GAO-09-846CG

THE RECOVERY ACT AND TARP

GAO’S OVERSIGHT ROLE

NASACT’S NSAA Annual Conference

Savannah, Georgia

June 17, 2009

By Gene L. Dodaro

Acting Comptroller General

U.S. Government Accountability Office
GAO-09-846CG

Outline

• American Recovery & Reinvestment Act• Financial Institutions and Markets• Long-Term Fiscal Outlook and Risk
GAO-09-846CG

American Recovery & Reinvestmen

• Signed February 17, 2009• Purpose:

• preserve and create jobs and promote recover• assist those most impacted by the recession• invest in science and health-care technology • invest in infrastructure• stabilize state and local government budgets

• Total cost (tax and spending): $787 billion, includin

$580 billion in additional spending (CBO Estimate)
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American Recovery & Reinvestmen

GAO responsibilities include:

• conducting bimonthly reviews of selected states

localities’ use of the funds 

• commenting on recipient reports on the number 

created or preserved

• reviewing areas such as trade adjustment assis

new education incentive grants, and efforts to insmall business lending

• monitoring downturn’s long-term effect on state

(health care costs)
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American Recovery & Reinvestment A

State and Local Reporting Strategy for Bimonthly R• Longitudinal study of 16 states and the District of C

• A number of localities within selected states 

• Program-specific review across states

• April report focused on 3 largest: increased Me

FMAP funding; Highway Infrastructure InvestmFiscal Stabilization Funds

• Forthcoming reports to cover additional progra
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American Recovery & Reinvestmen

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Reporting Objectives1. States’ and localities’ use of funds2. States’ and localities’ up-front safeguards and 

monitoring, audits, and evaluations

3. States’ and localities’ plans to evaluate the imp

funds
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Timing of Federal Recovery Act Funding 

Available to States and Localities

0

20406080

100120

2009 2010 2011 2012 2013 2014 2015 

Fiscal year

Dollars in billions

Source: GAO analysis of CBO and FFIS data, April 2009
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Composition of State and Local 

Recovery Act Funding

19%

1

30%

8%

18%

3%

64%

1%

6% Health

Education andTrainingTransportationIncome SecurityCommunityDevelopmentEnergy andEnvironment

Fiscal Year 2009 Fiscal Y

Source: GAO analysis of CBO and FFIS data, April 2009
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American Recovery & Reinvestmen

Single Audits and Risks• Under the current approach, certain risks associate

Recovery Act programs may not receive full considAlso, timing of audit reporting is problematic.

• Unique challenges associated with Recovery Act f

• Sudden increase in funds that most recipients 

experiencing

• New government programs and programs that 

for the recipient entity

• Need for timely and efficient oversight in respo

Recovery Act’s accountability requirements
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American Recovery & Reinvestmen

GAO Recommendations on Audit Pr

• To provide additional leverage as an oversight too

Recovery Act programs, the Director of OMB shouthe current audit process to:

• Focus the risk assessment auditors use to sele

programs to test for compliance with 2009 fedeprogram requirements on Recovery Act funding

• Provide for review of the design of internal con

2009 over programs to receive Recovery Act fubefore significant expenditures in 2010; and

• Evaluate options for providing relief related to a

requirements for low-risk programs to balance responsibilities associated with the Recovery A
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American Recovery & Reinvestmen

Other GAO Recommendations --

• Administrative support to help states with oversigh• Methodologies to determine jobs created and retai• Communication with state and local recipients• Recipient reports and data collection requirements
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American Recovery & Reinvestmen

Grant Applications

• Concern whether existing grants.gov infrastructure 

handle influx of applications as key deadlines apprOMB directed agencies to develop alternatives.. B

• No centralized source of information on how and w

alternatives

• Recommended OMB improve policies to help mini

disruptions to the grants application process and inlikelihood that applicants can successfully apply
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American Recovery & Reinvestmen

HIT Policy Committee & SBA• Appointment of 13 members to the Health Informa

Technology Policy Committee on April 3, 2009

• On April 16 reported on Small Business Administra

to, among other things, increase liquidity in the secmarkets for SBA loans
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American Recovery & Reinvestmen

Challenges for federal, state and local officials: 

• Expectations for “an unprecedented level of transp

and accountability” 

• Qualified personnel need to implement proper con

accountability at all levels of government

• Close and ongoing coordination needed among 

federal, state, and local governments

• Accountability community: special responsibility to 

collective efforts are well-coordinated.
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Financial Institutions and Marke

GAO Role in Financial Rescue • Troubled Asset Relief Program (TARP) oversight• Auditors of FDIC’s Deposit Insurance Fund, FHFA

and U.S. Government Financial Statements

• Financial Regulatory System• INTOSAI Task Force on Global Financial Crisis
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Financial Institutions and Mark

