TARP watchdog says Treasury Department is allowing recipients to judge their own compliance with program rules

by RYAN HOLEYWELL

The Treasury Department is doing a lackluster job ensuring that some TARP recipients are complying with the conditions of their assistance, and instead has relied on the companies themselves to report any impropriety, according to the newest audit from TARP Special Inspector General Neil Barofsky.

The report concerns Treasury's treatment of six companies that received "exceptional" levels of aid through the $700 billion Troubled Asset Relief Program: American International Group, Inc.; Bank of America Corp.; Chrysler Group, LLC; Citigroup, Inc.; General Motors Company; and GMAC, LLC (now Ally Bank). The audit was requested by Sen. Max Baucus (D-Mont.)

As a condition of receiving taxpayer assistance, those companies agreed to additional requirements regarding executive compensation, expense policies and lobbying, and Treasury is charged with ensuring its compliance.

But Treasury's efforts to monitor those companies has been "slow and incomplete," according to the report. "Moreover, (Treasury) relies almost exclusively on participants to identify and report compliance failures according to their own judgment and policies," the report continues.

As part of Treasury's compliance program, the department requests that the companies document the steps they have taken to comply with the TARP rules, then meets with company officials to discuss them. Treasury then reviews the companies' own internal audits before conducting its own independent reviews, if necessary.

Though Treasury has requested the initial documents from all six companies, those requests came 6 to 14 months after those companies received aid, with the exception of AIG.

While it has met with all six companies, it has not reviewed the internal audits of four of them. The AIG and Citigroup audits have been partially reviewed, and Treasury has yet to conduct its own reviews of any of the six companies.

The report also noted that while the companies are required to self-report their material non-compliance with the TARP agreements, Treasury has "left it to the officials at each company to determine whether deviations from policy are material and therefore require disclosure."

Only AIG has self-reported deviations from the agreements, which concerned use of the company's corporate airplane and other issues. Other companies told Barofsky's office that they found deviations from TARP policies but didn't report them because they decided they were immaterial. The report cites Treasury for not providing guidance on which sort of material is serious enough for companies to report, leaving that decision to the judgment of the companies themselves.

"Treasury relies entirely upon TARP recipients themselves (in some cases upon the same managers who presided over companies as they reached the brink of failure) to abide by their various requirements in a diligent and well-judged manner," the report said.

It also noted that Treasury has said it would like to boost its staff by 15 people but has not done so yet.

"In sum, Treasury has not adopted the rigorous approach or developed the professional team necessary for an adequate compliance system to ensure that companies receiving exceptional assistance under TARP adhere to the special restrictions that were imposed to protect taxpayer interests," the report read.

Barofksy called for Treasury to conduct independent compliance checks of the companies. The watchdog also said Treasury should either develop clear guidelines for what type of violations should be reported or require disclosure of all violations.

In his response to Barofsky's findings, Timothy Massad, chief reporting office at Treasury's Office of Financial Stability, said he agrees with "a portion" of the recommendation regarding the need for increased staffing.

However, he wrote, "we strongly disagree with many of the statements and two of your recommendations in this report."

Massad did not elaborate on what specific issues Treasury takes with the report but said a more thorough response from Treasury would be forthcoming.

A Treasury official told BailoiutSleuth that Barofsky's report "fails to reflect the totality of our strong oversight efforts" but also didn't elaborate on why Treasury disagreed with its findings.

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Big Companies Allowed to Monitor Their Own Compliance with Bailout Rules
by Noel Brinkerhoff

Neil Barofsky, the special inspector general for the Trouble Asset Relief Program (TARP), does not think much of the way the Department of the Treasury has stayed on top of financial institutions that were bailed out by the government during the financial crisis.

In exchange for receiving billions of dollars in taxpayer money (categorized as “exceptional assistance”), participants in TARP agreed to comply with certain conditions, such as those involving executive compensation, expense policies and lobbying. But instead of gathering data on these subjects itself, the Treasury Department has relied on the businesses themselves to report any failures to meet TARP rules.

Barofsky’s latest report states: “Treasury relies entirely upon TARP recipients themselves (in some cases upon the same managers who presided over companies as they reached the brink of failure) to abide by their various requirements in a diligent and well-judged manner.”

It adds: “In sum, Treasury has not adopted the rigorous approach or developed the professional team necessary for an adequate compliance system to ensure that companies receiving exceptional assistance under TARP adhere to the special restrictions that were imposed to protect taxpayer interests.”

The report focuses on Treasury’s treatment of six TARP recipients: American International Group (AIG); Bank of America; Chrysler; Citigroup; General Motors; and GMAC (now Ally Bank).