Tag Archives: fort knox

Audits Of US Monetary Gold Severely Lack Credibility

According to the United States Treasury its 261 million ounces (± 8,100 tonnes) in official gold reserves are fully audited and accounted for. Because for many decades rumours are making rounds this gold has been covertly sold, in this essay we’ll thoroughly scrutinise the audits – indirectly evaluating the accuracy of the gold claims by the Treasury. What we’ll encounter is a wide range of problems in the audit documentation obtained through Freedom of Information Act requests submitted at the US government. Among other problems, since inspections commenced at Fort Knox in 1974:

  • Most physically verified and sealed vault compartments have been re-opened, for which the auditor can provide no valid explanation.
  • Auditing personnel has proven to be utterly incompetent and did not follow the auditing policies and procedures.
  • Repeatedly metal has been excluded from verifications.
  • Many of the audit and assay documents have been destroyed.
  • The US government goes to great lengths in withholding information and spreading false information.

In conclusion, the audits have been executed with an inadequate degree of integrity.

The heart of this investigation are the sealed compartments that store the vast majority of the US’ official gold reserves. These compartments are located inside the vault rooms of three US Mint repositories; Denver, Fort Knox and West-Point. In the early 1970s when it was decided all the gold was to be physically verified, the protocol was designed to open, audit, close and seal all compartments once, in order to avoid the necessity to repeat these procedures. Despite these rules, my research points out nearly all compartments have been re-opened after being audited. These revelations prompt strong skepticism about the credibility of the audits. Possibly, up to 200 million ounces (± 6,200 tonnes) of gold, approximately 75 percent of the total, have inadvertently been exposed to external threats.

What follows is an extensive dossier with most of the information in my possession about the audits, accompanied by a critical analysis hereof.

This is a story about misconduct, deceit, inconsistencies, and loose ends. At risk is the safety of the gold meant to underpin the world reserve currency.

Table of contents:

  1. Introduction
  2. The audits of US monetary gold
  3. Problems regarding the audits
  4. Conclusion
  5. Appendix
The Fort Knox depository.

1. Introduction

Hardly anybody in the world of finance is aware of the audits of the US’ official gold reserves. On February 11, 2017, the Financial Times wrote, ‘much of the world’s excavated gold is thought to be in Fort Knox, but nobody can be sure, since the US government will not allow the auditors in’. Printed in other media, even the most seasoned gold analysts assess that the gold has never been audited. This is not a subject only the mainstream media is oblivious about, it seems everyone is. Our first observation is that the US government has not been willing to openly discuss the inspections, let alone flaunt with the results.

I became aware of the audits through the congressional hearing of The Gold Transparency Act (not enacted) that was initiated by Ron Paul in 2011. Through the hearing I learned that currently the Department of the Treasury’s Office of Inspector General (OIG) and KPMG are responsible for the audits of the US’ monetary gold. Eric M. Thorson representing the OIG attended the hearing and testified under oath it had completed all of its auditing duties by 2008.

Before we dive into the analysis and address the problems regarding the audits, first we’ll need to lay out the foundation by establishing what part of the US’ monetary gold stock is stored where and has been audited by whom.

In December 2017, the US’ official gold reserves accounted for 261,498,926 fine troy ounces (8,134 metric tonnes) all lawfully owned by the US Treasury – though the real owners are the American people. The majority of the total, 248,046,116 troy ounces (7,715 tonnes), is being safeguarded by the US Mint, the remaining 13,452,811 ounces (418 tonnes) are stored at the Federal Reserve Bank of New York (FRBNY).

The gold held at the Mint, in turn, can be divided in two segments: 245,262,897 ounces (7,629 tonnes) in Deep Storage gold and 2,783,219 ounces (87 tonnes) in Working Stock.

My investigation is primarily focused on Deep Storage metal, which are assets owned by the Treasury and kept under Official Joint Seal (OJS) at the US Mint. Currently in use are three Mint depositories. An aggregated 43,853,707 ounces (1,364 tonnes) are carried in 16 sealed compartments at the Denver depository, 147,341,858 ounces (4,583 tonnes) are harboured in 15 sealed compartments at Fort Knox, and 54,067,331 ounces (1,682 tonnes) are stored in 11 sealed compartments at West Point.

Deep Storage Assets. Deep Storage Assets are those assets owned by the Department of the Treasury and stored under OJS at the United States Mint. These assets are reported as Custodial Assets in the United States Mint’s annual Financial Statements.

Exhibit 1. Source.

The Working Stock in bars, blanks, and finished coins is stored predominantly at West-Point but outside sealed compartments.

Exhibit 2. Source. For a detailed overview on how much bullion and coins is located at what depository in the US in 2017, I’ve uploaded an excel sheet to be viewed and downloaded from here. For a more precise sheet from 2001, which includes the disposition of the Working Stock at the time, click here (source). Since 2001 the Deep Storage gold has remained flat, the Working Stock has slightly declined. The bar list of the Deep Storage gold in an excel sheet can be downloaded from here, for the bar list of the US’ gold at the FRBNY in PDF form see this document starting at page 128.

Ownership of the US official gold reserves was handed over from the Federal Reserve to the US Treasury in 1934. In return, the Federal Reserve received gold certificates to place on its balance sheet. At the time of writing these certificates on the Fed’s balance sheet are still valued at $42.2222 per troy ounce, a statutory value set in 1973. The certificates are redeemable for dollars at the statutory value, not for physical metal.

Exhibit 3. Source.

Kindly note the US official gold reserves were higher a few decades ago and spread over different locations, although after 1934 the main custodians have always been the Mint and the FRBNY.

Exhibit 4. Source one (page 5) source two (page 35). Please be aware, in some documents the gold in the Exchange Stabilization Fund (ESF) is not included in the US official gold reserves.
Exhibit 5.

Provided with background knowledge of the fine weight and whereabouts of the US’ monetary gold stock, we’ll move on to make acquaintance with the auditing procedures.

2. The Audits of US Monetary Gold

In 1974 in response to congressional interest a commission led by the Government Accountability Office (GAO) physically inventoried, weighed and assayed 31.1 million ounces (967 tonnes) of the gold at the Mint’s largest storage facility Fort Knox.

Exhibit 6. Behind one of the massive vault doors of Fort Knox, inside the vault room gold is stored in compartments that are covered by a seal. Note, there are 3 connections to the Fort Knox vault room: the front door, the back door and a tunnel

As at the start of the audit process on September 23, 1974, roughly one hundred journalists and nine members of Congress were allowed entrance to Fort Knox, this event is often cited in the media as the last audit of the US’ gold. Factually September 23, 1974, was a non-event: only one vault compartment was opened that day and unqualified people, journalists and members of Congress, looking at yellow bricks will not pass as an audit. What happened the subsequent months and years is far more important, but these events have never been covered by the media.

In 1975 the US Treasury agreed to ‘a recommendation by the GAO’ on a ‘periodic, cyclical inventory’ to ‘ensure that about 10 percent of the gold’ was physically inspected annually, eventually to have audited ‘all the gold for which the US government is accountable’ ‘by 1984’. Every compartment physically verified was placed under Official Joint Seal so to ‘avoid the necessity of verifying all assets in each audit’. ‘These actions, having once been performed … in accordance with established procedures, will not have to be repeated as long as the assets verified remain under an unimpaired joint seal’.  

Exhibit 7. Source: US Mint annual report 1975.

Next to physical verifications, every year all Official Joint Seals (OJS) were inspected whether they had been compromised. The latter is referred to as ‘OJS inspection’ and is done annually until this day. (Added must be that prior to 1974 compartments were also covered with a seal, the audits that began in the seventies thus brought the compartments under new joint seal.)

Exhibit 8. Compartment at Fort Knox (1974) closed by a cloth ribbon waxed to a seal. The compartment cannot be accessed without breaking the seal.

The program that started in 1975 was dubbed the ‘Continuing Audits of United States Government-Owned Gold’ (Treasury Order No. 234-1) and was executed by ‘the Committee for Continuing Audits, headed by the Audit Staff of the Treasury’s Bureau of Government Financial Operations (BGFO) and included the Chief of Internal Audit of the Mint and the Assistant General Auditor of the Federal Reserve Bank of New York’. Although the GAO was ‘invited to participate in all audits’. The Committee for Continuing Audits (The Committee hereafter) decided to include in their program the audit performed by the GAO in 1974, and thus officially the Continuing Audits of United States Government-Owned Gold (The Continuing Audits hereafter) were launched in 1975, but effectively the program ran from 1974.

In order to learn more precise how the audits from 1974 until present have been executed we’ll read parts of the opening statement by Eric M. Thorson (OIG) for the subcommittee investigating The Gold Transparency Act in 2011. Note, this testimony is still referred to by the OIG as the official statement on the audits of the US’ monetary gold. The OIG wrote me by email:

The explanation provided by Inspector General Thorson in his June 23, 2011 Statement to the House Financial Services Committee, at pages 3 and 4, sets out our responsibilities for Mint and Treasury financial statement audits under the Government Management Reform Act …. 

Exhibit 9.

Having confirmed the relevance of the testimony, this is what Thorson said in 2011:

100 percent of the U.S. Government’s gold reserves in the custody of the Mint has been inventoried and audited. … I can say that without any hesitation, because I have observed the gold and the security of the gold reserves myself.

… the Committee for Continuing Audit of the U.S. Government-owned Gold [The Committee] performed annual audits of Treasury’s gold reserves from 1975 to 1986. … by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal. So once you have done that, and that seal remains unbroken, then I am not sure what other benefit there would be to going back into it at that point.

Since 1993, when we [OIG] assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold. In fact, my auditors signed the official joint seals … placed on those compartments, inventoried and tested in their presence. At the end of Fiscal Year of 2008, all 42 compartments had been audited by either the GAO, the Committee for Continuing Audit of the U.S. Government-owned Gold, or my office, and placed under official joint seals.

The financial statement audit is performed by KPMG[1] under contract with my office.

Exhibit 10. (1) The role of KPMG in the audits will be discussed later on in this post.

Thorson mentions two periods in which the Deep Storage gold has been audited:

  1. From 1975 until 1986 roughly 97 percent of the US’ gold at the Mint was inspected – although actually this period started in 1974. (We refer to these as the The Continuing Audits by The Committee.)
  2. From 1993 until 2008 the audits of the Mint held gold were completed by the OIG – although Thorson doesn’t mention exactly how much gold his team verified over this time horizon.

Subsequently, let’s zoom in on the physical (inventory, weigh and assay) procedures that have taken place from 1974 all the way to 2008. From a report by The Committee, about audits in between 1974 and 1986, we read:

In performing the audit, the gold bars are physically moved from one vault compartment to another. During this operations, the melt[1] numbers and the number of bars in each melt are verified with an inventory listing, and one in fifty melts is randomly selected for weighing and test assay.

Compartments audited at Mint institutions and depositories are kept under official joint seal by representatives of the audit committee. Any subsequent movement of gold in or out of audited compartments must be verified jointly, after which the compartment is resealed. These procedures are designed to keep the audited gold under control of the audit committee.

Exhibit 11. (1) One melt averages about twenty bars cast from one crucible of molten gold.

In a document by the GAO drafted in 2011 we read about the protocols in place since 1993:

These officials [OIG] … told us that over the course of the Treasury OIG’s audits of the Mint’s Custodial Schedules for fiscal years 1993 through 2008, the compartments containing the deep storage gold reserves not audited by either GAO or The Committee, along with any previously sealed compartments that were opened, were selected and audited. These officials [OIG] told us that such audits included verifying the following to the Mint’s inventory records:

  1. the number of gold bars in each melt;
  2. the melt number for each gold bar in the melt; and
  3. the fineness stamped on each gold bar in the melt.

…. These officials [OIG] also told us that once the inventory of a selected compartment being audited was completed, the compartment was sealed with an official joint seal to control the gold reserves contained in the compartment.

Exhibit 12.

Attentive readers may have spotted a contradiction at this point. Thorson stated in 2011, ‘by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal. So once you have done that, and that seal remains unbroken, then I am not sure what other benefit there would be to going back into it at that point’. The GAO wrote in 2011, ‘for fiscal years 1993 through 2008, the compartments containing the deep storage gold reserves not audited by either GAO or The Committee, along with any previously sealed compartments that were opened, were selected and audited’. Whilst Thorson stated it was unnecessary for the OIG to re-audit compartments that had been audited prior to 1986, the GAO subtly mentions that some compartments physically verified in between 1974 and 1986 have at some point been re-opened.

Why have compartments been re-opened when the audit protocol was designed to ‘avoid the necessity of verifying all assets in each audit’ so ‘having once been performed … will not have to be repeated as long as the assets verified remain under an unimpaired joint seal’? Why didn’t Thorson specify the subject of re-opening vault compartments in the congressional hearing?

This re-opening of compartments is the core of my research, while everything in orbit of the nucleus – cementing its position – will be addressed as well. What we’ll find is that nearly all compartments have been re-opened and/or re-sealed many times for dubious reasons.

3. Problems Regarding The Audits

Make no mistake, the narrative constructed by the US government with respect to the audits is neatly dressed up appearing to be trustworthy. Of course, the Treasury wouldn’t present anything that is feeble at first sight. The problems, however, emerge when we seek below the surface, to find misconduct, deceit, inconsistencies and loose ends.

A few paragraphs down this analysis will require intense puzzling: accounting protocols, the web of all entities involved and an abundance of data make it a convoluted subject to decipher. In my opinion the audits could have been executed simpler, but it seems the US government created as many layers of rubbish to bury the facts as deep as possible. At the same time, I deem it necessary to expose the cracks at the seam in great detail.

Problem 1) An audit of the Treasury’s gold in the 1950s was not completed.

Immediately after the Eisenhower administration assumed office in 1953 an audit of the gold bullion of the Treasury department was initiated. Though audit and assay reports are missing, all we have are a few pages in the 1953 Annual Report of the Secretary of the Treasury, clearly the audit was never completed.

The Annual Report mentions a club of advisors verified three compartments at Fort Knox holding 34,399,630 fine troy ounces (1,070 tonnes). The remaining 322,269,381 troy ounces (10,024 tonnes) at Fort Knox weren’t audited as, ‘it is the opinion of this committee that the same agreement would be found should all of the compartments be verified’.

In 1954 zero gold was physically verified, only the seals on the compartments were inspected. All in all, this was everything but a full audit of the US monetary gold. Less than 6 percent was physically audited, or 34,399,630 ounces (1,070 tonnes) of in total 596,756,651 ounces (19,631 tonnes).

An important question to be imposed is why the US government stopped auditing after just three compartments at Fort Knox? This defeats the whole purpose of an audit.

Problem 2) The OIG lost 10 audit reports from 1974 through 1986.

Thorson stated in 2011 he’s 100 percent certain that all of the US official gold reserves stored at the Mint had been audited. To arrive at this conclusion, he aggregates the audit by the GAO (1974), The Continuing Audits (1975 – 1986) and the audits performed by his department the OIG (1993 – 2008). His assertion greatly depends on The Continuing Audits, though when I asked my contact at the OIG, Rich Delmar, to send me all audit and assay reports from 1974 through 1986 he replied they could only find four documents (download exact attachments here). Delmar wrote me:

… our Office of Audit found:

OIG-87-42 (1986)

OIG-86-59 (1985)

as well as GAO’s 1974/1975 and 1978 reports.

That’s everything we have, or are aware of.

Rich Delmar

Counsel to the Inspector General

Department of the Treasury

Exhibit 13.  

Several FOIAs aimed at obtaining reports drafted by The Committee, inter alia directed at the National Archives and Treasury department, didn’t yield anything in addition to what Delmar had sent.

At the bottom line, instead of the thirteen reports (1974 – 1986) the OIG should have in its possession to be able to substantiate The Continuing Audits, it has but five (1974, 1975, 1977, 1985, 1986). So how can Thorson be positive ‘100 percent of the U.S. Government’s gold reserves in the custody of the Mint has been inventoried and audited’, if his department possesses just a fraction of the audit reports from 1974 until 1986?

Thorson’s defense can be found in his written responses to questions by Ron Paul submitted after the congressional hearing in 2011. Paul asked (page 57 & 58):

Could you provide a report, or an otherwise comprehensive document on the following items related to U.S. gold holdings?… A complete history of the audits, assays, and inventories, at least as far back as 1975 if not earlier.

Exhibit 14.

Thorson replied (page 58):

…It should be noted that most workpapers associated with our reports issued prior to 2004 have been destroyed in accordance with our records retention policy.

Exhibit 15.

Stunningly, the US government has destroyed most documents drafted from 1974 until 2004 associated to the audits of its 261,498,926 ounces (8,134 tonnes) of gold that serve to underpin the world reserve currency. Thorson is hiding behind the fact that the OIG is not obliged to preserve reports indefinitely. But then why did his department save the four documents sent to me by Delmar? Why has the US government been selective in saving reports?

And aside from any ‘records retention policy’, would it be rational to destroy the most important pieces of evidence – meant to proof the existence of the largest official gold hoard globally – promptly after assembled? The essence of auditing the US’ monetary gold stock was to reassure global commerce that in any extreme scenario all dollars in circulation are supported by gold, providing essential confidence and credibility. Once you’ve proven the gold is there, why throw away the evidence?

When I did some more research I found another audit report from 1974 on the GAO website, and the summary of the 1980 audit and the full report of 1981 on the website of colleague gold researcher Reg Howe.

Documents in my possession related to The Continuing Audits are:

Six audit reports (1976, 1978, 1979, 1982, 1983 and 1984) are missing.

Problem 3) The FRBNY gold was supposed to be audited under The Continuing Audits program but was considered ‘unaudited’ in 1986.

From the 1986 audit report by The Committee we read:

Gold at the Federal Reserve Bank of New York is audited periodically by examiners of the Board of Governors of the Federal Reserve System. … The audit procedures followed were essentially the same as those followed at Mint institutions except that assay samples were not taken to verify the purity of the gold and the audited gold was not under Committee control after the audit. As a result, the gold at the Bank is considered unaudited. 

Exhibit 16.  

The gold at the FRBNY was considered unaudited by 1986 because no assay samples could be taken and the metal never came under control of The Committee. By bypassing The Continuing Audits the FRBNY compartments did not come under joint seal, implying this gold could be conveniently transported in and out of the vaults, possibly through an underground corridor to the adjacent private vault at 1 Chase Manhattan Plaza. Please read this blog post by BullionStar gold researcher Ronan Manly for more information on the construction of the FRBNY vault and the underground connection to the private gold vault across the street.

Also, since 1974 the volume of the Treasury’s gold at the FRBNY has increased, which elevated the amount of gold that didn’t come under control of The Committee. Before 1974 the FRBNY stored 4.2 million ounces (131 tonnes) of yellow metal for the Treasury (exhibit 4), by 1986 this volume had mushroomed to 13.5 million ounces (418 tonnes). In other words, an increment of 9.3 million ounces (288 tonnes) escaped The Continuing Audits.

Problem 4) While not completed The Continuing Audits were discontinued in 1986.

In a September 19, 1986, memorandum The Committee concluded to cease Treasury Order No. 234-1 (The Continuing Audits) while it had reviewed 91.9 % of the US’ monetary gold. Annual audits of the gold were advised not to be executed any longer.

Why were The Continuing Audits not completed? According to The Committee in 1986, ‘virtually all of the gold in custody of the Mint had been audited and essentially no discrepancies were found’. This is a weak excuse. If this excuse was valid why would any audit ever be completed? Remember, in 1953 the audit wasn’t completed either. Thereby, the fact that new audits were initiated in 1974 confirms the audit of 1953 was invalid, or the process didn’t need to be repeated.

Although The Continuing Audits were meant to verify ‘all the gold for which the US government is accountable’, The Committee gave up in 1986 before the job was finished.

Problem 5) Numerous compartments have been re-audited from 1983 until 1986 for dubious reasons.    

What Thorson didn’t mention during the congressional hearing in 2011, and perhaps for a reason, is that his department originally became part of the audit operations in 1982. Thorson made it seem the OIG stepped in during 1993, though clearly in reports by The Continuing Audits we read:

Effective October 1, 1982, the Internal Audit Staffs of BGFO and the United States Mint [parts of The Committee] were reorganized under the Department of the Treasury, Office of the Inspector General [OIG].

Exhibit 17.

More apparent we find the OIG’s signature on the cover of the 1985 audit report:

Exhibit 18. Source.

To be complete, when asking Delmar about this he wrote me:

Before 1993, we weren’t leading the audits but were part of the committee on continuing audits that put the gold under seal. We assumed responsibility for … audits in 1993. 

Exhibit 19.

Although Delmar writes the OIG didn’t lead the audits in 1983, I dare to say the evidence is against him. In a moment we’ll see that since 1983 the OIG was not only leading the audits, it also started re-opening previously verified compartments.

The next overview I’ve grabbed from the 1986 audit report:

Exhibit 20. Source.

In the screenshot above it shows how much gold at what depository was audited each year from 1974 until 1986. At the top of the Fort Knox rows we spot ‘2/’ in red. Footnote ‘2/’ reads:

Exhibit 21.

By September 1982 one hundred percent of the gold at Fort Knox had been verified, though not all metal at West Point and zero at the FRBNY. The next year, strangely, the OIG started re-audits at Fort Knox (re-opening compartments) ‘in accordance with the plan approved by the Treasurer’. At Fort Knox 54,455,432 ounces were re-audited from 1983 through 1986.

At the top of the Denver column in exhibit 20 we spot ‘12/’ in red. Footnote ‘12/’ reads:

Exhibit 22.

With respect to the Denver depository, from 1984 to1985 the amount of gold re-audited accounted for 7,575,976 ounces (236 tonnes).

The 1986 audit report reads:

On March 4, 1983, the Inspector General of the Department of the Treasury recommended to the Treasurer of the United States that, upon completion of the continuing audit authorized by Treasury Order No. 234-1 [The Continuing Audits], a statistical sample of gold melts within randomly selected compartments at each Mint depository be inventoried and assays tested on an annual basis.