• Emergency Economic Stabilization Act of 2008 cre

billion TARP in October 2008 

• GAO given statutory oversight role• GAO’s TARP reports’ recommendations follow 3 t

• Monitoring the use of funds to meet the Act’s o• Articulating a better communication strategy• Ensuring effective Treasury management struc

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Financial Institutions and Marke

FDIC’s Deposit Insurance Fund• Most recent audit of financial statements complete

2009: Clean opinion but

• Reported losses from actual and anticipated fa

$42 billion

• Reported Fund reserves of $17 billion were we

statutory minimum level

• Highlighted additional exposures to Fund from 

financial institution failures and systemic risk in
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Financial Institutions and Mark

Consolidated Financial Statement Issues• Ultimate effect of federal government's actions will 

reflected in the U.S. government's consolidated finstatements for fiscal year 2009 and beyond

• Nature and magnitude of these actions have crea

challenges for, among other things, federal financi
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Financial Institutions and Marke

Looking Ahead• Housing 

• Analysis of Proposals for the Structure of Fann

and Freddie Mac

• Review of Treasury's efforts to establish a loan 

modification program

• Financial Regulation

• Framework for Modernizing the Financial Regu

System 
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Modernizing the U.S. Financi

Regulatory System

Financial Regulation: A Framework for Crafting and As

Proposals to Modernize the Outdated U.S. Financial Regulatory System

• Explains the origins of the current financial 

regulatory system

• Describes market developments and chang

pose challenges to the current system

• Presents an evaluation framework that Con

and others can use to craft or evaluate poteregulatory reform efforts

(GAO-09-216, Jan
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Outdated Regulatory System

Risks posed by:• Emergence of large, complex, and interconnec

financial conglomerates

• Less-regulated entities are playing increasingly 

roles in the financial system

• New and complex products pose challenges to 

stability and consumer protection
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For Crafting or Assessing Regulat

Reform Proposals: GAO Framewo

9 Essential Characteristics

• Clearly defined regulatory goals in statute • Appropriately comprehensive• Systemwide focus• Flexible and adaptable• Efficient and effective• Consistent consumer and investor protections• Regulators provided with independence, prominen

authority, and accountability

• Consistent financial oversight• Minimal taxpayer exposure
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Global Financial Crisis Task Fo

• Created by International Governing Board in November • Purpose: 

• enhance the knowledge base of NAOs on financial 

economic matters related to the crisis

• be a source of information to help governments and 

community respond to the crisis 

• Membership: U.S.A. is lead, other countries include:

Austria Estonia Mexico SpainCyprus Hungary Morocco SwedenCanada Indonesia Netherlands United KChile Italy Poland VenezueChina Japan RussiaDenmark Korea Slovakia
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Long-Term Challenges

• Today’s focus—understandably—is on:

• Dealing with financial system stress • Addressing the economic downturn

• BUT.... Underlying issues still need to be addresse

• Long-term fiscal challenge• Sustaining progress on federal financial manag
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Long-Term Fiscal Challenge

Source: GAO. March 2009 simulationsNotes: Data from GAO’s simulations based on the 2008 Trustees’ assumptions for Social Security and Medicaresimulations using CBO’s projections for Social Security and Medicare; the results are not materially different.

Debt Held by the Public as a Share of GDP

Under Two Fiscal Policy Simulations

0

50

100150200

2005 2010 2015 2020 2025 2030 2035 2040 2045 

Fiscal year

Percent of GDP

Alternative

Historical High

109 percent in 1946
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-20-15-10

-5

05

2005 2010 2015 2020 2025 2030 2035 2040 20

Fiscal year

Percent of GDP

Federal and Combined Federal, State 

Local Deficits as Shares of GDP

Source: GAO January 2009 analysis.Note: Federal surplus/deficit is from GAO’s Alternative Simulation based on the Trustees’ assumptions for Social Sec

also run simulations using CBO’s projections for Social Security and Medicare; the results are not materially different

Federal 

deficit

Combined

deficit
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Some Measures 

• Impact on Debt held by the public:

• FY 2005 actual: $4.6 trillion (37.5% of GDP• FY 2008 actual: $5.8 trillion (40.8% of GDP• FY 2009 projected: $8.5 trillion (59.9% of GDP• FY 2010 projected: $9.9 trillion (67.1% of GDP

Impact on Social Security: • Projected gap between expected outlays & expect

widened from $6.6 trillion in 2008 to $7.7 trillion in 

• Negative cash flow 2016 (compared to 2017)• Trust fund exhaustion 2037 (compared to 2041)
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On the Web

Web site: www.gao.gov/cghome/index.html

Contact

Chuck Young, Managing Director, Public AffairsYoungC1@gao.gov (202) 512-4800 

U.S. Government Accountability Office441 G Street NW, Room 7149Washington, D.C. 20548

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