The 12 Reserve Banks  provide coins and notes to depository institutions, among other  responsibilities. 2.) The Federal  Reserve also contracts with armored carriers to transport notes for  circulation or storage. 4.) The Federal Reserve’s 2012–15 strategic plan includes an objective to  use financial resources efficiently and effectively. To monitor costs related  to coin and note operations, CPO officials said they review currency  management costs—which include costs related to both coins and  notes—at the national level because individual Reserve Banks may vary  in their accounting for operational costs related to coins and notes. Our analysis of coin management costs, using CPO data, indicates that  coin management costs increased by 69 percent from 2008 through  2012. Without taking steps to identify and  share cost-effective coin management practices across Reserve Banks,   While  the Federal Reserve may be missing opportunities to support more  efficient and effective use of Reserve Bank resources. The Federal Reserve Follows Some Key Practices in Managing the Circulating Coin Inventory but Lacks Performance Information for Additional Metrics and Forecasting

In managing the circulating coin inventory, we found that the Federal  Reserve follows key practices for collaboration and risk management and  partially follows key practices for performance metrics, forecasting  demand, and system optimization. CPO has  multiple mechanisms, such as stakeholder working groups, for sharing  information related to the circulating coin inventory with partner entities. Key Practices Partially Followed

			Performance Metrics

The Federal Reserve partially follows the key practice of performance  metrics because its use of performance metrics is limited to inventory  targets and it has not developed other goals or metrics related to coin- supply chain management. Demand for Currency Expected to Decline Gradually in the Near Term, but a Variety of Factors Make Predicting Longer- Term Change Difficult

		Potential Changes in Demand for Currency

To collect data and information on potential changes in the demand for  currency, the Federal Reserve has conducted studies and outreach with  groups such as depository institutions and merchants, and found a  general consensus that the use of currency may decline slightly in the  near term. Federal Reserve studies and data also indicate electronic payment  options have increased over time. During this period, the value of currency in circulation rose approximately  26 percent. The Federal Reserve Is Managing the Existing $1 Coin Inventory, Took Steps to Meet Demand for Circulation, and Plans No Future Action

		Management of the $1 Coin Inventory

The Federal Reserve manages the $1 coin inventory as it does all other  coin denominations, overseeing the distribution of coins produced by the  U.S. Mint and those already in circulation. The Federal Reserve’s goal,  based on its statutory responsibilities, is to ensure that sufficient supplies  of coins are available to meet demand nationwide. Reserve Banks held approximately $1.4 billion in $1 coin inventory as of  March 2013. According to Reserve Bank officials, depository institution  representatives, coin terminal operators, and vending machine industry  representatives we met with, $1 coins are readily available to the public  throughout the country. Beginning in 2007, the Federal Reserve met regularly with depository  institution representatives to gather feedback about demand for $1 coins  and identify potential barriers to circulation. In addition, the Federal Reserve and U.S. Mint  While the Federal Reserve took steps to overcome barriers to the  circulation of the $1 coin to meet existing demand, according to Federal  Reserve officials, it can do little else given the $1 coin is no longer  produced for circulation and the agency’s statutory responsibilities focus  on ensuring $1 coins are available to meet demand, not on taking steps  to change demand. Recommendations for Executive Action

To ensure efficient management of the circulating coin inventory, we  recommend that the Board of Governors direct CPO to take the following  three actions: develop a process to assess the factors that have influenced  increasing coin operations costs and differences in costs across  Reserve Banks and a process to use this information to identify  practices that could lead to cost-savings; establish, document, and annually report to the Board performance  goals and metrics for managing the circulating coin inventory, (e.g.,  Reserve Bank coin management costs) and measure performance  towards those goals and metrics; and establish and implement a process to assess the accuracy of  forecasts for new coin orders and revise the forecasts as needed. In written comments, reproduced in  appendix IV, the Federal Reserve generally agreed with the report’s  recommendations. (2) To what extent does the Federal Reserve follow  key supply-chain management practices in managing the circulating coin  inventory? (3) What actions has the Federal Reserve taken to respond to  potential changes in demand for coins and notes? Appendix II: Data and Figures on Coin and Note Inventory, Orders, and Circulation

