oversight

U.S. Currency: Treasury's Plans to Study Genuine and Counterfeit U.S. Currency Abroad

Published by the Government Accountability Office on 1997-04-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to Congressional Requesters




April 1997
                   U.S. CURRENCY
                   Treasury’s Plans to
                   Study Genuine and
                   Counterfeit U.S.
                   Currency Abroad




GAO/NSIAD-97-104
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-276332

      April 11, 1997

      The Honorable Spencer Bachus
      The Honorable John M. Spratt, Jr.
      House of Representatives

      Currencies are susceptible to counterfeiting, but the stability and
      worldwide acceptance of the U.S. currency, in particular, have made it a
      target for international counterfeiters. Although counterfeiters may engage
      in this activity for direct economic gain, counterfeiting is sometimes linked
      with other more nefarious criminal endeavors, such as drug trafficking,
      arms dealing, and alleged terrorist activities. Widespread counterfeiting of
      U.S. currency could undermine confidence in the currency. Further, if
      done on a large-enough scale, this activity could reduce international
      holdings of U.S. currency and have a negative effect on the U.S. economy.1

      While the extent of counterfeit U.S. currency produced and circulated in
      foreign countries is difficult to determine, an evaluation of the threat can
      be used to allocate scarce resources and to assess the effectiveness of
      measures to combat counterfeiting.2 In the past, the Secret Service (a
      Treasury Department bureau) used its detection data3 to reflect the actual
      amount of counterfeits abroad. However, as we reported in February 1996,
      these data have limitations that raised questions about their usefulness for
      illustrating counterfeiting activity.4 In April 1996, Congress passed the

      1
       When U.S. currency remains in circulation, it essentially represents an interest-free loan to the U.S.
      government. The Federal Reserve has estimated that the U.S. currency held abroad effectively reduces
      the need for the government to borrow up to $250 billion a year and thus may reduce the government’s
      interest costs by over $10 billion a year. If the confidence of the dollar were undermined, individuals
      might switch to other currencies, which would result in losses in the amount of this benefit to the
      United States.
      2
       Other tools may include evaluating the quality or usage of the counterfeits, the type of equipment
      used, the type of perpetrator, and the connection with other crimes.
      3
       Secret Service counterfeit-detection data include detections made by its agents and the Federal
      Reserve as well as detections made and reported by others, such as domestic and foreign law
      enforcement agencies and banks.
      4
       In our prior work, you had asked us to assess the extent of the counterfeiting problem overseas. We
      reported that the available data presented many limitations, and we questioned whether the Secret
      Service had a sufficient basis to conclude either the approximate magnitude or the trend of
      counterfeiting activity abroad. Some specific limitations of the data are that they (1) included only
      those counterfeit detections that were reported to the Secret Service; (2) may have underreported the
      occurrence of high-quality notes because those notes are difficult to detect; (3) may have reflected
      factors other than increasing counterfeit activity, such as improvements in the ability to detect
      counterfeits or to determine their source; and (4) may have shown fluctuations over time that were
      skewed because of the occurrence of unusually large seizures. See Counterfeit U.S. Currency Abroad:
      Issues and U.S. Deterrence Efforts (GAO/GGD-96-11, Feb. 26, 1996) and Counterfeit U.S. Currency
      Abroad: Observations on Counterfeiting and U.S. Deterrence Efforts (GAO/T-GGD-96-82, Feb. 27,
      1996).



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                   Antiterrorism and Effective Death Penalty Act of 1996 (P.L.
                   104-132) which, among other things, requires that the Secretary of the
                   Treasury develop an audit plan that is designed to enable the Secretary to
                   (1) study the use and holding of U.S. currency in foreign countries and
                   develop useful estimates of the amount of counterfeit U.S. currency that
                   circulates outside the United States each year, (2) conduct audits based on
                   this methodology, and (3) report triennially on the results.

