GAO-12-984R

United States Government Accountability Office

Washington, DC 20548

September 18, 2012

Congressional Addressees

Subject: Treasury Continues to Implement Its Oversight System for Addressing TARP

Conflicts of Interest

The Emergency Economic Stabilization Act of 2008 (EESA) initially authorized $700 billion 

to assist financial institutions and markets, businesses, homeowners, and consumers 

through the Troubled Asset Relief Program (TARP).1 The $700 billion ceiling was never 

reached, and in July 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act 

reduced the amount to $475 billion.2 The program was intended to address the greatest 

threat the financial markets and economy had faced since the Great Depression. The 

Department of the Treasury (Treasury) established the Office of Financial Stability (OFS) to 

carry out TARP activities, which included injecting capital into key financial institutions, 

providing assistance to the automobile industry, and offering incentives to lenders for 

modifying residential mortgages, among other activities.

Since the inception of TARP in October 2008, Treasury has continued to rely on private 

sector sources to support TARP administration and operations. Through June 2012, 

Treasury has obligated over $900 million on contracts and financial agency agreements with 

private sector entities. 3 Treasury’s reliance on private sector entities to implement TARP 

underscores the importance of addressing and managing conflicts of interest that may arise 

with entities seeking or performing work under TARP.4 A key focus for the program is 

identifying possible conflicts of interest (personal and organizational) involving private sector 

entities and mitigating those conflicts.

As required by EESA, we have provided oversight of TARP activities since they began in 

2008.5

 

1

EESA, Pub. L. No. 110-343, 122 Stat. 3765 (codified at 12 U.S.C. §§ 5201-5261). 

This report assesses the extent to which Treasury has (1) established policies and 

processes regarding conflicts of interest, and (2) implemented its policies and processes for 

addressing potential conflicts. To address the first objective, we analyzed TARP conflicts of 

2

Pub. L. No. 111-203, § 1302(1)(A) (2010). 3

EESA authorizes Treasury to use financial institutions as “financial agents” of the federal government to perform 

duties needed to carry out TARP.

4

Employees of Treasury’s contractors and financial agents are not subject to conflict of interest laws and 

regulations that govern the conduct of government employees. The Federal Acquisition Regulation requires 

contractors to promptly disclose credible evidence of fraud and conflicts of interest to the appropriate inspector 

general and contracting officer. 73 Fed. Reg. 67064 (Nov. 12, 2008) (codified at 48 C.F.R. § 52.203-13(b)(3)). 5

We have issued a TARP report at least every 60 days as required by EESA in Section 116 (codified at 12 

U.S.C. § 5226).
Page 2 GAO-12-984R

interest regulations, policies, and procedures. To determine how the conflicts of interest 

regulation and processes are implemented, we interviewed OFS officials. We also reviewed 

documentation on the largest financial agency agreement and the largest contract, based on 

obligated value, and discussed key components of the processes with OFS officials. This 

documentation included initial and amended conflicts of interest mitigation plans, 

certifications, and quarterly feedback reports. Furthermore, we analyzed conflicts of interest 

inquiries from OFS’s database for tracking conflicts of interest activities. In doing so, we 

reviewed inquiries associated with the selected entities in more detail, as well as inquiries 

that were coded as waivers for all retained entities in the OFS database. We determined 

that the data in OFS’s conflicts of interest database were sufficiently reliable for the 

purposes of this report. Finally, we analyzed and discussed with OFS officials the on-site 

reviews they have conducted of contractors’ and financial agents’ policies, procedures, and 

controls for detecting and mitigating conflicts of interest. We did not assess conflicts of 

interest procedures and controls established by individual contractors and financial agents, 

nor did we assess the existence or absence of conflicts of interest involving any of these 

entities.

We conducted this performance audit from February 2012 to September 2012 in 

accordance with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based on our audit objectives. 

