Report Faults Financial Oversight
Friday, January 23, 2009
The U.S. financial regulatory system is seriously outdated and needs urgent reform to avoid a further worsening of the economic crisis, concludes a report released yesterday by the Government Accountability Office.
The report to Congress renewed concerns about the Treasury Department's handling of emergency economic stabilization measures, including its ability to achieve compliance with limitations imposed by the Troubled Asset Relief Program on executive compensation and dividend payments.
The biennial report, which lists "high-risk areas" in the federal government, was released at a news conference on Capitol Hill, months after the economy tumbled into the worst financial crisis in 75 years. "We can't just respond to what happened and plug a few holes," said Sen. Joseph I. Lieberman (I-Conn.), chairman of the Senate Homeland Security and Governmental Affairs Committee. "We have to realign the entire system."
"The system is outdated, fragmented and ill suited to meet our needs in the 21st century," Gene Dodaro, acting GAO comptroller, told the news conference.
Asked why the financial regulatory structure had not made the high-risk list before, Dodaro noted that the GAO had identified the need to modernize the system as early as 1994 but that "the significance and scope and magnitude of the problem wasn't as clear as it has become."
The list identifies 30 areas among federal programs or operations that are at high risk for waste, fraud or abuse, or in need of broad transformation. Many of them involve defense contracting, and many have been on the list for years -- six since its inception in 1990, including Medicare and the Pentagon's weapons-systems acquisition program.
Appearing with a bipartisan group of lawmakers involved in government oversight, Lieberman said the inauguration of President Obama provides "not only an urgency, but an extraordinary opportunity to do something across party lines" about long-standing problems.
Reps. Edolphus Towns (D-N.Y.) and Darrell Issa (R-Calif.), the chairman and ranking Republican, respectively, of the House Committee on Oversight and Government Reform, sent a letter yesterday to Defense Secretary Robert M. Gates requesting that he explain why the Pentagon has not made more headway in reforming contracting.
Among the new issues on its high-risk list, the GAO questioned the ability of the Food and Drug Administration to "protect Americans from unsafe and ineffective" drugs and medical devices.
The report said the FDA is unable to properly manage inspections of foreign products because of faulty databases and because it lacks a dedicated staff for such inspections. "This clearly needs to change since more and more of our drugs and devices are coming from foreign sources," Dodaro said.
Another concern in the report is the Environmental Protection Agency's ability to assess and control toxic chemicals. "EPA does not have sufficient chemical assessment information to determine whether it should establish controls to limit public exposure to many chemicals that may pose substantial health risks," the report says.
Only one federal program had improved enough to be dropped from the high-risk list. The GAO determined that the Federal Aviation Administration has made enough progress in its efforts to modernize air traffic control to warrant removal.