GAO: Treasury must keep bailout transparent

The Treasury Department hasn't established internal controls to assure the accountability and integrity of the $700 billion Troubled Assets Relief Program (TARP) or set reporting measures to determine that the program is meeting its goals, the Government Accountability Office has said.

Treasury also needs an effective management structure and transition plans for the incoming administration, GAO said in its first oversight report Dec. 2 about the rescue package to keep large financial institutions from failing. Under the Emergency Economic Stabilization Act, GAO is to report to Congress every 60 days on TARP's progress and other issues to provide oversight.

Treasury faces challenges in setting up the Office of Financial Stability to operate TARP, including hiring people with needed skills at the same time as the program is evolving and a new administration will soon take office, GAO said. Treasury has used contractors and a financial agent to play key roles in supporting the program, but it is still developing an oversight process for conflicts of interest involving its contractors and financial agents, said Gene Dodaro, acting comptroller general.

"These and other gaps in internal controls have resulted from the need to begin program activities before policies and procedures have been fully developed and implemented," he said. Treasury must "develop a comprehensive system of internal controls at the same time that it must react quickly to financial market events," he added.

Recent changes in the direction of the program and uncertainties about further changes under a new administration make it difficult for Treasury to implement TARP effectively, Dodaro said.

The program has provided so far $150 billion in cash infusions to 52 financial institutions, the report added.

Treasury has hired PricewaterhouseCoopers to help design and implement internal controls and safeguards for TARP. These include standard internal controls established elsewhere in the federal government, such as risk assessment, creating a culture of accountability, communication and tracking the effectiveness of controls, the report said.

Among its recommendations, GAO said Treasury should:

• Work with bank regulators to identify a system to monitor and report that financial institutions use capital infusions for intended goals and comply with federal requirements.
  
• Fill key leadership positions during and after the transition of administrations.
  
• Move fast to issue final regulations on conflicts of interest and start a system to manage and monitor the reduction of conflicts of interest.
  
• Monitor aggregate information across the participating financial institutions to assure transparency and accountability.