Fed branch accused of altering records Gonzalez wants GAO to probe his allegations

June 04, 1996|By LOS ANGELES TIMES

WASHINGTON -- Officials at the Federal Reserve branch in Los Angeles altered internal records of the bank's cash flow over a period of months in 1995 and 1996, if not longer, in a bid to smooth over discrepancies in their weekly reports to Washington, Democratic Rep. Henry B. Gonzalez of Texas, the Fed's chief critic in Congress, charged yesterday.

At least $178 million in internal bookkeeping statistics were altered, some changes possibly exaggerating the amount of cash at the Los Angeles branch and some apparently underestimating it, the congressman said.

Gonzalez yesterday called for an investigation by the General Accounting Office into what he termed the "falsification" of records at the Los Angeles branch bank.

"We cannot allow the central bank of the United States, the main custodian of the nation's currency and coin, to commit continual and serious errors nor can falsification of reports of currency activities be permitted," he told Fed Chairman Alan Greenspan in a letter.

The allegations are the most recent embarrassment for the independent and secretive central bank, which was criticized by a government audit in March for wasteful spending and lax management of its sprawling nationwide system.

It was not clear yesterday whether the new disclosures went to the heart of information required for Fed policy decisions in Southern California and nationally, as Gonzalez's staff suggested, or were -- as the Fed argued -- simply a housekeeping concern.

Gonzalez and his aides argued that the branch's accounting procedures also opened the door to waste at taxpayer expense. "We believe there's a vulnerability for missing cash due to extremely large errors in bookkeeping, but we have no direct evidence of any money missing," a congressional aide said.

Fed officials yesterday acknowledged errors in information gathering at the Los Angeles branch, but described the situation as an internal, statistical matter, unrelated to Fed policy decisions or an understanding of the Los Angeles bank's actual financial position. The situation, they said, was corrected in April.

"We learned in late January, based on a routine internal review of our statistical gathering process, that the procedure used to complete cash-related statistics appeared to have errors in it," said John F. Moore, chief operating officer of the Federal Reserve Bank of San Francisco, which oversees the Los Angeles branch. "The discrepancy, now corrected, in no way suggests any wider problems."

"The financial position is balanced daily, double-checked by a secondary source and periodically reviewed by the audit function and others," Moore said.

According to a staff memo that circulated within the Fed's Board of Governors in February, the form that was routinely altered in Los Angeles is intended to help gauge the nation's cash supply and to assess the currency needs of different regions of the country.

An internal memo from the Los Angeles branch, obtained by the Los Angeles Times, shows that some employees in the cash administration area had a term for their practice of smoothing over differences in the statistics. They called it "backing into" the numbers, an exercise in which one set of numbers was changed to match another.

"Until then [April 1996] we will continue 'backing into' our numbers," Warren Howard, a manager in cash administration of the Los Angeles branch, wrote in the February memo.

Pub Date: 6/04/96

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