In response to our recommendation, the Federal Reserve Board hired Coopers & Lybrand L.L.P., an independent public accounting firm, to examine and report on managements’ assertions about the effectiveness of the internal control structure over financial reporting and safeguardingfor cash at three banks—the Federal Reserve Bank of Atlanta’s Home Office, the Federal Reserve Bank of San Francisco’s Los Angeles Branch, and the Federal Reserve Bank of Philadelphia. Results of External Reviews of Control Over Cash Operations

For each examination, Coopers & Lybrand concluded that Federal Reserve Bank management fairly stated its assertion that the bank maintained an effective internal control structure over financial reporting and safeguarding for cash as of the date specified by management based on criteria established in the Internal Control—Integrated Framework issued by COSO. We also reviewed the Coopers & Lybrand working papers supporting its opinions on internal controls at the Atlanta, Los Angeles, and Philadelphia Federal Reserve Banks. We looked for evidence that the work had been planned and performed in accordance with applicable attestation standards. We visited the Atlanta, Los Angeles, and Philadelphia banks to enhance our understanding of the respective internal control structures over financial reporting and safeguarding for cash. External Auditor’s Procedures

In performing its examinations, Coopers & Lybrand (1) obtained an understanding of the procedures and internal controls, (2) evaluated the design effectiveness of the controls, (3) tested and evaluated the operating effectiveness of the controls, and (4) formed opinions about whether managements’ assertions regarding the effectiveness of the internal controls were fairly stated, in all material respects, based on the COSO control criteria. Results of GAO’s Review of Coopers & Lybrand’s Examination

The results of our review disclosed no instances in which Coopers & Lybrand did not comply, in all material respects, with the AICPA’s Attestation Standards in the work described above.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the work of the Federal Reserve's external auditor, Coopers & Lybrand L.L.P., in reporting on the effectiveness of the internal control structure over financial reporting for cash at the Atlanta and Philadelphia Federal Reserve Banks, and the Los Angeles Branch, focusing on whether: (1) the work was conducted in accordance with applicable professional standards; and (2) supported the auditor's opinion on managements' assertions on the effectiveness of the internal controls over cash operations.

What GAO Found

GAO noted that: (1) GAO's review disclosed no instances in which Coopers & Lybrand's work to support its opinions on the effectiveness of the internal control structures over financial reporting and safeguarding for coin and currency at the Atlanta and Philadelphia Federal Reserve Banks, and the Los Angeles Branch did not comply, in all material aspects, with the American Institute of Certified Public Accountants' Attestation Standards; (2) Coopers & Lybrand obtained and documented an understanding of the internal control policies and procedures, developed by the Federal Reserve Banks, to manage and account for each of the four main cash operating functions: receiving/shipping, currency processing, vault, and cash administration; (3) Coopers & Lybrand also performed tests and other procedures in support of its evaluation of the design and operating effectiveness of the internal controls in order to form an opinion about the reliability of management's assertion; and (4) for each examination, Coopers & Lybrand concluded that the Federal Reserve Bank management fairly stated its assertion that the bank maintained an effective internal control structure over financial reporting and safeguarding for cash as of the date specified by management based on criteria established in the Internal Control--Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission.