Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency

GAO-09-161 Published: Dec 02, 2008. Publicly Released: Dec 02, 2008.

Highlights

On October 3, 2008, the Emergency Economic Stabilization Act was signed into law. The act established the Office of Financial Stability (OFS) within the Department of the Treasury (Treasury) and authorized the Troubled Asset Relief Program (TARP). Every 60 days, the U.S. Comptroller General is required to report on a variety of areas associated with oversight of TARP. This report reviews (1) the activities that have been undertaken through TARP as of November 25, 2008; (2) the structure of OFS, its use of contractors, and its system of internal controls; and (3) preliminary indicators of TARP's performance. GAO reviewed documents related to TARP, including contracts, agreements, guidance, and rules. GAO also met with OFS, contractors, federal agencies, and officials from some participating institutions. GAO plans to continue to monitor these and other issues including future and ongoing capital purchases, other transactions undertaken as part of TARP (e.g., capital purchases in Citigroup and American International Group), and the status of other aspects of TARP.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should work with the bank regulators to establish a systematic means of monitoring and reporting on whether financial institutions' activities are consistent with the purposes of CPP and help ensure an appropriate level of accountability and transparency.	Closed – Implemented Treasury publishes a monthly bank lending survey of the 22 largest CPP institutions to monitor their lending and intermediation activities including their small business lending. In conjunction with federal bank regulators, Treasury publishes on a quarterly basis an evaluation of changes in regulatory financial data for all CPP reporting institutions and non-CPP institutions that focuses on three broad categories: on- and off-balance sheet items, performance ratios and asset quality measures. All federal bank regulators, except the Federal Reserve, have developed examination polices and procedures to monitor CPP participants for compliance with CPP agreements and TARP requirements.
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should develop a means to ensure that institutions participating in CPP comply with key requirements of program agreements, including those covering limitations on executive compensation, dividend payments, and the repurchase of stock.	Closed – Implemented Treasury hired nine asset management firms to provide market advice about investments in financial institutions and corporations participating in TARP programs, and help monitor compliance with limitations on compensation, dividend payments, and stock repurchases. Treasury finalized its oversight policies for asset managers in April 2010 and developed qualitative and quantitative performance metrics based on the managers? core functions and responsibilities in July 2010. Treasury has created policies for ensuring that CPP institutions comply with restrictions on executive compensation and excessive or luxury expenditures. The interim final executive compensation rule established the... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should formalize the existing communication strategy to ensure that external stakeholders, including Congress and the public, are informed about the program's current strategy and activities as well as the rationale for changes in this strategy to avoid information gaps and shocks.	Closed – Implemented Treasury has taken several steps to improve its communication strategy for TARP, , including launching its FinancialStability.gov Web site in March 2009 and forming a working group to help ensure that Treasury's communications strategy addresses both internal and external communications and is hiring appropriate staff to support the strategy. Treasury officials told us that key components of the strategy include (1) coordinating communication among OFS and Treasury's Office of Public Affairs and Office of Legislative Affairs to ensure that congressional and other external stakeholders receive timely information, (2) continuously improving the financial stability Web site, and (3)... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should develop a definitive transition plan by building on and formalizing ongoing activities to facilitate a smooth transition to the new administration, including ensuring that key OFS leadership positions are filled during and after the transition to the new administration.	Closed – Implemented GAO made this recommendation in the first 60-day report on the Troubled Asset Relief Program (TARP) because the program was new and its administration would transfer to the new administration in January 2009. Therefore, it was critical that Treasury ensure key processes and people were in place to facilitate the continued operation of the TARP program activities to the next administration. In GAO's January 2009 60-day mandated report on the TARP, GAO reported that Treasury took proactive steps to help ensure a smooth transition to the new administration by keeping positions filled and using an expedited hiring process, including direct hire authority. GAO determined that Treasury made... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should continue OFS hiring efforts in an expeditious manner to ensure that Treasury has the personnel needed to carry out and oversee TARP.	Closed – Implemented Since we issued our first TARP report in December 2008, Treasury has continuously improved upon its efforts to expedite hiring for its Office of Financial Stability (OFS) as we recommended. Specifically, as of August 3, 2009, Treasury reported that it had brought on board 194 full-time employees, including 19 detailees. This is a significant change from what we reported in our previous reports. Specifically, in December 2009, we reported that Treasury had 5 permanent staff and 137 detailees. Accordingly, Treasury has also become less reliant on OFS detailees over time as the TARP strategy has solidified. Treasury officials reported use of various hiring strategies to bring on board staff... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should ensure that sufficient personnel are assigned and appropriately trained to oversee the performance of all contractors, especially those performing under contracts priced on a time and materials basis, and move toward greater reliance on fixed-price arrangements, whenever possible, as program requirements are better defined over time.	Closed – Implemented We made this recommendation in our first 60-day report on the Troubled Asset Relief Program (TARP) due to the importance of proper oversight of contractors, particularly those providing services on a time and materials basis. We reported in March 2009 that OFS had made progress in strengthening oversight of contractors and financial agents by ensuring sufficient personnel were assigned to oversight activities and that these personnel were appropriately trained. Treasury hired an executive-level contract administration manager for OFS, added staff to support TARP in the Procurement Services Division, and replaced all untrained executive-level Contracting Officers' Technical... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should continue to develop a comprehensive system of internal control over TARP, including policies, procedures, and guidance for program activities that are robust enough to ensure that program's objectives and requirements are being met.	Closed – Implemented In response to our recommendation, OFS adopted a framework for organizing the development and implementation of a comprehensive system of internal control for TARP activities. OFS developed an organizational structure that defines lines of authority and implemented policies and procedures to help ensure that program objectives are met. Furthermore, OFS addressed the five areas of internal control as specified in our Standards for Internal Control in the Federal Government: control environment, risk assessment, control activities, information and communications, and monitoring. In subsequent work, we have continued to monitor internal controls and identify areas where certain controls for... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should issue final regulations on conflicts of interest involving Treasury's agents, contractors, and their employees and related entities as expeditiously as possible, and review and renegotiate mitigation plans, as necessary, to enhance specificity and compliance with the new regulations once they are issued.	Closed – Implemented Consistent with GAO's recommendation and as expeditiously as possible, on January 21, 2009 Treasury issued an interim regulation on TARP conflicts of interest which was effective immediately and applicable to retained entities defined to include contractors, financial agents, and subcontractors. [TARP Conflicts of Interest, 74 Fed. Reg. 3431-3436 (Jan. 21, 2009) (codified at 31 C.F.R. Part 31)]. Also consistent with GAO's recommendation, Treasury issued this regulation as an interim rule based on a determination that urgent and compelling circumstances and good cause existed that justified the promulgation of the interim rule without public comment. Treasury found it essential to issue... View More
Department of the Treasury	We recognize that less than 60 days has passed since the program was created and the inherent difficulty of setting up any new program, especially during turbulent economic conditions. However, we have identified a number of areas that warrant Treasury's ongoing attention. Therefore, Treasury should take a number of actions aimed at improving the integrity, accountability, and transparency of TARP. Specifically, Treasury should institute a system to effectively manage and monitor the mitigation of conflicts of interest going forward.	Closed – Implemented We made this recommendation in our first 60-day report on the Troubled Asset Relief Program (TARP) due to the importance of properly managing conflicts of interest issues that may arise with vendors seeking or performing work under TARP. We reported in March 2009 that discussions with OFS program and compliance officials, two TARP contractors, and a financial agent's senior contracts manager indicate that a mutual environment for sustained attention and control had taken root. Specifically, our discussions with OFS and TARP contractor officials indicated that all parties have a range of formal and informal processes in place, under which TARP contractors are expected to detect potential... View More

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