                   In October 1996, the Secretary responded to the first requirement by
                   submitting the Audit Plan of the Secretary of the Treasury on the Uses and
                   Counterfeiting of U.S. Currency in Foreign Countries. At your request, we
                   reviewed the plan, as submitted, to determine whether it will enable the
                   Secretary of the Treasury to (1) study the use of U.S. currency in foreign
                   countries, (2) study the holding of U.S. currency in foreign countries, and
                   (3) develop useful estimates of the amount of counterfeit U.S. currency
                   that circulates outside the United States each year. You also asked us to
                   review any other information and materials that the Treasury intends to
                   use to conduct the audits.


                   The Secretary of the Treasury’s submitted plan does not demonstrate how
Results in Brief   it will enable the Treasury to meet the audit plan objectives required under
                   the act. The plan does not clearly state the audit’s objectives or the
                   methodologies to achieve those objectives. Although the Treasury’s plan
                   identifies some elements of a methodology that could be employed to
                   study the use of genuine U.S. currency abroad, it does not explain how the
                   Treasury intends to analyze the information that might be collected. The
                   plan does not define the methodologies the Treasury expects to use to
                   study the holding of genuine U.S. currency abroad and to develop
                   estimates of counterfeit U.S. currency abroad.

                   The Treasury official responsible for developing the plan stated that the
                   audit objectives of the plan are the same as those stated in the act. He
                   acknowledged that the plan does not fully address the methods for
                   achieving the objectives. This official and Federal Reserve officials said
                   that the information obtained on genuine currency usage will be used to
                   describe U.S. currency flows and will be reviewed to determine whether
                   any of the information conflicts with their assumptions about the usage of
                   genuine U.S. currency abroad. The Treasury official stated that the
                   Treasury intends to use a recently published Federal Reserve methodology
                   to develop an estimate of the total holdings of genuine U.S. currency
                   abroad. The official also told us the Treasury would rely on an existing



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                             Federal Reserve methodology to develop rough estimates or ranges of
                             estimates of counterfeit U.S. currency circulating outside the United States
                             each year.

                             After we outlined our concerns about the submitted audit plan to Treasury
                             and Federal Reserve officials, the Treasury official responsible for the plan
                             told us that the Treasury, with the assistance of the Federal Reserve,
                             planned to submit a written addendum to Congress explaining the
                             Treasury’s proposed methodologies in more detail, with the caveat that
                             these methodologies may change based on information obtained abroad
                             during the course of the audits. The Treasury official also indicated that
                             the addendum would explain the assumptions the Treasury made and
                             discuss the limitations associated with these estimates.


                             U.S. counterfeiting deterrence efforts are coordinated through the
Background                   Advanced Counterfeit Deterrence Steering Committee, comprised of
                             officials from the Department of the Treasury (including the Secret Service
                             and the Bureau of Engraving and Printing) and the Federal Reserve. The
                             Secretary of the Treasury is responsible for manufacturing and protecting
                             U.S. currency. The Secret Service investigates counterfeiting and
                             maintains counterfeit-detection data, and the Bureau of Engraving and
                             Printing designs and prints U.S. currency. The Federal Reserve issues U.S.
                             currency, pays U.S. currency to and receives U.S. currency from
                             authorized financial institutions in the United States (some of which may
                             have affiliates and/or customers outside the United States), and is
                             responsible for substantiating the authenticity of all U.S. currency
                             received. The Federal Reserve also maintains data on the amount of U.S.
                             currency that its customers report as shipped to and from the United
                             States and the amount that it detects as counterfeit.


