Trouble For the Tarp: GAO Report Rips Internal Controls, Bank Monitoring


If the TARP were a private company, it would have a Sarbanes-Oxley problem. The Government Accountablity Office has just published its take on the TARP. Among the many conclusions reached is that the TARP lacks adequate internal controls, one of the key requirements of Sarbanes-Oxley. What’s worse, the Treasury hasn’t figured out how to discern whether the TARP is working to relieve financial markets or whether banks are complying with the requirements of the bailout law.

  • Lagging on internal controls: “A robust system of internal control specifically designed to deal with the  unique and complex aspects of TARP will be key to helping OFS management achieve the desired results from TARP. While OFS plans to implement such a system, there is heightened risk that without it the interests of the government and taxpayers may not be adequately protected and that the programs’ objectives may not be achieved in an efficient and effective manner. Our ongoing monitoring efforts will continue to focus on the steps OFS is taking to develop and implement an effective internal control structure.”
  • Inadequate monitoring of bailed out banks. “But Treasury has not yet set up policies and procedures to help ensure that CPP funds are being used as intended. Similarly, institutions participating in CPP are subject to specific restrictions on dividend payments or repurchasing shares as long as Treasury has preferred shares outstanding. But Treasury also has no policies and procedures in place for ensuring that the institutions are complying with these requirements or that they are using the capital investments in a manner that helps meet the purposes of the act.”
  • Is it working? In addition, the report points out that the Treasury hasn’t really figured out how to tell if the TARP is working. The GAO has some recommendations but the Treasury apparently objects to some of them.

Of course, the report is 72 pages long, so we won’t pretend we’ve reviewed the entire thing yet.