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GAO REPORT: Improvements Are Needed in Internal Control over Financial Reporting for the Troubled Asset Relief Program

GAO REPORT: Improvements Are Needed in Internal Control over Financial Reporting for the Troubled Asset Relief Program


What GAO Found

During fiscal year 2011, OFS addressed several of the internal control issues related to the significant deficiency we reported for fiscal year 2010 concerning its accounting and financial reporting processes. However, remaining uncorrected control deficiencies along with other control deficiencies that we identified in this area in fiscal year 2011 collectively represented a continuing significant deficiency in OFS’s internal control over its accounting and financial reporting processes. Specifically, while OFS improved its review and approval process for preparing its financial statements, notes, and Management Discussion and Analysis (MD&A) for TARP for fiscal year 2011, we continued to identify incorrect amounts and inconsistent disclosures in OFS’s draft financial statements, notes, and MD&A that were significant, but not material, and that were not detected by OFS. For fiscal year 2011, we also identified deficiencies in other OFS accounting and financial reporting procedures related to: (1) recording of noncash transactions, (2) recording of warrant adjustments, and (3) accounting for Public-Private Investment Fund (PPIF) equity distributions.

OFS had other controls over TARP transactions and activities that reduced the risk of misstatements in its financial statements resulting from these deficiencies. For significant errors and issues that were identified, OFS revised the financial statements, notes, and MD&A, as appropriate.

In addition to the significant deficiency, we identified a less-significant control deficiency relating to key patches8 that were not in place for the server9 supporting OFS’s subsidiary ledger. During fiscal year 2011, OFS addressed the three less-significant control deficiencies that existed as of September 30, 2010, and that we reported in our April 2011 management report.10

We are making three new recommendations related to OFS’s continuing significant deficiency and one related to the less-significant control deficiency. Further, our work showed that OFS had completed corrective action on 10 of the 13 recommendations that remained open at the end of the fiscal year 2010 audit, and corrective actions were in progress on the three remaining recommendations.

Why GAO Did This Study

The Emergency Economic Stabilization Act of 2008 (EESA) requires that we annually audit the financial statements of the Troubled Asset Relief Program (TARP), which are prepared by the Department of the Treasury’s (Treasury) Office of Financial Stability (OFS). On November 10, 2011, we issued our audit report including (1) an unqualified opinion on OFS’s financial statements for TARP as of and for the fiscal years ended September 30, 2011 and 2010, and (2) an opinion that OFS maintained effective internal control over financial reporting as of September 30, 2011. We also reported that our tests of OFS’s compliance with selected provisions of laws and regulations for the fiscal year ended September 30, 2011, disclosed no instances of noncompliance.

Our November 2011 audit report concluded that although certain internal controls could be improved, OFS maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, that provided reasonable assurance that misstatements, losses, or noncompliance material in relation to the financial statements would be prevented or detected and corrected on a timely basis. Our audit report also identified a continuing significant deficiency

in OFS’s internal control over its accounting and financial reporting processes.

This report presents (1) detailed information concerning underlying new control deficiencies that contributed to the continuing significant deficiency identified in our audit report, along with related recommendations for corrective actions; (2) a less-significant control deficiency that we identified during our audit, along with a related recommendation for corrective action; and (3) the status, as of November 4, 2011, of corrective actions taken by OFS to address the 13 recommendations that remained open at the end of the fiscal year 2010 audit and were detailed in our April 2011 management report. While the deficiencies we identified are not considered material weaknesses, they nonetheless warrant management’s attention and action.

What GAO Recommends

The four new recommendations presented in this report are in addition to those we have made as part of the series of reports issued on our ongoing oversight of TARP.

For more information, contact Gary T. Engel at (202) 512-3406 or engelg@gao.gov.

Status Legend:

More Info

  • In Process
  • Open
  • Closed – implemented
  • Closed – not implemented

Recommendations for Executive Action

Recommendation: The Assistant Secretary for Financial Stability should direct the Chief Financial Officer (CFO) to revise OFS’s procedures related to recording and review of noncash transactions, to include requirements for the individual performing the quarterly noncash transactions analysis to provide adequate supporting documentation for the entire analysis and for the reviewer to review this information along with the entire Noncash Transaction Report to ensure that all necessary noncash transactions are identified and properly recorded in the general ledger.

Agency Affected: Department of the Treasury: Office of Financial Stability

Status: Open

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Assistant Secretary for Financial Stability should direct the CFO to establish a mechanism for the effective implementation of the review process for recording warrant adjustments.

Agency Affected: Department of the Treasury: Office of Financial Stability

Status: Open

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Assistant Secretary for Financial Stability should direct the CFO to develop and implement written procedures to provide reasonable assurance that PPIF equity distributions are properly recorded in the general ledger in accordance with OFS’s adopted accounting methodology.

Agency Affected: Department of the Treasury: Office of Financial Stability

Status: Open

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Assistant Secretary for Financial Stability should establish procedures for coordinating with the Treasury Chief Information Officer to ensure the timely installation of patches to the Core Information Transaction Flow (CITF) system.