We believe that the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Results in Brief

Treasury has taken a number of actions since 2008, in part in response to recommendations 

we made, to establish a structured system to manage potential conflicts of interest involving 

its contractors and financial agents. The system is based on a formal regulation Treasury 

issued in interim form in 2009 and final form in 2011, which prohibits organizational or 

personal conflicts of interest unless they have been waived or mitigated under a Treasuryapproved plan. The regulation sets forth requirements to address actual and potential 

conflicts that may arise, establishes responsibilities for contractors and financial agents in 

preventing conflicts from occurring, and outlines Treasury’s process for reviewing and 

addressing conflicts. Treasury has developed a multifaceted process to manage and 

oversee potential conflicts of interest, which is managed by OFS’s Office of the Chief 

Compliance Officer. The process includes reviewing proposed contracts and financial 

agency agreements, approving contractor and financial agent mitigation plans, addressing 

conflicts of interest inquiries, reviewing conflicts of interest certifications, and preparing 

feedback reports for contractors and financial agents. In addition, because the monitoring of 

conflicts of interest was based to some degree on self-reported information submitted by 

contractors and financial agents, Treasury began conducting on-site design and compliance 

reviews in 2011 to evaluate the effectiveness of its contractors’ and financial agents’ internal 

controls and procedures for conflicts of interest. Treasury has also established an internal 

database to document and track financial agent and contractor conflicts of interest 

certifications, inquiries, and requests for waivers.

Treasury continues to implement its conflicts of interest requirements and processes. 

Specifically, Treasury reviews and approves conflicts of interest mitigation plans, verifies 

that contractors and financial agents are regularly certifying that they are preventing or 

properly mitigating actual or potential conflicts of interest, and responds to inquiries about 
Page 3 GAO-12-984R

conflicts of interest from contractors and financial agents in a timely manner. Treasury also 

monitors compliance by administering quarterly feedback reports on contractors and 

financial agents, and preparing summary scorecards that provide a snapshot of how each 

contractor and financial agent is performing with respect to conflicts of interest requirements. 

In addition, since early 2011 Treasury has conducted 11 on-site design reviews and 11 onsite compliance reviews to evaluate internal controls and procedures at selected contractors 

and financial agents, permitting Treasury officials to identify and address specific issues or 

instances of non-compliance in a timely manner.

Background

The passage of EESA resulted in the creation of a variety of programs supported with TARP 

funding, as shown in table 1. Some TARP programs are in various stages of winding down 

while other programs, notably those that focus on the foreclosure crisis, remain active.

Table 1: Programs Supported by TARP Funding

Program Program description

American International Group, Inc. 

(AIG) Investment Program

To provide stability in financial markets and avoid disruptions to the 

markets from the deterioration of AIG’s financial condition.

Asset Guarantee Program To provide federal government assurances for assets held by financial 

institutions that were viewed as critical to the functioning of the nation’s 

financial system. 

Automotive Industry Financing 

Program 

To prevent a significant disruption of the American automotive industry. 

Capital Assessment Program Created to provide capital to institutions not able to raise it privately to 

meet Supervisory Capital Assessment Program—or “stress test”—

requirements. This program was never used.

Capital Purchase Program To provide capital to viable banks through the purchase of preferred 

shares and subordinated debentures. 

Consumer and Business Lending 

Initiative programs

To provide capital to certain financial institutions or liquidity to 

secondary markets for small business loans and other asset classes, 

and thereby improve access to credit for consumers and businesses.

TARP-funded housing programs To offer assistance to homeowners at risk of foreclosure.

Public-Private Investment Program To address the challenge of “legacy assets” by partnering with 

investors to purchase certain residential and commercial mortgagebacked securities. 

Targeted Investment Program To foster market stability and strengthen the economy by making caseby-case investments in institutions that Treasury deemed critical to the 

functioning of the financial system. 

Source: GAO.

