H.R. 1495: Gold Reserve Transparency Act of 2011
Published: 2011-06-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses H.R. 1495, the Gold Reserve Transparency Act of 2011. This proposed legislation, which was recently referred to the Subcommittee on Domestic Monetary Policy and Technology, House Committee on Financial Services, provides for an audit of the gold reserves of the United States. Specifically, the bill calls for the Secretary of the Treasury to conduct and complete, not later than 6 months after passage of the act, a full assay, inventory, and audit of gold reserves of the United States at the place or places where such reserves are kept, together with an analysis of the sufficiency of the measures taken for the security of such reserves. The bill also calls for the Government Accountability Office (GAO) to review the results of such assay, inventory, audit, and analysis and, not later than 9 months after passage of the act, prepare and transmit to the Congress a report of GAO's findings together with the results of the work performed by the Secretary of the Treasury. This testimony focuses on (1) the reported holdings of gold reserves of the United States as of September 30, 2010; (2) past and current audit efforts regarding gold reserves of the United States, including those of the Department of the Treasury's (Treasury) Office of Inspector General (OIG); and (3) the requirements of H.R. 1495.
section_title: What GAO Found
paragraphs: The holdings of gold reserves of the United States are presented in various financial reports, including the United States Mint's (Mint) Schedule of Custodial Deep Storage Gold and Silver Reserves (Mint's Custodial Schedule), the Mint's financial statements, and Treasury's departmentwide financial statements. As of September 30, 2010, most, or approximately 95 percent, of the reported gold reserves of the United States were in the custody of the Mint. The gold reserves in the custody of the Mint are comprised of deep storage and working stock gold. Deep storage gold, which consists primarily of gold bars, represented nearly all of the gold reserves in the custody of the Mint and was maintained in three locations: the United States Bullion Depository at Fort Knox, Kentucky; the Mint at Denver, Colorado; and the Mint at West Point, New York. Working stock--which consists of bars, blanks, unsold coins, and condemned coins--represented about 1 percent of the reported gold reserves in the custody of the Mint and can be used as the raw material for minting coins. The remaining reported holdings of gold reserves of the United States were in the custody of the Federal Reserve Bank of New York. In 1974, in response to congressional interest and in conjunction with the Mint, GAO assisted in the planning and observed the inventory of gold reserves of the United States maintained by the United States Bullion Depository at Fort Knox. GAO selected 3 of the 13 compartments at this depository to be audited. The audit procedures included observing and participating in a physical inventory of the entire contents of the three compartments. GAO did not report any differences between the gold stored in these compartments and the Fort Knox depository's records. In addition, GAO's procedures included observing the assaying of a sample of gold bars. The results of the assays indicated that the recorded finenesses were within the tolerances the Mint established. In connection with this audit, GAO recommended that the Secretary of the Treasury request the Director of the Mint to annually perform a cyclical inventory of its gold holdings to ensure that the gold holdings in all compartments would be inventoried over a specified period of years. Acting on this recommendation, Treasury established the Committee for Continuing Audits of United States Government-owned Gold (Committee for Continuing Audits) in 1975 to oversee and provide guidelines and general direction for continuing audits.5 The objectives of the continuing audits were to verify the accuracy of the inventory of gold and the adequacy of related accounting records and internal controls in accordance with Treasury audit policies. H.R. 1495 provides for the Secretary of the Treasury to conduct and complete a full assay, inventory, and audit of gold reserves of the United States and an analysis of the sufficiency of the measures taken for the security of such reserves. In considering the provisions of H.R. 1495, it will be important to consider the cost, benefit, and timing of actions needed to implement the proposed requirements. H.R. 1495, if enacted, may result in duplication of certain past and current efforts, especially with regard to inventorying and auditing the gold reserves of the United States. Nevertheless, GAO would be capable of carrying out the required review of the results of the Secretary of the Treasury's actions called for by the bill, should it be enacted. GAO's review would include visits to the facilities at which the gold reserves of the United States are held to selectively observe the inventorying and auditing of the gold reserves and xaminations of various documentation supporting the required assay, inventory, and audit.