Contents of the Treasury’s   Developed in conjunction with the Advanced Counterfeit Deterrence
Audit Plan                   Steering Committee, the Treasury’s audit plan identifies data sources, sets
                             forth site selection criteria, lists questionnaires to be used in interviews
                             abroad, discusses what audit reports might contain, sets time frames, and
                             states that the Federal Reserve will attempt to specify and test a model of
                             currency usage abroad. The Treasury’s plan draws heavily on information
                             obtained from ongoing International Currency Awareness Program study
                             trips. The purpose of those trips was to meet with foreign financial
                             institution, government, and law enforcement officials to learn more about
                             the uses, distribution, and counterfeiting of U.S. currency overseas and to



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                    begin to inform those abroad about the U.S. currency redesign.5 In
                    September/October 1996 and January 1997, first using the Treasury’s draft
                    and then the formally submitted audit plan, the Treasury and the Federal
                    Reserve took two study trips similar to those done under the International
                    Currency Awareness Program. As of February 1997, study trips under the
                    International Currency Awareness Program and Treasury’s audit plan had
                    been made to 18 countries or entities where U.S. currency was used or
                    distributed to a significant extent.6 Under the Treasury’s audit plan, the
                    first audit was to begin no later than April 24, 1997, and to be completed by
                    September 1999. At least one audit is to be performed during each
                    subsequent 3-year period through April 2006. The act requires the
                    Secretary to submit a written report to certain congressional committees
                    on the results of each audit within 90 days after completing the audit.


                    The Secretary of the Treasury’s submitted plan does not demonstrate how
The Treasury’s      it will enable the Treasury to meet the audit plan objectives required under
Submitted Plan Is   the act. A written plan should define the audit’s objectives and the scope
Unclear and         and methodology to achieve those objectives.7 The Treasury plan’s audit
                    objectives are not clearly stated and do not include the findings and
Incomplete          reporting elements that the Treasury expects to develop. Concerning
                    scope, the plan provides a time line for completing the audits, site
                    selection criteria for regions of the world, and information and data
                    sources. Although the plan provides some information on data gathering, it
                    does not fully explain the analytical methods the Treasury intends to use
                    to achieve the objectives. For example, the plan identifies data sources
                    and provides questions that may be asked of foreign financial and law
                    enforcement officials, but it does not fully explain how this information
                    will be analyzed and synthesized to address each of the audit plan
                    objectives under the act.




                    5
                     In 1996, the Treasury Department began issuing a newly designed U.S. currency with more security
                    features to deter counterfeiters both domestically and abroad.
                    6
                     As of February 12, 1997, visits were made to 18 countries or entities under the International Currency
                    Awareness Program and the Treasury’s audit plan, including Argentina, Bahrain, Belarus, Cambodia,
                    Egypt, England, Indonesia, Hong Kong, the Philippines, Russia, Saudi Arabia, Singapore, Switzerland,
                    Taiwan, Thailand, Turkey, United Arab Emirates (Abu Dhabi, Dubai), and Vietnam.
                    7
                     The objectives are what the audit is to accomplish and can be thought of as questions that auditors
                    seek to answer. Objectives identify the audit subjects and performance aspects to be included, as well
                    as the potential finding and reporting elements that the auditors expect to develop. “Scope” is the
                    boundary of the audit. It addresses such things as the period and number of locations to be covered.
                    The methodology comprises data-gathering and analytical methods auditors will use to achieve the
                    objectives. See Government Auditing Standards: 1994 Revision (Washington, D.C.: U.S. General
                    Accounting Office, June 1994).


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                       The plan does not describe analytical methods for studying the holding of
                       genuine U.S. currency abroad and developing estimates of counterfeit U.S.
                       currency abroad. However, it describes elements of a methodology that
                       might be used to study the use of genuine U.S. currency abroad. The plan
                       indicates that the Federal Reserve will attempt to specify and test a model
                       of how the U.S. currency that is held outside the United States is used to
                       support or refute an assumption about currency movement outside the
                       United States. The assumption to be tested is that currency moves
                       between and among individuals and business firms in such a way that the
                       portion of U.S. currency held abroad that is received by the Federal
                       Reserve each year (at least 13 percent in 1995) through its foreign-origin
                       currency receipts is representative of the total amount of U.S. currency
                       abroad. The Federal Reserve’s model is expected to place a special
                       emphasis on the factors that cause certain amounts to (1) come into the
                       possession of financial institutions abroad, (2) be regarded as surplus to
                       the needs of those individual financial institutions, (3) be sold
                       subsequently to correspondent banks,8 and, finally, (4) be deposited by a
                       correspondent bank at the Federal Reserve.9 However, the plan does not
                       fully explain how the Treasury intends to analyze the information obtained
                       to reach conclusions about the use of U.S. currency abroad.


