Honest Money

Gold & Silver Report

Introduction

The last audit of our gold reserves was in 2005, just one year ago. Nevertheless, many citizens are concerned that a thorough audit of our gold reserves has not been properly performed, and consequently, warrants attention. Some individuals claim that a complete physical audit has not been done since 1954.

As this paper illustrates, there seems to be a difference of opinion between what We The People consider to constitute a full disclosure and transparent audit of our gold reserves, as compared to what the various government agencies and other third party entities involved appear to consider appropriate.

The following discussion is offered to help promote a better awareness of the most important points concerning the fairly complex subject of our gold reserves - to all parties concerned.

A proactive approach is the preferred vehicle to develop an open dialog between the people and our elected officials, thus informing and enabling them to better represent and serve our goals in Congress.

Please note that all bold type was added by author for highlighting purposes and were not in the original documents quoted.

Audit of What

KPMG LLP, an independent public accountant, performed the audit of the Mint's Fiscal Year 2005 financial statements.

Notice what the above says: an audit of the financial statements. It doesn't say an audit of the physical gold. Is there a difference?

According to what follows, KPMG LLP never saw any physical gold. They never went to Fort Knox. Then what did they audit?

Apparently they audited the reports that the Treasury Department and the Mint gave them via the Deputy Assistant Inspector General for Financial Management and Information Technology Audits Report.

In other words they audited statements and reports from William H. Pugh Deputy Assistant Inspector General for Financial Management and Information Technology Audits that he supplied to the Treasury and the Mint.

The report also contains a disclaimer by the Treasury Department that the audit did not include Treasury gold held by the Federal Reserve.

Now why is that? Is it the Treasury's Gold, or the Federal Reserve's Gold, or We The People's Gold? And why is the Federal Reserve holding it? More unanswered questions.

Deep Storage

Also worth noting is the recent change from gold held in reserve to gold in deep storage. What does that mean - deep storage?

Is there a difference between gold held in reserve and gold held in deep storage? And if so, what is the difference, and why the sudden change? What precipitated the change and exactly what does it accomplish?

Which brings to mind the question: where's all the gold that was confiscated from We The People in 1933-34 by President Roosevelt? Is it in Fort Knox? Is it held in reserve or in deep storage? Is it in coin form or has it been melted down into bullion?

As is readily apparent - there are a whole lot of questions that have not ever been answered, although perhaps they have never been asked. Perhaps it is time to ask them.

Below is the audit (in part) for the year 2005. It was taken from the Treasury website that can be accessed at the below blue link, which states that the audit is in the public domain: (click blue date).

10/31/2005: OIG-06-003: Audit of the United States Mint's Schedule of Custodial Gold and Silver Reserves as of September 30, 2005 and 2004

MEMORANDUM FOR DAVID A. LYBRIK, ACTING DIRECTOR UNITED STATES MINT

FROM: William H. Pugh Deputy Assistant Inspector General for Financial Management and Information Technology Audits.

SUBJECT: Audit of the United States Mint's Schedule of Custodial Gold and Silver Reserves as of September 30, 2005 and 2004.

The attached report presents the results of our audits of the United States Mint's (Mint) Schedule of Custodial Gold and Silver Reserves (Custodial Schedule) as of September 30, 2005 and 2004. The Custodial Schedule is the responsibility of the Mint. We conducted our audits in accordance with Government Auditing Standards, issued by the Comptroller General of the United States.

We rendered an unqualified opinion on the Custodial Schedule as of September 30, 2005 and 2004. In addition, our report contains no reportable conditions related to internal control, and no instances of noncompliance with laws and regulations that could have a direct and material effect on the Custodial Schedule.

The results of our audits will be used by KPMG LLP, an independent public accountant, who is performing the audit of the Mint's Fiscal Year 2005 financial statements. In addition, copies of our report are being provided to the Secretary of the Treasury, the Treasurer of the United States, and the Department of the Treasury's Chief Financial Officer." [1]

Who's Who

Who is "we"? We is the "FROM: William H. Pugh Deputy Assistant Inspector General for Financial Management and Information Technology Audits who audited the United State's Mint's Schedule of Custodial Gold and Silver Reserves (custodial schedule)." [2]

Notice that all that was given was an unqualified opinion of the custodial schedule. This is opposed to a qualified opinion. Also note there were no internal controls examined. In other words it seems that only an external audit was done - not an internal audit.

"The results of our audits will be used by KPMG LLP, an independent public accountant, who is performing the audit of the Mint's Fiscal Year 2005 financial statements." [3]

The above strongly alludes that all that KPMG LLP audited was the report submitted by the Deputy Assistant Inspector General for Financial Management and Information Technology Audits, who only audited the custodial schedule of the U.S. Mint.

