An audit by the Treasury Department’s Office of Inspector General finds that the U.S. Mint’s handling of raw materials for making U.S. coins and its redemption procedures for uncurrent and mutilated coins are “deficient.”

OIG auditors found, according to the 57-page audit report released Aug. 18, that the bureau “relies mainly on its material suppliers for raw materials quality assurance of circulating coins.”

Auditors also concluded that the ability to identify counterfeit coins submitted under the mutilated coin redemption program was lacking.

The Mint suspended its Mutilated Coin Redemption Program two years ago, after OIG officials notified the Mint of problems, and it remains suspended.

Material handling

The OIG audit does not identify the material suppliers by name. However, the U.S. Mint contracts with three materials suppliers for the base metals that are processed to become circulating U.S. coins.

Jarden Zinc Products in Greeneville, Tennessee, supplies the Mint with ready-to-strike copper-plated zinc planchets for making Lincoln cents. The cent planchets already have upset, or raised, rims and can immediately be fed into the coinage presses for production into circulating coins.

For the other circulation quality coinage, PMX Industries in Cedar Rapids, Iowa, and Olin Brass, in East Alton, Illinois, supply the U.S. Mint with metal coils weighing several tons each, of the proper compositions.

The Mint punches the blanks from these coils, then transforms the blanks into planchets ready for striking by deburring the edges, annealing the blanks and forming raised rims through a process called upsetting.

For Jefferson 5-cent coins planchets, coils comprised of a homogenous alloy of 75 percent copper and 25 percent nickel are used.

Copper-nickel clad coils, comprising an alloy of 75 percent copper and 25 percent nickel that is bonded to both sides of a core of pure copper and rolled to the proper thickness, are used to punch blanks for the Roosevelt dime, America the Beautiful quarter dollars, and Kennedy half dollars.

Coils are also supplied for the manganese-brass clad dollar coins struck in circulation quality — including the American Innovation and Native American dollar series (although the coins are not placed into circulation).

The OIG audit found that quality issues with raw materials occurred infrequently. However, the Mint failed to consistently conduct quality management assessments to assure the integrity of the weight and quality of the materials provided.

“When we asked for the date the Mint had last conducted a QMS [Quality Management System] assessment, which includes a material supplier site visit or a documentation review, neither the Mint nor its material suppliers could provide a time when one had been conducted.

“In fact, Mint officials and material suppliers could not recall any on-site inspections or reviews of the material suppliers’ QMSs by the Mint within the last 5 years.”

Mint officials responded that inspections of materials suppliers on site were inhibited because of travel restrictions due to budget constraints.

While OIG auditors acknowledge circulating coin raw materials are inspected and tested at the Philadelphia and Denver Mints, not all materials relative to coin production were tested before use.

“We found that the Mint’s inspection and testing of raw materials, including documentation and procedures between Mint facilities, was inconsistent or absent and that neither Mint facility validates the quantity of circulating coin raw materials received,” according to the OIG audit.

The most problematic material quality issuer experienced was delamination — the separation of the outer layer of a coin, or blank, due to incomplete bonding or impurities — a problem more likely to occur during the stresses imposed by striking.

The OIG report noted that 46 out of 80 Non-Conformance Reports from fiscal years 2015 through 2017 were related to delamination issues, either at the striking phase or at receipt of coil material. The reports addressed a total of 43,000 coils across all denominations for which circulating coinage are produced.

The Mint is responsible for conducting quality assurance tests on “coupons” — rectangular pieces of metal cut from each individual coil.

Despite requirements that all the coil coupons be tested, OIG auditors found that roughly 13 percent were tested, with most of the tests conducted a week after receipt of the respective coil.

Philadelphia Mint officials told OIG auditors that one in six coil coupons were tested. Denver Mint officials claimed all coil coupons were tested, but no validating documentation was maintained to support the assertion.

The OIG’s investigation determined the U.S. Mint was unable to trace production problems back to specific coils because coils were not individually marked, but recorded as a group lot.