Since TARP was established in 2008, Treasury has relied on private sector sources to assist 

OFS with TARP administration and operations. Treasury engages with private sector firms 

through: (1) financial agency agreements and (2) contracts and blanket purchase 
Page 4 GAO-12-984R

agreements.6 According to OFS procedures, financial agency agreements are used for 

services that cannot be provided with existing Treasury or contractor resources. Specifically, 

Treasury has relied on financial agents for asset management, transaction structuring, 

disposition services, custodial services, and administration and compliance support for the 

TARP housing assistance programs. Treasury has awarded 19 financial agency 

agreements, 13 of which remained active as of June 30, 2012. Treasury uses TARP 

contracts for a variety of legal, investment consulting, accounting, and other services and 

supplies. As of June 30, 2012, Treasury has awarded or used 128 contracts and blanket 

purchase agreements, and about 43 percent of them remain active. As shown in table 2, the 

obligated value of the financial agency agreements and contracts has totaled more than 

$900 million, with most of the funding going for financial agency agreements. The increase 

in obligations since 2010 is largely due to Treasury’s reliance on financial agents to support 

the oversight of TARP assets and the continued implementation of the housing programs 

over the last couple of years.

Table 2: Cumulative Value of Contracts and Financial Agency Agreements in Support 

of TARP

Obligated value

through fiscal year 2010

Obligated value

through fiscal year 2011

Obligated value 

through 6/30/2012

Financial agency 

agreements

 $327,355,188 $547,487,042 $723,486,937

Contracts 108,907,207 154,934,812 180,386,781

Totals $436,262,395 $702,421,854 $903,873,718

Source: GAO analysis of Treasury data.

The vast majority of the financial agency agreement obligations shown above, 

approximately $527 million, went to the Federal National Mortgage Association (commonly 

known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (commonly 

known as Freddie Mac), which provide administrative and compliance services, respectively, 

for the TARP housing programs.7 The two largest contracts are $35 million with 

PricewaterhouseCoopers, LLP for internal control services and $17 million with Cadwalader, 

Wickersham & Taft, LLP for legal services.

As we have previously reported, when Treasury began to quickly implement TARP initiatives 

in 2008, OFS had not finalized its procurement oversight procedures and lacked 

comprehensive internal controls for contractors and financial agents.8 We made a series of 

recommendations in 2008 and 2009 to strengthen Treasury’s management and oversight of 

its vendors and improve the transparency of contracted operations.9

 

6

A blanket purchase agreement is a method of filling anticipated repetitive needs for supplies or services through 

qualified sources of supply. The agreement contains the basic terms and conditions governing the types of 

services the firms will provide. As specific needs arise, blanket purchase agreements allow Treasury to issue 

task orders to the firms describing the specific services required, establishing time frames, and setting pricing 

arrangements.

In 2011, we reported 

that 1 year after implementation, Treasury had taken steps to put in place an appropriate 

7

Congress established Fannie Mae and Freddie Mac as government entities, chartering them as for-profit, 

shareholder-owned corporations to stabilize and assist the U.S. secondary mortgage market and facilitate the 

flow of mortgage credit.

8

GAO, Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and 

Transparency, GAO-09-161 (Washington, D.C.: Dec. 2, 2008). 9

GAO-09-161 and Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability 

Issues, GAO-09-296 (Washington, D.C.: Jan. 30, 2009).
Page 5 GAO-12-984R

infrastructure to manage and monitor its network of financial agents and contractors.10

• defined organizational roles and responsibilities and established written policies and 

procedures for the management and oversight of TARP financial agents and 

contractors;

By 

the end of fiscal year 2010, OFS had

• taken action to ensure that sufficient personnel were assigned and properly trained 

to oversee the performance of financial agents and contractors;

• issued written procedures on measuring the performance of financial agents and 

begun implementing performance assessments; and

• developed a contract record system for tracking information related to contracts and 

financial agency agreements.

