A longtime critic of the Federal Reserve says that new allegations of falsified reports at the Fed's Los Angeles branch highlights the need for greater outside scrutiny of the central bank's affairs.
However, Fed officials insist that the problem spotlighted by Rep. Henry B. Gonzalez has since been corrected and not a dime of bank funds were actually lost through what they described as errors in statistical reports.Gonzalez, the senior Democrat on the House Banking Committee, alleged Monday that employees at the Fed's Los Angeles branch had been ordered to falsify reports to cover up $178 million in discrepancies.
The Fed's Los Angeles currency vault operation is one of the largest in the country, receiving cash and coins from commercial banks and putting into circulation new Treasury bills.
"We cannot allow the central bank of the United States, the main custodian of the nation's currency and coin, to commit continual and serious errors in reporting its currency and coin operations, nor can falsification of currency reports be permitted," Gonzalez, D-Texas, said in a letter to Federal Reserve Chairman Alan Greenspan.
Gonzalez said he had been told by sources, whom he did not identify, that Fed personnel in Los Angeles had been instructed to elim-inate discrepancies in reports on currency flows at the Los Angeles vault that in the last three months of 1995 totaled $178 million.
These accounting gimmicks covered up shortages of $5.8 million in October and $111.1 million in December between two different reports. In November, the report that was changed actually came in $61.8 million higher than the other report. That left a net shortfall of $55 million for the three months.
Gonzalez also said he had received information about $45 million in other reporting errors.
Responding to the charges late Monday, John F. Moore, chief operating officer of the San Francisco Fed, said the errors were first discovered in late January as part of a "routine review of our statistical gathering process."
He said new procedures had been implemented to correct the problems. Fed officials said the reporting discrepancies did not mean that money was missing, only that internal bookkeeping records did not match up.
"The discrepancy, now corrected, in no way suggests any wider problems," Moore said. He also disputed Gonazlez's allegation that Fed employees had been order to falsify the currency reports they were sending to Washington.
But Gonzalez said he had asked the General Accounting Office, the auditing arm of Congress, to investigate the Los Angeles incident.
"These problems underscore what I have been saying for years - the Federal Reserve needs independent audits and close supervision by the GAO," he said.
The Fed has more than 25,000 employees and an annual operating budget of $2 billion. To protect the political independence of its interest rate decisions, the Fed is allowed to set its own budget without congressional approval.
Earlier this year, the GAO issued a 200-page critical report charging that Fed expenses had surged by 50 percent since 1988 at a time when the rest of government was cutting back, and a separate GAO audit raised questions about controls over currency operations at the Dallas Fed.
A third GAO report criticized the Fed's check transfer operations in Boston, calling into question the award of $2 million in annual contracts to a single vendor without competitive bidding.