U.S. counterfeiting deterrence efforts are coordinated through the Advanced Counterfeit Deterrence Steering Committee, comprised of officials from the Department of the Treasury (including the Secret Service and the Bureau of Engraving and Printing) and the Federal Reserve. The Secretary of the Treasury is responsible for manufacturing and protecting U.S. currency. The Secret Service investigates counterfeiting and maintains counterfeit-detection data, and the Bureau of Engraving and Printing designs and prints U.S. currency. The Federal Reserve issues U.S. currency, pays U.S. currency to and receives U.S. currency from authorized financial institutions in the United States (some of which may have affiliates and/or customers outside the United States), and is responsible for substantiating the authenticity of all U.S. currency received. The Federal Reserve also maintains data on the amount of U.S. currency that its customers report as shipped to and from the United States and the amount that it detects as counterfeit. Developed in conjunction with the Advanced Counterfeit Deterrence Steering Committee, the Treasury’s audit plan identifies data sources, sets forth site selection criteria, lists questionnaires to be used in interviews abroad, discusses what audit reports might contain, sets time frames, and states that the Federal Reserve will attempt to specify and test a model of currency usage abroad. The Treasury’s plan draws heavily on information obtained from ongoing International Currency Awareness Program study trips. The purpose of those trips was to meet with foreign financial institution, government, and law enforcement officials to learn more about the uses, distribution, and counterfeiting of U.S. currency overseas and to begin to inform those abroad about the U.S. currency redesign. In September/October 1996 and January 1997, first using the Treasury’s draft and then the formally submitted audit plan, the Treasury and the Federal Reserve took two study trips similar to those done under the International Currency Awareness Program. As of February 1997, study trips under the International Currency Awareness Program and Treasury’s audit plan had been made to 18 countries or entities where U.S. currency was used or distributed to a significant extent. Under the Treasury’s audit plan, the first audit was to begin no later than April 24, 1997, and to be completed by September 1999. At least one audit is to be performed during each subsequent 3-year period through April 2006. The act requires the Secretary to submit a written report to certain congressional committees on the results of each audit within 90 days after completing the audit. The Secretary of the Treasury’s submitted plan does not demonstrate how it will enable the Treasury to meet the audit plan objectives required under the act. A written plan should define the audit’s objectives and the scope and methodology to achieve those objectives. The Treasury plan’s audit objectives are not clearly stated and do not include the findings and reporting elements that the Treasury expects to develop. Concerning scope, the plan provides a time line for completing the audits, site selection criteria for regions of the world, and information and data sources. Although the plan provides some information on data gathering, it does not fully explain the analytical methods the Treasury intends to use to achieve the objectives. For example, the plan identifies data sources and provides questions that may be asked of foreign financial and law enforcement officials, but it does not fully explain how this information will be analyzed and synthesized to address each of the audit plan objectives under the act. The plan does not describe analytical methods for studying the holding of genuine U.S. currency abroad and developing estimates of counterfeit U.S. currency abroad. However, it describes elements of a methodology that might be used to study the use of genuine U.S. currency abroad. The plan indicates that the Federal Reserve will attempt to specify and test a model of how the U.S. currency that is held outside the United States is used to support or refute an assumption about currency movement outside the United States. The assumption to be tested is that currency moves between and among individuals and business firms in such a way that the portion of U.S. currency held abroad that is received by the Federal Reserve each year (at least 13 percent in 1995) through its foreign-origin currency receipts is representative of the total amount of U.S. currency abroad. The Federal Reserve’s model is expected to place a special emphasis on the factors that cause certain amounts to (1) come into the possession of financial institutions abroad, (2) be regarded as surplus to the needs of those individual financial institutions, (3) be sold subsequently to correspondent banks, and, finally, (4) be deposited by a correspondent bank at the Federal Reserve. However, the plan does not fully explain how the Treasury intends to analyze the information obtained to reach conclusions about the use of U.S. currency abroad. After we highlighted some of the plan’s shortcomings, particularly the absence of methodologies, Treasury and Federal Reserve officials acknowledged that the plan could be improved. The Treasury