 

Treasury Has Established a Structured System for Addressing TARP Conflicts of 

Interest

Treasury has taken a number of actions since 2008 to establish a structured system for 

addressing potential conflicts of interest involving its contractors and financial agents. EESA 

authorized the Secretary of the Treasury to issue regulations or guidelines to address 

conflicts of interest that may arise in connection with the administration of the TARP 

programs. Accordingly, Treasury’s January 2009 interim regulation established standards to 

manage or prohibit conflicts of interest, establishing responsibilities for contractors and 

financial agents to monitor and report conflicts should they arise during the performance of a 

contract or agreement, and outlining Treasury’s process for reviewing and addressing 

conflicts of interest.11 Treasury issued its final regulation in 2011.12 

The final regulation defines two types of conflicts of interest that may arise with contracts 

and financial agency agreements—organizational and personal conflicts. According to the 

regulation, an organizational conflict of interest would occur if an entity has a business 

relationship that is inconsistent with the entity’s obligations to Treasury or that calls into 

question the entity’s objectivity or judgment. For example, an organizational conflict would 

arise if a retained entity is, or represents, a party in litigation against the Treasury relating to 

activities under TARP. A personal conflict of interest would be triggered by business or 

financial interests, such as stock ownership by an individual or certain immediate family 

members, which could adversely affect that person’s objectivity or judgment in performing 

under a contract or financial agency agreement. 

 

10GAO, Troubled Asset Relief Program: Status of Programs and Implementation of GAO Recommendations, 

GAO-11-74 (Washington, D.C.: Jan. 12, 2011). 11Treasury issued an interim TARP conflicts of interest regulation in January 2009 (effective January 21, 2009). 

74 Fed. Reg. 3431 (Jan. 21, 2009).

12Treasury issued the final TARP conflicts of interest regulation in October 2011 (effective November 2, 2011). 

The final regulation contained the same elements as the interim regulation but clarified and revised the 

requirements in some cases. For example, the final rule incorporated specific references to the appearance of 

conflicts of interest to clarify that facts or situations that give rise to the appearance of a conflict of interest are 

also considered potential conflicts. The rule also provided a monetary value—$20 or less per gift or $50 total per 

calendar year—for gifts or items that can be accepted. The final regulation also deleted coverage of 

management officials, instead limiting its application to those individuals who are “personally and substantially” 

involved in providing services under an arrangement with Treasury. Management officials who perform a 

substantive role continue to be covered as key individuals. Treasury did not believe that the final regulation 

would substantially change the obligations of OFS’s financial agents or contractors other than in connection with 

management officials that are not also key individuals. 31 C.F.R. Part 31.
Page 6 GAO-12-984R

The regulation establishes a continuing obligation for contractors and financial agents, 

collectively referred to as retained entities, to monitor and report conflicts of interest and 

outlines Treasury’s process for reviewing and managing conflicts of interest. Among various 

other issues, the regulation addresses: 

• limitations on the conduct of entities retained by Treasury, which include restrictions 

on giving and accepting gifts, making unauthorized promises, and improper uses of 

government property;

• obligation to keep nonpublic information confidential;

• applicability of conflicts of interest requirements to subcontractors;

• limitations on entities engaging in certain market activities while concurrently 

providing services to Treasury; 

• the granting of waivers when a conflict cannot be adequately mitigated and a waiver 

is in the government’s interest; and

• measures available to Treasury to enforce the regulation, including default 

terminations, debarments, and referrals for criminal prosecution.

Treasury established a multifaceted process for managing potential conflicts of interest, 

which is described in written procedures established by OFS in 2009 and managed by its 

Office of the Chief Compliance Officer. The process begins at the inception of a contract or 

financial agency agreement, when OFS officials have an opportunity to review the scope of 

work and to provide conflicts of interest provisions to be included in the contract solicitation, 

task order, or the financial agency agreement. Each potential contractor or financial agent is 

required to identify existing or potential conflicts of interest as well as plans to mitigate them. 

If there is an existing or potential conflict of interest, Treasury officials are supposed to 

review and discuss the mitigation plans and, if necessary, ask the entity to provide additional 

information or a revised mitigation plan. The selected contractor or financial agent is to 

certify the completeness and accuracy of its mitigation plan. The agreed mitigation plan 

becomes a part of the final financial agency agreement but is not incorporated into the 

contract. Treasury officials stated that throughout the course of the contract or financial 

agency agreement, contractors and financial agents are required to regularly certify—

annually and quarterly, respectively—that they have no conflicts of interest or describe 

actions they have taken to mitigate any new conflicts of interest that have arisen. 