section_title: Letter
paragraphs: I am pleased to be here today to discuss H.R. 1495, the Gold Reserve  Transparency Act of 2011. This proposed legislation, which was recently  referred to your Subcommittee, provides for an audit of the gold reserves  of the United States. Specifically, the bill calls for the Secretary of the  Treasury to conduct and complete, not later than 6 months after passage  of the act, a full assay, inventory, and audit of gold reserves of the United  States at the place or places where such reserves are kept, together with  an analysis of the sufficiency of the measures taken for the security of  such reserves. The bill also calls for the Government Accountability Office  (GAO) to review the results of such assay, inventory, audit, and analysis  and, not later than 9 months after passage of the act, prepare and transmit  to the Congress a report of GAO’s findings together with the results of the  work performed by the Secretary of the Treasury.
My testimony today will focus on (1) the reported holdings of gold  reserves of the United States as of September 30, 2010; (2) past and  current audit efforts regarding gold reserves of the United States,  including those of the Department of the Treasury’s (Treasury) Office of  Inspector General (OIG); and (3) the requirements of H.R. 1495.
We conducted our work from June 3, 2011, to June 21, 2011, in accordance  with all sections of GAO’s Quality Assurance Framework that are relevant  to our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and to discuss any limitations in our work. We believe  that the information and data obtained, and the analysis conducted,  provide a reasonable basis for any findings and conclusions in this  product.
subsections: section_title: Gold Reserves of the United States
paragraphs: The holdings of gold reserves of the United States are presented in various  financial reports, including the United States Mint’s (Mint) Schedule of  Custodial Deep Storage Gold and Silver Reserves (Mint’s Custodial  Schedule), the Mint’s financial statements, and Treasury’s departmentwide  financial statements. As of September 30, 2010, most, or approximately 95  percent, of the reported gold reserves of the United States were in the  custody of the Mint. The gold reserves in the custody of the Mint are  comprised of deep storage and working stock gold. Deep storage gold,  which consists primarily of gold bars, represented nearly all of the gold  reserves in the custody of the Mint and was maintained in three locations:  the United States Bullion Depository at Fort Knox, Kentucky; the Mint at  Denver, Colorado; and the Mint at West Point, New York. Working stock— which consists of bars, blanks, unsold coins, and condemned coins— represented about 1 percent of the reported gold reserves in the custody  of the Mint and can be used as the raw material for minting coins. The  remaining reported holdings of gold reserves of the United States were in  the custody of the Federal Reserve Bank of New York. Table 1 presents  the reported amounts as of September 30, 2010, of fine troy ounces  (FTOs) of gold reserves of the United States by category and the financial  reports in which such categories were presented. From September 30,  2006, through September 30, 2010, the reported fiscal year-end amounts of  FTOs of (1) deep storage gold reserves in the custody of the Mint and (2)  gold reserves in the custody of the Federal Reserve Bank of New York  have not changed.
section_title: Past and Current Audit Efforts Regarding Gold Reserves of the United States
paragraphs: In 1974, in response to congressional interest and in conjunction with the  Mint, GAO assisted in the planning and observed the inventory of gold  reserves of the United States maintained by the United States Bullion  Depository at Fort Knox. GAO selected 3 of the 13 compartments at this  depository to be audited. The audit procedures included observing and  participating in a physical inventory of the entire contents of the three  compartments. GAO did not report any differences between the gold  stored in these compartments and the Fort Knox depository’s records. In  addition, GAO’s procedures included observing the assaying of a sample of  gold bars. The results of the assays indicated that the recorded finenesses  were within the tolerances the Mint established.
In connection with this audit, GAO recommended that the Secretary of the  Treasury request the Director of the Mint to annually perform a cyclical  inventory of its gold holdings to ensure that the gold holdings in all  compartments would be inventoried over a specified period of years.  Acting on this recommendation, Treasury established the Committee for  Continuing Audits of United States Government-owned Gold (Committee  for Continuing Audits) in 1975 to oversee and provide guidelines and  general direction for continuing audits. The objectives of the continuing  audits were to verify the accuracy of the inventory of gold and the  adequacy of related accounting records and internal controls in  accordance with Treasury audit policies. A March 1982 report to the  Congress by the Gold Commission noted that the continuing audit of such  gold was conducted on a cyclical basis because of the enormous quantity  of gold to be handled and the related costs. In an April 1987 report on  continuing audits of the United States government-owned gold, the  Treasury OIG stated that the continuing audits were designed to ensure  that about 10 percent of the United States government-owned gold was  audited annually. Further, the Treasury OIG stated that on September 19,  1986, the Inspector General had recommended canceling Treasury  Department Order No. 234-1, which had resulted in the creation of the  Committee for Continuing Audits, because it was unnecessary in view of  the authority of the Inspector General to conduct audits of the gold stock  under other Treasury Orders. It was also stated that annual audits of  government-owned gold were no longer necessary because (1) virtually all  of the gold in the custody of the Mint had been audited and placed under  seal and (2) there had been essentially no discrepancies found as a result  of those audits. Moreover, it was noted that Treasury Department Order  No. 234-1 was subsequently canceled. According to the Treasury OIG,  about 92 percent of the United States government-owned gold had been  audited by either GAO or the Committee for Continuing Audits as of  September 30, 1986.
