A Small Price to Pay

Yesterday, the U.S. House Committee on Oversight and Government Reform conducted a hearing into the oversight and administration of the U.S. Treasury's Troubled Asset Relief Program ("TARP").  The committee was highly critical of the lack of internal controls related to the use of TARP related funds.  Here is a summary of their recent review of the program.

Section 116 of EESA requires Treasury io conduct oversight over the use TARP monies. Specifically, Treasury must "establish and maintain an effective system of internal control" of TARP monies in such a manner as to 'provide reasonable assurance of the effectiveness and efficiency of operations, including the use of the resources of the TARP" and the "reliability of financial reporting." 'The Act mandates that this system of internal control be consistent with the standards prescribed under the Federal Managers Financial Integrity Act of 1982 (FMFIA).

Federal agency heads are required by law to prevent waste and loss of federal monies they administer. FMFIA requires executive agency heads to "establish internal accounting and administrative controls that reasonably ensure that... all assets are safeguarded against waste, loss, unauthorized use, and misappropriation..."

Under existing agreements between Treasury and TARP recipient financial institutions, Treasury has broad contractual authority to scour company books in search of, among other things, waste and abuse by TARP recipients. But in practice, Treasury is not doing so. In the absence of statutory or regulatory definitions of waste and abuse or explicit conditions for use of TARP funds - either promulgated in term agreements by Treasury under its broad authority, or prescribed by Congress in EESA - Treasury's oversight will not find them and cannot enforce them. In other words, Treasury is not now conducting oversight of TARP monies disbursed through the Capital Purchase Program to prevent their use for perks for company management, loans to foreign governmental authorities, investments in outsourcing jobs held by Americans, investments in foreign company operations overseas, and the repurchase of company common stock, or any other potential example of waste and abuse. 

With such a massive amount of taxpayer money funding the program, the U.S. Treasury must ensure that the funds are administered appropriately.  A tiny fraction of the $700 billion within the TARP could be used to provide the necessary controls to prevent fraud and waste.  It seems to be a very small price to pay to protect the interests of U.S. taxpayers.