GAO audit finds Federal Reserve bank boards lack transparency

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NEW YORK (CNN) -- The Federal Reserve banks need to better prevent conflicts of interest, according to a new government report that highlights transparency issues with financial executives serving on the banks' boards.

All 12 reserve banks should more "clearly document the roles and responsibilities of the (board) directors," according to a Government Accountability Office (GAO) audit released Wednesday.

The report focuses on scenarios in which executives pose apparent conflicts of interest by serving on boards that regulate financial houses where they also have business relationships.

An example, it notes, occurred when then-chairman of the New York Fed's board of directors Stephen Friedman owned shares in the investment firm Goldman Sachs, but in September 2008 provided it and other banks billions of dollars in federal funding in response to the unfolding financial crisis.

Friedman was granted a waiver by the Federal Reserve Board in January 2009, the report said. But the board was unaware that he had purchased additional shares in Goldman Sachs through an automatic stock purchase program.

The former chairman, who resigned