Journalism in the Public Interest

Watchdog Finds Treasury’s Reliance on Contractors Shielded Bailout Work from Scrutiny

Some of the most critical functions of the bailout program are being performed by private contractors that may have conflicts of interest and are not subject to the same disclosure requirements as government agencies, according to a report released today by the government’s bailout watchdog. As many as 96 outside companies helped the government administer the TARP program, and their duties ranged from simply helping the government obtain goods and services to "inherently governmental functions," such as the management of TARP investments.

As a result, “substantial portions of the work performed to effectuate the TARP may be forever shielded from public scrutiny,” noted the Congressional Oversight Panel. These private companies, together with the government-sponsored mortgage giants Fannie Mae and Freddie Mac, hold $437 million in Treasury contracts and agreements.

The transparency concerns were especially significant, given the scale of outside involvement. The report noted, for instance, that Treasury has 220 staffers working on all TARP programs combined, while Fannie Mae—Treasury’s biggest TARP financial agent—has almost three times as many employees working to fulfill its program obligations.

Here’s the report on some of the challenges introduced by these contractors and their subcontractors:

Contractors may hire subcontractors, and those subcontracts are not disclosed to the public. Important aspects of a contractor’s work may be buried in work orders that are never published in any form. Further, Treasury publishes no information on the performance of contractors during the life of the contract. In short, as work moves farther and farther from Treasury’s direct control, it becomes less and less transparent and thus impedes accountability.

The potential for conflicts of interest, which the Treasury relied on contractors to self-disclose, was also an issue raised in the report.

For instance, one Treasury contractor, a law firm called Cadwalader, also represented a number of TARP recipients. One of the firm's executives was invited to testify in a September hearing on the Treasury's use of private contractors but declined the invitation, stating that the firm was "willing to provide the Panel with pertinent information provided that the interests of the Firm's clients are not prejudiced."

The report also criticized the Treasury’s agreements with Fannie Mae and Freddie Mac, both of which it said “have a history of profound corporate mismanagement.”

“Both companies have fallen short in aspects of their performance, as Fannie Mae recently made a significant data error in reporting on mortgage redefaults and Freddie Mac has had difficulty meeting its assigned deadlines,” the report said.

Freddie Mac, as we’ve reported, was also tasked with overseeing the government’s loan modification program. It’s done a sloppy job of that, too, according to an earlier report by the special inspector general for the TARP that flagged problems with “unqualified staff” and “inconsistent and incomplete audit workpapers.”

The new report notes that Treasury’s awkward position of being both a regulator and a client of Fannie and Freddie:

Treasury may be less likely to expedite meaningful reforms of Fannie Mae and Freddie Mac when it has employed them for combined arrangements of $240.5 million and when these firms agreed to provide their services at cost, receiving no profit from the deals.

The Congressional Oversight Panel isn’t the only one scrutinizing the role of outside contractors in administering the bailout. As we've reported, the Special Inspector General to the TARP program is also examining the way Treasury made some of its contracting decisions.

Is it any wonder that there’s problems here? When we understand, as we do today, just how the Treasury Department’s love fest with the recipients of the TARP funds was anything but secret, then we have to ask the question, what good does it do yo close the barn door after all the inhabitants have departed? The past & present leader of the Treasury Dept., both of whom are Wall Street darlings, aren’t going to face any repercussion other than the blogisphere bringing attention of how derelict they were. It’s business as usual in the Government, so the people just have to grin & bear it.

Gunther Steinberg

Oct. 14, 2010, 4:42 p.m.

It has always been the case that the most profitable businesses are those that can bill the government. Many are honest and do a good job, but since oversight is very poor and the takings are easy and large, the taxpayers are ripped off regularly.
  The worst case seems to be Medicare, where there is little or no checking on actual work done, or right to the billed amounts. A crew of accountants checking the billings should be able to earn their pay 10 fold and save the taxpayers a great deal of money.

The foxes are given the task of guarding the hen houses?

Look up! Look down! See my thumb? Gee your dumb!

We the American taxpayers, are a bunch of ninnies and FOOLS! We should all be rioting in the streets!

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