The Treasury Department's Troubled Asset Relief Program needs to do a better job of ensuring integrity, accountability and transparency, according to a report from the Government Accountability Office.

The GAO has been tasked with reporting every 60 days on the progress of the program, which was established by the Emergency Economic Stabilization Act in early October. The GAO said it was too soon to determine whether the program is having the intended effect on the credit and financial markets.

The report mainly addresses the activities that have been undertaken through TARP as of Nov. 25, the structure of the Treasury's Office of Financial Stability and its system of internal controls, and preliminary indicators of TARP's performance, including trends in interest rate spreads, mortgage rates, mortgage originations and foreclosures.

The GAO said it recognized that TARP has existed for less than 60 days and that a new program of such magnitude faces many challenges, especially in the current economic climate. "However, Treasury has yet to address a number of critical issues, including determining how it will ensure that [the Capital Purchase Program] is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments," said the report. "Moreover, further actions are needed to formalize transition-planning efforts and establish an effective management structure and an essential system of internal control."

To help ensure the program's integrity, accountability and transparency, the GAO recommended that the Treasury work with banking regulators to establish a systematic means of determining and reporting whether financial institutions' activities are generally consistent with the purposes of the Capital Purchase Program and help ensure an appropriate level of accountability and transparency.

The GAO also said the Treasury should develop a means to ensure that institutions participating in the Capital Purchase Program comply with key requirements, such as executive compensation, dividend payments and the repurchase of stock. It said the Treasury should formalize the existing communication strategy to ensure that Congress and other external stakeholders are informed about the program's current strategy and activities and understand the rationale for changes in this strategy to avoid information gaps and surprises.

The GAO also recommended that the Treasury facilitate a smooth transition to the new administration by building on and formalizing ongoing activities, including ensuring that key OFS leadership positions are filled during and after the transition. It said the Treasury should expedite the OFS's hiring efforts to ensure that the Treasury has the personnel needed to carry out and oversee TARP. The report said the Treasury should ensure that sufficient personnel are assigned and properly trained to oversee the performance of all contractors, especially for contracts priced on a time and materials basis, and move toward fixed-price arrangements whenever possible.

The Treasury should also continue to develop a comprehensive system of internal control over TARP, including policies, procedures and guidance that are robust enough to protect taxpayers' interests and ensure that the program objectives are being met. The report recommended that the Treasury issue final regulations on conflicts of interest quickly, and review and renegotiate mitigation plans to enhance specificity and compliance. It also said the Treasury should institute a system to effectively manage and monitor the mitigation of conflicts of interest.

The Treasury generally agreed with the GAO's recommendations, but had a different perspective on the need to monitor how participating institutions are spending CPP funds. The GAO believes that monitoring aggregate information across the participants would help ensure an appropriate level of transparency and accountability.

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