GAO on TARP: Critical Gaps Need Mending

The first outside assessment into the Treasury’s Troubled Asset Relief Program since its introduction a few months back revealed a far less-than-perfect report card, according to the U.S. Government Accountability Office. In a report released Tuesday, the GAO said additional actions “are “needed to better ensure integrity, accountability, and transparency” relative to TARP spending activity. While the GAO recognized the premature state of the program — it is less than 60 days old, after all — and the challenges a program of such magnitude faces, it said the Treasury has yet to determine a number of critical issues while implementing the $700 billion rescue plan, and actions must be taken to do so. The report, which was required by the legislation authorizing the rescue plan, said officials at the U.S. Treasury (ahem, we’re looking at you, Henry Paulson) have not yet established how it will ensure that the capital purchase program — where over $150 billion in capital has been given to 52 banking institutions thus far — is successful, or how financial firms receiving those billions of dollars comply with limits on executive compensation and dividend payments. Additionally, TARP’s implementation is lacking internal controls and transition planning, as banks receiving capital injections aren’t yet required to report to the Treasury; a requirement that “would enable Treasury to monitor, to some extent, how the infusions were being used,” the GAO said. “As a part of its flagship program to invest directly in financial institutions, the Treasury Department failed to impose conditions on the use of government funds,” said House speaker Nancy Pelosi (D-CA), in a statement released Wednesday morning. “The lack of any requirement by the Administration on how financial institutions use these capital infusions is in clear contrast to Congress requiring detailed plans for long-term viability from the domestic auto companies.” The Treasury hired PricewaterhouseCoopers in late October to set up a system of internal controls to make sure government funds aren’t misused. But the GAO found the accounting firm hasn’t had much of a chance to do so, because of the rapid change in strategy. In its response to the GAO report, the Treasury had a “different perspective” on the need to monitor how institutions are spending CPP funds, according to GAO. Generally, however, the Treasury reportedly agreed with most of the recommendations made in the report. The 65-page report included multiple recommendations to the Treasury, among them: creating a system that will measure CPP success and monitor the institutions participating in the program, better communication with Congress, and a fully-staffed Office of Financial Stability. The GEO concluded that it is too soon to determine whether the program is having the intended effect on credit and financial markets, echoing a similar sentiment put forth by Paulson in recent public remarks about TARP progress. Nonetheless, Pelosi — herself a Democrat, and long a vocal critic of nearly anything involving the GOP administration — said the findings are “discouraging”  and the implementation of TARP has thus far not been “accountable to American taxpayers.” Write to Kelly Curran at [email protected].