Today, the Congressional Oversight Panel (COP) released its October oversight report, entitled “Examining Treasury’s Use of Financial Crisis Contracting Authority,” which, following last month’s hearing on the issue, identified “significant concerns” in connection with Treasury’s use of private contractors in implementing TARP. According to the COP, the “vast majority” of individuals working on TARP receive their paychecks from private companies under 96 different contracts with Treasury valued at $437 million. The 600 individuals employed for TARP programs by the largest contractor, Fannie Mae, dwarfs the 220 individuals directly employed by Treasury for TARP purposes.
The COP expressed its concern that private contractors are immune from requests under the Freedom of Information Act and, although the identities of the contractors are disclosed to the public, the identities of subcontractors are not. For example, the COP cited a contract awarded by Treasury to a “small disadvantaged business,” which then delegated approximately 80% of the contract to a large business. To alleviate these concerns, the COP recommended that Treasury publish subcontracts online and provide regular, public updates on contractors’ performance. In addition, according to the COP, contracting with private organizations, particularly law firms, may create conflicts of interest because private contractors are motivated by private profit and may represent clients with motives that differ from the motives of Treasury or TARP. Because Treasury’s mechanisms to prevent conflicts of interest depend on self-disclosure by contractors, the COP recommended that the Treasury develop an independent mechanism for monitoring conflicts.
The COP also questioned Treasury’s reliance on Fannie Mae and Freddie Mac, the two largest contractors, which, according to the COP, “have a history of profound corporate mismanagement.” In addition to the fact that these organizations were forced into conservatorship, the COP cited Fannie Mae’s recent “major data error” in reporting the mortgage redefault rate for Home Affordable Modification Program (HAMP) participants, an “instrumental” measure from a public policy perspective, and Freddie Mac’s recent struggles in meeting deadlines.
The COP oversees Treasury’s administration of TARP funds. It issues monthly reports on the program’s progress and effectiveness, and will continue to do so through April 3, 2011.