…In fiscal year 1986 audits of Government-owned gold were also conducted at the United States Mint in Denver and the United States Bullion Depository in Fort Knox, Kentucky. The total gold holdings at both facilities were previously audited under the June 3, 1975, continuing audit program. The … [re-]audits were conducted at Denver and Fort Knox in accordance with the revised audit guidelines that require a statistical sample of gold melts within randomly selected compartments at the facilities.

Exhibit 23.

The reason for the re-audits appears to be ‘revised audit guidelines’. But these revised guidelines have been executed inconsistently, making me question their true objective:

  • Notable is that re-audits from 1983 through 1986 at Fort Knox and Denver were conducted under the ‘revised audit guidelines’ though at West Point The Continuing Audits rules still applied.
  • In 1986 not only The Continuing Audits were aborted prematurely, any re-audits by the OIG according to the revised guidelines were discontinued as well. Why didn’t the OIG finish to audit West-point with either set of rules? And, why didn’t the OIG continue (re-)audits at any depository after 1986? I find it strange revised guidelines were implemented for only a short period.

What unfolded opens the possibility the revised guidelines were an excuse to re-open compartments, which would explain why the OIG prefers to uphold a narrative it had nothing to do with the (re-)audits in the eighties.

The West-Point depository.

I’ll share a bit about my research journey. A FOIA at the OIG asking for all audit reports from 1993 through 2008 was replied by Delmar:

I am responding to your FOIA for all audit and assay reports of the US Official Deep Storage Gold drafted in between 1993 and 2008.

Our review of our files indicates that the attached documents constitute all records we possess which are responsive to your request, and thus a full response to your request.

This response comprises:

  1. Word file listing of the OIG Audit Reports for the United States Mint’s Schedules of Custodial Deep Storage Gold and Silver Reserves as of September 30, 1994 through 2008;
  2. Zip file with the above noted audit reports. A separate report was not issued for 1993; however, the 1994 audit includes an opinion on 1993.
  3. Gold Assay Report for 2008 (performed by White Sands Test Center); and
  4. Gold Assay Report for 2006 and 2005 (performed by White Sands Test Center), 2004 (performed by Ledoux & Company, Teaneck NJ).

Exhibit 24. All attachments Delmar transferred to me (the word file, zip file, and the gold assay reports) can be downloaded by clicking here.

See the official audit reports Delmar sent me below. All PDFs listed with official document names and dates are clickable for easy access.

1994 OIG-95-076 MAY 12, 1995 AUDITED STATEMENTS OF CUSTODIAL GOLD AND SILVER RESERVES FOR THE UNITES STATES MINT AS OF SEPTEMBER 30, 1994 AND 1993
1995 OIG-96-061 MAY 8, 1996 AUDITED STATEMENTS OF CUSTODIAL GOLD AND SILVER RESERVES FOR THK UNITED STATES MINT AS OF SEPTEMBER 30, 1995 AND 1994
1996 OIG-97-043 FEBRUARY 27, 1997 AUDITED STATEMENTS OF CUSTODIAL GOLD AND SILVER RESERVES FOR THE UNITED STATES MINT AS OF SEPTEMBER 30, 1996 AND 1995
1997 OIG-98-041 FEBRUARY 23, 1998 AUDITED STATEMENTS OF CUSTODIAL GOLD AND SILVER RESERVES FOR THE UNITED STATES MINT AS OF SEPTEMBER 30, 1997 AND 1996
1998 OIG-99-037 MARCH 15, 1999 AUDITED STATEMENTS OF CUSTODIAL GOLD AND SILVER RESERVES FOR THE UNITED STATES MINT AS OF SEPTEMBER 30, 1998 AND 1997
1999 OIG-00-024 DECEMBER 23, 1999 AUDITED STATEMENTS OF CUSTODIAL GOLD AND SILVER RESERVES FOR THE UNITED STATES MINT AS OF SEPTEMBER 30, 1999 AND 1998
2000 OIG-01-060 March 29, 2001 FINANCIAL MANAGEMENT: Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves as of September 30, 2000 and 1999
2001 OIG-02-051 February 22, 2002 FINANCIAL MANAGEMENT: Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves as of September 30, 2001 and 2000
2002 OIG-03-015 November 13, 2002 FINANCIAL MANAGEMENT: Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves as of September 30, 2002 and 2001
2003 OIG-04-001 October 29, 2003 FINANCIAL MANAGEMENT: Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves as of September 30, 2003 and 2002
2004 OIG-05-004 November 5, 2004 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves as of September 30, 2004 and 2003
2005 OIG-06-003 October 31, 2005 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves as of September 30, 2005 and 2004
2006 OIG-07-003 October 23, 2006 Audit of the United States Mint’s Schedule of Custodial Deep Storage Gold and Silver Reserves as of September 30, 2006 and 2005
2007 OIG-08-001R November 14, 2007 Audit of the United States Mint’s Schedule of Custodial Deep Storage Gold and Silver Reserves as of September 30, 2007 and 2006
2008 OIG-09-002 October 21, 2008 Audit of the United States Mint’s Schedule of Custodial Deep Storage Gold and Silver Reserves as of September 30, 2008 and 2007

 

This may surprise readers but the reports listed above mention nothing about physical verification of gold – in contrast to the audit reports I have from The Continuing Audits. All they state really is that according to generally accepted accounting principles the Mint’s Custodial Schedule is presented fairly. For example, the 2008 report reads:

In our opinion, the accompanying Custodial Schedule presents fairly, in all material respects, the balance of the United States’ Deep Storage Gold and Silver Reserves in the custody of the Mint as of September 30, 2008 and 2007, in conformity with U.S. generally accepted accounting principles.

Exhibit 25.

‘The accompanying Custodial Schedule’ looks like this:

Exhibit 26. The Custodial Schedule US Mint 2008 is a total of gold stored for the Treasury. The gold is valued at $42.2222 per fine troy ounce.

Accordingly, every ‘Audit of the United States Mint’s Schedule of Custodial Deep Storage Gold and Silver Reserves’ document from 1993 through 2008 is written in SALY format (Same As Last Year) and thus refrains from disclosing how much gold was physically verified (counted, weighed and assayed) in what year. The OIG can hide behind convoluted auditing structures that allow these reports to be as they are but I wasn’t satisfied.

Eager to find out and several FOIAs extra, aimed at information about how much gold was physically audited in what year, finally Delmar sent me an excel sheet that contains salient statistics for the 42 sealed Deep Storage compartments. I believe the original date of this sheet is 2008:

Exhibit 27. Official Joint Sealing (OJS) sheet by the OIG. For downloading the original sheet click here.

Problem 6) Fort Knox compartment 23 was audited in 1974 but sealed eight years later.

From the spreadsheet (The Sheet hereafter) more problems can be detected. This is where the real story starts. We can see in The Sheet there are currently 36,236 bars comprising 11,837,877 fine troy ounces stored in Fort Knox compartment 23. Film footage shot inside Fort Knox on September 23, 1974, shows that compartment 33 contained 36,236 bars comprising 11,837,925 fine troy ounces was opened that day. The number of bars in both compartments is exactly the same, the fine weight differs by 49 troy ounces.

Exhibit 28. One frame from footage shot on September 23, 1974, of Fort Knox compartment 33.

We previously learned that, ‘in performing the audit, the gold bars are physically moved from one vault compartment to another’. What happened is that on September 23, 1974, Fort Knox compartment 33 was opened, the 36,236 bars inside taken out to be inventoried, weighed and assayed, subsequently to be stacked in compartment 23 across the vault room.

In The Sheet we find no other Fort Knox compartment that holds a number of bars equal to 36,236, or fine troy ounces close to 11,837,925, except for compartment 23. The gold in compartment 33 audited in 1974 must have been moved to compartment 23. The 49 fine troy ounces discrepancy between both compartments is due to assay tests performed (metal drilled from the bars for the laboratory).

Exhibit 29. Illustration of gold movement from Fort Knox compartment 33 to 23 in September 1974.

There is a problem though. In The Sheet it reads that Fort Knox compartment 23 was not sealed in 1974, but on June 25, 1982 (column G), implying either the gold was in an open compartment for eight years, or the compartment was re-opened and/or re-sealed (after 1974). Be aware that any re-opening of vault compartments raises concern over the integrity of the gold stored inside as the auditing protocol from 1975 states that compartments physically verified be properly sealed in order to ‘avoid the necessity of verifying all assets in each audit’. ‘These actions, having once been performed by an authorized committee… will not have to be repeated’. Compartments were supposed to be opened and audited once. (Remember, re-audits started at Fort Knox in 1983 so these cannot have explained the question about compartment 23.)

Asking Delmar numerous times over email why Fort Knox compartment 23 was sealed eight years after it was physically audited prodded no response.

Problem 7) Official Joint Seal is missing. Exactly the one from Fort Knox compartment 23.

In front of the subcommittee Thorson stated that all 42 Official Joint Seals (OJS) had been replaced (re-sealed) for newer seal types in 2010. The Deep Storage covers changed from ‘cloth tape with wax’ to ‘steel cables with locking seal’. As an example, Thorson showed the subcommittee the old seal that had come of compartment 2-J in 2010.

Exhibit 30. OJS covering Denver compartment 2-J that was replaced in 2010.

There is much information to be extracted from an Official Joint Seal. Inter alia:

  • Date the compartment was sealed.
  • Total gross and fine weight in the compartment.
  • Gross and fine weight taken for assay samples when the compartment was physically verified.
  • From which compartment the gold was sourced (in the case of 2-J the gold came from 19-J).
  • Date the sourced gold was previously sealed (in the case of compartment 19-J it was September 3, 1981).

Next, to follow up on my lead regarding compartment 23, I invited the OIG (through a FOIA) to send me digital copies of all the 42 seals that were replaced in 2010. If the OIG had saved one seal, the one Thorson showed for the subcommittee, they must have saved them all I reckoned. And so Delmar went to the scanner for us and made digital copies of all seals that were replaced in 2010. He missed but two.

After the usual hindrance – Delmar sending some copies twice, excluding others, while I was submitting more and more FOIAs and waiting for months on the results – eventually I received 40 seal copies. The ones missing are West-Point compartment 11-UP and Fort Knox compartment 23. The latter, coincidentally, being the compartment seal I had confronted Delmar with because it was placed eight years after physical verification.

When I telephoned Delmar to ask why he refused to send me the seal of Fort Knox compartment 23 he said, clearly angry and annoyed, ‘that’s all we have’, ‘sir, you’re becoming a real pest’, ‘I’m not in the position to answer any more questions’, and then he hung up while I was talking.

I find it suspicious Delmar refused to send me the seal that was replaced in 2010, which was exactly the one he knew would show me an irregularity in the auditing procedure. The other seal he didn’t send me belongs to West-Point compartment 11-UP, which later on we’ll discover was not audited by 2008 (although Thorson has stated under oath 100 percent of the gold at the Mint was verified by then).

What Delmar didn’t realize is that the 40 seal copies he did sent, show us many other irregularities in the auditing procedures. They will proof to be the Rosetta Stone of my investigation.

Problem 8) The custodian performed audits from 1986 through 1992.

In pursuit to propel my quest forward I conceived a new spreadsheet (New Sheet hereafter), joining the information from the 40 seal copies Delmar had sent.

Exhibit 31. Download sheet here.

On the rows of Fort Knox 25 and 27, and Denver 6-J, 11-J, 12-J, 13-J and 14-J we can see these chambers were sourced with gold previously sealed in between 1989 and 1991 (see red numbers in column M). This is a big problem and I will tell you why.

When he spoke in front of the subcommittee in 2011 Thorson never mentioned anything about audits in between 1989 and 1991; he only mentioned the periods from 1974 until 1986 (The Committee) and 1993 through 2008 (OIG). What I discovered is that there are two statements by Thorson.

Remember the OIG pointed me to, ‘the explanation provided by … Thorson in his June 23, 2011 Statement … at pages 3 and 4’ (exhibit 9)? On page 3 and 4 of the document, indeed, is the statement Thorson read out for the subcommittee; but on page 42 there is an additional written statement. When I compared both word for word I found they are similar, yet the second version crosses a topic that’s excluded in the first. Thorson never spoke about this in front of the subcommittee:

From 1986 to 1992, the Mint continued to perform an annual inventory and verification of the gold reserves in accordance with its own policies over those compartments that had not been placed under Official Joint Seal by the Committee for Continuing Audit of the U.S. Government-owned Gold. According to Mint officials, this was done to comply with the 1975 GAO recommendation discussed earlier.

Exhibit 32. Written statement OIG 2011 (page 45).

After The Continuing Audits from 1974 until 1986 and partly simultaneous re-audits according to revised guidelines from 1983 until 1986, the Mint, mind you the custodian of the Deep Storage gold, continued auditing metal ‘in accordance with its own policies’ from 1986 through 1992. As far as known these verifications of 25,591,885 ounces (796 tonnes) have not been monitored by any auditor, whether that be the OIG, GAO or an external contractor. This is similar to a bank opening up its customers’ safe deposit boxes.

Thorson writes that in between 1986 and 1992 the Mint audited, ‘those compartments that had not been placed under Official Joint Seal by the Committee for Continuing Audit of the U.S. Government-owned Gold’. I believe this to be a falsehood. The seals show the Mint opened compartments at Fort Knox and Denver. However, in exhibit 20 it’s demonstrated Fort Knox and Denver were fully audited (and re-audited) by 1986 and thus under Official Joint Seal. And this exhibit comes directly from a document prepared by the OIG in 1986. Accidentally, the falsehood has covered up the re-opening of compartments.

So far, we’ve learned that from 1983 until 1986 about 62,031,408 ounces (1,929 tonnes) were re-audited by the OIG and from 1986 until 1992 up to 25,591,885 ounces (796 tonnes) ounces were re-audited by the Mint without any supervision. Which begs the question, what happened from 1993 until 2008? From here it gets even wackier.

Problem 9) There are reasons to doubt the overall credibility of the OIG.

Concern can be raised about the general credibility of the OIG’s audits from 1993 until 2008. For example, the 1994 Deep Storage gold audit report was written by Inspector General Valarie Lau, who had to resign a few years later ‘after facing accusations that she had committed the kinds of transgressions her office was supposed to be rooting out’. The New York Times reported on January 17, 1998, this woman was found corrupt.

Exhibit 33. Official audit report 1994.

Another example that makes me scratch my head is the curious case of Edmund C. Moy, 38th Director of the United States Mint. The OIG audit report from 2008 was directed at Moy. See below:

Exhibit 34. Official audit report 2008. 

But Moy has been completely ignorant about the audit procedures at Fort Knox, Denver and West Point as demonstrated in my previous blog post Former US Mint Director Clueless On Gold In Fort Knox. No need to repeat the content here.

Consider this: Moy has openly stated in 2015 on Twitter there should be a new ‘comprehensive audit authorized by Congress’. Seemingly, he didn’t have much faith in the audits performed by the OIG during his tenor.

Exhibit 35. The Director of the Mint from 2006 until 2011 that was supposed to be aware of the audits factually knew nothing about the procedures and openly calls for a new comprehensive audit authorized by Congress.

In 2015 I asked Moy, in passing, over email about the composition of the bars at the Fort Knox depository in Kentucky. He replied (published with Moy’s permission):

The majority of the bars are standard 400 ounce good delivery bars. That is what I was told by the Fort Knox protection staff. I would recommend a FOIA request to the OIG or the US Mint posing the question to get an official answer with appropriate documentation. That way you could be the first to break the news.

Exhibit 36.

Let this sink in. In addition to the fact Moy was ignorant about the audits and openly calls for a new comprehensive audit authorized by Congress, he advised me to submit a FOIA at the OIG and Mint to ‘break the news’ on the content of gold at Fort Knox. From his demeanor I sense Moy was discouraged by the ‘Fort Knox protection staff’ and OIG to interfere with the (audits of the) Mint’s custodial gold when he was in office. This while in hierarchy he was above the protection staff, not the other way around. Or so it is shown in the Mint’s organizational structure.

Exhibit 37.

And from the Deep Storage auditing rulebook, we know the Director of the Mint is supposed to be involved in the process.

Exhibit 38. Source (page 9).

Did the Fort Knox protection staff and OIG somehow keep Moy in the dark about the (audits of the) Mint’s custodial gold?

Problem 10) The external auditor (KPMG) relies on auditing work by the OIG, implying a limited role.

The Committee was in its entirety controlled by the US government, which didn’t feed the credibility of The Continuing Audits. In 2011, Thorson stated ‘the financial statement audit is performed by KPMG under contract with my office’, making laymen believe KPMG, an independent auditor, physically audited the gold – where previously the auditor, custodian and owner formed an incestuous triangle not granting absolute integrity. But the external party involved in the audits of the US official gold reserves has not that much to do with independent inspection of the physical gold. When I asked Delmar about KPMG’s role in the audits he replied:

Basically, audit standards allow, in appropriate circumstances, reliance on other audit work, and in the specific context of KPMG’s financial statement audit of the Mint, the agreement calls for their reliance on our gold reserves work, without specific reference to it. Hope this helps.

  1. KPMG relies upon our audit … and—therefore—KPMG doesn’t make reference to the audit that we performed (our report) in their audit report.
  2. Reliance upon our audit is a requirement stated in the Treasury Contract*;
  3. In order for KPMG to assume responsibility for our work, KPMG reviews our work in accordance with Auditing Standards (AU-C §600, Special Considerations—Audits of Group Financial Statements, Including the Work of Component Auditors; see attached) and the Yellow Book (the methodology contained in FAM 650; see attached);

See the attachments for the requirements that support the statement from IG Thorson.

* – TREASURY CONTRACT

Exhibit 39. Download all attachments Delmar sent me here.

As far as I know, starting from 1992 the United States Mint Reauthorization And Reform Act caused the Mint’s Custodial Schedule to enjoy scrutiny by an independent auditor. But what the Treasury did was cut a deal with an external party for it to rely on work done by the OIG for verifying the physical gold. The independent contractor never audited the gold purely by itself. Apparently, this is possible within auditing standards.

Rather than hiring an independent auditor directly to audit its precious metal, the Treasury has conceived a structure whereby its resident auditor (OIG) forms the first layer to touch the gold, after which the independent auditor relies on work done by the OIG. Just as to create as much distance to the gold as possible. Not only are the OIG audits disputable, in turn, the audits by the external contractor fully rely on the OIG.

Kindly note, the independent contractor in 1993 and 1994 was Price Waterhouse LLP, from 1995 until 2004 it was Urbach Kahn & Werlin LLP, and KPMG LLP took over in 2005. The big question is, has any independent contractor ever been physically near any gold? In a blog post by fellow Fort Knox researcher Tom Szabo we find a quote from KPMG’s opinion on the Mint’s 2005 financial statement that reads:

We [KPMG] did not audit the United States’ gold and silver reserves (Custodial Gold and Silver Reserves) for which this Mint serves as custodian. These reserves were audited by to United States Department of the Treasury, Office of Inspector General (OIG) whose report has been furnished to us, and our opinion, insofar as it relates to these reserves, is based solely on the report of the OIG.

Exhibit 40.

The quote discharges that in 2005 KPMG participated in the physical audits. What is weird is that the report by KPMG carrying the above quote has disappeared. Szabo – a skeptical analyst with multiple years of professional auditing experience – wrote in 2010:

I copied the above quote [exhibit 40] directly from the original 2005 audit report as it appeared on the Mint’s website on January 13, 2007. Unfortunately the report has since been deleted and is nowhere to be found.

Exhibit 41.

Shortly we’ll study what KPMG did after 2005.

Problem 11) The OIG continued with re-audits from 1993 until 2008 for dubious reasons.

Let’s get back to the actual audit procedures. If you listen to Thorson’s statement from 2011 you will assume that in between 1993 and 2008 the OIG had solely audited the gold that wasn’t audited by The Committee, which at most was 7 million ounces (218 tonnes) at West-Point. Thorson said:

…by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal. So once you have done that, and that seal remains unbroken, then I am not sure what other benefit there would be to going back into it at that point.[Thorson suggests gold audited after 1974 did not have to be re-audited at any point in time.]

Since 1993, when we assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold. … At the end of Fiscal Year of 2008, all 42 compartments had been audited by either the GAO [1974], the Committee for Continuing Audit of the U.S. Government-owned Gold [1975 – 1986], or my office [1993 – 2008], and placed under official joint seals.

Exhibit 42.

However, from studying The Sheet and the 40 seal copies we know that since 1993 no less than 20 compartments, holding over 80 million ounces (±2,500 tonnes), have been re-opened and/or re-sealed. To confirm I asked Delmar how much his department verified from 1993 until 2008. He responded: 

…We observed the counting of 246,203 bars, which equates to 81,638,569 FTOs (or 2,539 Tonnes).

Exhibit 43. The compartments audited by the OIG are listed in The Sheet.

More re-audits! What can possibly be the explanation for these re-audits?

Maybe the ‘revised audit guidelines’ were back? Making sure this or any other reason possibly had caused re-verifications, I decided to ask Delmar as plainly as I could why gold had been re-audited under the OIG’s watch:

Exhibit 45. My real name is Jan Nieuwenhuijs.

In a receptive attempt to understand why US Mint vault compartments have been re-opened and/or re-sealed as often as they have been, I invited the auditor responsible in clear language to introduce us a reasoning. Alas the offer was not redeemed, leaving the credibility of the OIG in a qualm. With respect to the re-audits from 1983 until 1986 and from 1993 through 2008 his response is all but satisfying. Again he mentions the ‘testimony from 2011’, which doesn’t describe any re-audits, and the annual audit reports from 1993 until 2008, which discuss no physical verifications whatsoever. Most important, he refrains from mentioning revised audit guidelines, so I fancy that argument can be officially negated.

Furthermore, Delmar writes that in ‘some cases’ vault contents were moved and needed to be re-verified. Luckily for us the disposition of the gold can be traced through most of history. The next table shows to what extent the US’ monetary gold has moved between depositories since 1974.

