then responsible for  moving coins among the coin terminals to meet demand. The Reserve  Banks and the U.S. Mint assessed the results of the pilot and found that the  new approach reduced the risk of shortages, transportation expenses, and  inefficiencies associated with the U.S. Mint’ s production volatility as well  as increased stakeholders’ confidence in the coin distribution system.  According to CPO officials, the pilot also demonstrated that the district’s  inventory levels could be reduced. As a result of the pilot, CPO received  approval from the Reserve Banks in October 2007 to implement a more  centralized approach to managing coin orders and inventories. According  to CPO officials, they are expecting to phase in this new approach,  beginning with three districts in the second quarter of 2008.
When the new approach is implemented, CPO will have the final authority  to determine orders on behalf of the Reserve Bank offices and will be  responsible for managing inventory levels that are maintained at the office  level. According to CPO officials, CPO will continue to provide the  Reserve Bank offices with a recommended monthly order. The Reserve  Bank offices will be able to review this order and suggest revisions, but  ultimately CPO will decide on the final order for each office. Although  Reserve Bank officials told us that under the current approach, their  adjustments to the IMF tool’s recommended coin orders were minimal,  over the past 3 years the combined impact of these adjustments was  sometimes substantial. For example, the IMF tool recommended a total  order of $52 million in pennies for all of the Reserve Bank offices in fiscal  year 2007. Following the offices’ assessment of local market factors and  the availability of transfers of circulated coins to fulfill the offices’  requests, CPO submitted a total order of $77.6 million for new pennies to  the U.S. Mint. CPO’s ability to now decide on the number of coins each  district will receive monthly could potentially result in decreased orders  for new coins from the U.S. Mint. CPO is considering establishing  inventory ranges for the Reserve Bank offices on the basis of factors such  as historical trends in coin payments and receipts, the amount of time  taken to transport coins to a Reserve Bank office, and storage capacity  limits to better define the level of inventory to be held to meet demand. We  believe that the establishment of inventory ranges could help CPO and the  Reserve Banks evaluate and report on the effectiveness of CPO’s inventory  management approach. CPO officials believe that these changes will  improve the Reserve Banks’ inventory management because CPO can  provide a national perspective on where inventory can be used to meet  demand, including where coins can be moved when necessary to meet  demand in one district, while freeing space for coin deposits in storage  facilities that are approaching capacity in another district. U.S. Mint  officials said that the new approach could allow the U.S. Mint to further  smooth its production schedule, thereby lowering costs associated with  unpredictable changes in production.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Board of Governors of the Federal  Reserve System and to the Department of the Treasury for their review  and comment. The Director of the Division of Reserve Bank Operations  and Payment Systems provided written comments, which are reproduced  in appendix VI. Overall, the Federal Reserve agrees with the findings in  our report and believes that the data in the report reflect the Reserve  Banks’ efficient and effective management of coin inventories. The Federal  Reserve also provided technical comments, which we have addressed in  this report as appropriate. The Acting Deputy Director of the U.S. Mint  provided oral comments stating that the agency agrees with the  information in this report as it pertains to the U.S. Mint and provided  technical comments, which we have also incorporated as appropriate.
We are sending copies of this report to interested congressional  committees, the Chairman of the Board of Governors of the Federal  Reserve System, the Secretary of the Treasury, and the Director of the   U.S. Mint. 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.
If you have any questions about this report, please contact me at   (202) 512-2834 or flemings@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to examine (1) the Reserve Banks’  process for ordering and distributing coins and (2) the extent to which this  process meets the depository institutions’ demand for coins.
To describe the Reserve Banks’ process for supplying coins throughout  the country, we obtained and reviewed relevant articles, reports,  economic studies, and technical documentation on how the Reserve  Banks and the U.S. Mint determine the number of coins to be produced  and distributed. We also interviewed Federal Reserve and U.S. Mint  economists who were involved in the development of economic models  used to predict coin demand. During these interviews, we reviewed how  the national coin forecast models are used by both the Reserve Banks and  the U.S. Mint and discussed the accuracy of these models in predicting net  pay at the national level. We interviewed officials from the Federal  Reserve’s Board of Governors (Board), each of the 12 Reserve Bank  districts, and the national Cash Product Office (CPO) to determine how  coin orders are developed and submitted to the U.S. Mint. In addition, we  reviewed statutes related to the Federal Reserve and U.S. Mint.
We also interviewed key stakeholders, including officials from the   U.S. Mint, operators of coin terminals with agreements to store Reserve  Bank coin inventory, and representatives of banking associations, to  determine how the Reserve Banks work in collaboration with others to  identify and fulfill the depository institutions’ requests for coins. We  obtained and analyzed information on the costs paid by the U.S. Mint to  transport existing coins and analyzed the number of transfers between  Reserve Bank districts since fiscal year 2002. To determine how CPO was  able to reduce orders for new coins through transfers of existing coin  inventory, we reviewed Reserve Bank data documenting actual coin  demand and compared these data with the Reserve Banks’ actual order to  the U.S. Mint for new coins and the number of circulated coin transfers  processed by CPO.
To determine the extent to which the Reserve Banks’ coin distribution  process meets the depository institutions’ demand for coins throughout  the country, we obtained data on the Reserve Banks coin payments to  depository institutions, receipts for coins deposited by the depository  institutions, orders for new coins, and inventory levels for fiscal years 1993  through 2007 for each coin denomination and for each Reserve Bank. We  analyzed these data using Excel and SAS statistical analysis software. To  calculate Reserve Banks’ number of coins paid to the depository  institutions and Reserve Banks’ number of coins received from the  depository institutions at the national and district level for all coin  denominations, we converted the data from value of coins to volume of  coins and then calculated fiscal year totals for each denomination at the  national and district level. We created line charts to compare the total  number of coins that Reserve Bank paid to depository institutions with the  total number of coins that the Reserve Bank received from the depository  institutions. To calculate net pay and the Reserve Banks’ coin order to the  U.S. Mint, we converted the data from value of coins to volume of coins  and calculated fiscal year totals at the national and district level. We  created line charts to compare the net pay data with the Reserve Banks’  coin order data.
