Bailout Oversight Lacking, GAO Report Says
Wednesday, December 3, 2008
The Bush administration has failed to adequately oversee its $700 billion bailout program and must move rapidly to guarantee that banks are complying with the plan's limits on conflicts of interest and lavish executive compensation, congressional investigators said yesterday.
The new report by the Government Accountability Office, the nonpartisan investigative arm of Congress, said the Treasury Department has yet to impose necessary safeguards or decide how to determine whether the program is achieving its goals. The auditors said it was too soon for them to tell whether the bailout was working.
"The rapid pace of implementation and evolving nature of the program have hampered efforts to put a comprehensive system of internal control in place," the report said. "Until such a system is fully developed and implemented, there is heightened risk that the interests of the government and taxpayers may not be adequately protected and that the program objectives may not be achieved in an efficient and effective manner."
The 66-page audit, which is the first in a series of congressionally mandated reports on the bailout, comes as concern grows on Capitol Hill that the government's gigantic rescue program is being implemented without sufficient oversight. President Bush's nominee for special inspector general over the bailout has yet to begin his work because his confirmation is tied up in the Senate. Another oversight panel created by Congress met for the first time last week.
In a response to the report, the Treasury agreed that it needed to do more to develop internal controls over the plan but emphasized that less than 60 days have passed since the legislation authorizing the bailout took effect.
"We believe that Treasury has made significant efforts to ensure transparency and good communication," Neel Kashkari, the head of the department's bailout program, said in a letter, "but more can and will be done in these areas."
The accountability office also acknowledged the challenging circumstances under which the Treasury has been working, which have made it difficult to fully staff the office in charge of implementing the bailout. The report noted that only about 50 people are working in an office that may need 200.
Hiring the rest of the employees needed to implement the program has been complicated by the constantly changing focus of the bailout and the transition to the Obama administration, the report said.
So far, the rescue package has provided at least $150 billion in capital infusions to 52 financial institutions, the auditors said. They added that no applications for funding were denied by the Treasury, though some firms withdrew requests after regulators made clear they would not be approved.
The congressional auditors urged Treasury officials to determine how each bank receiving bailout money is using the money and whether they are using it in a way consistent with the intent of the law. Several congressional leaders have criticized financial firms for hoarding the money instead of using it to lend to borrowers.
But the Federal Reserve expressed concern about monitoring an individual firm's use of the bailout funds, saying that the success of the rescue package should instead be reflected by its impact on the overall economy, according to the report.
Kashkari also said in his letter that the department had a "different perspective" on how to evaluate the way firms use the money but did not elaborate. Michele A. Davis, the department's chief spokeswoman, did not respond to a request for comment.
The report also called for the Treasury to issue more regulations that would ensure compliance with rules on executive compensation and conflicts of interest among firms helping to carry out the bailout. It said the department currently relies on the firms to disclose any conflicts. "Treasury officials stated that while under current procedures, they might not know if an agent or contractor did not disclose a conflict," the audit said.
Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, expressed outrage over the continued lack of oversight of the bailout program. He said the new accountability office report highlighted the need for the Senate to approve Neil M. Barofsky, a federal prosecutor, as special inspector general over the program. His confirmation has been blocked by at least one Republican senator, who anonymously used a legislative procedure to delay the process, lawmakers said.
"The GAO's discouraging report makes clear that the Treasury Department's implementation of the TARP is insufficiently transparent and is not accountable to American taxpayers," House Speaker Nancy Pelosi (D-Calif.) said, referring to the acronym for the bailout program, officially known as the Troubled Asset Relief Program.