Exhibit 46. Since 1974 custodial gold at the Mint has slightly declined, and in 1981/1982 roughly 60 million ounces were moved from the New York Assay Office to West-Point (yellow). This amount had declined to 58 million ounces by 1986, likely after which 2.8 million ounces were relabelled as Working Stock (yellow). ‘Others’ include Philadelphia and San Francisco; likely these 3 million ounces have been transferred to Denver somewhere in between 1980 and 1986.

There has been but one significant movement of roughly 60 million ounces from the New York Assay Office to West Point in 1981/1982 (see the yellow cells above). But this is not a solution to the problem. From the documentation we know that by 1986 a little over 86 percent of the gold at West Point (50,041,314 out of 57,854,461 ounces) had been audited. ‘So once you have done that, … then I am not sure what other benefit there would be to going back into it at that point’ (phrase borrowed from Thorson, 2011). Only 7 million ounces were not audited at West-Point by 1986, yet the OIG audited over 80 million ounces after 1993. Delmar’s argument regarding gold movement doesn’t fit.

Delmar can’t explain why 62,031,408 ounces (1,929 tonnes) were re-audited from 1983 through 1986, and he can’t explain why 81,638,569 (2,539 tonnes) were re-audited from 1993 through 2008. (I didn’t even ask him about the re-audits by the Mint in between 1986 and 1992.)

Denver Mint in Colorado.

I’ll share a bit more about my research journey. The email Delmar sent me, the one that contained the audit reports from 1993 until 2008, included a key document titled the Management Letter for the Fiscal Year 2004 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves. This note in itself is very valuable, but additionally, there’s a reference made in the letter to ‘the requirement that the Director’s Representative submit a written report to the Chief Financial Officer (CFO) notifying the CFO of the completion of the verification’. I suspected these reports are working papers of the verifications, and I was right. After a long and lingering FOIA procedure, I obtained several ‘memoranda submitted by the US Mint Director’s representative regarding audits of the Mint Schedule of Custodial Gold and Silver Reserves to the Chief Financial Officer drafted from 1993 through 2008’ (Memos hereafter, download here and here) from the Mint.

These Memos are as close to physical verification reports from 1993 until 2008 as I’ve ever got. For the sake of simplicity, the Memos can be divided in OJS inspection sections and physical verification sections. (Auditors visit depositories separately, to check if Official Joint Seals have been compromised, and for physical verifications respectively.)

Stumbling forth on my path, another FOIA provided me with the Mint’s 2005 audit directive. The directive shows us, just like in 1975, that whenever a compartment has been ‘verified … the annual [audit] will be limited to inspection of the Seals’. Put differently: once verified the door remains closed. No re-audits.

Exhibit 47. Mint’s directive 2005 (page 11).

Problem 12) The US Mint has obstructed a FOIA request.

In my experience the US Treasury, Mint and OIG will do anything within their power not to comply to a FOIA request. The National Archives (NARA), in contrast, have a much more cooperative character. I won’t bother you with the full story about my FOIA procedures that took me many years (although you can read the chapter ‘US Government Tight-Lipped About Fort Knox Audits’ in this post if you’re interested), but the gist of one request needs to be told here.

When I submitted a FOIA at the Mint in the spring of 2016 in order to obtain the Memos, they replied this request would set me back a whopping $3,145 dollars because it would take forty hours ‘for a full record search at the National Archives’, eight hours for review, and additional costs would be incurred to duplicate 1,200 pages. I thought this was nonsense: 1,200 pages seemed out of proportion and how did they know it were going to be this many pages if they had to search forty hours for it? To proceed, the only option left was to raise money through a crowdfunding campaign.

Within 24 hours the campaign was completed and in August 2016 I sent the Mint the funds. Finally, late December of the same year the Mint delivered in total 223 redacted pages, which contained 68 pages of totally unrelated reports and 21 pages that were copied twice. Effectively, I got 134 pages that, above all, are incomplete. The table below shows what’s missing: about half of the OJS inspection reports and a few physical verification reports.

Exhibit 48. Overview Memos in OJS inspections and physical verifications. 

When I confronted the Mint that I paid $3,145 dollars for a paltry and incomplete 134 pages they had to admit the costs had been over-estimated. They fully refunded me (and in turn I refunded the donors to my crowdfunding campaign) but the missing pages have never been found. Clearly the estimated costs had been meant to scare me off, which didn’t particularly work out. The Mint was caught red handed in their obstruction antics.

Up till here was what I posted in my previous rant. Not long after I published it I contacted the National Archives (NARA) directly to ask if they had any more of the Memos I was looking for. If the Mint needed to reach out to NARA, why not ask NARA directly? Guess what, NARA replied they never had such memoranda in their archives. All the Memos the Mint sent me, the 134 pages, came straight from their headquarters. This makes the estimated $3,145 dollars even more laughable. It was all a pack of lies.

Problem 13) Approximately one million ounces (30 tonnes) in gold coins have never been audited.

Now I’ve told you about the existence of the Memos we can examine what’s in them. A few sub-chapters back you read Delmar refused to send me the seals of West-Point compartment 11-UP and Fort Knox compartment 23. The latter compartment has been discussed, which leaves 11-UP to be rebutted.

The reason Delmar didn’t send me the 11-UP seal was because it doesn’t exist. One million fine troy ounces in foreign gold coins inside 11-UP have never been audited.

To begin with, recall that by 1986 Fort Knox was fully audited, Denver for 99.9 percent and West-Point for 86.5 percent (exhibit 46). The gold that wasn’t audited at West-Point consisted, inter alia, of foreign gold coins weighing and aggregated 991,834 ounces (31 tonnes). The Committee wrote in 1986:

Exhibit 49. The Continuing Audits report 1986.

At the end of the audits in 1986 by The Committee 991,834 ounces (31 tonnes) in foreign gold coins at West-Point still needed to be verified by an expert to confirm the fine content. By then only the quantity of coins was established.

The history of this gold batch can be followed through many succeeding reports. In the 2006 Memo, for example, compartment 11-UP was expressed not properly sealed, possibly over or under stating the Mint’s custodial schedule. The report reads it was impossible to determine whether the contents had been compromised (the compartment number has been redacted by the Mint, but is unmistakably 11-UP):

Exhibit 50. Memo 2006 (page 84 and 85).

In 2008 the coins still needed to undergo assay testing in addition to formal recognition by a numismatic expert. By then compartment 11-UP was still not under Official Joint Seal! From the 2008 Memo:

Exhibit 51. Memo 2008 (page 102, 109).

In conclusion, after more than three decades, starting in 1974 and ending in 2008, the fine content of the gold coins was never confirmed. Thorson’s claim in 2011 that the US’ monetary gold safeguarded by the Mint was audited for 100 percent by 2008 was not true, as his own department had written ‘they would not be supportive of accepting an OJS with a “said to contain” qualification’ in the Memo.

What kind of auditing operation could fail for more than three decades to assess the fine content of a few coins?

Problem 14) Deep Storage auditors failed weighing assay samples in 2004.

As far as I know the Management Letter for the Fiscal Year 2004 was conceived because around then the audits of the Mint’s custodial gold, ‘have supported the annual audits of the Treasury Department’s consolidated financial statements, which incorporate the balances of the gold reserves held by the Mint’ (Thorson, 2011). Online are the Mint’s annual reports that show the custodial gold was not on the Mint’s balance sheet in 2004, but in 2005 it was. Changes in the Treasury’s overall accounting structure rippled through into the audit procedures at the Mint.

Several adjustments followed: the external contractor Urbach, Kahn & Werlin LLP was replaced by KPMG LLP, for the first time in history the OIG was accompanied by an external contractor (KPMG) for physical verifications (at West-Point in July 2006, why KPMG did not attend in 2005 is unknown) and the external assayer Ledoux & Company was replaced by White Sands Missile Range, the latter being a division of the US Army.

Exhibit 52. Memo 2006 (page 82).
Exhibit 53. Memo 2005 (page 79). Of course the assayer should not have been contracted through an ‘inter-agency agreement’.

Arriving at the core of this problem; there is an indicative example of how the auditing staff miserably failed its duties in 2004. Please read with me from the Memo on verifications at West Point:

Exhibit 54. Memo 2004 (page 44, 45).

When all parties tried to reconcile the assay sample weights on July 22 and 23, 2004, they found out, ‘the scale [had been] reading at ounces rather than fine troy ounces’, because, ‘a setting on the scale had not been properly changed’. Allegedly this is what caused alternative readings in the books of the Director of the Mint’s Representative and the OIG’s Representative, and because nobody could figure out how to use the scale correctly they decided to postpone re-weighing until August 24, 2004. This failure of how to use a scale is a colossal blow to the credibility of the Deep Storage audits. For a number of reasons.

The Memo reads, ‘the scale was reading at ounces rather than fine troy ounces’, but scales don’t read fine troy ounces. A scale reads troy ounces, and possibly avoirdupois ounces or grams, depending on the make, but it cannot distinguish the fineness of the metal. That’s what the assay test is for. This assertion is a hoax.

The Mint’s Bullion Ledger is denominated in troy ounces, so the scale should have read troy ounces up to four decimals all day long. Why change the settings?

And how can it be that the scale read-out was recorded differently in the books of the Director of the Mint’s Representative and the OIG’s Representative respectively? Any possible mistake in the settings of the scale, causing a false read-out, would be recorded evenly in both books.

The excuses presented for the weighing blunder can’t possibly validate what happened and provoke a mixed reaction of distress, shame and laughter.

Moreover, regarding the scale; the make, model and serial number of the apparatus should have been known, it should have been calibrated before and during utilization, and all this should have been meticulously documented as per gold industry standards. If we look at physical verifications of the largest gold ETF in the world by net assets, GLD, we find the aforementioned data clearly enclosed in the audit report.

Exhibit 55. Example of scale make, model and serial number mentioned in audit report, next to proof of calibration of equipment. Source SPDR. For the audits of BullionStar clients assets, the scale name and serial number is recorded as well, and, of course, the equipment is calibrated.

But in the Memos none of these essentials are disclosed. As a matter of course, if the scale used by the Mint had been calibrated before weighing, the disgrace that followed would have been averted.

That year (2004) 71 bars were weighed and assayed, but it appeared that none of the auditors on the scene knew how to rightly use the scale. The Memo states the scale wasn’t properly functioning when weighing the assay samples, but what about the weighing of the actual bars prior to that? What about the weighing of all the Deep Storage gold bars under the supervision of the OIG since, say, 1993?

Have the workers picked by the Treasury been willingly selected for their inexperience? For sure in the seventies this was the case. In a documentary by Kentucky Educational Television (KET, 2014) one of the auditors who worked at the Fort Knox depository from 1975 until 1986 is interviewed. This gentleman, named Doug Simmons, states on camera:

I was hired in 1975 as part of a group of young people that was chosen by the Treasury department to help them do audits at the vault. … I got a phone call in the summer 1975 from a man who was with the schoolboard and he asked me if I would like a job. And I said, yeah, I was coming out of high school and looking forward. And would spend the next eleven years doing various jobs for the United States Mint.

Exhibit 56.

Exhibit 58. Source.
Exhibit 58. Source.
Exhibit 59. Source. Picture from the auditors taken in front of Fort Knox. Simmons is the one wearing a yellow T-shirt.

Instead of hiring professionals the Treasury telephoned a local school to recruit kids; the most ignorant and inexperienced labour.

And why was the auditing crew altered in 1975 by hiring Simmons and his friends? Why didn’t The Committee continue its task with the bar handlers that worked at Fort Knox in 1974?

Problem 15) Internal control was lacking at the Mint.

In 2005 it surfaced that internal control was lacking at the US Mint. In my words, internal control systems have at their heart two elements: management supervision and segregation of duties. One of the purposes of an audit is to identify and assess the effectiveness of internal control processes and to observe and confirm whether internal control processes are being followed. Internal control will also encompass elements such as physical security and IT security, but if management internal controls are not effective, then this will run the risk of compromise of even the most robustly secured gold depository.

Verification of contents in a vault compartment is just a part of an audit. To give a flippant example, if a pallet of gold was stored in the middle of a field it’s not acceptable just to check that the contents every year (or in the case of the Mint check the seals of the compartments every year), as clearly the contents are at risk of theft. Likewise, the storage of bullion in a location where internal management controls are unsatisfactory is a similar risk. Verification of contents on an annual basis is not enough. Overall internal controls need to be assessed and verified.

What’s alluded to in the Management Letter for the Fiscal Year 2004 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves is that internal control improvements were needed:

during our audit, we noted a matter involving internal control over financial reporting, not required to be included in our audit report [hence not mentioned in the official audit report dated November 2004], that is presented below for your consideration. This comment and recommendation is intended to improve the quality and efficiency of internal control over financial reporting related to the Custodial Schedule.

Improvements are Needed in the Custodial Gold and Silver Reserves Inventory Verification Policies and Procedures Established by the Mint’s Office of Management Services. 

During our observation of the gold and silver reserves inventory, we noted that the inventory verification policies and procedures need improvement. Specifically, we noted instances in which policies and procedures established by the Office of Management Services (1) were not followed, (2) were incomplete and/or require clarification, and (3) were inconsistent with other policies and directives.

Standards for Internal Control in the Federal Government, published by the Government Accountability Office, states: “Internal control and all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. The documentation should appear in management directives, administrative policies, or operating manuals. The documentation, whether in paper or electronic form, should be purposeful and useful to managers in controlling their operations, and to auditors or others involved in analysing operations.”

Inconsistently followed and/or inadequate policies and procedures may cause errors in the gold and silver reserves inventory verification process and reporting of these balances in the Custodial Schedule. In addition, breakdowns in policies and procedures may have an adverse effect on the security of the custodial gold and silver reserves inventory.

Recommendation

We recommend that the Mint establish and adhere to clear and complete policies and procedures that are consistent with approved Mint directives related to the verification and safeguarding of the custodial gold and silver reserves inventory.

Management Response 

Mint management concurred with our finding and recommendation and is revising their policies and procedures to correct this weakness. 

Exhibit 60.

Basically, they found the audits were anaemic and may have ‘cause[d] errors in the gold and silver reserves … balances in the Custodial Schedule’.

And why hadn’t internal control audits looked at this before 2005? Why wasn’t this part of the scope of the annual audits from at least 1993 onwards?

Adding insult to injury, below are highlights regarding lack of internal control copied verbatim from the Management Letter for the Fiscal Year 2004 (in total there are nineteen points):

  • Activities affecting the receipt of the assay results were not effectively performed … [as mentioned].
  • Policy FIN-10, Official Joint Seals, paragraph 6, does not properly identify the responsibilities of the Plant Manager/OIC and Director’s Representative.
  • Policy FIN-08, Assay Sampling of Deep Storage Assets, does not address the drilling of an umpire sample that remains with the U.S. Mint.
  • Policy FIN-08, Assay Sampling of Deep Storage Assets, does not identify the party responsible for the samples after drilling.
  • Policies are not consistent in identifying the party with overall responsibility for the gold verification.
  • Policy FIN-10, Official Joint Seals, paragraph 7b, related to changing combinations of locks is not consistent with MD 8H-3, paragraph 8b.

Exhibit 61.

More colossal blows to the credibility of the audits. One wonders why these points were ‘not required to be included in [the] audit report’. As if the fact that it was unclear, ‘identifying the party with overall responsibility for the gold verification’, was irrelevant. I could write a book on what all went wrong, but let’s stay focused on the most important issues.

Now we have established the audits prior to 2005 were poorly executed, what about the ensuing four years? A few more blunders need to be addressed.

Problem 16) Inexperienced staff audited gold in 2006.

Despite the update in the Mint’s directive in 2005, the next year it was the same all over when again the audit team proved to be highly inexperienced. The 2006 Memo reveals these people had never seen a gold bar in their lives:

Exhibit 62. Memo 2006 (page 83).

Aside from the fact the Treasury continued to hire amateurs, in the Mint’s 2005 updated directive it’s described in high detail how to drill, weigh, and account for assay samples, and how to calculate fine troy ounces from gross weight. Even the most inexperienced – which sadly have been recruited for this hefty task – should have been able to actualize the steps.

Problem 17) Deep Storage auditors failed weighing gold in 2008.

In 2008, after the Mint’s management had promised to improve internal control, a new fiasco materialized at West Point. Read with me from the Memo:

Exhibit 63. Memo 2008 (page 55).

(Re-opening compartments seems to be a recurring theme in the audits of the US’ monetary gold.)

Exhibit 64. Memo 2008 (page 56).

Supposedly the auditors couldn’t clearly read the decimal point on the scale screen, which resulted in an error when weighing gold granules.

After assay samples were drilled the auditors weighed the same amount in granules to replace the samples, in order for the total fine troy ounces ring-fenced in Deep Storage compartments to stay flat (this policy was adopted in 2000). But the assay laboratory found out from the paper work that the weight of the samples didn’t match the weight of the granules. Accordingly, West Point compartment 10-H had to be re-opened on September 22, 2008, to add an additional 9.3114 fine troy ounces in gold granules.

Be aware that before failing to accurately weigh the granules the auditors weighed 86 gold bars and the assay samples. My guess is that the scale, again, wasn’t calibrated and clearly the device wasn’t operated by qualified personnel. Anybody with the slightest knowledge of gold can even see the difference between 1 troy ounce and 10 troy ounces of gold. How do we know they properly weighed the 86 bars and assay samples? We don’t.

Exhibit 65. Source.

Still after the implementations of the updated directive errors were able to slip through, as exposed in the weighing of the granules in 2008. This should have been absolutely impossible. The Mint’s directive instructs personnel in detail how to physically verify gold. A couple of resolutions from the Mint’s 2005 directive:

  • Scales are to be calibrated before use (page 4)
  • Each sample is weighed twice on a calibrated scale (page 4)
  • Weights are measured in troy ounces (page 5)
  • Electronic scales read up to four decimal places (page 4)

Despite these clear guidelines Mint staff didn’t succeed in accurate weighing and neither did this tickle the attention of the OIG that was to supervise the measuring!

There’s more to learn when we zoom into this mess. In the Memo we read people from several agencies witnessed the weighing of bars, taking assay samples and weighing the granules on July 24, 2008:

Exhibit 66. Memo 2008 (page 54).

KPMG isn’t mentioned, which disturbs me as weighing and assaying bars is at least as important as counting them. (On page 53 of the Memo we read KPMG was only present from July 21, 2008, until July 23, 2008, during the counting of bars.)

This is worrisome all the more because in 2005 KPMG wasn’t present at any moment (exhibit 40), and in 2006 (page 82) and 2007 (page 91) KPMG missed the weighing and assaying just like in 2008. To my knowledge, KPMG never witnessed the weighing and assaying of gold bars at any Deep Storage depository.

Problem 18) Assay tests were drilled near the corner of bar.

What shocked me as well is that the Mint’s 2005 directive instructs the bar handlers to drill for assay samples ‘near a corner of the bar’. Why not through the middle of the bar a few inches deep to rule out there’s tungsten inside, one wonders.

Exhibit 67. Mint’s directive (page 4). 

Only inexperienced bar handlers would obey to drill near a corner of the bar.

Problem 19) Fort Knox compartment 31 was opened in 1996 for dubious reasons.

To my knowledge – or more precise, according to the Memos in my possession – the GAO accompanied the OIG twice for Deep Storage audits since 1993, namely in 1996 and 1998. The first instance was at Fort Knox for OJS inspections. Although, for OJS inspections seals should only be examined for tampering, on August 12, 1996, two representatives from the GAO showed up in the vault room and decided to select ‘a single joint sealed compartment for opening and inspection’. Strangely, nowhere in Mint’s directive of 2005 I read the GAO has any involvement in Deep Storage audits (as opposed to the seventies when the GAO was ‘invited to participate in all audits’).

Exhibit 68. Fort Knox OJS inspection report 1996.

The report above doesn’t say what was stored in the compartment; how many bars and fine troy ounces it contained. Based purely on this document it would be impossible to decipher what exactly unfolded. However, by combining the info from the 1996 OJS inspection report with all seal copies, we can reverse engineer what happened.

Below is the seal that was placed after a physical verification of Fort Knox compartment 29 in 1998. This document reveals the gold was sourced from compartment 31 previously sealed on August 12, 1996, exactly the day the GAO opened a compartment at Fort Knox.

Exhibit 69. Fort Knox compartment 29 seal copy.

With the two dates on the seal we know what happened. Without a doubt on August 12, 1996, the GAO opened compartment 31, holding 19,800 bars, to inspect the contents (count and weigh a few bars), after which this batch was fully verified in March 1998 by the OIG and GAO and moved to compartment 29. The verification report from 1998 (page 7) mentions the GAO observed ‘the opening of the outgoing compartment, the weighing and drilling process …, the sealing of the new storage compartment and the transfer of the samples to the driver of the armoured car carrier for subsequent delivery to an assay laboratory’.  

My comments on these peculiar events:

  • In the Mint’s 2005 directive the GAO is not mentioned once (I don’t have the previous directive). I doubt if the GAO had any authority to open compartments in the nineties. In 2011 Thorson stated, ‘since 1993, when we assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold’. If the OIG is responsible how come the GAO could break a seal in 1996?
Exhibit 70. Mint’s directive 2005 (page 20). The GAO isn’t mentioned.
  • The Mint’s 2005 directive states the OIG appoints compartments to be opened, no one else. This is the rule:
Exhibit 71. Mint’s directive 2005 (page 12).
  • How could the GAO – or the OIG for that matter – open a compartment during an OJS inspection? This is against the rules. OJS inspections and physical verifications are separate events (exhibit 47).
  • Why was any gold verified at Fort Knox when this depository was already fully audited (and re-audited) by 1986?
  • How could the GAO verify a compartment by merely counting and weighing a few bars in 1996? The Mint’s 2005 directive is clear that all contents should be counted, weighed and assayed for verifying a compartment (exhibit 47).
  • If compartment 31 was verified in 1996 by the OIG/GAO, why was it verified again in 1998 by the OIG/GAO? The fact these 19,800 gold bars were re-audited in 1998 confirms what the GAO did in 1996 was pointless from an auditing perspective and thus inappropriate.
  • The Mint’s 2005 directive states the OIG will only verify compartments that have not been previously verified by the OIG.
Exhibit 72. Mint’s directive 2005 (page 12).