To calculate the Reserve Banks’ days of payable inventory, we consulted  with officials at the Board and CPO to determine an appropriate  methodology. CPO and Reserve Banks calculate payable inventory  information several different ways, depending upon what they are  assessing. For the purposes of our review, we determined that a  comparison of inventory relative to a 3-month daily average of payments  for 3 years was the most appropriate calculation to determine the Reserve  Banks’ inventory position, because it compares inventory relative to what  the Reserve Banks could reasonably have expected coin payments to be in  the future. This methodology captures coin inventory levels relative to  what Reserve Banks expected to need to meet future payments to  depository institutions. For the numerator, we used end-of-month  inventory levels for a given month. For the denominator, for the 3 previous  years, we used the quarter following the inventory month used in the  numerator to assess inventory levels relative to demand in the following  quarter. For example, when we calculated days of payable inventory for  December 2006, we used data for January, February, and March, 2004;  January, February, and March, 2005; and January, February, and March,  2006, in the denominator. To calculate the average daily payment rate, we  took the monthly payments data from each month of the quarter from the  previous 3 years and divided by 21 business days to obtain an average  daily payment rate for each month. We then totaled the daily payment  rates for the 9 months and divided by 9 to obtain an average payment rate  of the 3 quarters for the 3 years. To calculate the annual average days of  payable inventory, by denomination, for each Reserve Bank, we averaged  the monthly figures on days of payable inventory that we computed as we  have previously described. Because of the methodology we used to  calculate days of payable inventory, 1996 is the earliest year for which we  can present the data. We used statistical analysis software to complete this  analysis for each coin denomination at the national and Reserve Bank  level.
We also interviewed officials at the Board and Reserve Banks to discuss  factors affecting trends in the data, the level of inventory that each district  tries to hold, and the Reserve Banks’ approach to coin inventory  management. To describe the Reserve Banks’ new centralized approach to  coin inventory management and how it might address concerns about  inventory management, we interviewed officials at CPO and the Board  about a 2006 pilot to test a new inventory management approach at the  Reserve Bank of Cleveland.
To assess the reliability of the coin data we received from the Reserve  Banks and U.S. Mint, we talked with agency officials about data quality  control procedures and reviewed relevant documentation. For example,  we reviewed audit reports for fiscal years 2006 and 2007 prepared by the  Department of the Treasury’s Office of Inspector General, which reported  that the U.S. Mint’s data were accurately presented and in conformity with  generally accepted accounting principles. The U.S. Mint has received  approximately 15 consecutive unqualified opinions. These internal control  audits found no material weaknesses and found that the U.S. Mint is in  compliance with the Federal Manager’s Financial Integrity Act. For the  Federal Reserve data, we reviewed an independent auditor’s reports on  the Federal Reserve’s financial statements for fiscal years 1995 through  2006, and found that the Federal Reserve’s data were accurately presented  and in conformity with generally accepted accounting principles. We also  performed advanced electronic testing to assess the reliability of the  computer-processed data, and determined that these data were accurate,  complete, and consistent and, therefore, sufficiently reliable for the  purposes of this report.
We conducted this performance audit from April 2007 through March 2008  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.
section_title: Appendix II: Coin Production Trends, by Denomination
paragraphs: Figures 7 through 13 show trends in the U.S. Mint’s coin production data  for fiscal years 2002 through 2007. These data represent all of the  “circulating” coins produced by the U.S. Mint; they do not include the  “proof” or “uncirculated” quality coins produced by the Mint.
section_title: Appendix III: National Payments and Receipts Data, by Denomination
paragraphs: The Reserve Banks make coin payments to depository institutions and  accept coin deposits from depository institutions on a daily basis. Figures  14 through 19 show total payments and receipts for each coin  denomination for all 12 Reserve Banks for fiscal years 1993 through 2007.
section_title: Appendix IV: Average Days of Payable Coin Inventory, by Reserve Bank District and Coin Denomination
paragraphs: The Reserve Banks strive to maintain sufficient inventories of coins to  fulfill demand, despite seasonal and unanticipated changes in demand for  coins and potential interruptions in the supply of new coins. Tables 3  through 14 show the days of payable inventory maintained at each of the  12 Reserve Banks from fiscal years 2005 through 2007. Payable inventory  represents the amount of inventory needed to meet expected demand for  coins and is calculated by comparing inventories with average payment  data over a 3-month period for the preceding 3 years.
section_title: Appendix V: Number of Coin Transfers and Related Costs, Fiscal Years 2002-2007
paragraphs: CPO looks for opportunities to reduce orders for new coins to the U.S.  Mint by transferring circulating coins from one Reserve Bank district to  another. The U.S. Mint pays for the cost for transfers over 100 miles. Table  15 shows the number and cost of transfers paid by the U.S. Mint from  fiscal years 2002 through 2007.
section_title: Appendix VI: Comments from the Board of Governors of the Federal Reserve System
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jonathan Carver, Jay Cherlow,  Maria Edelstein (Assistant Director), Elizabeth Eisenstadt, Brandon Haller,  Heather Krause, Josh Ormond, Jena Sinkfield, Susan Michal-Smith, and  Jerry Sandau made key contributions to this report.