More recently, the gold reserves of the United States have been presented  in various financial reports and have therefore been subject to various  audit efforts. For example, while the deep storage gold reserves are a  primary focus of the audit of the Mint’s Custodial Schedule, which is  audited by the Treasury OIG, the deep storage gold reserves are also  within the scope of the audit of the Mint’s financial statements, which are  audited by independent public accountants. Also, as a bureau within  Treasury, the balances and activity of the Mint are included on Treasury’s  departmentwide financial statements, which are required by law to  annually be prepared, audited, and submitted to the Congress and the  Director of the Office of Management and Budget. Specifically, 31 U.S.C.  §3515(b) requires that the financial statements of covered executive  agencies, of which Treasury is one, include the overall financial position of  the offices, bureaus, and activities covered by the statements, including  the assets and liabilities thereof; and the results of operations of those  offices, bureaus, and activities.
subsections: section_title: Treasury OIG’s Audits of Gold Reserves in the Custody of the Mint
paragraphs: The Inspector General Act of 1978, as amended, (IG Act) created offices  of inspector general at major federal departments, including the Treasury  OIG, to provide independent audits and investigations; promote  economy, efficiency, and effectiveness; and prevent and detect fraud,  waste, and abuse in the respective department’s programs and  operations. The Treasury OIG performs annual audits of the Mint’s  Custodial Schedule, which reports the deep storage gold reserves. As  shown in table 1, the deep storage gold reserves represent nearly all of the  gold reserves in the custody of the Mint.
Since issuing its first audit report on the Mint’s Custodial Schedules in  1995, which presented the results of its audit of the Mint’s Custodial  Schedules as of September 30, 1994, and 1993, the Treasury OIG has  annually audited the deep storage gold reserves in the custody of the Mint  as reported in the respective Mint’s Custodial Schedules. For each of the  fiscal years under audit, the Treasury OIG rendered unqualified or “clean”  opinions on the Mint’s Custodial Schedules. In addition, the Treasury OIG  did not report any material weaknesses in internal control over financial  reporting relating to the schedules for these fiscal years. The Treasury  OIG’s most recent audit report on the Mint’s Custodial Schedules, which  presented the deep storage gold reserves in the custody of the Mint as of  September 30, 2010, was issued on October 21, 2010.
In connection with the Treasury OIG’s annual audits of the Mint’s  Custodial Schedules, Treasury OIG officials told us that the Treasury OIG  reviews the physical controls (e.g., security fences, armed guards, security  cameras, metal detectors) at each of the three Mint locations where the  deep storage gold reserves are maintained. According to Treasury OIG  officials, as of September 30, 2010, there were 42 compartments of deep  storage gold reserves spread among these three Mint locations. As  previously noted, Treasury OIG officials estimate that about 92 percent of  the United States government-owned gold was audited by either GAO or  the Committee for Continuing Audits as of September 30, 1986. These  officials told us that once the inventory of a compartment being audited  was completed, the compartment was sealed with an official joint seal. A  joint seal is intended to place the gold contained in a compartment under  such control that subsequent representatives can accept the verification  made by previous representatives as to the weight and count of the gold.
According to Treasury OIG officials, the official joint seals, for all of the  compartments that were audited by either GAO or the committee and that  had not been opened since such audits, were inspected by the Treasury  OIG, as part of its audits of the Mint’s Custodial Schedules, to verify that  the seals had not been compromised. These officials also told us that over  the course of the Treasury OIG’s audits of the Mint’s Custodial Schedules  for fiscal years 1993 through 2008, the compartments containing the deep  storage gold reserves not audited by either GAO or the committee, along  with any previously sealed compartments that were opened, were selected  and audited. These officials told us that such audits included verifying the  following to the Mint’s inventory records:  1.  the number of gold bars in each melt;  2.  the melt number for each gold bar in the melt; and  3.  the fineness stamped on each gold bar in the melt.