If I’m allowed to speculate I would say it’s possible the GAO put in a few bars in compartment 31 in 1996 so it could pass a full verification in 1998. Of course, the GAO had to be present on both occasions for proper guidance.

Alas, the GAO is exempt from FOIAs. On their website we read, ‘the Government Accountability Office (GAO) is not subject to the Freedom of Information Act’.

Keep in mind, the 19,800 bars in question had been touched twice in a very short time frame. In the next sub-chapter we’ll see that many more compartments have enjoyed this double treatment.

Problem 20) Many compartments have been opened one year before or re-sealed one year after physical verification.

Many compartments at Mint depositories have been re-opened and/or re-sealed for unfitting reasons according to my analysis. Meaning seals were removed, exposing the chambers they covered inadvertently to external threats, after which new seals were installed. So far, we’ve exposed dubious re-audits by the OIG from 1982 until 1986, by the Mint from 1986 until 1992, and then again by the OIG from 1993 until 2008, while the OIG provides all sorts of false explanations. The total amount of gold related to these re-audits can be up to 140 million ounces, though impossible to compute precisely as we don’t know to what extent re-audits overlap each other.

But more suspicious events have unfolded at Mint depositories. In the previous sub-chapter we saw examples of compartments that have been re-opened in a very short time frame. Believe it or not, but this has been the case for many more compartments, especially at Fort Knox. What I thought to be a helpful way to get our heads around this compartment puzzle was to make a chart (The Chart hereafter).

Exhibit 73. On Y-axis are 42 compartments (on the left numbered 1 to 42, on the right the official numbers and depository). Basically, this chart shows 42 timelines.

In The Chart the green dots on the compartment timelines reflect when a compartment was lastly sealed. The red dots reflect when the respective volumes were sealed before that. (I have omitted red dots when they fell in the same year as a green dot, as was the case with 7, 10-H and 1-J. Sadly, not all the red dots are known, because this information is not always on the seal.)

What strikes me, especially after connecting the dots, is that for many compartments the doors were opened and/or re-sealed roughly one year before the audit, or roughly one year after. Have a look at Fort Knox compartments 1, 3, 5 and 7 for example, which all had a seal life of one year. We can see this trend throughout The Chart, most of the time the green and red line are not very far from each other.

All compartments at Fort Knox that we have complete data from appear to have been opened not once, but many times since 1974. Some for suspicious reasons, some not.  Let’s go through a few of the seals. Have a look at the seal of Fort Knox compartment 1:

Exhibit 74.

This compartment was sealed in 1981 – before any re-audits occurred – but before that sealed in 1980. On the seal we read ‘this is a replacement seal’. We’re to believe the seal was considered tarnished in 1981 and needed to be replaced, though it was only one year old.

More suspicious we see the ‘control number’ in the top left corner. It reads ‘5’. The Mint’s directive states, ‘the control number is a series of consecutive numbers assigned to each OJS affixed to a compartment … This number is placed on the OJS and is changed when an OJS is changed’. The seal on Fort Knox 1 had been replaced five times by 1981!

Consider that seal 10-J survived for 32 years, as exposed in exhibit 73; this seal survived from 1978 until 2010. Factually, seals can survive for 32 years, but by 1981 the seal on Fort Knox compartment 1 had been replaced five times. Remember we have the audit reports of 1974, 1977, 1980 and 1981; these mention nothing about perpetual re-sealing of compartments. That’s suspicious.

Next, let’s have a look at the seal of Fort Knox compartment 3:

Exhibit 75.

Although the control number reads ‘1’ (nothing suspicious about that), we see these 39,026 gold bars were stored in compartment 9 sealed in 1978, after which they were audited and moved to compartment 3 in 1979. The gold was possibly touched one year before it was audited, which is suspicious.

A compartment that was re-sealed a few years after it was audited is Fort Knox 8. The reason mentioned on the seal is that a 0.991 fine troy ounce adjustment had to be made.

Exhibit 76.

A suspicious explanation. The compartment was sealed in 1986, but previously sealed in 1978. How come a fine troy ounce adjustment had to be made in 1986 on gold that was audited eight years before? By the bye, we have the 1986 audit report; there is nothing mentioned of a compartment that needed to be re-sealed for a fine troy ounce adjustment. This is suspicious.

The list goes on and on though it would be too much information to discuss each and every seal individually.

Let’s make one more big step. Over at West-Point I read on the seals that five of them, covering 23 million ounces (± 700 tonnes), have been replaced after 1993 but from exactly none of these events did I receive an OJS inspection report (exhibit 48) from the Mint as part of their FOIA response. It’s hard to believe that’s a coincidence.

Exhibit 77. This seal was one year old when it was replaced.

The few OJS inspection reports the Mint did sent me reveal such procedures were done in one day, at either of the three Mint depositories. It’s impossible that whenever a seal was found tarnished and was replaced all bars in the compartment were counted in one day. So, any re-sealing did not involve counting bars. Now we know Delmar lied to me in his email saying, ‘we observed the counting of 246,203 bars, which equates to 81,638,569 FTOs [since 1993]’, as much of those were actually re-sealing operations, or so it says on the seals. Effectively, some re-audits have been re-sealing operations.

In the conclusion we’ll bring order in this chaos of, seemingly, endless re-audits and re-sealing operations.

Problem 21) The FRBNY gold audit was 36 years delayed and performed without any independent contractor.

Although it was planned in 1975 all US government-owned gold at the FRBNY was to be audited, at the congressional hearing in 2011 we learned it hadn’t been done still. Even after the OIG had the opportunity for many years. At that stage, the Treasury could have hired an independent auditor directly and implement true transparency, but it didn’t. Instead, in 2012 the OIG audited the gold at the Fed, that is, without an independent contractor. You can download the OIG’s audit report here and the assay report here.

But the most significant question that remains is, why did it take 36 years and a congressional hearing to have this gold audited? Clearly Thorson tried to avoid the subject of the gold at the FRBNY. In his opening statement he said:

The committee was made up of staff from Treasury, the Mint, and the Federal Reserve Bank of New York. The annual audits by the committee ended in 1986 after 97 percent of the Government owned gold held by the Mint had been audited and placed under official joint seal.

Exhibit 78.

By mentioning how much gold at the Mint was audited he tries to avoid the subject of gold at the FRBNY, which in 2011 had escaped audits for 36 years.

Surely the US’ gold at the FRBNY has been used in swaps and leases prior to 2012.

4. Conclusion

Everything but the gold underpinning the world reserve currency is worthy of an audit of the lowest caliber, though remarkably has attracted precisely this. Whilst the function of the audits was to prove the existence of the gold, what they’ve achieved is make us doubt about the existence of the gold. Up to 200 million ounces are stored in compartments that either have been subjected to dubious re-audits or have been re-opened and/or re-sealed for a vast array of other suspicious reasons.

The first audit rulebook in my possession states that after compartments were physically verified, ‘these actions, having once been performed by an authorized committee… will not have to be repeated…’ (1975). In a subsequent rulebook it says, ‘the OIG will select compartment(s) to be verified from the population of compartments that have not been previously verified’ (2005). Yet the compartment doors have been re-opened again and again in between, that we know of, 1977 and 2008.

Exhibit 79. The rules stated that compartments should have been opened once – we’ve only read about (illogical) revised guidelines from 1983 until 1986.

Let’s dive into the complexity of this once more and try to create order and clarity. The graph above shows all the (re-)auditing periods and how much gold was involved with them. As we’ve discussed, some of the re-audits have not been mutually exclusive, and some re-audits have actually been re-sealing operations. To answer the question of how many compartments have been possibly opened for unfitting reasons, we first need to establish what events cancel each other out. From inspecting all seals:

  • There is just one compartment (Denver 5-J) re-audited prior to 1986 that was not re-opened after that. Meaning all other compartments re-audited from 1983 through 1986 have been re-opened again after 1986.
  • Compartments re-audited by the Mint in between 1987 and 1992 have all been re-opened again after 1992.
  • Roughly 23 out of 82 million ounces re-audited since 1993 have actually been re-sealing operations.
  • An additional 149 million ounces have been subjected to re-sealing operations for dubious reasons, somewhere in between 1977 and 2008.

With this knowledge let’s redraw the previous graph:

Exhibit 80. Most of the compartments re-audited in between 1983 and 1992 have been re-opened after 1992.

If we strip away double and triple counting, the total amount of gold that enjoyed either dubious re-audits or re-sealing operations is 217,218,864 ounces (6,756 tonnes). Rounded, up to 200 million ounces (± 6,200 tonnes) have possibly been exposed to external threats. I would like to stress this number is an estimate. Most important is the fact this number exists at all.

Next, allow me to sum up additional parts of the puzzle discussed throughout this essay regarding the re-opening (re-audit or re-sealing) of compartments and, remarkably, the OIG that has gone to great lengths in order to hide these events.

  • Delmar (OIG) can’t explain any of the re-audits or re-sealing operations from 1983 until 2008. More worrisome, the reasons he provides are fallacious. (Problem 11)
  • The OIG lost most audit reports from The Continuing Audits that ran from 1974 until 1986, though it was leading the audits starting from 1983. (Problem 2)
  • Thorson (OIG) avoided to subject of re-auditing vault compartments in his statements in 2011 all together. (Problem 11)
  • Thorson (OIG) likely did not share the truth in his written statement in 2011 about the Mint audits from 1987 until 1992. Presumably these were re-audits (or they were re-sealing operations, we don’t know). (Problem 8)
  • By pointing me to Thorson’s vocal statement that excluded the Mint’s actions from 1987 until 1992, Delmar (OIG) tried to hide these instances of compartments having been re-opened. (Problem 8)
  • Thorson (OIG) pretended the OIG became part of the audits in 1993. (Exhibit 10)
  • Delmar (OIG) still denies the OIG started leading the audits since 1983. (Problem 5)
  • Delmar (OIG) lied about the OIG have counted 82 million ounces since 1993. As we know 23 million ounces of that have been re-sealing operations. (Problem 20)
  • The Mint refused to send me the OJS inspection reports – that should explain re-sealing operations since 1993 – whereby it did not honor my FOIA request. (Problem 12)
  • That we know of, internal control was lacking at the Mint during (re-)audits from 1993 until 2005. (Problem 15)
  • Auditing personnel was utterly incompetent, and even selected for their inexperience. (Problem 16, 17 and 18)

This all is very sensitive to fraud. So many dubious re-opening of compartments, so many lies to cover it. Coincidence?

You might contemplate what a truly independent auditor would think of all the material presented above. After a previous post on this subject I came in contact with such an auditing professional (who wishes to remain anonymous and I can’t blame him). After he had studied the documents and my analysis he wrote me:

If the following words do not scream out the need for my recommendations, I do not know what else would [from The Management letter]:

‘During our observation of the gold and silver reserves inventory, we noted that the inventory verification policies and procedures need improvement. Specifically, we noted instances in which policies and procedures established by the Office of Management Services (1) were not followed, (2) were incomplete and/or require clarification, and (3) were inconsistent with other policies and directives.… Inconsistently followed and/or inadequate policies and procedures may cause errors in the gold and silver reserves inventory verification process and reporting of these balances in the Custodial Schedule. In addition, breakdowns in policies and procedures may have an adverse effect on the security of the custodial gold and silver reserves inventory.’ 

My recommendations

  • 1. A major level of investigation from both the External and Internal Auditors, fully supported by the Audit committee of the mint, with the following objectives.
  • 1.1 Immediate and in-depth work to determine the level of exposure and the production and implementation of a corrective action plan from the management of the Mint to implement a robust regime of internal control.
  • 1.2 A full and comprehensive audit plan encompassing both external and internal audit resources to ensure that the internal control regime was operating in an effective manner.
  • 2. A deep dive independent investigation to ensure no material loss had resulted from the lapse in Internal control. In my professional opinion, given the information you have unearthed, it would not be unreasonable to expect this to include of FULL audit of the contents of all of the vaults. Of course, some may not agree with this opinion.

Exhibit 80.

Surprisingly, this gentleman arrives at the same conclusion as former US Mint Director Edmund C. Moy: there should be a new ‘FULL’ audit authorized by Congress to physically verify the metal. And I agree, as the audits of the US monetary gold severely lack credibility. If we really want to know if there’s gold at US Mint depositories a new audit should be initialized by Congress and executed by a fully independent entity. Until then I remain skeptical about the gold claims by US Treasury. 

5. Appendix  

The following observations did not make it in the core problems of the essay:

Noteworthy 1) Under special circumstances the Mint has access to the Deep Storage gold.

As seen above, the Working Stock owned by the Treasury but usable by the Mint, as literally working stock, is quite large at 2,783,219 ounces (87 tonnes) while prone never to be used in full for numismatic production purposes. On average the Mint has created 1,125,285 ounces (35 tonnes) in gold bullion coins per annum over the past years. Would it be feasible the Mint ever needs all 2,783,219 ounces (87 tonnes) in one year, taking into account metal taken from the Working Stock doesn’t take 12 months to be replenished? Surely, the Working Stock is ample for the Mint’s bullion sales.

More important, as if 2,783,219 ounces (87 tonnes) are scanty, ‘upon approval from the Secretary of the Treasury, the United States Mint may use gold from the Deep Storage reserves to support its numismatic operations’ since 1993. Why would the Mint ever need access to Deep Storage gold for bullion coin operations? Is this a loophole to access Deep Storage metal?

Noteworthy 2) All assay reports from The Continuing Audits (1974 – 1986) have been destroyed while tests taken at Fort Knox in 1977 revealed fineness deficiencies.

In the few documents at our disposal we can read that during The Continuing Audits ‘every 50th melt’ was weighed and of every melt weighed one bar was assayed. We know that in 1974  the assayer was the New York Assay Office, which is a branch of the US Mint. We also know that in 1981 the assayer was ‘one of the Bureau of the Mint laboratories’. Very likely in 1977 the assayer was one the Mint laboratories as well – logically, in a credible audit procedure the assayer should not be the same entity as the custodian. This is harmful, even more so as the assayer/remelter mysteriously resolved fineness deficiencies in 1977. From the 1977 audit report we read:

Two sample melts showed the gold was below the fineness (5 parts per 10,000) permitted …. Because of this problem, the vault had to be opened twice more in the presence of the Joint Sealing Committee and the gold reevaluated.

On July 29, 1977, bore samples, rather than chips, were taken from the questionable melts and sent to two assay offices for independent evaluations. Half of the samples reassayed were still unacceptable. The Bureau decided that the two melts from which the samples were taken had to be remelted and reassayed. This was done on November 16 and 17, 1977. This time, the gold was within the prescribed level of fineness … discrepancies in fineness were attributed to improper melting and casting of the melts in 1920 and 1921.

Exhibit 81.

After the remelting of 2 melts all was fine? Who processed the remelting, the Mint’s New York and San Francisco Assay Offices? It would be extremely convenient if the custodian (Mint) of the US’ monetary gold did the remelting of gold tested when fineness deficiencies surfaced. This way the metal could have easily been supplemented with higher purity gold by the Mint.

Noteworthy 3) Nearly all assay test results publicly released are 999.9 fine, whilst the average fineness of all Deep Storage metal is 900.5. 

Let us have a look at the average gold purity of all Deep Storage metal, and then of the assay samples taken in 2004, 2005, 2006 and 2008.

The vast majority of the Deep Storage gold does not live up to current London Good Delivery standards, which requires gold bars to have a fineness of no less 995 particles per 1000. Most Deep Storage gold is in coin bars having a fineness of about 900 – the average fineness is 900.5 particles per 1000, calculated as total fine troy ounces divided by total gross weight, neglecting the number of bars.

The next table prepared by Bron Suchecki shows all bar weights and purities of the Deep Storage gold. In the last column you can see the largest share (73 percent of the bars) is 899 – 916.7 fine. Only 3.56 percent of the bars is 999.9 fine.

Exhibit 82. Weights and purities Deep Storage gold. Courtesy Bron Suchecki.

The PDF documents released by the OIG in 2011 include assay reports from Ledoux & Company and White Sands Missile Range. When I manually inserted all the outcomes in a spreadsheet it appeared to me that virtually all the assay tests came out as 999.9 fine. A remarkable difference with the average fineness of the Deep Storage metal.

Exhibit 83. Purities disclosed are exact read-outs from assay reports.

One random Deep Storage bar will most likely be near 900.5 fine, though 305 of the 345 samples taken hit 999.9, and none were below 995. For some reasons the auditors saved all the 99.99 fine gold to be verified for the end.

This essay is a sequel to eight previous posts (III, III, IV, V, VI, VII, VIII)

US Mint Releases New Fort Knox “Audit Documentation”. The First Critical Observations.

In response to a FOIA request the US Mint has finally released reports drafted from 1993 through 2008 related to the physical audits of the US official gold reserves. However, the documents released are incomplete and reveal the audit procedures have not been executed proficiently. Moreover, because the Mint could not honor its promises in full the costs ($3,144.96 US dollars) of the FOIA request have been refunded.

Thanks to my readers that donated to the crowdfunding campaign I’ve been able to force the US Mint through a Freedom Of Information Act (FOIA) request to hand over documents related to the physical audits of the US official gold reserves stored at the Mint; also referred to as Deep Storage gold. Although the PDF-package digitally sent to me is redacted, incomplete, includes pages copied twice and materials I didn’t ask for, it’s the closest thing that I’ve ever seen to physical audit documentation of gold at Fort Knox and the other Mint depositories drafted in between 1993 and 2008.

What is worrying is that the reports now in my possession reveal the audit procedures have not competently been executed. Combine that with the fact the documents are incomplete and redacted, and the result is suspicion of fraud. In this blog post we’ll have a first critical look at the reports and the problems to be found within.

This post is a sequel to A First Glance At US Official Gold Reserves Audits, Second Thoughts On US Official Gold Reserves Audits, US Government Lost 7 Fort Knox Gold Audit ReportsThe Power Of The Gold Community: Crowdfunding For FOIA Request Fort Knox Audit Documents Completes Within 24 Hours, Dear US Mint, We Gave You The FOIA Funds, Now Give Us The Fort Knox Audit Documents! Also related are Where Did The Gold In Fort Knox Come From? and Former US Mint Director Clueless On Gold In Fort Knox.

US Government Tight-Lipped About Fort Knox Audits

For starters, allow me to expand on what I think happened at the Mint’s headquarter on the 8th floor at 801 9th Street NW Washington DC, before these documents were sent to me.

It should be clear that the US Treasury (owner of the gold), US Mint (main custodian), Federal Reserve Bank Of New York (second custodian), and the Office Inspector General of the US Treasury (head auditor), are reluctant to disclose information about the audits of the gold at the four largest depositories that store over 8,000 fine metric tonnes. Consider that the most seasoned gold analysts aren’t even aware this gold is audited.

About a year ago we read in the introduction of an interview with world-renowned gold commentators Jim Rickards, “unlike many today, Jim Rickards believes the gold is indeed in Fort Knox but has not been audited to avoid drawing attention to it and to downplay its role”. More recently, on 11 February 2017 the Financial Times wrote, “much of the world’s excavated gold is thought to be in Fort Knox, but nobody can be sure, since the US government will not allow the auditors in”.  No, auditing Fort Knox is not a topic only the mainstream media are confused about. Gold advocates are in the dark as well.

US official gold reserves
Exhibit 0. Source. Overview of the four main depositories that store the US official gold reserves: Denver, Fort Knox, West point and the Federal Reserve Bank Of New York. Where the working stock is exactly located is not known (likely Washington DC, Philadelphia and West Point; perhaps also Denver and San Francisco). The Deep Storage gold is the metal in 42 sealed compartments spread over Denver, Fort Knox and West Point.

What nobody knows is that according the US government 100 per cent of the Deep Storage gold has been audited in between 1974 and 2008 (page 4). This period can be divided in two chapters: the first runs from 1974 until 1986 when the Committee for Continuing Audit of the U.S. Government-owned Gold verified the majority of the Deep Storage metal. The second chapter covers 1993 until 2008 when the residual was examined under the supervision of the Office Inspector General of the US Treasury. In my previous posts on this subject we focused on the first chapter, what is written below skims the surface of the second. As promised, eventually I will publish a full in-depth analysis of all chapters (there are additional chapters in the fifties, from 1986-1993, in 2009, 2010 and 2011).

Over the years my inquiries at the US government though regular channels have produced little intelligence about the physical audits of the Deep Storage gold. Some departments cooperated at first, but eventually they stopped replying emails or just hang up the phone while I was talking. The second layer of defense was raised when I started submitting FOIAs. Instead of honoring my requests they tried to delay and dodge most appeals. Clearly, the US government prefers not to answer my questions than to flaunt with the audit results.

However, in 2016 I embraced the motivation to push through and find out how many gold bars were counted, weighed and assayed in between 1993 and 2008, when allegedly the last series of physical audits was conducted. Not surprisingly, zero US government departments could provide me the information I was looking for, but through certain FOIAs I obtained leads to submit new FOIAs, and so on 12 Augustus 2016 I demanded, inter alia, the “memoranda submitted by the US Mint Director’s representative regarding audits of the Mint Schedule of Custodial Gold and Silver Reserves to the Chief Financial Officer drafted from 1993 through 2008”. The Mint replied this request would costs me $3,144.96 dollars because it would take 40 hours to search the respective documents, 8 hours for review, and additional costs would be incurred to duplicate 1,200 pages. I thought this was hogwash – 1,200 pages seemed out of proportion for such memoranda, how hard can it be to find a few pages and how did they know it were going to be 1,200 pages if they had to search 40 hours for it – but decided to start a crowdfunding campaign to collect the money.

