II. A Few Treasury Notes

Although the Federal Reserve dedicates many resources to support the goals of the U.S. Treasury, there are, in fact, many areas of the agency in which the Fed has no involvement at all.

The Treasury Department consists of 12 bureaus and offices, including familiar names like the Internal Revenue Service, the U.S. Mint, and the Bureau of Engraving and Printing. Although the Fed supports many of these areas in some capacity, this report will focus on the two bureaus the Fed provides extensive services to—the Financial Management Service and the Bureau of the Public Debt. We will also discuss the interactions between one of the Treasury’s policy-making bodies—the Office of the Fiscal Assistant Secretary—and the Federal Reserve Bank of St. Louis, which oversees all of the products and services the Reserve banks provide to these three entities of the Treasury.

Financial Management Service

The function of the Financial Management Service (FMS) is to manage the U.S. government’s money. The FMS provides centralized collection, payment and reporting services for the government. Every day, the bureau oversees the cash flow of nearly $58 billion into and out of federal accounts.

The FMS collects more than $2.3 trillion each year for the federal government. These payments include individual and corporate income tax deposits, customs duties, fees for government services, fines and loan repayments. On the other side of the ledger, the bureau disburses more than $1.5 trillion each year to more than 100 million individuals through Social Security payments, veteran’s benefits, income tax refunds and other federal payments.

The stated goal of the FMS is to move toward an all-electronic Treasury for both collection and payments. As we will detail in the next section, the Fed has partnered with the FMS to implement cutting-edge technology that advances the Treasury closer to that objective. So, how close are we to an all-electronic environment? The FMS reports that $1.9 trillion of the $2.3 trillion it collects is through electronic transactions, nearly 80 percent. As for payments, electronic-related transactions accounted for more than 75 percent in fiscal year 2004.

In addition to managing collections and payments, the FMS maintains the federal government’s set of accounts and serves as the repository of information for the government’s financial position. As part of this responsibility, the FMS assists federal agencies with adopting uniform accounting and reporting standards and systems. The bureau also assures the continuous exchange of financial information among federal agencies, the executive branch’s Office of Management and Budget, and financial institutions.

Three Federal Reserve sites process 250 million Treasury checks per year.

One other main FMS task worth noting is the collection of delinquent debt. The bureau uses a centralized process to collect delinquent debt owed to the U.S. government (e.g., student, mortgage or small business loans, or fines or penalties assessed by federal agencies), as well as income tax debts owed to states and overdue child support payments owed to custodial parents. Since Congress placed debt collection under a single, central authority, the FMS has collected nearly $21 billion in delinquent debts that otherwise would not have been collected.

Bureau of the Public Debt

The public has been familiar with the products of the Bureau of the Public Debt (BPD) since 1917, when the Treasury directed the Federal Reserve banks to issue Liberty Loan bonds and Victory notes to help the government finance World War I. The BPD, whose primary mission is more narrowly defined than that of the FMS, borrows money needed to operate the government and accounts for the resulting debt.

Each year, the BPD collects about $2 trillion by selling Treasury bills, notes and bonds either at auctions or directly to customers. That figure is boosted by the sale of savings bonds at 40,000 locations throughout the country. The bureau pays interest to investors and eventually redeems the loan when the item matures.

Office of the Fiscal Assistant Secretary

Overseeing the aforementioned two bureaus is the Office of the Fiscal Assistant Secretary (OFAS). This office develops policy on payments, collections, debt financing operations, electronic commerce, government-wide accounting, government investment fund management and other issues. OFAS also performs two mission-critical functions for the Treasury: managing the daily cash position of the government, and producing the cash and debt forecasts used to determine the size and timing of the government’s financing operations.

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