The Office of Financial Stability is the Guardian of the TARP. OFS is the U.S. Treasury office that oversees the $470 billion bailout programs passed in those terrible days of 2008 and 2009.
The Emergency Economic Stabilization Act of 2008 requires that the Government Accountability Office perform yearly audits of the OFS and the bailout programs it oversees. Last week the GAO published its report on OFS’ 2010 and 2011 fiscal years. Which of the GAO’s following three overall findings is not like the other?
- The OFS’ financial statements were materially accurate.
- The OFS was in compliance with the selection of laws and regulations against which the GAO tested.
- The OFS has significant internal control issues.
The Federal Managers’ Financial Integrity Act of 1982 requires
“each agency to establish controls that reasonably ensure: (1) obligations and costs comply with applicable law, (2) assets are safeguarded against waste, loss, unauthorized use or misappropriation, and (3) revenues and expenditures are properly recorded and accounted for. In addition, the agency head must annually evaluate and report on the systems of internal accounting and administrative control.”
Meanwhile the GAO found that
“while OFS improved its review and approval process for preparing its financial statements, notes, and MD&A [Management Discussion & Analysis] for TARP for fiscal year 2011, we continued to identify incorrect amounts and inconsistent disclosures in OFS’s draft financial statements, notes, and MD&A that were significant, but not material, and that were not detected by OFS. For fiscal year 2011, we also continued to identify instances where other OFS accounting and financial reporting procedures were not complete or effectively implemented.
For significant errors and issues that were identified, OFS revised the financial statements, notes, and MD&A, as appropriate…Misstatements may occur in other financial information reported by OFS and not be prevented or detected by OFS[…].
Note the use of the word “continued” in the above. This report marks the third time that the GAO has found the OFS to have these sorts of control issues. And while the GAO doesn’t tell us this time what those specific issues are, some clues might be provided in a GAO report from earlier this year with the unmistakable title“Improvements Are Needed in Internal Control Over Financial Reporting for the Troubled Asset Relief Program”.
Here were some of the problems mentioned in this April report:
- inadequate accounting procedures for certain TARP transactions and its oversight and monitoring of the asset managers and financial agents used by the OFS
- incomplete documentation for how the OFS valued the assets that it assumed from troubled financial institutions
- inadequate procedures to ensure that the OFS is properly calculating asset valuations& projected future disbursements.
Just to be clear in last week’s report the GAO said it found that some of these issues still existed, and then some. In fact, the GAO has been finding these kind of issues with the OFS’s management of the TARP program since its first audit in 2009. Mind you, watching over TARP is the only task that the Office of Financial Stability has.
And yet the GAO says that these issues are not “material” and chooses instead to go with the less damning term of “significant”. A three-year record of getting it wrong would seem to suggest otherwise. We get that the $470 billion TARP was thrown together in a hurry. But to have these type of issues with this extremely high-profile and unpopular corporate welfare program for three years running speaks of deliberate carelessness. Why on earth should we believe all the trumpeting about how profitable TARP has been when they can’t get the numbers right? In fact this all leaves me wondering: what’s really underneath that TARP?