FED FAULTED FOR ERRORS IN REPORTING.

Byline: Karen Gullo Associated Press 

Ever have trouble balancing your checkbook? Government auditors say the Federal Reserve, banker to the U.S. government, has the same problem at its Los Angeles branch and wants the Fed to fix the problem.

The General Accounting Office, a federal watchdog agency, found problems with the way the Fed reports and tracks currency in its vaults and said other Fed offices may follow the same faulty practices.

In some instances, employees in Los Angeles altered balances in reports to the Fed in Washington when they didn't agree with cash on hand, the GAO said.

The practice, done with the knowledge of the bank's management, ``raises serious questions about the integrity of its accounting and internal controls,'' the GAO report states. It recommends that the Fed immediately look into its reporting practices and make improvements.

Fed officials said employees are allowed to change reports, but said the problems that caused staffers to change numbers have been corrected.

The errors had to do with monthly statistical reports that are used to track how many bills of certain denominations are on hand, a spokeswoman said. She said the bank has never had any losses.

``There has never been any money missing from the L.A. branch,'' said Sandra Conlan, spokeswoman for the Federal Reserve Bank of San Francisco. The L.A. office is a branch of that bank, which handles $80 billion in cash a year.

Conlan said a problem in a computer program was largely responsible for errors in the statistical reports. The discrepancy was corrected in April, she said.

She said an audit conducted last weekend showed cash balances agree with the bank's reports.

``That confirms that our financial reporting processes are sound,'' said Conlan.

Rep. Henry Gonzalez, D-Texas, a longtime Fed critic who ordered the GAO report, said the Fed should implement a systemwide cash inventory control procedure.

The cash in the Los Angeles branch is money deposited in the Fed by commercial banks that clear checks through the central bank.

The GAO raised questions about control over the bank's general ledger, the main accounting tool that keeps track of the bank's massive cash flow.

In one instance, an employee entered a deposit as $300,000 instead of $3 million.

In another instance, a $432,000 deposit made last year by a financial institution was incorrectly recorded as $8.64 million on the general ledger.

A clerk corrected the error without notifying a supervisor, the GAO said.

Sung Won Sohn, chief economist at Norwest Corp., said that such mistakes could result in a bank not being able to clear checks drawn on it.

``It's a fairly serious matter,'' said Sohn. ``After all, the financial system depends on accurate accounting at the Federal Reserve.''

A separate GAO audit in March was critical of the Fed's spending habits and recommended that the central bank keep a tighter rein over its purse strings for things like salaries, benefits and travel.