On Friday, the Government Accountability Office issued a new report (GAO-09-296) on the status of efforts to address transparency and accountability of Treasury’s Troubled Asset Relief Program. This report will be the second of a series of reports under Section 106 of the Emergency Economic Stabilization Act, which requires a GAO report on TARP every 60 days.

This latest report follows up on the nine specific recommendations in GAO's December 2008 report that were intended to improve the integrity, accountability, and transparency of TARP. It also reviews the nature and purpose of TARP-related activities through January 23, 2009, Treasury's Office of Financial Stability (OFS) hiring and transition efforts, use of contractors, and progress in developing a system of internal control, and preliminary indicators of TARP's performance.

The report states that, in response to GAO's recommendation, Treasury plans to conduct monthly surveys of the 20 largest institutions receiving TARP funding to monitor lending and other activities and to analyze quarterly monitoring data for all institutions. In addition, Treasury has "continued to develop a system for detecting noncompliance with key requirements of the program but has not yet finalized its plans." Also, the report states that "Treasury has made limited progress in formatting articulating and communicating an overall strategy for TARP, continuing to respond to institution- and industry-specific needs by, for example, making further capital purchases and offering loans to the automobile industry."

With respect to GAO's previous recommendations about OFS's management infrastructure, including hiring, contract oversight, and internal controls, the new report states that "Treasury has taken steps to address our recommendations, but still faces several challenges." the report praised Treasury's "proactive steps to help ensure a smooth transition to the new administration" and "asking candidates to address potential conflicts earlier in the recruitment process to avoid unnecessary delays in finalizing employment offers." However, GAO notes that Treasury "continues to face difficulty providing competitive salaries to attract skilled employees," requiring reliance on "detailees and contractors to carry out program functions." Treasury also needs to "continue to identify and mitigate conflicts of interest in contracting" and "implement a disciplined risk-assessment process."

The report equivocates on the question of TARP's economic impact. While acknowledging that "it is too early in the program's implementation to see measurable results in many areas," GAO observes that "perceptions of risk have declined in interbank markets, [but] they changed very little in corporate bond and mortgage markets," which "may be suggestive of TARP's ongoing impact, but no single indicator or set of indicators can provide a definitive determination of the program's effects because of the range of actions that have been and are being taken to address the current crisis."