Within 24 hours the campaign was completed and late August 2016 I sent the Mint a check, in the hopes to receive the documents a.s.a.p.. After the Mint pretended the check was missing for a few weeks, they communicated on 28 September 2016 the funds had arrived and they were working to get the requested documents out to me (exhibit 1).

Screen Shot 2017-01-31 at 8.34.38 pm
Exhibit 1. Screenshot email form the US Mint (Jones, Lateau). My FOIA request was originally dated from 1 August 2016, but was revised on 12 August 2016. Jan Nieuwenhuijs is my real name.

Months past but nothing happened. I sent several emails and called the Mint three times, but time and time again I was maintained with false excuses. Then, finally, on 23 December 2016 the Mint delivered the documents I paid for. Sort of. Instead of 1,200 pages I received 223 redacted pages that contained 68 pages of reports I didn’t ask for and 21 pages that were copied twice. Effectively, I got 134 pages related to my FOIA request.

When I confronted the Mint I paid $3,144.96 dollars for a meager 134 pages they agreed the costs had been estimated to high and a refund was reasonable. Actually, they told me they never cashed the check. So, quickly I told my bank to cancel the check and ordered my crowdfunding platform to refund all my donors.

As of now all donors to my crowdfunding campaign should have received their money back (if not, please write me an email, see below for my address). From the bottom of my heart I would like to thank everyone for the loan that made this operation possible1!

For me a slight doubt remained if the Mint had tried to fend me off by asking a disproportionate amount of money for a few pages that I assume are alphabetically archived, or that they handled my case in all honesty. A skeptical mind would think the former. To find out I read the internal emails of the Mint employees that handled my FOIA. Those are not directly publicly available, but I was told a trick by more experienced FOIA scholars that reached out to me after I published my previous blog posts on this subject, to ask the Mint for internal emails through, what else, a Freedom Of Information Act request (exhibit 2).

FOIA mint emails gold
Exhibit 2. FOIA asking to obtain email correspondence written or received by Mint employees that was related to my case.

And it worked! On 10 January 2017 I received all (I hope) emails from the Mint I was looking for. Including one wherein Audit Liaison at the United States Mint Tom Noziglia makes an estimate for the costs of my FOIA request of 12 August 2016. Read below (exhibit 3).

Screen Shot 2017-01-31 at 8.17.21 pm
Exhibit 3. Email by Noziglia to Saunders-Mitchell, Grimsby and Fletcher.

At first sight it seems Noziglia and his office stick to prudent protocols. But possibly this email is a veil, meant to deceive me if I would ever read it. Actually, yes, I think it’s a cloak and I’ll share my theory.

Let’s study Noziglia’s LinkedIn page:

Screen Shot 2017-02-02 at 6.21.05 pm
Exhibit 4. Screen shot LinkedIn page Tom Noziglia. Note, we can read he’s a schooled psychologist that was unemployed from 1985 until 2012 after which he started as auditor at the US Mint. I count 5 typos on this page, which suggests Noziglia is not the most meticulous auditor.

We can read from Noziglia, “as Audit Liaison at the US Mint, I [Noziglia] am responsible for the coordination of all external audit initiatives … I have extensive experience in precious metal inventory, … I … coordinate the execution of the annual OIG [Office Inspector General] Joint Seal Inspection of the Custodial Gold at the US Mint”. This page tells us Noziglia is one of the auditors of the US official gold reserves. So, the email above (exhibit 3) was written by the auditor who was involved in the procedures of which I requested the documentation. Noziglia must have known my inquiry could be simply honored by sending just a few pages of documentation, as he was a co-author of the documents in question.

Firstly, with the benefit of hindsight we know Noziglia was lying in his email because by now I have the documents that count only 134 pages, and he was the coordinator of the annual inspections of custodial gold at the Mint. He must have known there were no “1,200 pages in 80 boxes” and so his $2640.00 dollar estimate is a hoax. I think Noziglia wrote the email expecting I would NOT pay the ludicrous amount of dollars, but possibly DID submit a new FOIA to view the Mint’s internal emails. Chances are slim someone could pay $3,144.96 dollars right? But I’m not the first who submits an additional FOIA to obtain internal emails. Hundreds of people went before me, this is a well-known trick for FOIA pundits, and many public servants in the US must be aware of this hazard. Hence I reckon public servants consciously write emails to colleagues, as if these will be publicly released some day. I’ve come to understand submitting and answering FOIAs is nothing but a cat and mouse game.

Second, the Mint never cashed the check. If they really thought they would have to search 40 hours, why not cash the check immediately and get busy? I guess they knew very well there was no searching required.

Third, in case Noziglia had never seen a “memoranda submitted by the US Mint Director’s representative regarding audits of the Mint Schedule of Custodial Gold and Silver Reserves to the Chief Financial Officer”, which is not likely but let’s give him the benefit of the doubt, he could have viewed the most recent version at his office that wasn’t sent to the National Archives (NARA) yet. By doing so he would have learned very effectively these annual memoranda count only a few pages.

Fourth, Noziglia states in his email (exhibit 3) he’s not sure if he will find the documents at all. But this is impossible because he’s a dedicated Mint auditor so he must know what documents the Mint sends to NARA every year. In addition, there was no need for Noziglia to “order off site” boxes, because he simply could have commanded NARA staff to deliver specific documents – this is common practice.

Fifth, in the CC of Noziglia’s email is Kenyatta Fletcher, who is the Chief of the Accounting Division of the Mint. If, which is a big if, Noziglia didn’t know what I was looking for, Fletcher would’ve known these documents wouldn’t count 1,200 pages. But still I was charged a laughable $3,144.96 dollars.

Sixth, Noziglia’s estimate is $2.640.00 dollars, but I have no emails that clarify why $504.96 dollars were added for a total of $3,144.96 dollars I was charged. This indicates, Mint staff communicated in person or through phone calls to finalize my request, and so could have done likewise to handle it in general. Concluding, Noziglia’s email doesn’t paint the full picture of the internel communication.

Seventh, please read what Noziglia’s colleague Grimsby replied to him after 4 minutes.

grimsby
Exhibit 5. Email by Grimsby to Noziglia.

“Great email”? Why would Grimsby praise Noziglia for his email? If Grimsby would have written,I agree”, I can understand. But, great email? Perhaps Grimsby meant to write, “great calculation that makes no sense, but is likely deceive an ignorant FOIA requester if he would ever read it!”? It sure looks like it.

My guess is that Noziglia, Grimsby and Saunders-Mitchell met in the hallway in the afternoon of 15 August 2016 and agreed for Noziglia to write a phony email that arrives at an amount of dollars aimed to scare me off. In the email below you can read Noziglia suggested to Grimsby to discuss in person in the afternoon of 15 August 2016 the estimate for the costs.

Screen Shot 2017-01-31 at 8.31.58 pm
Exhibit 5.2. Email by Noziglia to Grimsby 15 August 2016.

So far we’re confirmed, again, that the US gold is held in secrecy. No surprises there. Moving on to the content of the documents.

Audit Documents Released Are Incomplete    

When one walks into a US Mint repository the main barrier will be the door to the vault room. In the case of Fort Knox this a 20-tonne door of which no one person is entrusted with the combination. Once inside the vault room the gold is stored in segregated compartments that are sealed since at least the fifties.

The official narrative is that by 2008 the load of all 42 compartments had been physically audited. Every compartment had been opened, the gold inside counted, weighed and assayed, after which the gold was stacked in an adjacent compartment in the vault room (in several documents it’s described this is the way the gold is physically audited). Subsequently the target compartment door was closed and placed under Official Joint Seal, if during the verification no discrepancies had been found with the Mint’s bullion ledger. In most years until 2008 one or two compartments were opened for a physical bar examination, while the other compartments were merely inspected for any tampering of the Official Joint Seal (OJS). The purpose of joint seals is to avoid the necessity of verifying all assets in each annual audit.

Official Joint Seal protocol drafted in 1975.
Exhibit 6. Official Joint Seal protocol drafted in 1975.

Thus the audits of the Deep Storage gold consist of two conventions: gold verifications, which are the physical audits of gold bars inside the compartments. And OJS inspections, which are checks of the seals placed on the compartment doors. The superintendent in the audit procedures is the Office Inspector General of the US Treasury, in short, the OIG.

When reading the audit documents delivered to me (the Memoranda hereafter) the distinction between gold verifications and OJS inspections is clear. Let me show you an example of Fort Knox. The first screen shots below are from a gold verification at Fort Knox in March 1998.

Gold verification at Fort Knox March 1998, page 1.
Exhibit 7.1. Gold verification at Fort Knox March 1998, page 1.
Gold verification at Fort Knox March 1998, page 2.
Exhibit 7.2. Gold verification at Fort Knox March 1998, page 2.
Gold verification at Fort Knox March 1998, page 3.
Exhibit 7.3. Gold verification at Fort Knox March 1998, page 3. 

The following screen shots are from the OJS inspection at Fort Knox in June 1998. We conclude gold verifications and OJS inspections are performed separately and thus are reported as such.

OJS inspection at Fort Knox June 1998, page 1.
Exhibit 8.1. OJS inspection at Fort Knox June 1998, page 1.
OJS inspection at Fort Knox June 1998, page 2.
Exhibit 8.2. OJS inspection at Fort Knox June 1998, page 2.
OJS inspection at Fort Knox June 1998, page 3.
Exhibit 8.3. OJS inspection at Fort Knox June 1998, page 3.
OJS inspection at Fort Knox June 1998, page 4.
Exhibit 8.4. OJS inspection at Fort Knox June 1998, page 4.

Click here and here to download all Memoranda sent to me by the US Mint.

After I had organized the documents and imported all data in spreadsheets I noted the 134 pages exclude 27 OJS inspection reports and at least 3 gold verification reports. I’ve asked the Mint to deliver the missing Memoranda, although I’m not expecting them to ever comply.

The fact 30 Memoranda are missing is of course highly problematic. Bear in mind, I offered the Mint $3,144.96 dollars to produce these documents.

Overview gold verification and OJS inspection reports Deep Storage gold
Exhibit 9. Overview gold verification and OJS inspection reports Deep Storage gold. Note, throughout time the Memoranda format changed, so in some years one Memorandum included both gold verification and OJS inspection paragraphs.

In case you’re wondering how I know what gold verifications reports I’m missing, this is because references are made to these physical audits in succeeding gold verification reports. Fort OJS inspection reports, those should be done every year.

Below is an example of an Official Joint Seal. I obtained nearly all OJS copies from a separated FOIA request at the OIG.

OJS Fort Knox compartment 29
Exhibit 10. OJS Fort Knox compartment 29. 

Fort Knox Compartment 31 Was Opened In 1996 For Dubious Reasons

There are a couple of disturbing lines written in the Fort Knox OJS inspection report of 1996. Although for an OJS inspection seals should only be examined for tampering, on 12 August 1996 at the Fort Knox OJS inspection two representatives of the General Accounting Office (GAO) showed up in the vault room and decided to select “a single joint sealed compartment for opening and inspection”.

Fort Knox OJS inspection report 1996.
Exhibit 10. Fort Knox OJS inspection report 1996.

Unfortunately the report doesn’t say what was in the vault compartment; how many bars and fine troy ounces (FTO) it contained. Based purely on this document it would impossible to decipher what the GAO exactly did. However, by combining the info in the 1996 OJS inspection report with documentation obtained through a FOIA requests at the OIG, we do know what happened.

Have another look at exhibit 10. We can read Fort Knox compartment 29 was sealed in 1998. But the content, 19,800 gold bars weighing 6,470,624.049 FTOs before assays samples were taken, was sourced from compartment 31 that was sealed on 12 August 1996. Was compartment 31 the one opened by the GAO in 1996? Yes, without a doubt.

By examining all OJS copies – such as demonstrated in exhibit 10 – it shows there was no other vault segment freshly sealed on 12 August 1996 other than compartment 31. Moreover, the 1996 OJS inspection report mentions only one joint sealed compartment was breached. Therefore we know the GAO representatives opened Fort Knox compartment 31 comprising 19,800 gold bars weighing 6,470,624.049 FTOs on 12 August 1996.

Furthermore, in the 1995 OJS inspection report we read there was one compartment – the number is redacted – that contained 19,800 gold bars weighing 6,470,624.049 FTOs. And in 1995, 1996 and 1997 there were no gold verifications at Fort Knox as far as I know, other than the GAO incident. Have a look below at a screenshot from the 1995 Fort Knox OJS inspection report.

Fort Knox OJS report 1995.
Exhibit 11. Fort Knox OJS report 1995.

What happened is that on 12 August 1996 compartment 31 was opened by the GAO to “check a few bars”, but then two years later in 1998 the same gold was verified by the OIG; all the gold inside taken out of compartment 31, counted, weighed and assayed, to be stored across the hall in compartment 29. This is suspicious. I quote, “the purpose of joint seals is to avoid the necessity of verifying all assets in each annual audit”.

I do not possess the official rules for US Mint OJS inspection and gold verification for the year 1996 (“MD 8H-1”), but based on the rules that prevailed in 1975, what the GAO did on 12 August 1996 was not done. Read with me.

Methods of verifications
Exhibit 12. Source.

My interpretation of the quote above is that if a compartment was opened all assets within should have been verified by the auditors, not just a few bars. If these rules still applied in 1996, what happened in Fort Knox compartment 31 was fraud. Unfortunately, but perhaps no coincidence, the GAO is exempt from FOIAs. On their website we read, “the Government Accountability Office (GAO) is not subject to the Freedom of Information Act”. (In July 7, 2004, the US GAO’s legal name was changed from the General Accounting Office to the Government Accountability Office.) I’ve submitted a FOIA at the Mint to obtain MD 8H-3 but it bounced. Currently I’m trying the OIG to provide these rules.

How come the GAO could open a compartment? The OIG stated under oath in 2011, “since 1993, when we assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold” (page 4). If the OIG is responsible how come the GAO could break a seal?

Let’s contemplate this: if the “random checks” the GAO performed in 1996 in compartment 31 formed an adequate gold verification, why did the OIG re-audit the exact same gold in 1998? And what was the intention of the GAO in 1996? The GAO couldn’t fully audit compartment 31, because they were present at Fort Knox only for one day (12 August), and no single person or flock of auditors can verify 19,800 large gold bars in one day. The fact these 19,800 gold bars were re-audited in 1998 underlines what the GAO did in 1996 was inappropriate at best.

One theory is that the gold in compartment 31 was prepared in 1996 to be physically audited down the road. Remember what the Fort Knox gold verification report of 1998 stated (exhibit 7.2)? In 1998 the OIG, “selected predetermined individual bars to be drilled for assay”. Possibly, the OIG selected the exact bars in 1998 that were put in in 1996. If this is true the names and autographs of the perpetrators of this crime are on the seal of compartment 29 (exhibit 10).

My succeeding post on this subject will expose that many other Deep Storage compartments at the Mint have been opened for dubious reasons as well. Which could be the reason the Mint didn’t provide us ALL the OJS inspection reports from Denver and West Point from 1993 through 2003 (exhibit 9).

Weighing Sample Size Remarkably Low

We need to discuss the sample size of the gold verifications. In 1998 at Fort Knox 19,800 gold bars were inspected but only 105 of them were weighed and assayed (exhibit 7.2). That’s not much in my humble opinion. In any case, I expected a higher sample size.

In the 1953 audit at Fort Knox (download report here) in total 88,000 bars weighing 48,506,985 FTOs were counted for verification. About 10 % of those were weighed.

During the Continuing Audits from 1974 through 1986 it seems 2 % of the gold counted was weighed. A huge decline from 1953.

Audit report Fort Knox 1981
Exhibit 13. Audit report Fort Knox 1981.

Although gold bars tested to be out of tolerance during a Fort Knox audit in 1977 at a sample size of 2 %, by 1998 the sample size had been further debased to 0.53 %. I’m not a professional auditor (if you are one please contact me), but common sense suggests that when irregularities are found the sample size should be increased, not decreased.

To make matters worse, in 1999 at West Point the sample size was 0.52 %, and again, a melt appeared to be out of tolerance.

Gold verification report West Point 1999.
Exhibit 14. Gold verification report West Point 1999.

Was the sample size increased after 1999? Not really. At Fort Knox in July 2000 the samples size was 0.65 % (93 bars weighed of 14,262 bars counted). But wait until I show you what numbnuts were entrusted handling the scale for the audits of the world’s greatest gold hoard. 

Scale Didn’t Work, Repeatedly

Let’s study the 2004 physical audit at West Point. Please read:

Exhibit 15.1. Gold verification report West Point 2006.
Exhibit 15.1. Gold verification report West Point 2004.
Exhibit 15.2. Gold verification report West Point 2006.
Exhibit 15.2. Gold verification report West Point 2004.

When all parties tried to reconcile the weight of samples on 22 and 23 July 2004, they found out, “the scale was reading at ounces rather than fine troy ounces”, because, “a setting on the scale had not been properly changed”. Allegedly this is what caused alternative readings in the books of the Director of the Mint’s Representative and the OIG’s Representative. And presumably because nobody could figure out how to use the scale correctly they decided to postpone re-weighing the samples until 24 August 2004. This failure of how to use a scale is a colossal disaster for the credibility of the Deep Storage audit procedures.

In 2004 a mere 71 bars were weighed and assayed, but it appeared that none of the auditors present knew how to rightly use the scale. The Memoranda mentions they found out the scale wasn’t properly functioning when weighing the assay samples, but what about the weighing of the actual bars? What about the weighing of every Deep Storage gold bar under the supervision of the OIG from 1993 until 2008? We have no guarantee this has ever been executed competently.

To repeat, the official explanation for this blunder reads, “the scale was reading at ounces rather than fine troy ounces”, because, “a setting on the scale had not been properly changed”.

First, in my mind there can be no imaginable circumstances in which setting of the scale should have been changed. The scale should read troy ounces to as many decimals all day long. That’s it. Why change the settings?

Second, they say, “the scale was reading at ounces rather than fine troy ounces”, but scales don’t read fine troy ounces so this statement is fake. A scale reads troy ounces, or digital ones can be set to reading grams; it cannot smell what is the purity of the gold and thus display fine troy ounces. That’s what the assay test is for.

In 2008 at West Point a similar disaster happened. Read with me:

Exhibit 16.1. Gold verification report West Point 2008.
Exhibit 16.1. Gold verification report West Point 2008.
Exhibit 16.2. Gold verification report West Point 2008.
Exhibit 16.2. Gold verification report West Point 2008.

The auditors couldn’t clearly read the decimal point. After assay samples were drilled to be taken out, the auditors weighed the same amount of gold granules to replace the samples, in order for the Deep Storage FTOs to remain flat in 2008. But the assay lab, White Sands Missile Range, which is a division of the US Army, found out from the paper work that the weight of the assay samples didn’t match the weight of the granules. And so West Point compartment 10-H had to be re-opened on 22 September 2008 to put an exact 10.346 ounces of gold in, instead of 1.0346 ounces.

What a catastrophe! Be aware that before weighing the granules the auditors weighed 86 gold bars and the assay samples. How do we know they properly weighed the assay samples and the totals of the 86 bars? The short answer is, we don’t.

Thereby, anybody with a sense for gold can see the difference between 10 ounces and 1 ounce of yellow metal.

Conclusion

From the examples above it should be clear that the Deep Storage gold has not been audited by professionals, but the precious metals have been verified by imbeciles. Clearly the scale was repeatedly handled by amateurs, which throws a wrench at the integrity of the entire US official gold reserves auditing project. I’m not at all surprised the US Mint has tried everything to keep the records of the auditors out from the pubic domain. Fortunately most of it will be out in the open eventually. The citizenry of the world deserves to know everything there is about the Deep Storage gold.

Let’s finish with one more comment from the West Point 2006 audit report.

Exhibit 17.1. Gold verification report West Point 2006.
Exhibit 17.1. Gold verification report West Point 2006.

The auditors couldn’t figure how to use the drill to take assay samples (how about pointing the tip to a bar and press the button). They also were oblivious how to calculate fine troy ounces. We must wonder if these people would be capable of tying their own shoelaces. In any case, the fact the US government chose to assign very inexperienced people widely opens the possibility that the audits are a complete hoax.

More will follow…

Footnotes

1. The next list consists of all heros that supported the crowdfunding campaign (mostly Turdites!):

  • @freegoldkiwi
  • A P Marchessini
  • A Turdite
  • André De Wit
  • Andre Page
  • Another Turdite
  • Antoine Schonewille
  • Arkesh Kumar
  • Aron van der Hijden
  • Ben Bernanke
  • Brent Johnson
  • Brian D’Aoust
  • Bullion Baron
  • Cash Only
  • Chad Douma
  • Christian Bergman
  • Christopher Fisher
  • Clifton Poole
  • David Woy
  • David Caron
  • David Corwin
  • Dennis Travers
  • Dr. Dietmar Siebholz
  • ernest williams
  • Fergus Winchester
  • frank cogh
  • G. Roelofs
  • Gold Matters
  • Hans de Vries
  • Henry Young
  • James Hanson
  • James Jackson
  • Jeff Laytham
  • Jeffrey Schnabel
  • jon heitner
  • Kevin Ward
  • kurt hilger
  • Kyle Campbell
  • Lamenting Laverne
  • Leslie Caplan
  • Marc Hayes
  • Marc Ward
  • martin vitrup
  • Matthew Kaiser
  • Matthew Yates
  • Maurice Baxter
  • Micros TFMR
  • Mike Adams
  • miltiade karlos
  • MR S B Griffiths
  • Neil Bottomley
  • Nicholas Lessenevitch
  • Nigel Gittoes
  • nuggety TFMR
  • Percy Stamler
  • Peter Hafkemeyer
  • Philip Roose-Francis
  • Philippe Page
  • Pravit Phongsopa
  • rainer schwarz
  • Randall Louis
  • Random Bastard Turdite
  • Robert Morrison
  • Robert Palardy
  • Ron Koyich
  • Ronald Bendz
  • Ronald Griess
  • Rupert White
  • Russell Wilcoxon
  • Rusty Richards
  • Stephen Griffiths
  • Steve Oleary
  • surfitndearth TFMR
  • Thang Trinh
  • Thomas Nichols
  • Tim Camacho
  • Turd Ferguson
  • vernon shupe
  • Wei-Chih Chen
  • Werner Mueller
  • William Harvey
  • Yusrin Shukri Haji Yakop

Dear US Mint, We Gave You The FOIA Funds, Now Give Us The Fort Knox Audit Documents!

