Financial Markets and Institutions:
Treasury Continues to Implement Its Oversight System for Addressing TARP Conflicts of Interest
GAO-12-984R, Sep 18, 2012
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What GAO Found
Treasury has taken a number of actions since 2008, in part in response to recommendations we made, to establish a structured system to manage potential conflicts of interest involving its contractors and financial agents. The system is based on a formal regulation Treasury issued in interim form in 2009 and final form in 2011, which prohibits organizational or personal conflicts of interest unless they have been waived or mitigated under a Treasury-approved plan. The regulation sets forth requirements to address actual and potential conflicts that may arise, establishes responsibilities for contractors and financial agents in preventing conflicts from occurring, and outlines Treasury's process for reviewing and addressing conflicts. Treasury has developed a multifaceted process to manage and oversee potential conflicts of interest, which is managed by OFS's Office of the Chief Compliance Officer. The process includes reviewing proposed contracts and financial agency agreements, approving contractor and financial agent mitigation plans, addressing conflicts of interest inquiries, reviewing conflicts of interest certifications, and preparing feedback reports for contractors and financial agents. In addition, because the monitoring of conflicts of interest was based to some degree on self-reported information submitted by contractors and financial agents, Treasury began conducting on-site design and compliance reviews in 2011 to evaluate the effectiveness of its contractors' and financial agents' internal controls and procedures for conflicts of interest. Treasury has also established an internal database to document and track financial agent and contractor conflicts of interest certifications, inquiries, and requests for waivers.
Treasury continues to implement its conflicts of interest requirements and processes. Specifically, Treasury reviews and approves conflicts of interest mitigation plans, verifies that contractors and financial agents are regularly certifying that they are preventing or properly mitigating actual or potential conflicts of interest, and responds to inquiries about conflicts of interest from contractors and financial agents in a timely manner. Treasury also monitors compliance by administering quarterly feedback reports on contractors and financial agents, and preparing summary scorecards that provide a snapshot of how each contractor and financial agent is performing with respect to conflicts of interest requirements. In addition, since early 2011 Treasury has conducted 11 on-site design reviews and 11 on-site compliance reviews to evaluate internal controls and procedures at selected contractors and financial agents, permitting Treasury officials to identify and address specific issues or instances of non-compliance in a timely manner.
Why GAO Did This Study
The Emergency Economic Stabilization Act of 2008 (EESA) initially authorized $700 billion to assist financial institutions and markets, businesses, homeowners, and consumers through the Troubled Asset Relief Program (TARP). The $700 billion ceiling was never reached, and in July 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act reduced the amount to $475 billion. The program was intended to address the greatest threat the financial markets and economy had faced since the Great Depression. The Department of the Treasury (Treasury) established the Office of Financial Stability (OFS) to carry out TARP activities, which included injecting capital into key financial institutions, providing assistance to the automobile industry, and offering incentives to lenders for modifying residential mortgages, among other activities.
Since the inception of TARP in October 2008, Treasury has continued to rely on private sector sources to support TARP administration and operations. Through June 2012, Treasury has obligated over $900 million on contracts and financial agency agreements with private sector entities. Treasury's reliance on private sector entities to implement TARP underscores the importance of addressing and managing conflicts of interest that may arise with entities seeking or performing work under TARP. A key focus for the program is identifying possible conflicts of interest (personal and organizational) involving private sector entities and mitigating those conflicts.
As required by EESA, we have provided oversight of TARP activities since they began in 2008. This report assesses the extent to which Treasury has (1) established policies and processes regarding conflicts of interest, and (2) implemented its policies and processes for addressing potential conflicts.
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