U.S. Mint management stated in response that the bureau currently does accurately trace coils to the blanking press by their original coil and lot identifications as given by the suppliers.

Testing and inspection procedures were not consistent between the production facilities or nonexistent, according to the OIG. This included chemical testing and delamination testing of the coil coupons.

Coin redemption

The OIG determined that the U.S. Mint’s controls over its Mutilated Coin and Uncurrent Coin programs were deficient.

The U.S. Mint resumed its Mutilated Coin Redemption Program without finalizing or following a draft Standard Operating Procedure, according to the OIG.

Mutilated coins are bent or partial U.S. coins.

Uncurrent coins are defined as “Whole U.S. coins which are merely worn or reduced in weight by natural abrasion yet are readily and clearly recognizable as to genuineness and denomination and which are machine countable; uncurrent coins should only be redeemed at Federal Reserve Banks and Branches.”

The Mutilated Coin Redemption Program is currently suspended, according to a U.S. Mint spokesman Sept. 9.

Counterfeit coins

A portion of the report addresses problems in identifying counterfeit coins submitted for redemption.

“Specifically, although the SOP acceptance criteria identifies counterfeit coins as an unacceptable item, the draft SOP failed to require any tests or use of subject matter experts to make this determination,” according to the OIG audit.

“As a result, we found the Mint processed the mutilated coin redemptions without the capability to authenticate the genuineness of the coins. We also found that there were no formal SOPs over the uncurrent coin redemption process. As a result of these deficiencies, the genuineness and recycling of coins redeemed through the Mint’s coin exchange programs could not be assured. These deficiencies expose the Mint to the risk of paying out tens of millions of dollars for non-genuine U.S. coinage, as well as not being able to ensure that these coins are being melted and recycled.”

Because of alleged fraud in the Mutilated Coin Redemption Program involving the submission of counterfeit coins, the U.S. Mint first suspended the program in 2015. After new regulations were developed, the program was resumed in January 2018.

OIG notified U.S. Mint officials in August 2018 of deficiencies in the coin redemption programs. The Mutilated Coin Redemption Program was suspended again in May 2019.

Among measures to strengthen the security of the Mutilated Coin Redemption Program, bulk redeemers of more than 5,000 pounds of mutilated coins annually were required to undergo a certification process, including background investigation. Financial statement audits and on-site inspections of the applicants were not conducted in many instances, according to the OIG.

One background investigation provided to the Mint found that a bulk redeemer was located at the same address as a massage parlor from which the Mint accepted possession of 30,000 pounds of coins to be redeemed.

The OIG determined that high-risk individuals were being approved as redeemers.

During August 2018, the U.S. Mint received approximately 450,000 pounds of mutilated coins for redemption.

While Mint personnel visually inspected the submissions of mutilated coins, the personnel were largely unaware of the specific receiving and sampling requirements in the Mint’s standard operating procedures, according to the OIG report.

Further, the U.S. Mint does not have a standard operating procedure for redeeming uncurrent coins, but instead relies on the Federal Reserve to determine authenticity.

OIG auditors observed one material supplier processing containers during mutilated coin redemption. Instances were noted in which coins returned appeared to be mixed with foreign contaminants or material otherwise unrecognizable as genuine U.S. currency.

The Mint relies on its materials suppliers to tell the Mint if the chemical composition is incorrect when the redeemed coins are melted.

An inspection from a sample of 500 mutilated coins indicated a large number with the same peeling, blistering or other disfigurement, bring into question the coins’ authenticity, according to the OIG.

“The Mint already incurs a loss on the Mutilated Coin Redemption Program because the Mint pays face value for the redeemed coins and receives only scrap value for the coins from its material suppliers when the coins are recycled,” according to the OIG audit. “Further exposing the Mint to additional losses is the Mint paying out tens of millions of dollars for non-genuine U.S. coinage by not being able to or appropriately authenticating U.S. coinage.”

Connect with Coin World:  
Sign up for our free eNewsletter
Access our Dealer Directory  
Like us on Facebook  
Follow us on Twitter