Interim research update.

As readers might have seen on these pages, since 2014 I’ve been investigating the inventory audits of the US official gold reserves, which should proof the existence of the metal that embodies the credibility of the world reserve currency. My first article showed the official narrative: all the bars of in total 8,134 tonnes of gold spread over depositories at Fort Knox, West Point, Denver and New York, have been carefully counted, weighed, assayed and inventoried in between 1974 and 2008.

In subsequent posts I’ve exposed there is a vast array of problems to be found with the physical audits. Through several Freedom Of Information Act (FOIA) request, I had obtained information that severely damaged the integrity of the official narrative. Example given, one of my FOIAs that requested the audit reports drafted in between 1974 and 1986, when 7,504 tonnes was audited, revealed the US government had “lost” nearly all documents.

fort-knox-1974-press-camera
Start of the alleged Fort Knox inventory audits 1974.

To get to the bottom of this I filed countless new FOIAs in the past months at the legal owner of the gold, the US Treasury, the custodian, the US Mint, and the head auditor, the Office Inspector General of the Treasury, in order to obtain every single piece of documentation I could think of that is related to these audits. Pretty soon, by putting all pieces of new information together I realized I was entangled in a conundrum of giant proportions as many documents contradicted each other. Eventually I submitted a request for a publicly unknown report, which I read about in a document I had obtained by another FOIA. I asked the Mint for “the [US Mint] Director’s Representative … written report to the [US Mint] Chief Financial Officer (CFO) notifying the CFO of the completion of the verificationfor the years in between 1993 and 2008. Surprisingly, the US Mint wrote me my request would cost $3,144.96 dollars!

This amount of money is ridiculous. First of all, the documents should be readily available. Perhaps any digitalization costs would incur a few hundred dollars at most. Second, the Mint wrote the estimate of $3,144.96 dollars “includes 40 hours of … search time”. But how can it take 40 hours to find a few pieces of paper? It also wrote, my request would include an estimated 1,200 pages of documentation. But how do they know there are 1,200 pages if they first have to search 40 hours for it?

In any case, I decided to start a crowdfunding campaign last August to collect the money. After I tweeted about the campaign it quickly went viral. The news was spread on websites such as TFMetalsGoldMoneyGATA and GoldChartsRus – among others – and within a few hours the funding was completed, which shows to the power of our gold community.

After I received the money from the crowdfunding website I asked the US Mint for a bank account number to wire the funds. But the Mint replied I could only pay by check! Check? I was born in 1981, I have never seen a check in my life. Was this another way to obstruct my investigation? Most likely. It’s impossible the US Mint does not have a bank account, and every account has a number. I still can’t see why they don’t accept wired money.

But I had no option to go to a branch of my bank located in my area. When I walked in explained and the situation, the gentleman that helped me told me he never handled a check neither. This gentleman was replaced by an older one. There was a slight possibility he could create a check for me, but he had to look into it somewhat. Two hours later I walked out of his office carrying a promise the dollars would be transferred within a week.

the-us-mint-logo-fenceA few days later the funds had been subtracted from my bank account, and I asked the US Mint for the first time (that was 11 September) if the check had arrived, but they replied it hadn’t. For weeks, mysteriously the check was “missing”. Only when I emailed the Mint with the email address of my local bank employee included, to have my bank and the Mint work it out together, the Mint confirmed on 28 September 2016 the funds had been received:

We have received your check and are now working to get the requested documents out to you.

That was 28 September, it’s now 15 November! I still haven’t received the documents from the US Mint. Naturally, I have sent more emails to ask what’s the status of my request, but no reply until now.

Or the Mint will have to confirm at some point they can’t deliver to me the paper work – maybe they got “second thoughts”. In that case they have to wire back the funds and I will have all funds send back to everybody that donated. Or they will honor my request in the coming weeks and I will include the findings in a very very long read I’ve been working on.

So, that’s all I know at this stage. Please have a little more patience. Thanks again everybody that donated. Either way, I will publish an article to reveal the results of all my FOIA and the many “problems” I found in the official narrative.

The Power Of The Gold Community: Crowdfunding For FOIA Request Fort Knox Audit Documents Completes Within 24 Hours.

Since 2014 I’ve been investigating the alleged audits of the US official gold reserves. Of course my goal is to figure out if these audits are credible, or if they’re invented by the US government to silence the people that think gold has any value and forms the very material basis for a well-functioning monetary system.

My first post on this subject, A First Glance At US Official Gold Reserves Audits, published on March 27, 2014, was purely based on publicly available reports. Not surprisingly, all those reports together compounded to a logical story. The US government wouldn’t present anything that’s implausible at the surface. That first post was more or less a summary of the official narrative. After that post I decided to dig a little deeper.

According to the Department of the Treasury’s Office of Inspector General (OIG), which is responsible for the audits, the vast majority of the US monetary stock stored at the US Mint had been audited by 1986, 241,247,820.61 fine troy ounces to be precise, as was said by Inspector General Eric M. Thorson during his Statement to the House Financial Services Committee on June 23, 2011:

… the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986. … by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal.

If this is true I would like to see those audit reports, I thought one day. My first Freedom Of Information Act (FOIA) request submitted in 2015 at the US government asked for delivery of all audit reports drafted by the Committee for Continuing Audit of the U.S. Government-owned Gold from 1975 until 1986. Stunningly, the OIG couldn’t find all the documents – nor did the National Archives, the Government Accountability Office or the Treasury. The OIG only had three of the audit reports in question archived. Something was awfully wrong here.

The essence of auditing the US gold stock is to reassure the global economy that in any extreme scenario all dollars in circulation are supported by gold providing essential confidence and credibility. Once it’s proven the gold is there, why throw away the evidence? I wrote about this in my post US Government Lost 7 Fort Knox Gold Audit Reports published on June 2, 2015.

In my post from June 2015 I announced I would submit new FOIAs at several US government departments to get to the bottom of this. And I did, I’ve submitted countless of FOIAs at the US Treasury, US Mint and the OIG, next to asking for information through conventional channels like email and phone calls. Sometimes the FOIAs were not honored, sometimes I received very intriguing bits of information. What I found out, inter alia, was that in between 1993 and 2008, 84,671,927 ounces were re-audited. Meaning, several compartments that were sealed in between 1975 and 1986 had been re-opened to access the bars inside. And strangely, the OIG cannot give me a proper explanation for these re-audits. Believe me, I’ve tried to ask numerous times.

Why was this gold re-audited? Why were sealed vault compartments re-opened and re-audited? These are just examples of questions my research is focussed on.

My interest in the subject did not pass unnoticed at the US government. In recent months I could clearly sense a strong defense by all departments in concert. Emails are not being answered, phone calls are not being returned, questions in my FOIAs are dodged, and in my most recent FOIA an unreasonable amount of money was asked for reports the Mint Director’s Representative writes every year for “notifying the CFO of the completion of the verification” of the Deep Storage gold audits.

Through a FOIA submitted at the OIG late 2015 I obtained the Management Letter for the Fiscal Year 2004 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves March 10, 2005. I the management letter we can read:

5. Policy FIN-09, Deep Storage Asset verifications, paragraph 2v, and MD 8H-3 paragraph 6a, both include the requirement that the Director’s Representative submit a written report to the Chief Financial Officer (CFO) notifying the CFO of the completion of the verification.

After reading this paragraph I thought maybe these reports by the Mint Director’s Representative would disclose valuable information. As the US government was barely talking to me anymore, I submitted a new FOIA request at the Mint in 2016 that stated:

Dear reader,

In the “Management Letter for the Fiscal Year 2004 Audit of the United States Mint’s Schedule of Custodial Gold and Silver Reserves March 10, 2005”, drafted by the OIG, it states:

“Policy FIN-09, Deep Storage Asset Verifications, paragraph 2v, and MD 8H-3 paragraph 6a, both include the requirement that the Director’s Representative submit a written report to the Chief Financial Officer (CFO) notifying the CFO of the completion of the verification.”

I would like to obtain all these reports by the US Mint Director’s Representative to the Chief Financial Officer written 1993 – 2008.

The Mint replied this request would costs $3,144.96 dollars, because it would take forty hours to search the documents – as the requested documents are located at another facility – eight hours to review the documents and additional costs would be added to duplicate 1,200 pages of documentation. I think this is nonsense; it shouldn’t take forty hours to search these documents and I would be surprised if they actually count 1,200 pages. This is just another way of trying to shake me off.

FOIA sponsor
As some of you know, my real name is Jan Nieuwenhuijs.

However, thanks to Henry Young‘s advice on Twitter I decided to launch a crowdfunding campaign on GoFundMe to collect the money! If we all donate a few bucks, who knows what comes out!

After I tweeted about the campaign it quickly went viral. The news was spread on websites such as TFMetals, GoldMoney, GATA and GoldChartsRus – among others – and within a few hours the funding was completed, which shows to me the power of our gold community! I was truly overwhelmed by everybody’s generous donations and support. As of this moment there is even more money collected than I asked for at GoFundMe (please stop donating!). The residual will be saved for when the costs appear to be higher or if they charge me for any other FOIA I’ve submitted. Naturally, I will publicly keep a record of expenditures in the comment section of my GoFundMe page.

Next for me is to transfer the money to the US Treasury and wait what they’ll sent back. If I’m offline for a weeks in September, that’s because I’m digesting 1,200 pages of dense jargon.

I will disclose a list with all the names (mostly Turdites) who have donated in the finished post on the audits of the US official gold reserves. For now, thanks everybody who donated and I’ll keep you posted!!

Former US Mint Director Clueless On Gold In Fort Knox

The Curious Case Of Edmund C. Moy

Former US Mint director Ed Moy has made numerous false and self-contradictory statements regarding the gold at Fort Knox – a facility managed by the US Mint. 

The is post is a sequel to A First Glance At US Official Gold Reserves Audits, Second Thoughts On US Official Gold Reserves Audits and US Government Lost 7 Fort Knox Gold Audit Reports. Also related is Where Did The Gold In Fort Knox Come From? Part One.

Recap and Introduction

Early 2014 my first post was published about the audits performed on 95 % of US official gold reserves – the 7,628 tonnes stored by the US Mint – this is referred to as Deep Storage gold, 4,583 tonnes is at Fort Knox, 1,364 tonnes in Denver, 1,682 tonnes at West Point. In total US official gold reserves account for the 8,134 tonnes, owned by the US Treasury. My focus has always been the gold at the Fort Knox depository, as this is the largest facility. At the very surface the official story presented by the US government regarding the existence of Deep Storage gold seems credible. However, while investigating we could observe the official story is anything but credible.

During my research I’ve reached out to Edmund C. Moy, 38th Director of the US Mint from 2006 until 2011, who was very helpful in answering all of my questions over Twitter and email. Although this gentleman has been very cooperative, many of his statements in various media and emails appeared to be false and self-contradictory. For the sake of simplicity we will focus on Moy’s statements at a coin expo in 2013, an article he wrote for Newsmax Finance early 2014 and emails he wrote me in response to my questions.

Moy has given me permission to publish the emails he sent to me.

Ed-Moy-High-Res-Hero-Full
Edmund C. Moy

1. False Statements At Coin Expo November 2013

It al started with a video from the Whitman Coin And Collectables Exposition in Baltimore November 2013. Below you can find the video:

[youtube https://www.youtube.com/watch?v=r2_zHO2Neas&w=560&h=315]

1.1. What Did Moy See At Fort Knox?

Let’s go through this, quote one: “I’ve been inside of Fort Knox, and I’ve seen the gold. So I know it’s actually there… I can personally vouch there is gold at Fort Knox and I personally have seen it”. On camera Moy states he has seen a good portion of the gold at Fort Knox, which has assured him to vouch for the existence of the gold. Although a visual inspection of 446,698 gold bars will not pass as an audit, what we’re analyzing is, what did Moy actually see? From the video you would think he was granted access to the vaults and properly saw (and touched) the gold in all compartments.

As was published in a previous post, allegedly 100 % of the gold at Fort Knox has been audited in between 1974 and 1982 during the Continuing Audit Of US Government -Owned Gold program. After these audits all vault compartments were placed under Official Joint Seal (before the Continuing Audits program the compartments were under Official Joint Seal as well). From film footage inside Fort Knox in 1974 we can see a corridor with vault compartments covered with the seals.

Screen Shot 2015-06-19 at 6.03.47 PM
First public view inside a Fort Knox vault room (1974), we can see the massive door of vault compartment 33 covered with a ribbon and the Official Joint Seal attached to it.
Screen Shot 2015-06-22 at 12.01.32 PM
Fort Knox vault compartment 33.
Screen Shot 2015-06-22 at 12.12.59 PM
Fort Knox vault compartment 33 contains 36,236 bars, or 368 tonnes of gold.
Screen Shot 2015-06-19 at 6.05.21 PM
The Official Joint Seal attached to the ribbon.
Screen Shot 2015-06-22 at 12.05.04 PM
The Official Joint Seal.
Screen Shot 2015-06-22 at 12.07.12 PM
The ribbon is waxed on the back of the Official Joint Seal.
Screen Shot 2015-06-22 at 12.15.28 PM
US Mint director Mary Brooks cuts the ribbon to remove the Official Joint Seal of Fort Knox vault compartment 33.
Screen Shot 2015-06-30 at 3.15.55 PM
Peephole in the vault door of compartment 33.

At the end of the corridor we can see vault compartment 33. In front of the vault door there is a ribbon waxed to an Official Joint Seal. It is impossible to open the vault without impairing the ribbon. We can see no window in the vault door of compartment 33 (first pictures), only a very tiny peephole (last picture). At this point we can raise the question to what degree Moy has seen the gold while vault compartments are sealed and there are only tiny peepholes in the compartment doors. From my judgment looking through a peephole at best confirms there is yellow stuff on the other side.

The Treasury Office Inspector General (OIG), which is currently responsible for the Deep Storage gold audits, has told me it is absolutely not routine to break the seals. Neither for inspection by a US Mint Director nor for the President of the United States will the seals be broken. There is one possibility Moy could have properly seen the gold; in 2010 the US Mint renewed all the Official Joint Seals, the ones put in place after 1974 with the delicate ribbon and wax were replaced for new plasticized seals with steel cables. (Yes, technically at that moment the seals were renewed all 42 Deep Storage compartments could have been opened.)

Screen Shot 2015-06-29 at 11.58.25 PM
New Official Joint Seal.

There is a possibility Moy properly saw the gold if he was present when the seals were broken and the doors opened before the new seals were put in place. At the Gold Transparency Act in 2011 the OIG stated:

More recently the Mint decided to replace all of the previously placed Official Joint Seals with new seals. The new seals are more durable, having a double security barrier seal that can only be removed by two cuts with a strong cable cutter.

The Mint replaced all of the previously placed Official Joint Seals with new ones during fiscal year 2010. The seal replacement process consisted of two steps: (1) inspection of all previously placed Official Joint Seals on all the compartments containing deep storage gold to determine whether they had been altered or compromised in any way, and (2) placement of a new Official Joint Seal. The seal inspection and replacement process was carried out for all 42 deep storage gold compartments, in the presence of a Treasury OIG auditor, by a Mint headquarter staff person, representing the Mint Director, and a Mint storage facility staff person, representing the facility’s Plant Manager. For each Official Joint Seal removed, the Mint headquarters representative, the Mint storage facility representative, and the observing Treasury OIG auditor signed an inspection report; the same parties also signed the new Official Joint Seal that replaced the one removed.

The report mentions “a Mint headquarter staff person, representing the Mint Director” was present when the seals were renewed, not the Mint Director himself. Concluding Moy was not present when the seals were renewed, therefor he only could have seen the gold through the tiny peepholes.

1.2. Not All Gold Fort Knox Supplied By Confiscated US Coins

Quote two, “And these bars up at Fort Knox are … looked like dirty gold with some corrosion on them and they’re not as yellow. … And then you realize, Roosevelt had made it illegal for Americans to physically possess gold coins, and he melted all those gold coins and that’s what ended up being the initial stock at Fort Knox. A lot of those coins were 22 karat gold which then have impurities. You know and a lot of it wasn’t refined when it was made into these bars that ended up making it into Fort Knox. When you take a look at them, at each bar, you realize what history is behind it, how many coins must have been melted in order to make the bar, and what life stories must’ve been part of all that.”

Moy describing how all gold coins that circulated in the US in 1933 were confiscated by President Roosevelt and filled the vaults in Fort Knox is only partially true. In 1933 gold coins in the US accounted for 2,515 tonnes, of which 1,901 tonnes were already held at banks and the government. The difference, 614 tonnes, could not have made US gold reserves increase by 13,041 tonnes (from 6,505 tonnes in 1933 to 19,546 tonnes in 1940). The dramatic rise in US gold reserves was caused by imports – as was demonstrated in my post Where Did The Gold In Fort Knox Come From? Part One.

Before Word War Two it was common knowledge that the increment of the US official gold reserves and thus Fort Knox was due to imported metal. One book that I know of was published in 1939, it’s titled Golden Avalanche; it describes how the devaluation of the US dollar against gold in 1934 triggered a global mining boom and an avalanche of gold that hit the shores of the United States.

Golden Avalanche
First page Golden Avalanche. 

USA Gold Trade 1933 - 1950

I’m not sure exactly when and why “experts” started spreading the myth about the US coins that filled Fort Knox.

1.3. The Gold In Fort Knox Is Not Yearly Audited

Quote three, “So once a year the US Mint police coordinates with the Treasury Inspector General, and coordinates with the Mint chief financial officer, and they have to audit the gold. When you take a look at these bars, each one is numbered. They have to be taken out, counted, and assayed, to make sure they still have everything in it that they’re supposed to. When it’s all done they’re put back in in the same order as they have been taken out. So when you take a look at these vaults, again I can’t tell you how much is in there and how they’re organized, but there is a lot of bricks in there.”

This is simply not true. The official story from OIG is that 100 % of the gold stored at Fort Knox was audited in between 1974 and 1986. After 1986 the gold at Fort Knox has not been not audited every year. Apparently Moy has always been unaware of the audit procedures at the US Mint while he was the Director of this institution and presents himself as an expert. Did Moy have any sight or control over the Deep Storage gold when he was in office?

2. False And Contradicting Statements In Moy’s Newsmax Article

In June 2014 Ed Moy published an article about the gold at Fort Knox at Newsmax Finance. From Moy’s appearance at the coin expo and this article it seems he’s on a mission to debunk rumors that suggest Fort Knox is empty. Unintendedly he’s feeding the speculation. In his article Moy has changed his mind on several topics, he starts by saying the minority of the bars in Fort Knox are coin bars (roughly 90 % pure). From Moy’s article:

Is There Gold in Fort Knox?

A minority of the bars were made from the melted coins and have a tarnished appearance because the coins were only 90 percent pure gold. …The majority of the bars are standard 400 ounce good delivery bars.

Opposite to what Moy said at the coin expo he writes a minority of the bars at Fort Knox are 90 % fine and the majority are Good Delivery bars (this suggests they are above 99.5 % pure). This cannot be true. In 2011 a detailed bar list was published by the US Mint that shows the vast majority of the bars are roughly 90 % pure. To be precise the Fort Knox gold has an average fineness of 91.67 %, 83 % of the gold at Fort Knox are coin bars (roughly 90 % pure), 17 % of the gold is Good Delivery (> 99.5 % pure). Yet, Moy was not aware of the bar list at his own facility.

More from the Newsmax article:

In 1953, the U.S. Department of the Treasury and the General Accounting Office (representing Congress) conducted a full audit of the gold at Fort Knox. Each bar was removed, documented and cross-referenced. Five percent of the gold was randomly assayed.

In 1974, then-Mint Director Mary Brooks led the first-ever public tour of the classified facility. The 120 visitors included members of Congress and the news media. …. When the delegation was satisfied, the vaults were again carefully sealed.

Each of the years I was Mint Director, the Inspector General of the U.S. Treasury and the Office of the Chief Financial Officer of the U.S. Mint conducted an audit of the gold in Fort Knox. Each of the vaults is sealed with a special tape that is designed to show any forced entry. The audits since the last full audit in 1953 have been mainly checking to make sure the seal has not been broken or tampered…

Apparently Moy had changed his mind about when and how the Fort Knox audits were performed. On the coin expo he shared the gold is physically audited every year, one year later we’re told the gold was audited in 1953. Typically, both statements are in conflict with the official story. In 1953 a meager 13.6 % of the gold was audited (the details of the 1953 audit can be read in the audit report from 1953), and since 1953 the gold has not been physically audited every year –  most audits were performed from 1974 until 1986.

Screen Shot 2015-06-24 at 12.22.13 AM
1953 Fort Knox audit report, 13.6 % of the gold was counted. 

How hard can it be to at least verify the official story before writing an article? It’s hard to believe Moy had anything to do with Deep Storage gold during his tenure as US Mint Director.

bush_moy
George W. Bush Junior, Edmund C. Moy.

3. Email Correspondence Anything But Convincing

My first question to Moy over email was about his statement at the coin expo, “every year the bars have to be taken out, counted, and assayed, to make sure they still have everything in it that they’re supposed to”. Moy replied:

The video is from a beginner’s coin collector seminar I gave at a Whitman Coin & Collectible Expo. Because of the audience, I had to simplify my remarks, especially with this question during the Q&A session. So it came off implying something incorrect. Until 1953, there were serial number audits of the gold and some assaying as I explain but that became costly and time intensive. The last full audit was done in 1953 (my understanding was that it was a serial number audit with random assaying of 5% the bars and did not use outside auditors). All the vaults with the audited bars were then sealed with tape and wax in a way as to tell if the seal has been tampered with.

