If you've followed financial posts here at all, you've no doubt seen the many posts claiming the Fed has never been audited, or (once they've been educated a bit) that the Fed isn't "really" audited or comprehensively audited. These claims inevitably come from sources of demographer politicians (like Ron Paul) who regularly bash the Fed for political purposes, or internet whacko videos like "Creature from Jeckyll Island" and other internet shucksters that feed the gullible. This month, the Government Accountability Office (GAO), a government entity responsible for auditing government (and quasi-government) operations, released an exhaustive, comprehensive, 266 page report that details the Fed's operations generally, and its operations to avert a disaster in the 2008 credit collapse more specifically. You can find the report here: http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf As to the Fed's operations and its "never been audited" aspects, the GAO report comprehensively reviewed the numerous, mulitple, internal and external layers of audits and controls to which the Fed is subjected on a regular basis. Summary of some of the findings are presented below.
Page 38: The Federal Reserve System and Its Emergency Activities Were Subject to Multiple Audits and Reviews The Emergency Programs Have All Been Subject to Audits and Reviews The Federal Reserve Act requires the Federal Reserve Board to order an annual independent audit of the financial statements of each of the 12 Reserve Banks.57 Each Reserve Bank prepares annual financial statements that reflect its financial position as of the end of the calendar year and its related income and expenses for the year. The Federal Reserve Board also prepares combined financial statements of the Reserve Banks, which include the accounts and results of operations of the 12 Reserve Banks. As shown in figure 2, the loans and other financial assistance provided through the Federal Reserves emergency programs are recorded in the Reserve Banks publicly reported financial statements. The Reserve Banks have voluntarily adopted the internal control reporting requirements of the Sarbanes-Oxley Act of 200260 and provide an assessment of the effectiveness of their internal control over financial reporting annually to their boards of directors.61 Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entitys assets that could have a material effect on the financial statements. ... Since 2007, Deloitte has been the independent external auditor for the Federal Reserve System. Accordingly, Deloitte performs the audits of the individual and combined financial statements of the Reserve Banks and those of the consolidated LLCs. Deloitte also provides opinions on the effectiveness of each Reserve Banks internal control over financial reporting. In 2009, Deloitte began providing opinions on the effectiveness of each LLCs internal control over financial reporting. 63 To help ensure auditor independence, the Federal Reserve Board requires that its external auditor be independent in all matters relating to the audits. Specifically, Deloitte may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. FRBNY management also engaged external firms to review certain aspects of the emergency programs. For example, FRBNY engaged the auditing firm KPMG LLP (KPMG) to assist FRBNY in developing a conflict of interest inspection and fraud-review program for certain programs created in response to the financial crisis. In 2009 and 2010, KPMG executed reviews of vendors and agents supporting the Agency MBS program, Maiden Lane LLC, Maiden Lane II LLC, Maiden Lane III LLC, TALF, and CPFF. The scope of this work covered an evaluation of the vendors and agents adherence to their own conflict of interest policies and more program-specific provisions contained within their engagement agreement with FRBNY. These reviews are discussed in greater detail later in this report. In 2009, FRBNY contracted with a management consulting firm, Oliver Wyman, to conduct an independent review of the governance and management infrastructure surrounding its new market facilities and emergency programs created throughout 2008. This review was specifically focused on the three Maiden Lane LLCs, CPFF, and MMIFF and included an examination of internal reporting and management updates, business and strategic plans for relevant Reserve Bank functions, internal risk assessments, Reserve Bank policies and procedures, committee charters, and organizational summaries. In addition to external audits and reviews, the Federal Reserve System has a number of internal entities that conduct audits and reviews of the Reserve Banks, including the emergency programs. For example, each Reserve Bank has an internal audit function that conducts audits and other reviews to evaluate the adequacy of the Reserve Banks internal controls, the extent of compliance with established procedures and regulations, and the effectiveness of the Reserve Banks operations. The internal audit function conducts audits in accordance with the International Standards for the Professional Practice of Internal Auditing and maintains organizational independence from management by reporting directly to the audit committee of the Reserve Banks board of directors.64 During the period from 2008 through 2010, FRBNYs internal audit function conducted audits pertaining to the Agency MBS program, TSLF, Swap Lines, TAF, CPFF, TALF, and PDCF, as well as the three Maiden Lane LLCs. ... The OIG also conducts audits, reviews, and investigations related to the Federal Reserve Boards programs and operations, including those programs and operations that have been delegated to the Reserve Banks by the Federal Reserve Board. The OIG is required to submit a semiannual report to the Chairman of the Federal Reserve Board and to Congress. In November 2010, the OIG reported on its review of six of the emergency programs: TSLF, PDCF, MMIFF, TALF, CPFF, and AMLF. The OIG stated that the purpose of its review was to determine the function and status of these programs and to identify risks in each of the programs to assist the Federal Reserve Board in its general supervision and oversight of the Reserve Banks. The Fed is the most heavily audited entity in the world, probably.
