Paper Money

Too many cooks in the Treasury-Fed bureaucratic kitchen

If you’re among those who have been anxiously awaiting the release of the Federal Reserve’s new high-tech $100 bill, cool your jets. It’s likely to be a while before they make their way to your neighborhood commercial bank and ATM.

Back in April 2010 Treasury and Fed officials staged a big press conference in the ornate Cash Room at the Treasury Department to unveil new designs for the highly touted Series 2009 $100 Federal Reserve note. They declared they were ready to take on the world’s counterfeiters with the new $100 note featuring new security devices that they claimed should make bogus copies of the nation’s most widely circulated denomination easy to spot.

Labeling them “the new Benjamins,” Treasury officials confidently boasted the new notes would be in circulation by Feb. 10, 2011. That date came and went and no new notes. Like many target dates since the “NexGen” redesign project was launched in 2000, this one, too, seemed to quickly slip into the “no information available” bin when inquiries about a new launch date were posed.

Now, a year later, an audit report issued Jan. 26 by the Treasury Department’s Office of Inspector General begins to shed some light on why the new high-tech notes are not in circulation.

Before digging into the audit report, let’s set the scene: The Bureau of Engraving and Printing, an agency of the U.S. Treasury, is the government-operated manufacturer of U.S. paper currency. BEP’s exclusive customer for U.S. currency is the private Federal Reserve Bank that functions as the central bank of the United States.

According to the report, the BEP began producing the NexGen $100 notes in January 2010 in anticipation of release into circulation by the Fed in February 2011. In April 2010 the BEP noticed sporadic creasing in the notes and then “a more concentrated occurrence” of creasing in June 2010. By July 2010 the BEP began working with its currency paper supplier to try to determine the cause of the problem. It waited until September 2010 to suspend production. According the OIG audit, after production was halted BEP officials estimated that less than 1 percent of the 1.4 billion notes that had been printed were flawed. But the audit notes, “the estimate was not based on valid statistical sampling techniques, so an exact error rate was not determined.”

The “Cliff Notes” version of the OIG’s 25-page audit is:

? The delay in issuing the new $100 FRN is due to production failures that “potentially could have been avoided.”

? BEP did not perform the necessary and required testing to resolve technical problems before starting full production.

? BEP failed to use comprehensive project management.

? BEP did not adequately complete a comprehensive cost-benefit analysis for the disposition of the approximately 1.4 billion printed notes, an unknown quantity of which contain flaws.

Not unexpectedly, the OIG recommends that before resuming full production the BEP needs to figure out what is causing the creasing problems, correct them, and conduct validation tests to ensure the problems are resolved. It strongly recommends that the BEP implement a comprehensive and integrated project management function for the NexGen $100 note program as well as for future note designs. Also, OIG recommends that the BEP should complete a comprehensive cost-benefit analysis before making decisions related to the disposition of the NexGen $100 notes that have not been accepted by the Fed.

The takeaway from reading the OIG’s report is that there are too many cooks in this Treasury-Fed bureaucratic kitchen and there is exceedingly poor management at the BEP. Such would not and could not be tolerated for a printing firm to be successful in the private sector. Yet, in government such problems are not only tolerated but those in charge are often rewarded with bonuses and award plaques.

This situation begs for congressional oversight, but in an election year few dare to ask questions or seek to ensure anything will improve. ¦

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