Treasury also established an internal reporting database in 2009 to document and track all 

conflicts of interest activities. The database is intended to store documents related to 

conflicts of interest reviews of solicitations, task orders, and proposed financial agency 

agreements. The database also tracks financial agent and contractor conflicts of interest 

certifications, inquiries, and requests for waivers. Contractors and financial agents are 

required to search for and report any potential conflicts of interest on a continuing basis, and 

submit written inquiries for Treasury’s review. The database facilitates monitoring of 

potential conflicts of interest and management of conflicts of interest certifications and 

inquiries, including waiver requests. 

To strengthen its oversight system, Treasury introduced several additional actions in 2011. 

For example, OFS began preparing quarterly conflicts of interest feedback reports for 

contractors and financial agents. These reports are intended to describe and rate 

contractors’ and financial agents’ performance during the quarter in identifying, mitigating, 

and disclosing conflicts of interest to the Treasury; submitting adequate conflicts of interest 
Page 7 GAO-12-984R

certifications in a timely manner; and expeditiously responding to requests for additional 

information, among other things. Treasury also put in place a formal requirement that all 

new contractors and financial agents, as well as Contracting Officer’s Representatives13 and 

Office of Financial Agents14 personnel with similar responsibilities, receive conflicts of 

interest training. The training materials used were similar to those used before 2011, but the 

information presented became more consistent across all the training. The training covers 

sources of conflicts of interest requirements, such as the TARP conflicts of interest 

regulation; definitions of terms, such as organizational conflict of interest; and when 

Treasury should be contacted.

In addition, because the monitoring of conflicts of interest was based to some degree on 

self-reported information submitted by contractors and financial agents, Treasury began 

conducting two types of on-site reviews—design reviews and compliance reviews. The 

purpose of these on-site reviews is to test internal controls and procedures for mitigating 

conflicts of interest at contractors and financial agents. Design reviews ideally occur shortly 

after a financial agency agreement or contract is signed. An OFS official said that these are 

brief informal reviews used to determine whether financial agents’ and contractors’ policies 

and procedures are properly designed to detect and mitigate conflicts of interest. 

Compliance reviews, on the other hand, are meant to be in-depth reviews used to verify 

whether contractors’ and financial agents’ internal controls and procedures are being 

followed and are working effectively. 

Treasury Continues to Implement Its TARP Conflicts of Interest Requirements and 

Procedures 

Our discussions with OFS officials and review of supporting documentation and data 

revealed that Treasury continues to implement its compliance system for conflicts of interest 

requirements. We found that OFS generally followed the process outlined above for 

monitoring and managing conflicts of interest throughout the life cycle of the largest contract 

with PricewaterhouseCoopers and the largest financial agency agreement with Fannie Mae. 

Specifically 

• The selected contract and financial agency agreement contained initial mitigation plans 

to address actual or potential conflicts of interest. Both entities later amended their 

mitigation plans to reflect changing regulatory requirements and improved understanding 

of conflicts of interest in their organization and internal controls. In addition, the financial 

agent submitted initial certifications regarding organizational and personal conflicts of 

interest immediately after signing the financial agency agreement with Treasury, and 

later revised them to conform with the certification template that Treasury began using. 

The contractor submitted initial certifications when it amended its initial mitigation plan, 

as agreed with OFS, to reflect new regulatory requirements.

• OFS officials ensured that both entities regularly certify that their mitigation plans are 

effective and describe the actions they have taken and plan to take to mitigate any 

conflicts. 

 

13Contracting Officer’s Representatives act as the contracting officer’s technical experts and representatives in 

the administration and monitoring of contracts.

