GAO seeks tougher oversight of $700b bailout

WASHINGTON - The US Treasury needs to bolster its oversight of the $700 billion financial rescue plan to ensure banks comply with the requirements, including executive pay limits, a congressional watchdog said.

In a report released yesterday, the Government Accountability Office said the Treasury "has yet to address a number of critical issues" with the Troubled Asset Relief Program. The audit also said it's too soon to tell whether funds injected into banks are having the intended effect of unfreezing credit and financial markets.

Since the plan was enacted Oct. 3, some members of Congress have demanded that Treasury Secretary Henry Paulson be more forthcoming about where the money is going. Paulson has also been criticized for shifting the effort away from buying distressed mortgage-related assets from financial companies and toward purchasing stakes in lenders.

The report called on Paulson to improve his efforts to inform lawmakers, investors, and the public about the program's goals to avoid surprises.

Senate Finance Committee chairman Max Baucus, a Montana Democrat, said the report "proves the immediate need for oversight of the taxpayer dollars being expended right now." He urged the Senate to confirm Neil Barofsky as special inspector general of the program.

The audit said the department needs to develop a way of making sure the banks receiving government money adhere to restrictions on executive pay and dividends. The GAO said it was unclear how the Treasury will monitor banks' use of the money they receive.

In addition, the GAO recommended that the Treasury speed hiring in its office that oversees the rescue effort and keep top positions filled during the transition to the Obama administration next month. The department also needs to develop internal safeguards that "are robust enough to protect taxpayers' interests."

The report focused on Treasury's so-called capital purchase program, which allocated $250 billion for healthy banks. As of Nov. 25, the Treasury has spent more than $150 billion on stakes in 52 lenders.

Neel Kashkari, the Treasury's assistant secretary in charge of the TARP program, said the department "has made significant efforts to ensure transparency and good communication . . . but more can and will be done in these areas." Treasury agrees with most of the recommendations, except for the need to monitor how all participating banks are spending TARP funds, he said.