Fort Knox – My Next Step

February 28, 2000 – I have received a lot of questions asking what I intend to do next to pursue the status of the Gold Reserves supposedly stored in Fort Knox. For now, I am sticking to my original strategy, which has two elements to it.

First, I am still in what I believe to be the fact finding stage, and I intend to go about finding the important facts diligently, even if my progress is slower than I would like. Obviously I would like to send an independent audit team to Fort Knox right now, but that course of action is not practical. Therefore, I continue to gather the facts in order to build up enough evidence to make a judgement. And I’ve not reached that point yet.

Second, despite the apparent run-around I have received from the Department of the Treasury, I continue to give them the benefit of the doubt. In other words, rightly or wrongly, for now I assume that they are properly taking care of the Gold Reserves, including that portion stored in Fort Knox.

In any case, the next step is to find more facts. I have therefore written the following letter to my Congressman, The Honorable John Sununu:

Dear Congressman Sununu:

Thank you for sending to me the February 2nd letter you received from Mr. Jeffrey Rush, Inspector General of the Department of the Treasury. I have reviewed his letter and the accompanying material. Unfortunately, Mr. Rush does not answer the important question that I originally posed to Treasury Secretary Lawrence Summers in my August 30th letter.

Specifically, I asked whether a “proper audit” of the Gold Reserve at Fort Knox has been completed since the Eisenhower administration. In my letter to Mr. Summers, I specifically mentioned the phrase “proper audit” and defined it to mean: “The proper audit of bullion reserves is one undertaken by independent third parties, and includes among other safeguards, a review of security procedures and assays of Gold bars selected at random.” As near as I can tell from Mr. Rush’s letter and the accompanying material, a proper audit of the Gold Reserve at Fort Knox has not been undertaken. Here is what I have learned by studying the material provided by Mr. Rush.

The US Mint is audited annually by an independent accounting firm, Urbach Kahn & Werlin PC (UKW). UKW audits the US Mint’s premises and major vaults in active use. These are referred to as the US Mint’s “manufacturing operations”, which are reported as a distinct component of the US Mint’s consolidated financial statements. However, UKW does not audit the physical metal in Fort Knox, according to the material provided by Mr. Rush.

A memorandum addressed to the Director of the US Mint and written by the Assistant Inspector General for Audit, Mr. Dennis Schindel, refers to the Treasury Department’s report on the US Mint’s Statements of Custodial Gold and Silver Reserves, and he states that: “The results of our [i.e., the Treasury Department] audits will be relied upon by Urbach Kahn & Werlin, PC, an independent public accountant, who performed the audits of the Mint’s Fiscal Year 1998 and 1997 financial statements.” Of related importance is a footnote to the Treasury Department’s report referred to by Mr. Schindel, entitled Statements of Custodial Gold and Silver Reserves as of September 30, 1998 and 1997: “These custodial statements have been prepared to report the gold and silver reserves custodial position of the U.S. Mint. The books and records of the U.S. Mint have served as the source of the information contained herein.” (emphasis added)

In other words, the US Mint is audited annually by UKW, and they express an unqualified opinion on the financial statements of the US Mint, including its custodial responsibilities. But UKW is relying in part upon the audit of the Inspector General of the Department of Treasury in order to give its unqualified opinion. The Inspector General performs an audit of the custodial responsibilities of the US Mint, and gives an unqualified opinion. But the Inspector General’s ‘audit’ is based upon the “books and records” of the US Mint, which is conducted without visiting Fort Knox to count and randomly assay any Gold bars.

In my August 30th letter to Secretary Summers I stated that in the absence of a proper audit the Gold Reserve at Fort Knox may be at risk. I remained concerned about this risk because a proper audit does not appear to have been completed.

Mr. Rush offered in his letter to answer any questions regarding the Department of Treasury, Office of Inspector General’s report on the US Mint’s Statements of Custodial Gold and Silver Reserves as of September 30, 1998 and 1997. Therefore, this is to request that you ask him the following questions:

1. When was the last time that auditors from the Department of Treasury completed an on-site count of all the Gold bars stored in Fort Knox to confirm that the number of bars in storage equaled exactly the number of bars reported in the US Mint’s books and records?

2. When was the last time that auditors from the Department of Treasury supervised an assay of bars stored in Fort Knox selected at random in order to test whether these bars contained the weight of fine Gold recorded in the US Mint’s books and records?

3. When was the last time that an independent third party accounting firm audited the Gold Reserve in Fort Knox by physically counting of all the bars in the vault to confirm that the number of bars in storage equaled exactly the number of bars reported in the US Mint’s books and records?

4. When was the last time that an independent third party accounting firm supervised an assay of bars stored in Fort Knox selected at random in order to test whether these bars contained the weight of fine Gold recorded in the US Mint’s books and records?

I sincerely appreciate the assistance provided by you and your staff on this matter.

Yours truly, James Turk

I will let you know as soon as I receive any response from Mr. Sununu.