Rep. Ron Paul‘s proposal to fully audit the Federal Reserve system by the end of 2010 appears likely to find its way into legislation in some form. Mr. Paul and House Financial Services Committee Chairman Barney Frank plan to meet with other lawmakers in the coming weeks to determine how the Government Accountability Office would conduct the audit and what information would be released.

What does the GAO audit now?

The GAO’s oversight of the Fed system is limited to areas outside of monetary policy. That includes everything from bank supervision to consumer issues to payment systems. The Fed’s annual report covering the calendar year 2008 listed seven completed GAO reports and eight projects underway. Fed Vice Chairman Donald Kohn testified this summer that the GAO, as of June 29, had 19 projects underway involving the Fed, including 14 launched at the request of Congress.

What is excluded from GAO oversight?

The GAO can’t review most of the Fed’s monetary policy actions or decisions, including discount window lending (direct loans to financial institutions), open-market operations and any other transactions made under the direction of the Federal Open Market Committee. It also can’t look into the Fed’s transactions with foreign governments, foreign central banks and other international financing organizations. (The GAO in 1993 produced this report on its limitations. The Federal Banking Agency Audit Act of 1978 put other parts of the central bank’s operations under GAO purview, as they had been for a decade until 1933.)

Who else audits the Fed?

The Federal Reserve Board’s Office of Inspector General retains an outside auditor — a private accounting firm — to review the Board’s financial statements and compliance with laws affecting those statements. Deloitte & Touche LLP served as the outside auditor of the Fed Board in 2007 and 2008. The Board selects outside auditors to audit the 12 regional reserve banks.

What would Ron Paul’s bill do?

H.R.1207, called the Federal Reserve Transparency Act of 2009, simply directs the Comptroller General (who heads the GAO) to complete an audit of the Federal Reserve system — the Board and reserve banks — before the end of 2010 and report his findings to Congress.

Mr. Paul, in an interview, said he expects the audit to detail who the Fed lends to, how much it lends and what agreements it has made with foreign central banks and financing organizations. While the bill only seeks a one-time audit, he said he wants the Fed to be audited at least annually with the report — and details of its transactions — disclosed publicly.

Where does the bill stand?

The bill has attracted 282 House lawmakers as co-sponsors, or almost two-thirds of the chamber. It’s expected to receive a vote in some form by October. Mr. Paul said in the interview that Mr. Frank, the Financial Services Committee chairman, is leaning toward incorporating the provision into broader legislation overhauling financial regulation. But, Mr. Paul added, “when you have that many cosponsors, there might be an opportunity to actually bring it straight to the floor.”

A companion measure in the Senate, S.604, is called the Federal Reserve Sunshine Act of 2009 and includes language nearly identical to the House version. The bill, written by Sen. Bernard Sanders of Vermont, has 23 co-sponsors.