Is this verified by audit or should we just trust them to do what’s right?
They are subject to Congressional oversight. They work in tandem with the Treasury Department. There is a Board of Governors. Their income statements are publicly released. There is a dedicated group of financial journalists who specialize in analyzing the Fed’s operations. It would be pretty hard for them to keep their larger actions secret.
Here’s an example of a preliminary annual income report that includes the amount returned to the Treasury:
http://www.federalreserve.gov/newsevents/press/other/20090109a.htm
“For immediate release
The Federal Reserve Board on Friday announced preliminary results that indicate the Reserve Banks recorded payments and provisions for the transfer of approximately $34.9 billion of their estimated 2008 net income of $38.8 billion to the U.S. Treasury, which is comparable to the 2007 results. Under the Board’s policy, the Reserve Banks transferred their remaining estimated 2008 net income to the U.S. Treasury after providing for $1.2 billion in statutory dividends to member banks and $2.7 billion to equate surplus to paid-in capital. The final 2008 results, which will include any valuation adjustments, will be reflected in the Reserve Banks’ annual financial reports and in the Board of Governors’ Annual Report.
The Federal Reserve Banks’ income is derived primarily from interest earned on U.S. government and Federal agency securities that the Banks have acquired through open market operations and on loans extended to depository institutions, primary dealers, and others. The income earned from U.S. government and Federal agency securities amounted to $27.5 billion and the income earned from loans amounted to $7.2 billion in 2008. Additionally, income from reciprocal currency arrangements and investments denominated in foreign currencies totaled $4.2 billion, and income from fees for the provision of priced services to depository institutions totaled $0.8 billion. The remaining income of $0.8 billion is primarily income from securities lending.
Net operating expenses of the twelve Reserve Banks totaled $2.6 billion in 2008. In addition, the interest paid to depository institutions on reserve balances and the cost of earnings credits granted to depository institutions were $0.9 billion. The Reserve Banks were assessed for Board expenditures, including the cost of new currency, totaling $0.9 billion.
Net additions to income were $4.3 billion, with $3.8 billion representing realized gains on sales of U.S. government securities. The remaining income reflects unrealized gains on investments denominated in foreign currencies of $1.3 billion that are revalued to reflect current market exchange rates, which is offset, in part, by interest expense on securities sold under agreements to repurchase of $0.7 billion.