                       After we highlighted some of the plan’s shortcomings, particularly the
The Treasury Intends   absence of methodologies, Treasury and Federal Reserve officials
to Submit an           acknowledged that the plan could be improved. The Treasury official
Addendum to Better     responsible for developing the plan stated that the audit objectives—to
                       study the use and holding of genuine U.S. currency in foreign countries
Explain How It Will    and develop estimates of the amount of counterfeit U.S. currency
Meet Its Audit Plan    circulating outside the United States each year—are the same as those
                       stated in the act. Further, the official told us that, with the assistance of
Objectives             the Federal Reserve, the Treasury intends to submit a written addendum
                       to Congress to better explain its proposed methodologies, with the caveat
                       that these methodologies may change based on information obtained
                       abroad during the course of the audits. The Treasury official also told us
                       the Treasury intended to include in the addendum a description of its


                       8
                        A correspondent bank is a financial institution that regularly performs services for another in a
                       market inaccessible to the other. In banking there is usually a depository relationship that
                       compensates for expenses and facilitates transactions.
                       9
                        Information about how citizens and businesses, other than financial institutions, use U.S. currency
                       abroad is likely to be addressed as part of the information on how and why financial institutions obtain
                       U.S. currency. Financial institutions obtain U.S. currency for many reasons and from many sources; for
                       example, in countries with unstable currencies, traders may deposit proceeds from sales transacted in
                       U.S. currency.



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                          assumptions and the limitations associated with the use of the resulting
                          information.


The Treasury Intends to   Treasury and Federal Reserve officials explained that rather than develop
Describe the Uses of      and test a model of currency usage, as discussed in the submitted plan,
Genuine U.S. Currency     they will summarize information obtained from foreign officials to
                          describe the uses of U.S. currency in the countries visited. They said that it
Abroad                    is not possible to develop a single model of how U.S. currency is used
                          abroad because of the numerous reasons why U.S. currency is used and
                          the many channels through which U.S. currency is distributed. However,
                          by determining and describing the process by which U.S. currency is used
                          in individual countries under specific conditions, they said that they may
                          be able to understand U.S. currency usage in other countries in similar
                          situations. They said that they need to interview foreign officials to obtain
                          information on currency usage and flows because little written data exist.
                          They told us that the information obtained on genuine currency usage will
                          also be reviewed to determine whether any of the information conflicts
                          with their assumptions about the usage of genuine U.S. currency abroad.
                          By determining how currency is used and how it flows within and between
                          particular regions and countries, the Treasury and the Federal Reserve
                          intend to support or refute the assumption that the sample of U.S.
                          currency returned to and reviewed by the Federal Reserve is
                          representative of the amount that is not returned to the Federal Reserve.


The Treasury Intends to   According to the Treasury official responsible for developing the plan, the
Develop Estimates of      Treasury plans to address holdings by establishing estimates of the total
Genuine U.S. Currency     amount of genuine U.S. currency abroad. To do this, the Treasury intends
                          to use the Federal Reserve methodology outlined in its 1996 study.10
Held Abroad               Synthesizing several methods and data sources, the Federal Reserve
                          estimated that about $200 billion-$250 billion of U.S. currency, or up to
                          two-thirds of the roughly $375 billion in circulation outside of banks in
                          1995, was abroad. As described in the study, because of the inadequacy of
                          measurement tools, the Federal Reserve used a range of direct and
                          indirect methods that provided an estimate of foreign and domestic
                          currency holdings.