Results of the numerous external, internal, and government audits: Page 46: Audits and Reviews Have Not Identified Significant Accounting or Financial Reporting Internal Control Issues Concerning the Emergency Programs The Reserve Banks and LLCs Received Clean Opinions on their Financial Statements Deloitte rendered unqualified (clean) opinions on the individual and combined Reserve Banks financial statements for the years 2007, 2008, 2009, and 2010. As described earlier in this report, the Reserve Banks financial statements include the activity pertaining to the emergency programs, including the accounts and operations of the LLCs, which are consolidated into FRBNYs financial statements. Deloitte also has rendered clean opinions on the financial statements of each LLC beginning with the creation of Maiden Lane LLC in 2008. A clean opinion indicates that the financial statements prepared by management are free of material misstatements and are presented fairly in accordance with U.S. generally accepted accounting principles (GAAP) or, in the case of the Reserve Banks, accounting principles established by the Federal Reserve Board, which is a comprehensive basis of accounting other than GAAP. The independent external auditor conducted its financial statement audits of the Reserve Banks and LLCs in accordance with U.S. generally accepted auditing standards as established by the Auditing Standards Board and in accordance with the auditing standards of the Public Company Accounting Oversight Board.67 These standards require that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. The audits of the Reserve Banks and LLCs financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Since the development and implementation of the emergency programs, the independent external auditors internal control opinions related to the Reserve Banks and LLCs have all been clean, indicating that these entities have maintained, in all material respects, effective internal control over financial reporting. As mentioned in the previous section, in addition to the independent external auditor, the Reserve Banks internal audit function, RBOPS, and the OIG performed audits and reviews of the emergency programs. Similar to the external audits, the audits and reviews conducted by these other groups did not report any significant accounting or financial reporting internal control issues.
As the comprehensive GAO review and audit proves, the Fed has been audited up the ying yang but multiple, numerous entities, both external and internal, non-government and government, and every audit found that there were no significant mis-statements or control issues the Fed's reports or financial statements both in terms of its normal operations and its emergency actions in conjunction with mitigating the financial collapse that was threatened in the great recession.
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Bwahahahahaha no, that is the GAO report summarizing the multiple audits of the Fed, including: Since 2007, Deloitte has been the independent external auditor for the Federal Reserve System. Accordingly, Deloitte performs the audits of the individual and combined financial statements of the Reserve Banks and those of the consolidated LLCs. Deloitte also provides opinions on the effectiveness of each Reserve Banks internal control over financial reporting. In 2009 and 2010, KPMG executed reviews of vendors and agents supporting the Agency MBS program, Maiden Lane LLC, Maiden Lane II LLC, Maiden Lane III LLC, TALF, and CPFF. In addition to external audits and reviews, the Federal Reserve System has a number of internal entities that conduct audits and reviews of the Reserve Banks, including the emergency programs. The OIG also conducts audits, reviews, and investigations related to the Federal Reserve Boards programs and operations, including those programs and operations that have been delegated to the Reserve Banks by the Federal Reserve Board. The OIG is required to submit a semiannual report to the Chairman of the Federal Reserve Board and to Congress. In November 2010, the OIG reported on its review of six of the emergency programs: TSLF, PDCF, MMIFF, TALF, CPFF, and AMLF. Bwahahahahhahaa here are the audit reports and opinions: 2009: http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2009.pdf 2010: http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2010.pdf http://www.gao.gov/new.items/d09722r.pdf Bwhahahahahaah come back when you learn what the word "audit" means.
Can you show me exactly where, and by who the information given to the GAO by the FED was audited by an independent 3rd party? I ask because this is like when someone says we know the size of the swaps market. We know the size and risk of the swaps market based on what the banks have told us, with no independent auditors. FYI, by independent, I mean not paid to audit by the banks.
