The Treasury Department has no mechanism in place to track how institutions are using $150 billion in taxpayer money that the government injected into the banking system as of last month, the Government Accountability Office concluded in its report to Congress.
The auditors acknowledged that the program, created Oct. 3 to help stabilize a rapidly faltering banking system, was less than 60 days old and has been adjusting to an evolving mission.
But the 72-page report was bound to feed congressional concern that banks and other institutions are not being properly monitored and are not using the money to increase lending.
Meanwhile, the Federal Reserve said it was extending the life of lending programs aimed at smashing through credit clogs and restoring stability to financial markets. The Fed said the programs, originally slated to last through Jan. 30, would be extended through April 30 "in light of continuing strains in financial markets."
On Wall Street, the Dow Jones industrials rose 270 points, making at least a dent in Monday's huge drop of nearly 680.
As for the bailout plan, auditors specifically cited weaknesses in determining whether institutions that received bailout money are complying with limitations on executive compensation and dividend payments. For instance, some top executives at institutions that receive rescue funds must repay any incentives or bonus pay that was based on inaccurate financial statements.
"Treasury has not yet determined how it will monitor compliance with this or other requirements such as limitations on dividend payments and stock repurchases," the report states.
Auditors recommended that Treasury work with government bank regulators to determine whether the activities of financial institutions that receive the money are meeting their purpose.
In a response to the GAO, Neel Kashkari, who heads the department's Office of Financial Stability, said the agency was developing its own compliance program and indicated that it disagreed with the need to work with regulators.
"The GAO's discouraging report makes clear that the Treasury Department's implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers," said House Speaker Nancy Pelosi, D-Calif.
So far, the government has pledged to pour $250 billion into banks in return for partial ownership. It also has agreed to provide $40 billion to troubled insurer American International Group. In addition, $20 billion of the money was invested in Citigroup and another $20 billion went to the Federal Reserve to help ease credit stresses.
Initially, Treasury Secretary Henry Paulson said the money would be used to buy distressed mortgage-related securities from banks. His switch in strategy drew criticism from lawmakers as a confusing mix of messages to the public and investors.
Responding to criticism, federal regulators urged banks to use the money they receive from the bailout to bolster lending. The advice, however, isn't legally binding.
The GAO is one of three watchdogs that Congress has assigned to monitor the dispensation of the extraordinary $700 billion financial rescue package, known as the Troubled Asset Relief Program, or TARP. A congressional oversight panel is scheduled to issue its report on Dec. 10. In addition, Congress created an office of inspector general to oversee the program, but the appointment to the post has been anonymously blocked in the Senate.
Senate Finance Committee chairman Max Baucus used the GAO report as an opportunity to demand the confirmation of veteran federal prosecutor Neil M. Barofsky to the inspector general's job. An anonymous Republican senator has placed a hold on his confirmation.
"This report proves the immediate need for oversight of the taxpayer dollars being expended right now as part of TARP," Baucus said in a statement. "Because of one senator's anonymous block on this nomination, three weeks have been lost a key element of the TARP oversight program is not in place."
Senators are allowed to single-handedly block nominations. They have six days during which Congress is in session to reveal their holds. But those six days have not elapsed since the hold on Barofsky occurred.
Of the senators who attended Barofsky's confirmation hearing on Nov. 19, only Sen. Jim Bunning, R-Ky., who opposed the bailout plan itself, voiced reservations about the nomination.
"Ultimately, I believe Mr. Barofsky, with his impressive legal skills, can serve the public far better in the Southern District of New York, where he can continue to prosecute mortgage fraud," Bunning said at the time.
Bunning spokesman Mike Reynard would not comment on whether Bunning had placed the hold. He noted that the senator has co-sponsored legislation that would give the inspector general greater oversight authority.