                          The Federal Reserve study points out that because the data on currency
                          flows abroad are incomplete, cumulating them does not provide a good

                          10
                           See Richard D. Porter and Ruth A. Judson, “The Location of U.S. Currency: How Much Is Abroad?”
                          Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (Washington, D.C.:
                          Federal Reserve System, Oct. 1996), pp. 883-903.



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                            estimate of the amount of currency held abroad. Thus, the authors
                            combined flow data with estimates from other methods. The estimates of
                            foreign holdings vary depending upon which method is used. The study
                            concluded that between 55 percent and 70 percent of U.S. currency is held
                            abroad. We reviewed the study and found the method to be reasonable,
                            based on the given assumptions. Treasury and Federal Reserve officials
                            told us they intend to support or modify the estimate with information
                            obtained during the studies abroad and to update and publish estimates
                            periodically.


The Treasury Intends to     According to the Treasury, it intends to use an existing Federal Reserve
Establish Estimates of      method to establish estimates of counterfeit U.S. currency circulating
Counterfeit U.S. Currency   abroad. The Treasury indicated that it is confident the data it already
                            collects are sufficient for developing these estimates. The method that has
Abroad                      been in use over the past few years is based on a number of assumptions
                            that cannot be either fully validated or disproved. Treasury and Federal
                            Reserve officials said that information they have obtained to date validates
                            the assumptions, yet they may modify this method if the information
                            obtained through their trips abroad make them question their
                            assumptions. Although they recognize that the estimates cannot be
                            definitive or statistically validated due to the nature of the activity, they
                            believe the method should provide a rough estimate or range that the
                            Treasury can use to assess the counterfeiting threat when taken into
                            consideration with other factors.

                            According to the Treasury, the most significant and detailed measures of
                            counterfeit U.S. currency circulating abroad are already contained within
                            the Federal Reserve’s currency receipt data and the Secret Service’s
                            counterfeit-detection statistics, upon which the Treasury’s estimate is
                            based. The Federal Reserve indicated that through its foreign-origin
                            currency receipts it is able to examine a significant portion of the U.S.
                            currency estimated to be circulating outside of the United States. Such
                            receipts amounted to at least 13 percent of the currency that was likely to
                            be outside of the United States in 1995 and may amount to 20 percent in
                            1996, according to the Federal Reserve. The Treasury official also stated
                            that the Treasury understands the limitations of the Secret Service’s
                            counterfeit-detection statistics and realizes that these actual detections do
                            not capture all of the U.S. currency counterfeit-activity that occurs
                            worldwide. Nevertheless, the Treasury believes that its data and
                            supporting evidence on actual detections suggest that the amount of




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    counterfeit U.S. currency in circulation is not much larger than Federal
    Reserve statistics indicate.

    With this in mind, the Federal Reserve, using its counterfeit-detection data
    and taking into account the extent to which counterfeits are detected and
    reported to the Secret Service by financial institutions and others before
    deposits are received by the Federal Reserve, formed a rough estimate of
    the value of counterfeits that may have been in circulation abroad. Some
    of the figures used in this calculation are considered “restricted
    information” by the Federal Reserve and thus are not provided in this
    report. In general, the method used for 1996 was as follows:

•   As discussed previously, the Federal Reserve estimated that two-thirds of
    genuine U.S. currency circulates abroad—approximately $174 billion in
    1996.
•   It determined the value of all $100 notes11 processed through New York,
    Miami, and Los Angeles12 Federal Reserve banks during the year from
    abroad as a percentage of the value of notes estimated to be in circulation
    abroad—approximately 18.6 percent.
•   It established a Federal Reserve counterfeit-detection rate by determining
    the number of counterfeit $100 notes detected per million notes processed
    at Federal Reserve banks from abroad.
•   It determined the estimated value of counterfeits in circulation abroad
    based solely on the Federal Reserve detection rate for $100 notes from
    abroad.
•   The Federal Reserve assumed that the ratio of counterfeit $100 notes in
    circulation detected by the Federal Reserve domestically compared to
    those detected by financial institutions, retailers, and others domestically
    (as reported to the Secret Service) is the same ratio as would be found for
    counterfeit $100 notes detected abroad.
•   It applied the resulting percentage to the number of counterfeits in
    circulation abroad based on its own detections to come up with its
    estimate of the total value of counterfeits in circulation abroad—roughly a
    range centering on $21.2 million in 1996.13




