Posted on Monday, October 18, 2010
The Congressional Oversight Panel, charged with keeping a watch over Troubled Asset Relief Program (TARP) funds, says “significant concerns” persist about accountability and potential conflicts of interest because of the Treasury’s “extensive use” of private contractors to carry out functions related to TARP programs, particularly foreclosure prevention efforts.
TARP officially sunset last week, which means no new initiatives can be funded from the $700 billion bailout fund, but existing programs will continue to run their course with the money that’s already been allotted.
According to a new report released Thursday by the Congressional Oversight Panel (COP), private businesses today perform many of TARP’s most critical functions, operating under 91 different contracts worth up to $434 million. In fact, COP says the vast majority of people working on TARP initiatives now receive their paychecks from private companies.
The watchdog group says the largest TARP contracts were provided to Fannie Mae and Freddie Mac, and “raise particular concerns.” Fannie Mae alone employs 600 workers on TARP’s foreclosure programs, while Treasury has only 220 staffers working on all TARP programs combined, according to the report.
The panel wrote, “Both Fannie Mae and Freddie Mac have a history of profound corporate mismanagement, and both companies would have collapsed in 2008 were it not for government intervention. Further, both companies have
fallen short in aspects of their performance, as Fannie Mae recently made a major data error in reporting on mortgage redefaults and Freddie Mac has had difficulty meeting its assigned deadlines.”
COP says Treasury has made notable efforts to ensure private contractors are employed correctly, such as requiring competitive bidding and establishing several layers of controls to monitor contractor performance. But the panel asserts that “this praise must be viewed in context.”
“The government contracting process is notoriously non-transparent, and although Treasury appears to have performed well on a comparative basis, it remains capable of improvement,” the panel said in its report.
COP notes that contractors themselves hire subcontractors which are not disclosed to the public. Important information is buried in task orders that are never published, and Treasury divulges no meaningful information on contractors’ performance during the life of the contract, according to the panel.
Because private businesses seek private profit and may serve many clients with different motives, their work may create conflicts of interest, COP warned. The panel’s examination found that some of the law firms providing advice to Treasury have also advised banks that received TARP funds.
Treasury has taken steps to prevent conflicts of interest, but COP says it relies primarily on contractors and agents to self-disclose their own conflicts. The panel is calling for Treasury to develop an independent mechanism for monitoring conflicts of interests.
According to COP’s report, as of October 8, 2010, $111.3 million and $79 million have been expended through Treasury’s TARP financial agency agreements with Fannie Mae and Freddie Mac, respectively.
But COP says revenue from the TARP contracts represents just 2.2 percent of Fannie Mae’s and 0.5 percent of Freddie Mac’s 2009 net revenue, and had no material impact on either firm’s financial results given that both firms suffered aggregate losses of $93.6 billion in 2009.