	Reserve Bank Coin Inventory and Inventory Targets

In 2009, the Federal Reserve’s Cash Product Office (CPO) established  national upper and lower inventory targets for pennies, nickels, dimes,  and quarters to track and measure the coin inventory.
Why GAO Did This Study

Efficiently managing the circulating coin inventory helps ensure that enough coins are available to meet public demand while avoiding unnecessary production and storage costs. The Federal Reserve fulfills the coin demand of the nation's depository institutions (e.g., commercial banks and credit unions) by managing Reserve Bank inventory and ordering new coins from the U.S. Mint. GAO was asked to review this approach. This report examines (1) how the Federal Reserve manages the circulating coin inventory and the related costs, (2) the extent to which the Federal Reserve follows key practices in managing the circulating coin inventory, (3) actions taken to respond to potential changes in demand for coins and notes, and (4) actions taken with regard to the circulation of the $1 coin. GAO interviewed federal and foreign officials, experts, and industry representatives; reviewed documents and data on coin inventories; and compared the Federal Reserve's coin inventory management practices to key practices in supply chain management.

What GAO Found

In 2009, the Federal Reserve centralized coin management across the 12 Reserve Banks, established national inventory targets to track and measure the coin inventory, and in 2011 established a contract with armored carriers that store Reserve Bank coins in their facilities. However, according to Federal Reserve data, from 2008 to 2012, total annual Reserve Bank coin management costs increased by 69 percent and at individual Reserve Banks increased at rates ranging from 36 percent to 116 percent. The Federal Reserve's current strategic plan calls for using financial resources efficiently and effectively and monitoring costs to improve cost-effectiveness. However, the agency does not monitor coin management costs by each Reserve Bank--instead focusing on combined national coin and note costs--thus missing potential opportunities to improve the cost-effectiveness of coin-related operations across Reserve Banks.
In managing the circulating coin inventory, the Federal Reserve followed two of five key practices GAO identified and partially followed three. For example, the Federal Reserve follows the key practice of collaboration because it has established multiple mechanisms for sharing information related to coin inventory management with partner entities. The Federal Reserve has developed some performance metrics in the form of upper and lower national coin inventory targets. However, it has not developed other goals or metrics related to coin supply-chain management. One key practice is for agencies to identify goals, establish performance metrics, and measure progress toward those goals. Establishing goals and metrics, such as those related to coin management costs, could aid the Federal Reserve in using information and resources to identify additional efficiencies.
To collect information on potential changes in the demand for currency (coins and notes), the Federal Reserve has conducted studies and outreach, including developing a long-term strategic framework beginning in 2010 to consider changes in demand and implications for operations. While the magnitude of potential changes in the demand for currency is inherently uncertain, the Federal Reserve anticipates a gradual decline in currency use, and officials reported such changes could likely be accommodated by the current system. While Federal Reserve studies and data indicate electronic payments have increased over time, currency usage has remained strong. For example, from 2009 to 2012, the value of currency in circulation rose about 26 percent.
Starting in 2007, the Federal Reserve took actions to overcome barriers to circulation of the $1 coin, such as holding regular meetings with depository institution representatives to gather feedback about demand for $1 coins. The Federal Reserve manages the $1 coin inventory as it does for all other coin denominations--overseeing distribution and ensuring sufficient supply is available to meet demand nationwide. Reserve Banks currently hold approximately $1.4 billion in $1 coins, an amount that, according to the Federal Reserve, is sufficient to meet demand for more than 40 years. Reserve Bank officials, depository institution representatives, and coin terminal operators stated that $1 coins are readily available to the public throughout the country, but there is very low public demand for these coins.

What GAO Recommends

Among other things, the Federal Reserve should (1) develop a process to assess factors influencing coin operations costs and identify practices that could lead to cost-savings and (2) establish additional performance goals and metrics relevant to coin inventory management. The Federal Reserve generally agreed with the report's recommendations.