    11
      According to the Federal Reserve, the $100 note is the most heavily used abroad and has been used in
    the past couple of years to estimate the total value of counterfeit U.S. currency circulating abroad.
    12
     According to the Federal Reserve, the majority of notes from overseas come through these three
    banks.
    13
     The Federal Reserve concluded that this amount was insignificant from a macroeconomic
    perspective and has no discernible effect on public confidence in U.S. currency.



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                 This method relied on some assumptions that can neither be fully
                 validated nor disproved, due to the nature of the activity. For example, it
                 relied on (1) assumptions about presumed overseas currency flows,
                 (2) counterfeit-detection data derived from currency shipments reported
                 as originating overseas, and (3) assumptions about detections and
                 reporting made prior to shipments of currency back to the Federal
                 Reserve from overseas. According to the Federal Reserve, information
                 obtained during the previous International Currency Awareness Program
                 trips abroad did not indicate a need to revise its assumptions. The
                 Treasury official told us that the evidence gathered during future trips
                 abroad should help reduce the risk factors associated with these
                 assumptions and either support or refute the Treasury’s belief in the
                 efficacy of its statistics. According to the Treasury, interviews with foreign
                 officials will provide insight, as will examination of record-keeping
                 procedures and local counterfeit-detection statistics. The Treasury and
                 Federal Reserve said that, at the very least, they may modify these
                 methods should they find anything in their studies of use and holdings
                 abroad to make them question their assumptions.

                 The Treasury and the Federal Reserve agree that this method, which has
                 been employed for the past few years, cannot be used to give the definitive
                 answer due to the complex nature of currency flows and the criminal
                 nature of counterfeiting. Rather, the results of this method may be used to
                 provide a rough estimate or range that the Treasury can use in its
                 assessment of the counterfeiting threat. Both the Treasury and the Federal
                 Reserve agree that this rough estimate cannot be used in isolation. They
                 say it must be considered with other pieces of the threat assessment such
                 as seizures of counterfeits and intelligence information including the
                 quality of the counterfeits, the types of equipment used to produce
                 counterfeits, the types of perpetrators, any connections with other crimes,
                 and other data.



                 Without a clear description of the audit plan objectives, the methods to be
Recommendation   used to achieve these objectives, and the associated limitations, the
                 Treasury’s submitted plan does not have all the requisite elements of an
                 audit plan. More complete documentation of the audit plan would provide
                 a greater opportunity to determine whether the proposed plan is likely to
                 result in a useful report. To help assure that the Treasury corrects the
                 deficiencies in the submitted audit plan, we recommend that the Secretary
                 of the Treasury develop and submit an addendum to more fully explain the



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                  objectives and the methods the Treasury intends to use, including a
                  discussion of assumptions and limitations associated with the use of the
                  resulting information.


                  The Department of the Treasury, with the input of the Federal Reserve
Agency Comments   Board, provided oral comments on a draft of this report. The Treasury
                  agreed with most of the information presented and supported our
                  recommendation that it develop an addendum to the plan to more fully
                  document the objectives and methods it intends to use, including a
                  discussion of the assumptions and limitations associated with the use of
                  the resulting information. The Treasury acknowledged that certain aspects
                  of the submitted plan were left vague, but said that this was done in order
                  to leave options open for the further development of the methodology.
                  According to the Treasury, it, with the input of the Federal Reserve, was in
                  the process of developing the addendum and planned to submit the
                  addendum to Congress by April 18, 1997.