14The Office of Financial Agents, in support of the Office of the Fiscal Assistant Secretary, is responsible for the 

administration, day-to-day management and oversight of the financial agents supporting the implementation of 

EESA. 
Page 8 GAO-12-984R

• Treasury officials have been timely in recording, responding to, and resolving conflicts of 

interest inquiries from the selected entities—50 from PricewaterhouseCoopers and 200 

from Fannie Mae.

• Treasury officials have provided quarterly feedback reports to assess the status of these 

entities. These reports reveal that the entities have improved certain aspects of 

managing their conflicts of interest efforts over time. For instance, one of the early 

reports remarked that one entity was very slow in providing its past due annual 

certifications and had not met its regulatory obligations in a timely manner. However, 

Treasury officials worked with this entity and improved this deficiency. 

• Treasury conducted an on-site compliance review for both entities, although one review 

was conducted only recently and the report was not completed and ready for our review. 

We saw evidence that Treasury officials followed up to ensure the entity implemented 

the recommendations provided in the other review.

Further, we found that OFS has operated a comprehensive system for receiving and 

responding to various types of inquiries from contractors and financial agents, program 

officials, and other agency sources. OFS classifies inquiries in its database as 

communications, notifications, conflict inquiries, requests for waiver, requests for extension, 

or general information. An inquiry may be approved, denied, or withdrawn by the retained 

entity, or in limited circumstances, OFS may take no action, depending on the type of 

inquiry. Table 3 describes and provides examples of the conflicts of interest inquiry types.
Page 9 GAO-12-984R

Table 3: Conflicts of Interest Inquiry Types, Descriptions, and Examples

Conflicts of interest 

inquiry type

Description Example

Communication Communication occurs 

between Treasury and an 

entity.

OFS conducted its quarterly call with an entity to review 

its certification and address any conflicts of interest 

questions or issues.

Notification Entity is supplying OFS with 

information that does not 

require an OFS response.

An entity notified Treasury that an employee was 

transitioning to a new role and would no longer manage 

a TARP program.

Conflict The entity is asking about an 

issue concerning a conflict 

of interest, which could be a 

vendor request, a personal 

conflict of interest/inquiry, or 

an organizational conflict of 

interest.

• Vendor request—An entity requested the approval 

of a vendor.

• Personal conflict of interest/inquiry—An entity 

requested the approval of a personal mitigation 

plan.

• Organizational conflict of interest—An entity 

inquired about work it would like to perform for 

another entity that has received TARP funds.

Waiver Inquiry relates to a waiver to 

the conflicts of interest 

regulation or to a contract.

• Regulatory waiver—An entity requested a waiver of 

the TARP conflicts of interest regulation regarding 

accepting gifts from an entity seeking official 

Treasury action.

• Contractual waiver—A contractor requested a 

waiver of the cooling off period for a contractor 

employee to move from a TARP project to a nonTARP assignment.

Extension Inquiry is a request for 

extension of a time period 

for the submission of 

documentation.

An entity requested an extension of time to file its 

conflicts of interest certification.

General This category is used for 

inquiries that do not fit into 

one of the other categories.

An entity requested Treasury’s confirmation that 

services related to a potential transaction with an 

automotive supplier were appropriately treated in its 

mitigation plan.

Source: GAO analysis of Treasury data.

Since 2009, OFS has reviewed and responded to over 1,570 conflicts of interest inquiries 

with all financial agents and contractors, as shown in table 4. In reviewing receipt and 

response dates in the inquiry database, we found that inquiries were handled in a timely 

manner and usually resolved in a matter of days. 
Page 10 GAO-12-984R

Table 4: Inquiries since the Beginning of TARP and Number Denied Through 

March 31, 2012

Conflicts of interest 

inquiry type

Contractor Financial agent Total Denied

Communication 37 148 185

Notification 14 142 156

Conflict 279 730 1,009 27

Waiver 11 28 39

Extension 19 19

General 47 117 164 2

Other inquiry (not coded) 2 2

Total 388 1,186 1,574 29

Source: GAO analysis of Treasury data.

