Today, Chairman José E. Serrano sent a letter to the Treasury Department questioning the lack of sufficient internal oversight of the Troubled Asset Relief Program as outlined by the Government Accountability Office. Serrano is Chairman of the House Appropriations Subcommittee on Financial Services and General Government, which oversees the budget of the Treasury. Serrano noted that “TARP can be successful only if it is open, transparent, fully accountable for taxpayers’ dollars, and includes efforts to improve the economic security of all Americans.”
The following is the text of Serrano’s letter:
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December 3, 2008
The Honorable Henry M. Paulson, Jr.
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Paulson,
As you know, the Government Accountability Office (GAO) yesterday released its first 60-day report on the Troubled Asset Relief Program (TARP), as required by the Emergency Economic Stabilization Act of 2008.
While it is clear that the Department of the Treasury has been working hard over the past two months to restore confidence in the financial markets, I am concerned about several of GAO’s findings. In particular, I would like to comment on the following from the report:
Use of Capital Purchase Program (CPP) funds - The GAO report notes that it is “unclear how [the Office of Financial Stability] and the regulators will monitor participating institutions’ use of the capital investments.” I am concerned that some recipients of CPP funds may not use the funds in ways that will maximize the flow of capital into the economy. I am also concerned that the banking regulators have not yet developed additional supervisory measures that would enhance oversight over these financial institutions. In fact, the failures of bank regulators to adequately oversee these institutions in recent years even further diminish my confidence that they can ensure the funds are used as intended under the CPP.
- Oversight of contractors - GAO concludes that “Treasury has not yet finalized necessary oversight procedures for its growing number of contractors and financial agents” and that Treasury lacks “a comprehensive and complete system to monitor conflicts of interest.” The heavy reliance on contractors in TARP may have been inevitable given the dire economic circumstances and the need to act quickly. However, it is imperative that Treasury move expeditiously to establish effective oversight of these contractors and ensure that conflicts of interest are mitigated.
- Management of TARP by the Office of Financial Stability (OFS) - A strong OFS is critical to ensuring that TARP functions properly, including through establishing effective internal controls and contractor oversight. GAO identifies requirements relating to the completion of hiring at the OFS and the establishment of an effective transition plan to the new Administration. The transition comes at a very challenging time, so Treasury must execute a detailed plan and coordinate closely with the incoming Administration.
- As part of the description of contracting under TARP, GAO also notes that Treasury has taken some steps to promote small business participation in contracts, including participation by minority and women-owned small businesses. I commend Treasury for making efforts in this area, and I strongly encourage you to expand your efforts to include these businesses in the program.
That there are challenges in implementing TARP is no surprise considering the complexity of the program and the speed with which it has been implemented. However, it is imperative that Treasury do everything possible to ensure that the program is successful. It can be successful only if it is open, transparent, fully accountable for taxpayers’ dollars, and includes efforts to improve the economic security of all Americans.
The GAO report includes Treasury’s comments on its findings and recommendations. I am pleased that Treasury agrees with most of GAO’s recommendations, but I note that Treasury has different views on evaluating how institutions are using CPP funds. I strongly urge Treasury to work to implement fully and without unnecessary delay all of GAO’s recommendations.
I also would like to commend you on the Department’s November 17th announcement regarding the CPP as it relates to community development financial institution (CDFI) banks. Allowing these institutions to receive CPP funds on advantaged terms will help bring much-needed capital to underserved, low-income communities throughout the country that are suffering the most from the economic recession. I appreciate your attention to the needs of these communities.
As Chairman of the House Appropriations Subcommittee on Financial Services and General Government, I stand ready to work with you to ensure that Treasury is fully capable of effectively administering the TARP program.
Sincerely,
José E. Serrano
Chairman
Subcommittee on Financial Services and General Government
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