Oversight of the Federal Reserve System

The Federal Reserve System--including the Board of Governors and the 12 Federal Reserve Banks--is subject to a number of levels of oversight to help ensure that the System operates as a prudent, well managed, and effective public organization.

General

The Federal Reserve is subject to oversight by Congress. Board governors and staff testify before Congress frequently to discuss issues within the Federal Reserve's purview. For example, in 2008, governors and Board staff testified 35 times before Congress. During the first quarter of 2009, governors and staff have testified 12 times. Board staff also meet with Congressional staff to brief them on topics related to the Federal Reserve's operations and future direction.

The Government Accountability Office (GAO) has broad authority to review and audit Federal Reserve activities.¹ The legislative limits on the GAO's access to the Federal Reserve System are very specific and stated in the law.² The GAO conducts reviews and audits at the direction of the Congress and also under its own authority. These engagements cover a wide variety of Federal Reserve activities. As of March 31, 2009, there were 20 GAO engagements underway, 17 of which were initiated by Congress. During 2008, the GAO completed 15 similar engagements.

The Board of Governors orders an annual external audit of the financial statements of the Board and the Reserve Banks.³ The current independent auditor is Deloitte and Touche.⁴ Each Reserve Bank publishes its audited financial statements, and the Board of Governors publishes the audited combined Reserve Bank financial statements and the Board's financial statements in its annual report to Congress. The Reserve Banks and the Board comply voluntarily with the internal control requirements of the Sarbanes-Oxley Act. The external auditors also perform an evaluation of internal controls over financial reporting.

Oversight of the Board of Governors

Consistent with the Inspector General Act, the Board of Governors' Office of Inspector General (OIG) conducts and supervises independent and objective audits, investigations, and other reviews of Board programs and operations to promote economy, efficiency, and effectiveness, and to prevent and detect fraud, waste, and abuse. The OIG's work spans the Board's mission areas. As of March 31, 2009, the OIG had initiated 12 audits and evaluations, 5 investigations, and numerous law and regulation reviews; responded to a number of hotline calls, emails, and correspondence; and followed up on open recommendations. During 2008, the OIG completed 15 audits, inspections, and evaluations; closed 9 investigations; and issued a strategic plan and compendium of open recommendations.

The OIG reports the results of its work on its public website and in its semiannual report to Congress. In addition, the OIG is currently coordinating with Treasury's Office of the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) on matters concerning the Federal Reserve, and participates with other financial regulatory IGs on the TARP IG Council. In addition, the SIGTARP has authority to review certain Federal Reserve System activities that involve the expenditure of funds from the Troubled Asset Relief Program. Four SIGTARP reviews are currently underway.

Oversight of the Reserve Banks

Each Reserve Bank has an independent internal audit function that reports to the audit committee of each Bank's board of directors. The internal audit function is responsible for identifying risks and assessing the effectiveness of the Reserve Bank's risk management, control, and governance processes.

In addition, the Reserve Banks are subject to general supervision by the Board of Governors and, in certain matters, the Board's specific authorization or approval. The Board of Governors' oversight includes assessing whether Reserve Bank strategies, objectives, and other matters are reasonable and take into consideration all significant and relevant issues and monitoring and reviewing ongoing operations and the implementation of major initiatives.

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Footnotes

1. The Federal Banking Agency Audit Act (1978). Return to text

2. The statutory limits apply to the review of transactions with foreign central banks and monetary policy matters including discount window operations, reserves, open market operations, and interest on deposits. Return to text

3. Congress codified this then-existing practice as a statutory requirement in 1999. Return to text

4. Deloitte and Touche also audits the financial statements of the limited liability companies (the Commercial Paper Funding Facility, Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC) that the Federal Reserve established in 2008 either to enhance liquidity in the commercial paper markets or to support specific institutions to avert their disorderly failure. Return to text

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