                  The Treasury indicated that the uses of genuine U.S. currency abroad are
                  so diverse that it cannot develop one worldwide model, and therefore it
                  planned to develop descriptions of U.S. currency usage in the countries it
                  visits. The Treasury believes this methodology is a straightforward
                  exercise whereby it compares responses from foreign officials. The
                  Treasury stated that it may use these descriptions to better understand the
                  usage of U.S. currency in other countries in similar situations. The
                  Treasury’s planned approach for studying the uses of genuine U.S.
                  currency abroad is less quantitative in nature than the methodologies the
                  Treasury plans to use to develop estimates of genuine and counterfeit U.S.
                  currency abroad. It relies primarily on testimonial evidence provided by
                  foreign officials, and it is unclear how the Treasury will reconcile any
                  differences in data gathered. Therefore, the methodology is dependent
                  upon the quality and reliability of that testimonial evidence and the
                  context in which it is presented.

                  The Treasury noted that although the methodology to be used in
                  developing estimates of counterfeit U.S. currency abroad may be refined,
                  it felt the methodology was based upon reasonable assumptions that have
                  been validated by all of the evidence it had collected to date and it had no
                  evidence to suggest that any of the assumptions were not valid. Our
                  position on this methodology is that the assumptions cannot be either fully
                  validated or disproved, and therefore caution needs to be exercised to




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              ensure that information and estimates resulting from this methodology are
              provided in the proper context.

              The Treasury’s comments also included technical changes and
              clarifications that have been incorporated in this report where
              appropriate.


              We reviewed the Antiterrorism and Effective Death Penalty Act of 1996 to
Scope and     determine its requirements for the Treasury’s audit plan. We then assessed
Methodology   the Audit Plan of the Secretary of the Treasury on the Uses and
              Counterfeiting of U.S. Currency in Foreign Countries (Oct. 1996) using
              criteria for an audit plan as set forth under generally accepted government
              auditing standards. In doing so, we determined whether the plan would
              enable the Secretary of the Treasury to (1) study the use and holding of
              U.S. currency in foreign countries and (2) develop useful estimates of the
              amount of counterfeit U.S. currency that circulates outside the United
              States each year. We collected and reviewed documents, such as currency
              shipment and receipt data and counterfeiting statistics, from and
              interviewed officials of the Federal Reserve, the Department of the
              Treasury, and the Secret Service. We submitted written questions to the
              Department of the Treasury to clarify information in the audit plan and
              obtained and reviewed the written responses. We reviewed International
              Currency Awareness Program summaries of trips abroad and interviewed
              officials who participated in those trips and who prepared the written
              summaries. We also evaluated the reasonableness of the Federal Reserve’s
              paper detailing its method for estimating the total amount of genuine U.S.
              currency abroad. In doing this, we reviewed the relevant literature, the
              study’s methods, applications of the methods, and the study’s
              assumptions; and interviewed the study’s authors.

              We conducted our review from October 1996 to February 1997 in
              accordance with generally accepted government auditing standards.


              As agreed, unless you publicly announce the contents earlier, we plan no
              further distribution of this report until 30 days from its issue date. At that
              time, we will provide copies of the report to interested congressional
              committees, to the Secretary of the Treasury, and to the Chairman of the
              Board of Governors of the Federal Reserve System. We will also make
              copies available to others on request.




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           Please contact me at (202) 512-8984 if you or your staff have any questions
           concerning this report. The major contributors to this report were John P.
           Hutton; Kathleen M. Monahan; Cheryl L. Goodman; Arthur L. James, Jr.;
           and Geoffrey R. Hamilton.




           JayEtta Z. Hecker
           Associate Director, International Relations
             and Trade Issues




(711198)   Page 12                                         GAO/NSIAD-97-104 U.S. Currency
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