	Scope and Methodology

To determine the nature and purpose of TARP activities from January 30,  2009, through March 27, 2009, unless noted, and the status of actions taken  in response to our recommendations from our prior reports, we reviewed  documents from OFS that described the amounts, types, and terms of  Treasury’s purchases of preferred stocks and warrants under the Capital  Purchase Program (CPP), the Systemically Significant Failing Institutions  Program (SSFI), the Automotive Industry Financing Program (AIFP), the  Targeted Investment Program (TIP), the Capital Assistance Program  (CAP), and the Term Asset-Backed Securities Loan Facility (TALF). 1). Treasury’s Strategy for Deploying TARP Funds Continues to Evolve, Though CPP Remains the Key Effort to Stabilize the Financial Markets

As of March 27, 2009, Treasury had announced several programs under  TARP with a maximum announced total funding of $667.4 billion of its  $700 billion. As of March 27, 2009, Treasury had  disbursed about 80 percent of the $250 billion it had allocated for CPP to  purchase almost $198.8 billion in preferred shares of 532 qualified financial  institutions. Participating institutions are required to comply  with the terms of these agreements, and we recommended that Treasury  develop a process to monitor and enforce them. To date,  they had not yet hired any asset managers. Treasury has an opportunity to  negotiate additional requirements into its latest agreement, including that  AIG seek additional concessions from others for the up to $30 billion in  additional federal assistance. 2). 3). OFS Has Made Progress in Strengthening Oversight of Contractors and Financial Agents

In response to the recommendation in our January 2009 report that  Treasury improve its oversight of contractors, Treasury has taken steps to  help ensure that sufficient personnel are assigned to facilitate effective  management and oversight of TARP contracts and financial agency  agreements. According to these officials, fixed-price arrangements may not  be appropriate for many TARP contracts. We note, however, that OFS does not have fully developed procedures for  capturing its decisions on potential conflicts of interest. In addition,  OFS continues to refine, develop, and document its internal control  framework over financial reporting and compliance, including its risk  assessment activities. Documentation of Certain Internal Control Procedures and Guidance Is Not Consistent With Actual Practice

We noted two areas in which OFS’s documentation of certain internal  control procedures and guidance pertaining to determining warrant  exercise prices were not updated to be consistent with actual practice. In  Treasury has continued to take significant steps to address all the  r particular, Treasury has recently expanded the scope of the month ly CPP  surveys of the 20 largest institutions to include all institutions participatin in the program. Treasury officials  told us that asset managers are to play a role in monitoring the  participating institutions’ compliance with the agreements. Treasury has also continued to take steps to articulate a more clearly  defined vision for TARP, and in February 2009, provided its strategy for  using its remaining funds. For example, TARP  had received approximately $2.9 billion in dividend payments through  March 20, 2009, but this information has not been reported to the Congress  and the public. To improve transparency, Treasury should publicly  announce the amounts, such as dividends, it has received from TARP  participants. inally, we again note that while isolating the effect of TARP’s activities  F continues to be difficult, developments in the credit markets have  generally been mixed since our January 2009 report. Some indicato demonstrate that the cost of credit has increased in interbank and  corporate bond markets and decreased in mortgage markets, while perceptions of risk (as measured by premiums over Treasury securit ies)  have declined in interbank and mortgage markets and risen in corporate  debt markets. In addition, although Federal Reserve survey data suggest  that lending standards remained tight, the largest CPP recipients extende over $240 billion in new loans to consumers and business in both  December 2008 and January 2009, according to the Treasury’s new survey. Attributing any of these changes directly to TARP continues to beproblematic because of the range of actions that have been and are being  taken to address the current crisis. While these indicators may be  suggestive of TARP’s ongoing impact, no single indicator or set of  indicators will provide a definitive determination of the program’s  impact. Therefore, we recommend that  Treasury take the following actions as it continues to improve the  integrity, accountability, and transparency of the program. GAO-09-296. Troubled Asset Relief Program: Additional Actions Needed to Better  Ensure Integrity, Accountability, and Transparency.
Why GAO Did This Study

GAO's third report on the Troubled Asset Relief Program (TARP) follows up on recommendations from the January 28, 2009, report (GAO-09-296). It also reviews (1) the nature and purpose of activities that had been initiated under TARP as of March 27, 2009; (2) the Department of Treasury's Office of Financial Stability's (OFS) hiring efforts, use of contractors, and progress in developing an internal control system; and (3) TARP performance indicators. For this work, GAO reviewed signed agreements and other relevant documentation and met with officials from OFS, contractors, and federal agencies. As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700 billion in TARP funds. Most of the funds (almost $199 billion) went to purchase preferred shares of 532 financial institutions under the Capital Purchase Program (CPP), Treasury's primary vehicle under TARP for stabilizing financial markets.

What GAO Found

Treasury has continued to improve the integrity, accountability and transparency of TARP. For example, it recently expanded monthly surveys of the largest institutions' lending activity to cover all CPP participants, as GAO recommended. These surveys should provide additional important information about how the capital investments are impacting participants' lending activities and capital levels. Treasury also continues to develop a process to monitor compliance with the terms of the agreements but has not yet hired asset managers. Treasury officials told GAO that these managers will have a role in helping ensure that institutions were honoring dividend and stock repurchase requirements. In February 2009, Treasury announced its broad strategy for using the remaining TARP funds and in the following weeks provided details for its major components. While articulating its plan was an important step, Treasury continues to struggle with developing an effective overall communication strategy that is integrated into TARP operations. Without such a strategy, Treasury may face challenges should it need additional funding for the program. Finally, as Treasury finalizes the terms of the agreement with American International Group, Inc. (AIG) for $30 billion in additional assistance, it should require that AIG seek additional concessions from employees and existing derivatives counterparties, as appropriate. GAO's January 2009 report also included recommendations about OFS's management infrastructure, including hiring, contract oversight, and internal controls. Treasury has continued to take steps to address GAO's recommendations. First, it has continued to hire additional permanent staff to address OFS's long-term organizational needs. Second, Treasury has enhanced its capacity to manage vendors by using trained oversight personnel and looking for opportunities to use fixed-price arrangements. Further actions are needed to complete its review of existing vendor conflict-of-interest mitigation plans and to improve documentation of decisions relating to potential conflicts. Third, OFS continued to refine, develop, and document its internal control framework over financial reporting and compliance, including its risk assessment activities. However, GAO noted that certain internal control procedures and the guidance pertaining to determining warrant exercise prices had not been updated to be consistent with actual practice. GAO also noted that Treasury had not publicly reported that through March 20, 2009, it had received dividends totaling almost $2.9 billion from TARP participants. Further steps in these areas are needed to improve the program's transparency and integrity. GAO again notes the difficulty of measuring the effect of TARP's activities. Developments in the credit markets have generally been mixed since the January 2009 report. Some indicators revealed that the cost of credit has increased in interbank and corporate bond markets and decreased in mortgage markets, while perceptions of risk have declined in interbank and mortgage markets and risen in corporate debt markets. In addition, although Federal Reserve survey data suggest that lending standards remained tight, the largest CPP recipients extended roughly $245 billion in new loans to consumers and businesses in both December 2008 and January 2009, according to the Treasury's new loan survey. However, attributing any of these changes directly to TARP continues to be problematic because of the range of actions that have been and are being taken to address the current crisis. While these indicators may be suggestive of TARP's ongoing impact, no single indicator or set of indicators can provide a definitive determination of the program's impact.