In this instance it’s my humble opinion his remarks could have been simplified without corrupting the essence. Besides, coin collectors are not audiences that need a kindergarten version of a procedure that is plain and simple of itself: the gold was (allegedly) audited from 1974 until 1986 and placed under Official Joint Seal, after which the seals have been checked every year. Remarkably, he’s making it worse by mentioning the last full audit was in 1953, which is not true.

Second, because there was a very slight possibility he could have properly seen the gold in 2010 – when the seals were renewed – I decided to ask when exactly he saw the gold.

Me:

In what year did you see the gold at Fort Knox? Or did you see it every year when you were in office?

Moy:

I saw it for the first time at the end of 2006 and at least once a year every year thereafter when I was mint director.

Me:

…how could you have seen the gold if all compartments were placed under Official Joint Seal during the continuing gold audit program from 1974 – 1986?

Moy:

Each compartment’s door has a small window in it. Further, each compartment has an interior light that is controlled by a switch on the exterior wall near the door. My inspection consisted of inspecting the seal, turning on the light, and visually inspecting the gold in each compartment.

Moy confirms all he has seen was through the peepholes – a visual inspection that doesn’t impress me. More importantly, Moy states he inspected the seals every year. Let’s have a look at one of these old seals that came of a Deep Storage compartment in 2010 (Vault J, compartment 2, Denver).

Screen Shot 2015-05-22 at 3.07.10 PM

On the seal there a two dates stamped:

We whose signatures appear hereon certify that the entire contents of the sealed compartments above specified have been personally verified by us in the manner prescribed for such duty in joint sealing regulations as described below an that the contents are accepted in accordance with method 5 of the Official Joint Sealing Regulations, Official Joint Seal No. 949 dated September 3, 1981. Relocated from Vault J, Compartment 19.

And…

Screen Shot 2015-06-30 at 7.02.26 PM

Moy claims to have inspected all seals at least once a year. Did it ever occur to him the seals were not stamped in 1953? His most recent assumption (Newsmax article) is that the last full audit was conducted in 1953, while all the seals he inspected must have been stamped after 1974. Are we supposed to believe the Director of the Mint could have missed the date on the seals, which grants the safety of the largest stock of wealth on earth at the facilities he guided, numerous times when he inspected them? At this point it is safe to say Moy’s inspections of the Deep Storage gold carry little significance in terms of proof there is gold at Fort Knox.

Next, I asked Moy how come he wrote in the Newsmax article the minority of the bars are 90 % pure and the majority is Good Delivery, while according the official excel sheet it’s exactly the other way around. Moy replied:

That is what I was told by the Fort Knox protection staff. I would recommend a FOIA request from the IG or the US Mint posing the question to get an official answer with appropriate documentation. That way you could be the first to break the news. FYI, my visual inspection of all the vaults at all three facilities showed a mixture of good delivery and coin bars (you can easily tell the difference between the two just by looking at them).

When he was in office Moy knew little about the gold (as you may have guessed by now), as he was informed about it by the Fort Knox protection staff. It appears Moy had little authority over the Deep Storage gold. A FOIA regarding the bar list is not necessary, neither is breaking the news, as this information is already publicly available – since 2011.

Lastly, Moy turns again and writes me the gold he saw at Fort Knox was a mixture of good delivery bars and coin bars (in the Newsmax article the majority was supposed to be Good Delivery). Depending on the definition of “mixture”, what he finally wrote over email could be correct – 17 % of the gold at Fort Knox is Good Delivery. (According to the bar list there are 759 tonnes of Good Delivery gold at Fort Knox, in total there are 4,583 tonnes of gold stored in 15 compartments)

Screen Shot 2015-02-08 at 11.36.11 PM
Hierarchy US Mint. 

4. Conclusion

Taking everything Moy has said and written in consideration it’s very weird he has been so outspoken while having done “little homework”. Many documents have been publicly released from the Gold Transparency Act in 2011, but Moy still is poorly informed on the audit procedures and the bar list, resulting in very unfortunate public statements. The fact he still (after 2011) is wrong on the audits and bar list mainly points out his personal incompetence, which makes everything else he has said and written useless for our analysis regarding Deep Storage gold. What do his erroneous statements proof? Well, by all means, they do not proof there is gold at Fort Knox.

Keep in mind Moy’s proposal is for Congress to authorize a new comprehensive audit. Maybe he’s not so sure if he saw the gold after all.

 

US Government Lost 7 Fort Knox Gold Audit Reports

There Is No Proof All Gold Is In Fort Knox

This post is a sequel to A First Glance At US Official Gold Reserves Audits and Second Thoughts On US Official Gold Reserves Audits.

Every year the gold in Fort Knox is ‘audited’ by checking the official joint seals that were placed on all vault compartments during the continuing audits of U.S.-owned gold from 1974 until 1986, when allegedly 97 % of the (Deep Storage) gold was inspected. However, a Freedom Of Information Act request I’ve submitted in order to obtain all audit reports could not be honored. Seven reports are missing.

From at least 1944 the world reserve currency is the US dollar, which was backed by gold until 1971 and supported by gold ever since. There can be no world reserve currency without appropriate gold reserves supporting it, providing essential confidence and credibility. The US official gold reserves are the world’s greatest by far at 8,134 metric tonnes. The fact that 7 audit reports that should grant the existence of these reserves appear to be missing is problematic.

At the congressional hearing of the Gold Transparency Act (H.R. 1495not enacted) in 2011 the Inspector General (IG) of the Treasury presented a case ‘all is fine’, but all is not fine. And the problem goes far beyond missing audit reports. In a series of posts we’ll continue to examine all there is to find regarding the audits of US official gold reserves.

Let’s recap what we’ve studied in the previous posts. The US Treasury currently owns 8,134 tonnes of gold of which 7,716 tonnes is stored by the US Mint (4,583 tonnes at Fort Knox, 1,364 tonnes in Denver, 1,682 at West Point) and 418 tonnes at the Federal Reserve Bank Of New York. We’ve focused on the first audits of the gold stored by the US Mint. A Fort Knox physical gold audit in 1953 was anything but full, neither was the famous audit in 1974.

The Continuing Audits Of U.S.-Owned Gold 1974-1986

Currently the Office Inspector General of the Treasury is responsible for the audits of the gold reserves at the US Mint. At the congressional hearing of the Gold Transparency Act in 2011 Inspector General (IG) Eric Thorson stated:

Before I discuss the details of the audits that are the topic of this hearing, I want to make one point very clear: 100 percent of the U.S. Government’s gold reserves in the custody of the Mint has been inventoried and audited. Furthermore, these audits found no exceptions of any consequence. I also want to assure you that the physical security over the gold reserves is absolute. I can say that without any hesitation, because I have observed the gold and the security of the gold reserves myself.

He said this, but there is no proof. His statement “100 percent of the U.S. Government’s gold reserves in the custody of the Mint has been inventoried and audited“ is impossible to confirm, as we’ll see later on.

[youtube https://www.youtube.com/watch?v=UBjUphXcJAE]

More from Thorson:

In June 1975, the Treasury Secretary authorized and directed a continuing audit of U.S. Government-owned gold for which Treasury is accountable. Pursuant to that order, the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986, placing all inventoried gold that it observed and tested under an official joint seal.

The committee was made up of staff from the Treasury, the Mint, and the Federal Reserve Bank of New York. The annual audits by the committee ended in 1986 after 97 per cent of the Government owned gold held by the Mint had been audited and placed under official joint seal.

Ron Paul asked:

…It seems that a portion of the Mint and the U.S. gold reserves were audited in an assay between 1993 and 2008, as you acknowledged. The Mint estimated that as much as one-third of the gold reserves were examined during this period. The other two-thirds, however, have not been inventoried–that is according to my understanding–or assayed since somewhere between 1975 and 1986. Do you think it would be worthwhile, at least, to inventory and assay this portion of the Mint-held gold?    

Eric Thorson replied:

By–I forget which date it was, I believe by 1986, we–hold on just one second here, I got it. It basically covered–by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal. So once you have done that, and that seal remains unbroken, then I am not sure what other benefit there would be to going back into it at that point. But by 1986, you had 97 percent was audited–

Connecting thereto, from Thorson’s opening statement:

My office began conducting annual audits of the gold reserves in Fiscal Year 1993.

Since 1993, when we assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold.

…At the end of Fiscal Year of 2008, all 42 compartments had been audited by either the GAO, the Committee for Continuing Audit of the U.S. Government-owned Gold, or my office, and placed under official joint seals. There has not been any movement of inventoried gold since that time.

From 1993 to 2008 the remaining 3 % of the gold reserves stored at the US Mint has been audited – I assume. For this post we’ll focus on the continuing audits of U.S.-owned gold, as these audits should proof there is gold in Fort Knox. By gathering information from audit reports from 1974 – 1986 (the ones I could get my hands on) and statements made at the congressional hearing in 2011 we’ll analyze our way through this. I have copied as much quotes in this post as I can to minimize the possibility of an erroneous interpretation of the official text in the audit reports.

At the hearing Thorson presented exhibits to support his case 100 % of the gold held at the US Mint has been audited. Next, we can see Thorson’s list he presented of physical gold audit reports of the continuing audit program from 1974 to 1986.

2011 audit list oig
Exhibit 1. GAO stands for General Accounting Office, OIG stands for Office of Inspector General.

On this sheet 5 physical gold audit reports are listed, framed in red. The reports from 1974 and 1977 we’ve extensively analyzed in my previous post Second Thoughts On US Official Gold Reserves Audits, published on February 9, 2015. After writing it I’ve been trying to collect all audit reports dating from 1974 – 1986. The 1974 Fort Knox audit by the GAO has been acknowledged and adopted by the continuing audits committee, so this it became part of the continuing audits.

In total there should be 13 reports (1974 – 1986), 2 already were in my possession (1974 and 1977). With regard to my quest for all reports, let’s have a look what US government departments could not deliver what I was looking for:

First was the Counsel to the Inspector General Department of the Treasury. Because this is the department currently responsible for the audits I was surprised my request to obtain all audit reports wasn’t honored. They could only find 2 reports I didn’t posses previously, of the audits conducted in 1985 and 1986. They wrote me by email:

Mr. Nieuwenhuijs – our Office of Audit found:

OIG-87-42 (1986)

OIG-86-59 (1985)

as well as GAO’s 1974/1975 and 1978 reports.

That’s everything we have, or are aware of.

Counsel to the Inspector General

Department of the Treasury

The “1974/1975 and 1978” reports refer to the audits conducted in 1974 and 1977. 

The Counsel to the Inspector General Department of the Treasury told me his department only had 4 of the 13 reports I was looking for. His advice to me was to try at the General Accounting Office (GAO) and National Archives for more reports. I would like to stress the importance of this failure to deliver the audit reports of 97 % of the official US gold reserves by the department directly responsible at this point in time. At the congressional hearing in 2011 the IG stated to be 100 % certain all gold stored by the Mint was inventoried and audited, yet his department had access to only a fraction (4) of all audit reports (13). How can the IG be positive if he did not have access to the most basic documentation? The answer is, he can’t.

Meanwhile I was fortunate to find the 1981 audit report at the website The Golden Sextant from Reg Howe. This document also contains a summary of the 1980 audit – which, by the way, isn’t less detailed than the full 1981 report. For the sake of simplicity, let’s say I have both audit reports, 1980 and 1981. That’s 6 down, 7 more to go.

Next was the GAO; unfortunately they couldn’t deliver anything I was looking for. Instead, I was advised to contact the Treasury. Same story at the US Mint and US National Archives. There was nothing left to do but submit a Freedom Of Information Act (FOIA) request.

On February 25, 2015, I submitted a FOIA request in order to obtain the audit reports drafted by the Continuing Audits Of U.S.-Owned Gold committee in 1975, 1976, 1978, 1979, 1982, 1983 and 1984. Shortly after I got an email that stated my request had been received and was being processed.

Two months later I still got no response. When I logged in at my account at the FOIA website, I saw my request had disappeared. I decided to send an email to the FOIA online Help Desk to ask what happened to my request. The next screen shot is from the reply by the FOIA help desk on May 6, 2015.

Screen Shot 2015-05-23 at 7.13.32 PM

My FOIA request had disappeared, or did it? After some correspondence back and forth I finally got an email saying my FOIA was exported out of FOIAonline because my request was for access to historical records. Then, the official response from the offline department to my request I received on May 13 as a PDF attachment (click here to view) – oddly enough it’s dated ‘March 25, 2015’ but not sent to me at the time. This is what it said:

This is in response to your March 2, 2015 Freedom of Information Act (FOIA) request for records in the custody of the National Archives and Records Administration (NARA). Your request was received in this office on March 3, 2015 and assigned FOIA case number RD 45578.

You requested access to audit reports of the United States Department of the Treasury’s official gold reserves published by the “Committee for Continuing Audit of the U.S. Government-owned Gold” for the years 1975, 1976, 1978, 1979, and 1981-1984.

Using the terms:

GOLD, RESERVES, REPORT(S), AUDIT, COMMITTEE FOR THE CONTINUING AUDIT, COMMITTEE, INSPECTOR GENERAL, ASSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS, BUREAU OF FISCAL SERVICE, and BUREAU OF GOVERNMENT FINANCIAL OPERATION. 

Our staff conducted a search using the National Archives Holdings Management System under the following records group numbers: RG 50 Treasurer of the United States, RG 56 General Records of the Department of the Treasury, RG 82 Federal Reserve System, RG 101 Office of the Comptroller of the Currency, RG 104 U.S. Mint, and RG 425 Financial Management Service. However, we were unable to locate records responsive to reports similarly titled or closely related to the subject annual gold audit 1975-1984.

For your information, we contacted a librarian at the Treasury Department who informed us that “reports from ‘Committee for Continuing Audit of the U.S. Government-owned Gold’…are not in our collection.” And we attempted to contact a records management officer at the Treasury Department, but did not receive a reply as of the date of this letter. Given the date range of your request 1975-1984, the nature of the report —an annual audit of gold, and the fact that reports of similar type have been periodically published on the Internet, it is likely that copies and drafts of these reports are in the legal and physical custody of the Department of the Treasury. You may consider submitting a FOIA request directly to the Treasury Department.

In short, the US National Archives could not extradite the 7 audit reports I requested. The reports were not present at the National Archives, the OIG or at the Treasury Department. I doubt an attempt to “submitting a FOIA request directly to the Treasury Department” will bring me anything; likely it will be a waste of time as I had already contacted all possible government departments separately, which could not deliver me the reports I was looking for despite none of them was unwilling to help me. I will, however, submit a couple of new FOIA’s at the US government regarding gold audits.

The reports I did find, and are now publicly available, are:

Coincidentally, or not, these reports are exactly the same ones as listed by Thorson at the congressional hearing in 2011 (exhibit 1, framed in red). It seems these 6 reports (5 documents) are the only ones “currently in existence” and the remaining 7 have mysteriously disappeared.

1980, 1981, 1985 & 1986 Audit Reports Anomalies

Remember, we’re investigating the audits of the greatest gold hoard on earth, which underpins the world reserve currency the US dollar.

We will discuss the remaining 4 audit reports at once, as they are very similar. I’ve found many anomalies that we’ll discuss. These could be better understood, or clarified, if we could obtain all audit reports from 1974 – 1986. However, until the missing audit reports show up we can only look at this case as it’s presented by the US government through the documents that are ‘publicly available’.

Federal Reserve Bank Of New York Stopped Auditing Gold During Continuing Audits Program

In June 1975 the Secretary of the Treasury authorized the continuing audits of the US owned “gold stock”. While the order is not very detailed, in the years that followed the committee started auditing gold stored at the US Mint and at the Federal Reserve Bank of New York (FRBNY). 

Screen Shot 2015-05-22 at 4.41.12 PM

In the 1980 report we can read the audit procedures and a few other snippets (we’ll quickly jump through) that help us understand how and where the audits were conducted:

Audit procedures included (1) inspecting the joint audit committee seals used to control compartments containing previously audited gold; (2) comparing the records for each compartment inventoried to the identifying information on the gold bars; (3) weighing, from each compartment inventoried, at least one randomly selected melt in each fifty melts (a melt, averages about 20 bars cast from one crucible of molten gold); (4) removing samples from a bar in each of the melts weighed and having the samples assayed; (5) verifying the mathematical accuracy of all inventory records; (6) verifying the inventoried gold to the institutions’ records; (7) verifying the quantities shown by the institutions’ records to the control accounts for gold maintained by the Bureau of the Mint and to the central accounts maintained by BGFO; (8) placing audited gold bars in compartments under Official Joint Seal and audit committee control; and (9) reviewing and evaluating internal controls and security procedures.

 

Committee for Continued Audits of

United States Government-owned Gold

Joseph F. Ruffley, sr Chairman

Bureau of Government Financial Operations [BGFO]

Thomas E. Diarforli

Bureau of the Mint

William M. Schultz

Federal Reserve Bank of New York

Schultz from the New York Fed was part of the continuing audits committee and therefor the FRBNY was supposed to be audited. Quoting from the 1981 report:

Gold at the Federal Reserve Bank of New York is audited periodically by examiners of the Board of Governors of the Federal Reserve System, Members of the Committee for Continuing Audits of United States Government-owned Gold representing the Mint and BGFO observed the audits at the invitation of the Board and the Federal Reserve Bank.

The initial intention is clear to us, the FRBNY was supposed to be audited; the gold to be counted, weighed, assayed and the compartments to be sealed (these were the audit procedures of the continuing audits committee). More from 1981 report: 

The continuing audit is being conducted on a cyclical basis because of the enormous quantity of gold to be handled and the related costs. In performing the audit, the gold bars are physically moved from one vault compartment to another. During this operations, the melt numbers and the number of bars in each melt are verified with an inventory listing, and one in fifty melts is randomly selected for weighing and test assay.

…Compartments audited at Mint institutions and depositories are kept under official joint seal by representatives of the audit committee. 

Screen Shot 2015-05-22 at 3.07.10 PM
Exhibit 2. Official joint seal number 932 put in place on September 2, 1982, under the “continuing audits of U.S.-owned gold stored at the Mint”. 4,243 bars were relocated from vault J compartment 19, to vault J compartment 2, at the Denver depository.

The compartments at the Mint were placed under official joint seal, whereas the FRBNY compartments were never placed under official joint seal (as we can read on page 11 of the 1980 audit report).

This suggests the gold at the FRBNY was stored so it could be easily transported in and out of the vaults, possibly through a corridor to the adjacent private vault at 1 Chase Manhattan Plaza – read this post by BullionStar gold researcher Ronan Manly for more information on the construction of the FRBNY vault and the connection to the vault across the street that was owned by JP Morgan, but recently bought by Fosun (October 2013), a Chinese investment conglomerate.

Let’s read more about the audits at the FRBNY conducted under the continuing audits program, a quote from the 1981 report:

The audit procedures followed [at the FRBNY] are essentially the same as those followed at Bureau of the Mint depositories, except that assay samples are not taken to verify the purity of the gold. 

A quote from the 1985 report:

Although the quality of the gold in the custody of the Federal Reserve Bank of New York cannot be readily assayed, …

Not only were the vault compartments at the FRBNY exempt from being sealed, in addition, for an unknown reason assay tests were never performed at the FRBNY! More from the 1985 report:

The audit procedures followed [at the FRBNY] were essentially the same as those followed at Mint institutions except that assay samples were not taken to verify the purity of the gold and the audited gold was not under committee control after the audit. As a result, the gold at the Bank [FRBNY] is considered unaudited.

According to the reports available to us, in 1985 the committee had to conclude the gold at the FRBNY was never audited! The intention in 1975 was to audit the gold at the FRBNY, but then, a few years down the road the gold at the New York Fed was mysteriously exempt from the continuing audits program.

Assay Tests For US Official Gold Reserves Have Never Been Credible

Moving on to the assay tests conducted at the US Mint. An overview starting from 1953:

*In the 1953 report we could read 26 bars (0.00002 % of the total stash at that time) were assayed from bore samples. The assay tests found no irregularities. The assayer is unknown and there was no assay report included in the audit report.

*In 1974 the New York assay office tested 95 bars. Two tetrahedron-shaped chips were removed form the top and bottom of each bar assayed. The assay tests found no irregularities. There was no assay report included in the audit report.

*In 1977, presumably, one bar in every fiftieth melt (one melt is approximately 20 bars) was assayed, irregularities were found in two melts, the vault had to be opened twice more in the presence of the Joint Sealing Committee and the gold reevaluated”. The assayer is unknown and there was no assay report included in the audit report.

*For all other ‘publicly available’ audit reports (1980, 1981, 1985, 1986) it’s very briefly mentioned assay tests were conducted, presumably for one in every fiftieth melt. No irregularities were found. The assayer is unknown and no assay reports have been included in the audit reports.

*For the audits performed in 1975, 1976, 1978, 1979, 1982, 1983 and 1984 under the continuing audits program allegedly 1 in 50 melts has been assayed, although there are no audit reports, nor assay reports, nor do we know who the assayer was.

*It’s likely 97 % of the audited gold by the continuing audits committee has not been assayed by an independent assayer. In 1977 the New York assay office, which is a subsidiary of the US Mint, conducted the assays. For the other years we don’t know what office performed the checks.  

At this stage I haven’t been able to get my hands on any assay report from 1974 – 1986. But, the OIG disclosed assay reports – of the audits of 3 % of the US official gold reserves stored by the Mint – at the congressional hearing in 2011 (exhibit 3 and 4).

Let’s have a look. in 2004 the assayer was Ledoux & Company, a private contractor (read their homepage). Ledoux & Company found no irregularities in 2004. Then, from 2005 to 2008 the assay tests were conducted by White Sands Missile Range, which is a subsidiary of the US army. This fits right into how the US government imposes audits on their official gold reserves; the audits are performed by the US government itself. We’ve barely come across any independent auditor that saw, counted, weighed or assayed the US official gold reserves. In 2011 it was portrayed as if KPMG currently is the third party auditor (next to the owner and custodian), but this is not true. A separate post will be dedicated to KPMG.