The 39 cases classified as waivers primarily involved administrative matters. For example, 

OFS waived gift and entertainment requirements in the TARP conflicts of interest regulation 

after ensuring that the entities’ policies contained essentially the same provisions as the 

TARP regulation, according to an OFS official. Additionally, in several cases, OFS waived 

the requirement in the interim TARP conflicts of interest regulation that Office of Government 

Ethics Form 278 be used to report information about personal, business, and financial 

relationships, allowing the use of Form 450 instead. The final TARP conflicts of interest 

regulation now expressly permits the use of Form 450.

OFS has been preparing quarterly conflicts of interest feedback reports for contractors and 

financial agents since the process was established in 2011. OFS rates contractor and 

financial agent conflicts of interest performance on a three-category scoring system—

unsatisfactory, good, and outstanding—and the scores from the feedback reports are 

summarized in scorecards that provide a snapshot of how each active contractor and 

financial agent is doing in terms of conflicts of interest compliance. In general, most scores 

have been in the “good” category, although a few contractors and financial agents have 

received unsatisfactory or outstanding scores in one or more quarters. According to an OFS 

official, the quarterly conflicts of interest feedback reports for contractors and financial 

agents are shared with the Contracting Officer’s Representatives, who are responsible for 

the day-to-day monitoring of contracts, and with the Office of Financial Agents, as 

appropriate. OFS also provides input on retained entities’ conflicts of interest performance 

for the monthly Contract and Agreement Review Board15 report that evaluates the contractor 

for cost control, performance, and business relations. In the event that a contract violation 

occurs, OFS could choose to withhold payment or stop or reduce the contractor’s work. For 

financial agents, the conflicts of interest scores become a part of a comprehensive 

composite score that influences the incentive fees that some of the financial agents have in 

their agreements.

 

15OFS’s Contract and Agreement Review Board, which is composed of program and procurement executives, 

oversees OFS’s acquisition decisions. The board centralizes decisions regarding the office’s contracting and 

financial agency requirements, serving as the deliberative body for determining whether to perform a function in 

house or to outsource it. This formalized process was established in March 2009, after the urgency of the initial 

stages of the financial crisis had subsided.
Page 11 GAO-12-984R

Treasury conducts two types of on-site reviews—design reviews and compliance reviews. 

OFS began conducting on-site design reviews in March 2011 to determine whether financial 

agents’ and contractors’ policies and procedures are designed to detect and mitigate 

conflicts of interest. As of March 31, 2012, OFS had conducted 11 on-site design reviews—

four reviews at financial agents and seven at contractors. 

• Recommendations made to contractors included signing and/or updating non-disclosure 

agreements; limiting access to Treasury documents; providing, updating, or improving 

conflicts of interest training; documenting the results of conflicts checks; receiving annual 

certifications from subcontractors timed to coincide with the contractor’s own annual 

conflicts of interest certification; and taking a more active role in verifying that 

subcontractors have reliable conflicts of interest processes. 

• Recommendations made to financial agents included documenting procedures for 

clearing conflicts and ensuring there are no conflicts, creating a Restricted Persons List, 

and creating formal on-boarding and off-boarding processes. 

At the conclusion of the design review, OFS completes a review sheet to document the 

review and to identify follow-up items for the entity and for OFS.

OFS started conducting on-site compliance reviews in early 2011 to determine whether 

financial agents’ internal controls and procedures for identifying and mitigating conflicts of 

interest are effective. As of March 31, 2012, OFS had conducted 11 compliance reviews of 

financial agents. It plans to continue conducting reviews at the rate of about one per month. 

While the on-site compliance reviews have primarily been of financial agents thus far, OFS 

has conducted two reviews of contractors and plans to review additional contractors in the 

future, according to an OFS official. In most of the financial agents reviewed, OFS found 

reasonable internal controls were in place and that there were no significant problems, 

although OFS identified some areas for improvements. However, the review of one financial 

agent identified significant weaknesses in its controls and organizational management and 

oversight. Subsequently, the relationship with the financial agent was terminated. The 

following are some examples of observations that OFS provided to financial agents as a 

result of the on-site compliance reviews:

• The entity certified that key individuals had no personal conflicts of interest before 

receiving employee financial disclosure reports corroborating the assertion.

