Auditors Say Treasury Department Failed To Oversee $700 Billion Financial Bailout

December 3, 2008 11:25 a.m. EST

Washington, D.C. (AHN) - The Bush administration has failed to properly monitor the use of the $700 billion financial bailout package and must establish controls to ensure that financial institutions are complying with the requirements the program, according to a report by the Government Accountability Office (GAO).

The first audit on the government's Troubled Asset Relief Program (TARP) said the Treasury department has yet to institute mechanisms ensuring that limits to executive compensation and dividend payments are being followed. "Further actions are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control," the report said.

The GAO said the Treasury department should "work with bank regulators to establish a systematic means of determining and reporting in a timely manner whether financial institutions' activities are generally consistent with the purposes of the CPP [capital purchase program] and help ensure an appropriate level of accountability and transparency." It added that sufficient personnel should be assigned and "properly trained to oversee" the program.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson last month had defended their implementation of the bailout, which Congress approved on Oct. 3 after acrimonious debate, a failed House vote, a shouting match at the White House and the temporary suspension of the campaign of the Republican presidential candidate, Sen. John McCain (R-AZ).

Paulson, testifying before Congress less than a week after announcing that he was shifting the focus of the bailout from purchasing bad mortgages to investing in banks, said he "exercised the authority granted by Congress in this legislation to develop and quickly deploy a $250 billion capital injection program."

"There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress's goal and our goal - to stabilize the financial system that is integral to the everyday lives of all Americans," Paulson added. "By mid-October, our actions... helped us to accomplish the first major priority, which was to immediately stabilize the financial system."

House Speaker Nancy Pelosi (D-CA) on Tuesday said in a statement in response to the GAO report, "Congress has repeatedly expressed concerns to the Treasury Department about the need to improve the TARP's accountability and transparency."

"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. It is difficult to comprehend why the Bush Administration refuses to provide short term emergency auto industry loans through the TARP-when we know bankruptcy is not an option for the automakers or our economy," she added.