Screen Shot 2015-06-01 at 10.08.18 AM
Exhibit 3.
Screen Shot 2015-06-01 at 10.08.40 AM
Exhibit 4.

The results of the assays by Ledoux & Company and White Sands Missile Range presented by the OIG at the congressional hearing show nearly all 9999 fine gold (see exhibit 3, or read page 62 to 124 from this document). This is remarkable. My assumption is, these assays from 2004 – 2008 are all assays authorized by the OIG from 1993 – 2008 and therefor cover 3 % of the gold stored at the US Mint.

In the excel sheet with the bar list of gold stored by the US Mint, published a few years ago, we can see nearly all the gold is “low purity” – roughly 90 % pure – very little was 9999 fine. Coincidentally almost all the gold assayed by the OIG from 2004 – 2008 was 9999 fine.

According to the excel sheet the US Mint stores 312 tonnes in 9999 fine gold, spread over 3 depositories; Fort Knox 15 tonnes, Denver 100 tonnes, West Point 197 tonnes. 312 tonnes of the total is 4 %. The OIG audited 3 % from 1993 – 2008. Technically it’s possible the OIG assayed exactly the remaining stash of 9999 gold, though chances are slim given the fact the 9999 gold was spread over multiple compartments at multiple depositories.

Why haven’t we ever seen any assays of “coin bars”? Coin bars are “assaying 899 to 901 per mille or 915 1/2 to 917 per mille”, roughly 90 % pure, and these types of bars allegedly form the bulk of the US official gold reserves. Former US Mint director Edmund Moy has stated in 2013 US reserves contain mainly coin bars because of the great confiscation in 1933 by President Roosevelt, when US citizens were forced to hand in all physical gold. All the golden coins that were handed in supposedly accumulated to the greatest gold pile on earth. However, as I’ve written in my post Where Did The Gold In Fort Knox Come From? Part One, all golden coins that circulated in the US before 1933 could not have supplied the US official gold reserves to the extent Mr Moy has stated.

The “coin bars” topic, which ties together with the existence of the US official gold, deserves a thorough study to be expanded upon in a separate post.

1,700 Tonnes At For Knox Was Re-Audited In Between 1983-1986

As we’ve seen thus far there are many problems with the official story ‘everything is fine, all the US official gold reserves all audited’. The missing audit reports and assay reports feed into our skepticism. And there is more, a lot more.

By the end of 1982 the continuing audits committee, which consisted of BGFO and US Mint staff, was “reorganized under the Department of the Treasury, Office of the Inspector General”. This was the first time the OIG was responsible for the audits of the gold at the Mint (note, this same OIG is still responsible for the audits). Then, something very strange happened in 1983.

If we carefully read the scarce audit reports available to us, we notice the audit procedures were revised in 1983. As a result more than 1,700 tonnes at the Fort Knox and the Denver depository, that were both fully audited and sealed at that time, needed to be re-audited. From the 1985 report:

In fiscal year 1985 audits of Government-owned gold were conducted at the United States Mint in Denver and the United States Bullion Depository in Fort Knox, Kentucky. The audits were conducted in accordance with the revised audit guidelines that required a statistical sample of gold melts within randomly selected compartments at the facilities.

…In October 1984, 4,136,046.924 fine troy ounces of gold were reaudited at the United States Mint, Denver. In July 1985, 11,912,458.207 fine troy ounces of gold were reaudited at the Fort Knox Depository.

…2/ As of September 30, 1982, 100 percent of the gold stored at the depository [Fort Knox] was audited under the initial continuing audit program. Between July 1983 and July 1985 the gold was audited in accordance with the plan approved by the Treasurer, as follows.

Date

July 1983 15,248,015.541

July 1984 14,817,180.740

July 1985 11,912,458.207

July 1986 12,477,777.638 [this number I copied from the 1986 report]

…12/ As of September 30, 1984, 99.9 percent of the gold stored at the United States Denver Mint had been audited under the initial continuing audit program. In October 1984, 4,136,046.924 fine ounces gold was reaudited.

When thinking about these re-audits, three scenarios pop to mind:

  1. In 1983 the OIG found out something was amiss with the audits performed 1974 – 1982. It was decided to destroy several audit and assay reports and no less than 1,700 tonnes needed to be re-audited.
  2. The US government wished to open the vaults of audited gold to lease or sell the metal on the open market. An excuse was needed to break the seals. The BGFO and Mint staff was replaced by the OIG and the “revised audit procedures” were invented as a reason to open several compartments.
  3. The auditors were bored and decided to re-audit 1,700 tonnes.

Why else would so much gold have been re-audited?

I shall rest here. More anomalies with regard to the audits of the US official gold reserves will be discussed in forthcoming posts. As will conclusions and speculation. In the meantime I will fire several new FOIA’s at the Office of the Inspector General and others. If official documents come to surface I will report accordingly.

Second Thoughts On US Official Gold Reserves Audits

This post is a sequel to “A First Glance At US Official Gold Reserves Audits”.

What is not often covered in the media or blogosphere are the audits of the US official gold reserves stored at the US Mint, which is the custodian for 95 % (7716 tonnes) of the stash – nowadays also referred to as custodial deep storage, and at the Federal Reserve Bank Of New York that safeguards the remaining 5 % (418 tonnes). The lawful owner of the US official gold reserves is the US TreasuryPart one covered the most recent records I could find published by the US government, in this post we’ll examine more historical records and approach this matter from a more critical angle. Because of the amount of information I found this post is split in multiple parts.

What Is A Gold Audit?

From Wikipedia:

Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment, which is communicated through his audit report.

Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits.

To be sure, I’ve asked several bullion dealers about how their audits are being conducted. They all agreed an audit involves three parties: the owner of the gold, the custodian and an external (independent) auditor. The external auditor examines the gold, compares its findings with the statements of the custodian and then reports on the accuracy of the statements of the custodian to the owner of the gold. An example of an audit report by such an external auditor can be found here.

The fact that the auditor is an external party is essential; if the custodian itself would perform the audit it could easily falsify the reports and lend gold that isn’t often transferred in and out of the vaults.

What Is A Gold Assay?

Assaying gold is done to test the purity of the metal; to make sure a bar contains at least the amount of fine gold disclosed on its inscription. For assay tests often samples are taken from random bars (not from all bars of a specific inventory). From Wikipedia:

A metallurgical assay is a compositional analysis of an ore, metal, or alloy. Raw precious metals (bullion) are assayed by an assay office. Silver is assayed by titration, gold by cupellation and platinum by inductively coupled plasma optical emission spectrometry.

Ron Paul

Allegedly the deep storage gold at the US Mint is currently stored in 42 vault compartments at three different locations in the US. 4,583 tonnes is stored at Fort Knox, Kentucky, 1,364 tonnes in Denver, Colorado, and 1,682 tonnes at West Point, New York.

The last time the US official gold reserve audits were publicly discussed was in 2011 when Ron Paul, who was a well informed member of the US House of Representatives, proposed new legislation at the time to have a full audit of the US holdings: The Gold Reserve Transparency Act (H.R. 1495, not enacted). Strangely Dr Paul wasn’t up to date of the audit and assay procedures performed since 1974, while he was in politics because of gold since 1971. From Wikipedia:

When President Richard Nixon “closed the gold window” … on August 15, 1971, Paul decided to enter politics and became a Republican candidate for the United States Congress.

Only during the preparation of the congressional hearing Dr Paul became aware of the audit and assay procedures. From Paul’s opening statement at the hearing June 23, 2011:

For far too long, the United States Government has been less than transparent in releasing information relating to its gold holdings. Not surprisingly, this secrecy has given rise to a number of theories about the gold at Fort Knox and other depositories.

Some people speculate that the gold has been involved in gold swaps with foreign governments or bullion banks. Others believe that the gold has been secretly shipped out of Fort Knox and sold. And, still others believe that the bars at Fort Knox are actually gold-plated tungsten. Historically, the Treasury and the Mint have dismissed these theories rather than addressing these concerns with substantive rebuttals.

The difference between custody and ownership, questions about the responsibility for U.S. gold held at the New York Fed, and that issue of which division at Treasury is ultimately responsible for the gold reserves are just some of the questions that have come up during the research for this hearing. In a way, it seems as though someone decided to lock up the gold, put the key in a desk somewhere, and walk off without telling anyone anything. Only during the preparation for this hearing was my office informed that the Mint has in fact conducted assays of statistically representative samples of gold bars, and we were provided with a sample assay report.  

While the various agencies concerned have been very accommodating to my staff in attempting to shed some light on this issue, it should not require the introduction of legislation or a congressional hearing to gain access to this information.

Why did Paul not know about this? Why did it take a congressional hearing to get the details of the audit and assay tests? Why wasn’t this information easily accessible to him and the American people?

Gold Audits At Fort Knox

The construction of the notorious gold depository was finished in 1936 at the Fort Knox army base in Kentucky; large quantities of gold were first deposited in 1937. After President Roosevelt had ordered the people of the United States to sell all their gold coins and bullion for $20.67 per fine ounce to the Federal Reserve in 1933, through Executive Order 6102 (the great gold confiscation), a fortress was needed to store the bars that were coming out of the smelters of the seized gold. The bars that were melted from gold coins are approximately 90 % pure, the majority of the bars, allegedly, in Fort Knox are coin bars. Though, research has pointed out the huge growth in US official gold reserves after 1933 has primarily been sourced from imports, not by domestic coins.

US Official Gold Reserves

The Gold Reserve Act of 1934 required the Federal Reserve to transfer ownership of the official gold reserves to the Department of the Treasury, in return it received gold certificates (that are mere redeemable for dollars). The US Mint was assigned to safeguard the Treasury Department’s gold, silver and other assets at several depositories across the US, among others at Fort Knox and Denver.

Trains from New York and Philadelphia arrive in Kentucky to unload the gold, 1937 2

Trains from New York and Philadelphia arrive in Kentucky to unload the gold, 1937
Trains from New York and Philadelphia arrive in Kentucky to unload the gold. It took 552 train wagons to complete the transport.
Trucks arrive at the back door loading docks of the Fort Knox gold depository
Trucks arrive at the back door loading docks of the Fort Knox gold depository.
Local farmers were hired to unload the gold at Fort Knox, 1937
Local farmers were hired to unload the gold.
News paper article announcing when gold would arrive at Fort Knox 1937
Newspapers announced when gold shipments would arrive at Fort Knox in 1937.

1953

To research the integrity of the audits performed at Fort Knox (and the other depositories) in all of history, we’ll start from the beginning and work our way to the present. The first audit I could find dates from 1953, when total US reserves accounted for roughly 20,000 tonnes. Many researchers that have worked on this subject in the past refer to the first and last full audit of 1953. However, the audit in 1953 was anything but full.

During my research I came across many articles of researchers that have investigated Fort Knox audits – Ed Durell, James Turk and Tom Szabo, to name a few. Often these articles contained dead web links to documents on US government websites. Everything that was still accessible during my research I copied to my own servers to secure access to them at all times.

The next quotes are from the official report of the gold audit in 1953 (download here).

Fiscal Year Ended June 30, 1953

REPORT ON FISCAL OPERATIONS

VERIFICATION OF GOLD AND SILVER BULLION AND OTHER TREASURY ASSETS

…The audit was performed in accordance with procedures which were recommended by an advisory committee of consultants appointed jointly by the present Secretary and his predecessor in office. Members of the advisory committee were W. L. Hemingway, Chairman of the Executive Committee of the Mercantile Trust Company, St. Louis, chairman; Wm. Fulton Kurtz, Chairman of the Board, The Pennsylvania Company, Philadelphia; Sidney B. Congdon, President, National City Bank of Cleveland, Cleveland; and James L. Robertson, Member, Board of Governors, Federal Reserve System, Washington. As had been suggested by the advisory committee, the audit was conducted under the general supervision of a continuing committee representing both incoming and outgoing Treasury officials. Representatives of the Comptroller General of the United States observed the audits at each of the various audit sites.

In accordance with a recommendation of the advisory committee the special settlement committee at the Fort Knox depositary opened three gold compartments, or 13.6 per cent of the total of twenty-two sealed compartments at that institution containing 356,669,010.306 fine ounces [11,094 metric tonnes] of gold valued at $12,483,415,360.28. All of the gold contained in the three sealed compartments opened, amounting to 34,399,629.685 fine ounces [1,070 tonnes] valued at $1,203,987,038.94 or approximately 88,000 bars, was counted by members of the settlement committee and found in exact agreement with the recorded contents of the compartments. Slightly in excess of 10 per cent of the total gold values so counted, or some 9,000 bars weighing approximately 130 tons, was further verified through weighing upon special balance scales indicating exact weights to the 1/100 part of a troy ounce. All gold weighed was found in exact agreement with the recorded weight thereof. Further, test assays were made of 26 gold bars selected at random from the total gold counted. The reported results of the test assays indicated, that all gold tested was found to be of a fineness equal to or in excess of that appearing in the mint records and stamped on the particular gold bars involved. Gold samples used for test assay purposes were obtained through drilling from both the top and bottom of each representative gold bar. In final confirmation of the verification of the gold bullion asset values held in the Fort Knox depositary the special settlement committee reported in part as follows:

“0n the basis of assays, your committee can positively report that the gold represented, according to assay, is at the depositary. We have no reason, whatsoever, to believe other than, should all melts be assayed, the results would be the same.”

“We, the undersigned, found the assets verified, to be in full agreement with the assets as indicated by the joint seals affixed to the respective compartments on January 26, 1953.”

“It is the opinion of this committee that the same agreement would be found should all of the compartments be verified.”

In short; an advisory committee of “consultants” assembled special settlement committees that, under the supervision of Treasury officials and Representatives of the Comptroller General, audited 3 of in total 22 compartments filled with gold (it’s likely Fort Knox has many more compartments in total). 13.6 % – 1,070 tonnes – of all the gold bars held at Fort Knox was counted, of which 9,000 bars were weighed upon special balance scales and 26 bars were assayed. The document notes procedures at other depositories closely paralleled those employed at Fort Knox, though no numbers are disclosed.

In 1953 the US Treasury held approximately 1,300,000 gold bars at multiple depositories of which 88,000 were counted, 9,000 were carefully weighed and 26 bars (0.00002 %) were assayed; no external auditing firm was present. This was not a full audit.

1974

The other full audit that keeps buzzin around in the media was the one in 1974, because the media was actually allowed to enter the fortress back then. On September 23, 1974, roughly 100 journalists were allowed entrance, accompanied by 9 members of Congress.

Media allowed in Fort Knox 1974

When the total US official gold reserves had declined by 11,500 tonnes from 1953 to 1974, many Americans began to doubt if the US actually had any gold left at all, especially after Nixon had temporarily suspended the convertibility of dollars for gold at the US Treasury in 1971. The amount of gold at Fort Knox had dropped from 11,094 tonnes (stored in 22 compartments) to 4,585 tonnes (stored in 13 compartments). In an attempt to reassure the American people not all gold was gone a new audit was scheduled.

From several sources we know for the visual inspection by the press and congressmen only one compartment was opened, in which 368.2 tonnes was stored. I edited a small video clip from a History Channel documentary for us to take a look inside Fort Knox.

[youtube https://www.youtube.com/watch?v=JRZc7YEV8rU]

Whether one or multiple compartments were opened is actually irrelevant, unqualified people looking at a wall of yellow bricks and weighing a few bars will not pass as an audit.

The director of the Mint in 1974, Mary Brooks, did a remarkable confession when the press asked if there is a tunnel to the vault. She showed a narrow tunnel, the size of a sewer pipe, which could only be opened from inside the vault in case someone was trapped – no pictures were allowed to be taken from the tunnel. The escape could only be made outside the vault, not the building itself, she said. There are thus three connections to the vault, the front door, the back door and the tunnel.

The real audit started the day after, on September 24, 1974. This audit was performed by “a committee including auditors from GAO and from Treasury’s Office of the Secretary, Bureau of Government Financial Operations (BGFO), U.S. Customs Service, and Bureau of the Mint. The committee also included Bureau of the Mint technicians trained in assaying and weighing gold bullion”. No external auditor was hired; the US Mint, a department of the US government, can audit the gold in cooperation with thousands of other government departments, only an external auditing party can ensure the integrity of an audit.

Again three random compartments were opened (theoretically one or two could have been the same compartments that were opened as in 1953 as no compartment numbers have been disclosed in the audit reports). From the official audit report published in 1975 (download here):  

Mint regulations require that a special settlement committee be established to inventory and maintain physical control over the gold as it is being inventoried, weighed, and sampled. We selected the compartments to be audited, and we did not disclose this information until the inventory began. The committee opened 3 compartments and counted and inspected 91,604 bars representing about 31.1 million fine troy ounces [967 tonnes] of gold valued at about $1.3 billion, or approximately 21 per cent of the gold stored at the depository. From a random sample of all melts in the 3 compartments, the committee weighed 95 melts to the 100th part of a troy ounce. The committee also compared the weights and physical characteristics of all gold … inventoried to inventory records.

To verify the gold’s fineness, a bar from each melt weighed was assayed. Gold samples were obtained by taking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar. We assigned control numbers to the sample chips, because the assayer could possibly determine, without assay, the gold’s fineness if he knew the value or melt number from which the chips came. The New York assay office assayed the gold and gave us the results for comparison with inventory records. We observed the assaying of the first samples. The results of the assays indicated that the recorded finenesses were within the tolerances the Mint established.

No assay report was included.

Screen Shot 2015-02-05 at 11.09.19 PM
Note the irony in the “bottom line”: Keep Freedom in Your Future With U.S. Savings Bonds

In 1975 a Committee was appointed for the Treasury’s continuing audits of U.S.-owned gold stored at the Mint. The operation was designed to audit 10 % of the Treasury’s gold per annum. Inspector General (IG) Eric Thorson stated in 2011 during the hearing by Ron Paul:

In June 1975, the Treasury Secretary authorized and directed a continuing audit of U.S. Government-owned gold for which Treasury is accountable. Pursuant to that order, the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986, placing all inventoried gold that it observed and tested under an official joint seal.

The committee was made up of staff from Treasury, the Mint, and the Federal Reserve Bank of New York. The annual audits by the committee ended in 1986 after 97 per cent of the Government owned gold held by the Mint had been audited and placed under official joint seal.

These continuing audits would be the first to examine such a large share of the US official gold reserves, 97 % of all the gold held by the Mint equals to 7,485 tonnes, or 92 % of total US official gold reserves. At the same time, this is where the confusion starts. Let’s find out all there is to know about the continuing audits conducted from 1975 to 1986, as this should be what we’re after, the audit of nearly all US official gold reserves.

From the full report that came out of the congressional hearing in 2011, the US Treasury’s best defense I assume, these are the audit reports in existence since the early seventies:

Fort Knox US mint audit list published 2011 1

Fort Knox US mint audit list published 2011 2

We are not interested in the audits of financial statements of the Mint, but in audits of the physical inventory gold.

At first sight we can see that not from all years the continuing audits were supposedly performed (1975 to 1986) reports are listed. Only the following audit are disclosed:

  1. 1974 (released by the GAO 2/10/1975)
  2. 1977 (released by the GAO 5/5/1978)
  3. 1980 (released by the GAO 10/1981)
  4. 1985 (released by the OIG 4/25/1986)
  5. 1986 (released by the OIG 4/24/1987)

The continuing audits report of 1981 notes audits have been performed in 1975, 1976, 1978 and 1979, but no reference is made to audit reports. Only the amount of gold audited in each of those years is mentioned.

The list from 2011 is entitled “List of audits of US gold holdings” suggesting these are the only audits performed. If more audits were conducted they surely would have been disclosed on the 2011 list, right? Also the ones from 1981, 1982, 1983 and 1984. Or were audits conducted, but no reports drafted? More on this later, for now, we’ll focus on the content of the audit reports from the 2011 list:

The first audit report (1974) on the list we’ve discussed above, let’s have a look at the second from 5/5/1978 that covers the audit performed in 1977 (download here).

1977

Reading the report unveils a few problems:

  • No external auditor was present.
  • 11.7 % , or 536 tonnes, of the gold at Fort Knox was audited, but it’s not mentioned how many bars were counted, weighed and assayed.
  • The assay tests found irregularities. From the report:

Two sample melts showed the gold was below the fineness (5 parts per 10,000) permitted by the Bureau. Because of this problem, the vault had to be opened twice more in the presence of the Joint Sealing Committee and the gold reevaluated. This involved considerable time and expense, but was necessary because the fineness of gold must be precisely determined.

On July 29, 1977, bore samples, rather than chips, were taken from the questionable melts and sent to two assay offices for independent evaluations. Half of the samples reassayed were still unacceptable. The Bureau decided that the two melts from which the samples were taken had to be remelted and reassayed. This was done on November 16 and 17, 1977. This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records, which was considered insignificant. Previous discrepancies in fineness were attributed to improper melting and casting of the melts in 1920 and 1921. Bureau officials said the remelting process confirmed the validity and integrity of their audit procedures and assays.

  • We can ascertain the assay tests at Fort Knox in 1953 were done by drilling holes through the bars; in 1974 and 1977 the assay tests were changed totaking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar”. When this method ‘failed’ in 1977, the committee decided to drill holes, but why was the method of initial assaying changed from drilling holes through the bars, into taking chips from the top and bottom of the bars? When in 1977 the bore samples failed to proof the purity on the inventory list, both melts in question were remelted. But, who processed the remelting? How do we know the metal wasn’t refined/supplemented into higher purity gold? The report states that after the remelting, “This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records”. To me it’s not clear what this means. Some kind of adjustment was made and the auditors decided to move on? Didn’t this ring any alarm bells, if irregularities were found in two melts why wasn’t more gold assayed?
  • Apart from the negative assay test, the 1977 audit report is not reliable because it doesn’t disclose any information about how many bars were counted, weighed or assayed.

In the next part we’ll continue from the 1981 audit.