• The entity did not physically separate key individuals primarily engaged in supporting 

TARP-related activities from employees engaged in similar transactions that were not 

TARP-related.

• The entity did not formally document whether and when relevant employees performing 

services under TARP attended conflicts of interest training, or there was no evidence 

that employees/contractors received training, or the training was not timely.

• Some employee financial holdings reports were submitted late and/or contained errors, 

and reviews of brokerage statements were not timely.

• Non-disclosure agreements were not signed by employees having access to material 

non-public information, or were late being signed.

• The entity had no process in place to ensure that mitigation plans for actual or potential 

conflicts of interest are being fully implemented.
Page 12 GAO-12-984R

When it sends its report on the results of the on-site compliance review to the entity, OFS 

requests that the entity provide a written response, including action plans and due dates as 

appropriate, within 30 days. Treasury officials told us that they review the responses and 

discuss them with the companies after receiving the response, if appropriate, and during 

quarterly phone calls. As noted earlier, we saw evidence of this process for Fannie Mae, the 

largest financial agent. If necessary, they also conduct a second site visit to ensure the 

corrective action plans are in place.

Concluding Observations

Since the inception of TARP, Treasury has made significant progress in establishing a 

structured system for addressing conflicts of interest that may arise with its contractors and 

financial agents. In addition, the agency continues to implement its system by reviewing and 

approving conflicts of interest mitigation plans, monitoring that contractors and financial 

agents are regularly certifying that they are preventing or properly mitigating conflicts, and 

responding to inquiries about conflicts from contractors and financial agents in a timely 

manner. Treasury also conducts on-site reviews to test the internal controls and procedures 

contractors and financial agents have established to mitigate conflicts. Although Treasury 

has a comprehensive system in place, continuing oversight will be important to avoid 

conflicts of interest.

Agency Comments and Our Evaluation

We provided a draft of this report to Treasury for its review and comment. Treasury 

concurred with the report and provided written comments that we have reprinted in 

enclosure I. Treasury also provided technical comments that we have incorporated as 

appropriate.

- - - - - - - - - - 

We are sending copies of this report to the Financial Stability Oversight Board, Special 

Inspector General for TARP, interested congressional committees and members, and 

Treasury. In addition, this report will be available at no charge on the GAO website at 

http://www.gao.gov. 

If you or your staffs have questions about this report, please contact me at (202) 512-4841 

or by email at woodsw@gao.gov. Contact points for our Offices of Congressional Relations 

and Public Affairs may be found on the last page of this report. Key contributors to this 

report were John Oppenheim, Assistant Director; Jess Drucker, Danielle Greene, Julia 

Kennon, John Krump, Jeff Sanders, and Erin Schoening.

William T. Woods

Director

Acquisition and Sourcing Management
Page 13 GAO-12-984R

Enclosures – 1 

List of Addressees

The Honorable Daniel K. Inouye

Chairman

The Honorable Thad Cochran

Vice Chairman

Committee on Appropriations

United State Senate

The Honorable Tim Johnson

Chairman

The Honorable Richard Shelby

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Kent Conrad

Chairman

The Honorable Jeff Sessions

Ranking Member

Committee on the Budget

United States Senate

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Hal Rogers

Chairman

The Honorable Norm Dicks

Ranking Member

Committee on Appropriations

House of Representatives

The Honorable Paul Ryan

Chairman

The Honorable Chris Van Hollen

Ranking Member

Committee on the Budget

House of Representatives
Page 14 GAO-12-984R

The Honorable Spencer Bachus

Chairman

The Honorable Barney Frank

Ranking Member

Committee on Financial Services

House of Representatives

The Honorable Dave Camp

Chairman

The Honorable Sandy Levin

Ranking Member

Committee on Ways and Means

House of Representatives
Page 15 GAO-12-984R

Enclosure I: Comments from the Department of the Treasury

(121055)
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