To the Acting Director of the United States Mint:

We have audited the accompanying Schedule of Custodial Gold and Silver Reserves (Custodial Schedule) of the United States Mint (Mint) as of September 30, 2005 and 2004. This report presents our unqualified opinion on this Custodial Schedule. Our audit disclosed no material weaknesses and no instances of reportable noncompliance with laws and regulations.

In planning and conducting our audit of the Mint's Custodial Schedule, we considered internal control over financial reporting. Specifically, we obtained an understanding of the design of the Mint's internal control related to the Custodial Schedule, determined whether these internal controls had been placed in operation, assessed control risk, and performed tests of controls in order to determine our auditing procedures for the purpose of expressing our opinion on the Custodial Schedule and not to provide assurance on the internal control over financial reporting. Consequently, we do not provide an opinion on such control.

As part of obtaining reasonable assurance about whether the Custodial Schedule is free of material misstatement, we performed tests of the Mint's compliance with certain provisions of laws and regulations, noncompliance with which could have a direct and material effect on the determination of Custodial Schedule amounts. We limited our tests of compliance to these provisions and we did not test compliance with all laws and regulations applicable to the Mint. We caution that noncompliance may occur and not be detected by these tests and that testing may not be sufficient for other purposes. Providing an opinion on compliance with laws and regulations was not an objective of our audit and, accordingly, we do not express such an opinion.

Internal control is a process, affected by management and other personnel, designed to provide reasonable assurance that the following objectives are met:

• Reliability of financial reporting - transactions are properly recorded, processed, and summarized to permit the preparation of the Custodial Schedule in accordance with accounting principles generally accepted in the United States of America, and the safeguarding of assets against loss from unauthorized acquisition, use, or disposition; and

• Compliance with applicable laws and regulations that could have a direct and material effect on the Custodial Schedule.

Because of limitations inherent in any internal control, errors or fraud may occur and not be detected. Also, projection of any evaluation of internal control to future periods is subject to the risk that internal control may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate.

Our consideration of internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting related to the Custodial Schedule that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by errors or fraud in amounts that would be material in relation to the Custodial Schedule being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. However, we noted no matters involving the internal control over financial reporting related to the Custodial Schedule and its operation that we consider to be material weaknesses as defined above. [4]

The above is what was submitted to:

The Department of the Treasury

Secretary of the Treasury
Treasurer of the United States
Assistant Secretary for Management and Chief Financial Officer
Director, Office of Accounting and Internal Control

United States Mint

Acting Director
Deputy Director
Chief Finacial Officer

Independent Public Accountant

KPMG LLP [5]

The Audit by KPMG LLP:

All of the following up to quotation number 6 is from the same Audit of the Mint as footnoted and referenced above:

The accompanying notes are an integral part of this Schedule.

The above is the end of quote # [6] from the Audit referenced above. As the quoted material states, an audit of the mint's custodial reserve schedule was performed.

The schedule and the actual physical gold are two different entities. The first is a piece of paper; the second is the actual physical gold reserves.

The Federal Reserve

Next is information taken from the Federal Reserve Act of 1913 and the U. S. Code. All of the information is footnoted and concerns the various pertinent issues that involve the Federal Reserve and gold, both according to its written Act, and the U.S. Code, and how it relates to the topics under review.

The following is quoted from the Federal Reserve Act of 1913.

FEDERAL RESERVE ACT OF 1913

SECTION 12 (IN PART)

The Federal Advisory Council shall have power, by itself or through its officers, (1) to confer directly with the Federal Reserve Board on general business conditions; (2) to make oral or written representations concerning matters within the jurisdiction of said board; (3) to call for information and to make recommendations in regard to discount rates, rediscount business, note issues, reserve conditions in the various districts, the purchase and sale of gold or securities by reserve banks, open-market operations by said banks, and the general affairs of the reserve banking system.

SECTION 14A

(a) To deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefore, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal reserve banks are authorized to hold; [7]

The above quotes from the Federal Reserve Act illustrate that they have been vested with the ability to purchase and sell gold, both at home and abroad; and to contract for loans of gold coin or bullion.

However, it is arguably questionable as by whose authority did the Federal Reserve receive such grants of power?

It appears that The Federal Advisory Committee authorized such actions, which begs the question: who is the Federal Advisory Committee and what authority granted them such powers?

Congress has not granted them such powers, and only Congress is authorized to grant such power, and only to government agencies - not to privately owned banks. Once again it seems like there are some questions that need answering.

THE U.S. CODE

The following information is from the U.S. Code as titled and footnoted. The first quote shows that the Federal Reserve Act can be amended, altered, or repealed, at any time.

This means that United States could be left without any type of monetary system, unless of course, one were set up beforehand to take its place.

Depending on exactly what they have in mind here, it could run the gamut from a system of Honest Weights and Measures of Gold and Silver Coin, to abolishing the existent system and replacing it with a different paper fiat system.

Perhaps an electronic credits account system, with or without gold is under consideration for implementation. Perhaps the Special Drawing Rights of the Bank For International Settlements is being discussed as a viable replacement. Once again - many unanswered questions.