official responsible for developing the plan stated that the audit objectives—to study the use and holding of genuine U.S. currency in foreign countries and develop estimates of the amount of counterfeit U.S. currency circulating outside the United States each year—are the same as those stated in the act. Further, the official told us that, with the assistance of the Federal Reserve, the Treasury intends to submit a written addendum to Congress to better explain its proposed methodologies, with the caveat that these methodologies may change based on information obtained abroad during the course of the audits. The Treasury official also told us the Treasury intended to include in the addendum a description of its assumptions and the limitations associated with the use of the resulting information. Treasury and Federal Reserve officials explained that rather than develop and test a model of currency usage, as discussed in the submitted plan, they will summarize information obtained from foreign officials to describe the uses of U.S. currency in the countries visited. They said that it is not possible to develop a single model of how U.S. currency is used abroad because of the numerous reasons why U.S. currency is used and the many channels through which U.S. currency is distributed. However, by determining and describing the process by which U.S. currency is used in individual countries under specific conditions, they said that they may be able to understand U.S. currency usage in other countries in similar situations. They said that they need to interview foreign officials to obtain information on currency usage and flows because little written data exist. They told us that the information obtained on genuine currency usage will also be reviewed to determine whether any of the information conflicts with their assumptions about the usage of genuine U.S. currency abroad. By determining how currency is used and how it flows within and between particular regions and countries, the Treasury and the Federal Reserve intend to support or refute the assumption that the sample of U.S. currency returned to and reviewed by the Federal Reserve is representative of the amount that is not returned to the Federal Reserve. According to the Treasury official responsible for developing the plan, the Treasury plans to address holdings by establishing estimates of the total amount of genuine U.S. currency abroad. To do this, the Treasury intends to use the Federal Reserve methodology outlined in its 1996 study.Synthesizing several methods and data sources, the Federal Reserve estimated that about $200 billion-$250 billion of U.S. currency, or up to two-thirds of the roughly $375 billion in circulation outside of banks in 1995, was abroad. As described in the study, because of the inadequacy of measurement tools, the Federal Reserve used a range of direct and indirect methods that provided an estimate of foreign and domestic currency holdings. The Federal Reserve study points out that because the data on currency flows abroad are incomplete, cumulating them does not provide a good estimate of the amount of currency held abroad. Thus, the authors combined flow data with estimates from other methods. The estimates of foreign holdings vary depending upon which method is used. The study concluded that between 55 percent and 70 percent of U.S. currency is held abroad. We reviewed the study and found the method to be reasonable, based on the given assumptions. Treasury and Federal Reserve officials told us they intend to support or modify the estimate with information obtained during the studies abroad and to update and publish estimates periodically. According to the Treasury, it intends to use an existing Federal Reserve method to establish estimates of counterfeit U.S. currency circulating abroad. The Treasury indicated that it is confident the data it already collects are sufficient for developing these estimates. The method that has been in use over the past few years is based on a number of assumptions that cannot be either fully validated or disproved. Treasury and Federal Reserve officials said that information they have obtained to date validates the assumptions, yet they may modify this method if the information obtained through their trips abroad make them question their assumptions. Although they recognize that the estimates cannot be definitive or statistically validated due to the nature of the activity, they believe the method should provide a rough estimate or range that the Treasury can use to assess the counterfeiting threat when taken into consideration with other factors. According to the Treasury, the most significant and detailed measures of counterfeit U.S. currency circulating abroad are already contained within the Federal Reserve’s currency receipt data and the Secret Service’s counterfeit-detection statistics, upon which the Treasury’s estimate is based. The Federal Reserve indicated that through its foreign-origin currency receipts it is able to examine a significant portion of the U.S. currency estimated to be circulating outside of the United States. Such receipts amounted to at least 13 percent of the currency that was likely to be outside of the United States in 1995 and may amount to 20 percent in 1996, according to the Federal Reserve.