U.S. Currency

All currencies are susceptible to counterfeiting, but the stability and worldwide acceptance of U.S. currency have made it a particularly tempting target for international counterfeiters. Although most counterfeiters engage in this activity for personal gain, some counterfeiting is linked to other criminal activities, such as drug trafficking, arms dealing, and terrorism. Widespread counterfeiting of U.S. bills could undermine confidence in the currency. Moreover, if done on a large-enough scale, it could reduce international holdings of U.S. currency and could harm the U.S. economy. Recent legislation requires the Treasury Department to develop an audit plan that addresses counterfeiting of U.S. currency. GAO reviewed the Treasury's October 1996 audit plan to determine whether it will enable 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. GAO also reviews other information and materials that the Treasury intends to use to conduct the audits.

GAO noted that: (1) the Secretary of the Treasury's submitted plan does not demonstrate how it will enable the Treasury to meet the audit plan objectives required under the Antiterrorism and Effective Death Penalty Act of 1996; (2) the plan does not clearly state the audit's objectives or the methodologies to achieve those objectives; (3) 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; (4) 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; (5) 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; (6) he acknowledged that the plan does not fully address the methods for achieving the objectives; (7) 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; (8) 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; (9) the official also told GAO the Treasury would rely on an existing Federal Reserve methodology to develop rough estimates or ranges of estimates of counterfeit U.S. currency circulating outside the United States each year; (10) after GAO outlined its concerns about the submitted audit plan to Treasury and Federal Reserve officials, the Treasury official responsible for the plan told GAO 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; and (11) the Treasury official also indicated that the addendum would explain the assumptions the Treasury made and discuss the limitations associated with these estimates.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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