TITLE 12--BANKS AND BANKING

CHAPTER 3--FEDERAL RESERVE SYSTEM

SUBCHAPTER I--DEFINITIONS, ORGANIZATION, AND GENERAL PROVISIONS
AFFECTING SYSTEM

Sec. 226. "Federal Reserve Act"

Separability; Right To Amend, Alter or Repeal Sec. 31. The right to amend, alter, or repeal this Act is hereby expressly reserved."[8]

TITLE 12--BANKS AND BANKING

CHAPTER 3--FEDERAL RESERVE SYSTEM

SUBCHAPTER II--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Sec. 248b. Annual independent audits of Federal Reserve Banks and Board

The Board shall order an annual independent audit of the financial statements of each Federal Reserve Banks and the Board.

(Dec. 23, 1913, ch. 6, Sec. 11B, as added Pub. L. 106-102, title VII,
Sec. 726, Nov. 12, 1999, 113 Stat. 1475.) [9]

TITLE 12--BANKS AND BANKING

CHAPTER 3--FEDERAL RESERVE SYSTEM

SUBCHAPTER III--FEDERAL ADVISORY COUNCIL

Sec. 262. Powers

The Federal Advisory Council shall have power, by itself or through its officers, (1) to confer directly with the Board of Governors of the Federal Reserve System on general business conditions; (2) to make oral or written representations concerning matters within the jurisdiction of said board; (3) to call for information and to make recommendations in regard to discount rates, rediscount business, note issues, reserve conditions in the various districts, the purchase and sale of gold or securities by reserve banks, open-market operations by said banks, and the general affairs of the reserve banking system.

(Dec. 23, 1913, ch. 6, Sec. 12 (par.), 38 Stat. 263; Aug. 23, 1935, ch.
614, title II, Sec. 203(a), 49 Stat. 704.) [10]

SUBCHAPTER II--GENERAL DUTIES AND POWERS

Sec. 714. Audit of Financial Institutions Examination Council, Federal Reserve Board, Federal Reserve banks, Federal Deposit Insurance Corporation, and Office of Comptroller of the Currency
(a) In this section, "agency" means the Financial Institutions Examination Council, the Federal Reserve Board, Federal reserve banks, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Federal Reserve Board and Federal Reserve banks may not include--
(1) Transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) Deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) Transactions made under the direction of the Federal Open Market Committee; or
(4) A part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection. [11]

Summary

From the above information, including the 2005 Audit of the Mint's Custodial Schedule, to the quoted sections of the Federal Reserve Act and the U.S. Code, it is most obvious that

• The Federal Reserve is involved with buying and selling and holding gold

• That the Federal Reserve Act does not mandate the Fed to offer any full audit to any government departments or agencies that it does not want to provide the information to

• That the U.S. Code does not mandate any auditing of the Federal Reserve

• That there is no written and reported record of any physical audit of the U.S. gold reserves having been done anytime in the last few decades

• There are questions as to who holds title to what amounts of gold: the U.S. Treasury, or the Fed, or We The People - and is the gold acting as collateral in any way shape or form, and if so for what purpose?

Conclusions

The House Committee on Financial Services, chaired by Chairman Michael Oxley of Ohio, and including Congressman Ron Paul and other patriotic defenders of We The People's rights, is the legally mandated body that overseas all of the above mentioned issues.

Perhaps it is time that We The People take a more pro-active approach in enabling our representatives to better represent us. Let the servants of the people know that the people they represent specifically want the above discussed issues examined and clarified.

Write your representatives. Email your representatives. Show that you care about your country. Stand up and be counted before it's too late - before you are no longer able to do so.

Sign the coming petition requesting a physical audit of the U.S. Gold Reserves.

The link below is to the Committee on Financial Services. Take a look at it. See who is on the committee that represents you. Let them know what you want done about these issues.

Take part in forging your and your children's destiny - before others form it for you.

House Committee on Financial Services, chaired by your friend, Chairman Michael Oxley of Ohio

Come visit our new website: Honest Money Gold & Silver Report
And read the Open Letter to Congress

[1] OIG-06-003: Audit of the United States Mint's Schedule of Custodial Gold and Silver Reserves as of September 30, 2005 and 2004
[2] Same
[3] Same
[4] Same
[5] Same
[6] Same
[7] Federal Reserve Act of 1913
[8] US Code Title 12 Section 3 Subchapter 1 Sec. 226
[9] US Code Title 12 Section 3 Subchapter 2 Sec. 248-b
[10] US Code Title 12 Section 3 Subchapter 3 Sec. 262
[11] US Code Title 12 Sub-Chapter 2 Sec. 714

Links to all Quoted References:
10/31/2005: OIG-06-003: Audit of the United States Mint's Schedule of Custodial Gold and Silver Reserves as of September 30, 2005 and 2004
Federal Reserve Act
LII: U.S. Code: Home