In addition, as part of the audits of the selected compartments, Treasury  OIG officials stated that the Treasury OIG’s audit procedures have  included selecting a statistical sample of gold bars from the selected  compartments to be weighed and assayed and that no material differences  were noted. These officials also told us that once the inventory of a  selected compartment being audited was completed, the compartment  was sealed with an official joint seal to control the gold reserves contained  in the compartment. According to Treasury OIG officials, opening and  sealing compartments require the presence of three individuals—a  representative of the facility where the gold reserves are held, a  representative of the Director of the Mint, and a representative of the  Treasury OIG. They also told us that, as of the end of fiscal year 2008, an  inventory of each of the 42 compartments had been observed either by  GAO, the Committee for Continuing Audits, or the Treasury OIG and that  there has been no movement of deep storage gold reserves since that time.  As such, in addition to considering internal control over financial reporting  related to the Mint’s Custodial Schedules, Treasury OIG officials stated  that the Treasury OIG’s audit procedures since fiscal year 2008 have  primarily focused on inspecting the official joint seals each year for all 42  compartments to verify that they had not been compromised.
section_title: Independent Public Accountants’ Audits Covering Gold Reserves in the Custody of the Federal Reserve Bank of New York and the Mint
paragraphs: The gold reserves of the United States on Treasury’s departmentwide  financial statements consist of the gold reserves in the custody of the Mint  and those in the custody of the Federal Reserve Bank of New York. Since  fiscal year 2004, independent public accountants have rendered clean  opinions on these financial statements. According to Treasury OIG  officials, these independent public accountants’ primary audit procedure  regarding the gold reserves in the custody of the Federal Reserve Bank of  New York involves annually obtaining a confirmation from the Federal  Reserve regarding the gold reserves of the United States that are in the  Federal Reserve Bank of New York’s custody as of fiscal year-end,  including the amount of FTOs. The gold reserves in the custody of the Mint  are also reported on the Mint’s annual financial statements. Independent  public accountants have rendered clean opinions on the Mint’s financial  statements for fiscal years 2005 through 2010. According to Treasury OIG  officials, these independent public accountants’ procedures with regard to  the deep storage gold reserves in the custody of the Mint have included  reviewing the Treasury OIG’s audit documentation, accompanying the  Treasury OIG on site visits to the Mint’s storage locations, reviewing the  physical controls at the locations visited, and reperforming certain of the  Treasury OIG’s audit procedures.
section_title: Requirements of H.R. 1495
paragraphs: H.R. 1495 provides for the Secretary of the Treasury to conduct and  complete a full assay, inventory, and audit of gold reserves of the United  States and an analysis of the sufficiency of the measures taken for the  security of such reserves. In considering the provisions of H.R. 1495, it will  be important to consider the cost, benefit, and timing of actions needed to  implement the proposed requirements. H.R. 1495, if enacted, may result in  duplication of certain past and current efforts, especially with regard to  inventorying and auditing the gold reserves of the United States.  Nevertheless, GAO would be capable of carrying out the required review  of the results of the Secretary of the Treasury’s actions called for by the  bill, should it be enacted. GAO’s review would include visits to the  facilities at which the gold reserves of the United States are held to  selectively observe the inventorying and auditing of the gold reserves and  examinations of various documentation supporting the required assay,  inventory, and audit.
H.R. 1495 also provides for GAO to prepare and transmit to the Congress,  not later than 9 months after enactment of the act, a report of GAO’s  findings from such review together with the results of the assay, inventory,  audit, and analysis conducted by the Secretary of the Treasury. According  to Treasury officials, because of the enormous quantity of gold that would  need to be inventoried and assayed, there is uncertainty regarding the  ability of Treasury to complete such actions within the 6-month period  provided in H.R. 1495. If Treasury’s efforts are not completed within the 6- month period, there would be limitations on the scope of GAO’s work if  GAO were required to report within 9 months after enactment of the act.  GAO stands ready to work with the Subcommittee on developing changes  to the provisions of H.R. 1495 that would most efficiently utilize the results  of past and current gold reserve assay, inventory, and audit efforts.
Mr. Chairman and Ranking Member Clay, this concludes my prepared  statement. I would be pleased to respond to any questions that you or  other members of the Subcommittee may have at this time.
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