Agency Affected: Department of the Treasury: Office of Financial Stability

Status: Open

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

[ipaper docId=81497051 access_key=key-i1b6udglfyzon4ys5h6 height=600 width=600 /]

 

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BUREAU OF CONSUMER FINANCIAL PROTECTION: Interim Final Rule – Real Estate Settlement Procedures Act (Regulation X)

BUREAU OF CONSUMER FINANCIAL PROTECTION: Interim Final Rule – Real Estate Settlement Procedures Act (Regulation X)


BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

[Docket No. CFPB-2011-0030]
RIN 3170-AA06

Real Estate Settlement Procedures Act (Regulation X)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

SUMMARY: Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred rulemaking authority for a
number of consumer financial protection laws from seven Federal
agencies to the Bureau of Consumer Financial Protection (Bureau) as of
July 21, 2011. The Bureau is in the process of republishing the
regulations implementing those laws with technical and conforming
changes to reflect the transfer of authority and certain other changes
made by the Dodd-Frank Act. In light of the transfer of the Department
of Housing and Urban Development’s (HUD’s) rulemaking authority for the
Real Estate Settlement Procedures Act (RESPA) to the Bureau, the Bureau
is publishing for public comment an interim final rule establishing a
new Regulation X (Real Estate Settlement Procedures Act). This interim
final rule does not impose any new substantive obligations on persons
subject to the existing Regulation X, previously published by HUD.

DATES: This interim final rule is effective December 30, 2011. Comments
must be received on or before February 21, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0030 or RIN 3170-AA06, by any of the following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.

Mail: Monica Jackson, Office of the Executive Secretary,
Bureau of Consumer Financial Protection, 1500 Pennsylvania Ave. NW.,
(Attn: 1801 L Street), Washington, DC 20220.

Hand Delivery/Courier in Lieu of Mail: Monica Jackson,
Office of the Executive Secretary, Bureau of Consumer Financial
Protection, 1700 G Street NW., Washington, DC 20006.

All submissions must include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. In general,
all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW., Washington, DC 20006, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Time. You can make an appointment to inspect the documents by
telephoning (202) 435-7275.

All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Joseph Devlin or Jane Gao, Office of
Regulations, at (202) 435-7700.

[ipaper docId=76548832 access_key=key-1qm31nrrlszscec04ask height=600 width=600 /]

image: hlstx

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A $200K Mortgage for $2 a Month

A $200K Mortgage for $2 a Month


You saw that title, “A $200K Mortgage for $2 a Month,” and maybe you thought, “that looks like spam.”

No. It’s real.

And then maybe you thought, “a $200,000 mortgage? For only $2 each month? That sounds impossible.”

Well, it is possible. It’s just not possible for you.

For Bank of America, yes. For Citigroup, yes. For Wells Fargo, yes.

For you, no.

The GAO’s main report on its audit of the Federal Reserve exposed who received the trillions and trillions of dollars in Fed bailouts. But the GAO report wasn’t very specific about the terms of those bailouts. For that, we have the Freedom of Information Act records obtained by Bloomberg News, which Bloomberg wrote about last week. Among other things, Bloomberg reported that the Fed lent out this cash to Wall Street at rates “as low as 0.01 percent.

To such worthy recipients as Bear Stearns, AIG, the Royal Bank of Scotland, etc., etc.

Well, it could have been worse. The Fed could have just dumped the money into a wood chipper.

If you do that math, you’ll see that when the Fed gave Citigroup the money for a $200,000 mortgage, at 0.01 percent, Citigroup had to pay less than $2 each month for that money. Citigroup then lent that money to you – if it deigned to lend you anything – for maybe $1,000 a month, maybe more.

And that $40,000 credit card balance? Citigroup paid the Fed less than a dollar a month for that money. And you paid $1,000.

Citigroup pays $1. You pay $1,000. You see how that works?

Citigroup fell into such a deep hole that it had to borrow a “term-adjusted” $58,000,000,000 from the Fed, according to Page 132 of the GAO’s audit report.

And what would you get from the Fed, if you fell into a deep hole? Nothing. Nada. Zilch. Zip. Diddly-squat. Zero.

You wouldn’t get jack.

If you lose your home, you can sleep in your car. If you lose your car, you can sleep under a bridge. Unless, of course, you’re a Wall Street banker.

Two hundred and thirteen years ago, there was a Member of Congress who said: “Millions for defense, but not one penny for tribute.” Now we have a government that says: “Trillions for Wall Street, but not one penny for you.”

That’s our government. Unless we change it.

Courage,

Alan Grayson

“Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes. Everybody knows.”

- Leonard Cohen, “Everybody Knows”

We need someone in Congress who is PAYING ATTENTION. And someone who is willing to FIGHT FOR US. Click here, and support Alan Grayson’s campaign TODAY.

 

image: Flickr

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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Ranking Member Cummings Addresses New GAO Report on AIG Bailout

Ranking Member Cummings Addresses New GAO Report on AIG Bailout


Washington, DC—Ranking Member Elijah E. Cummings issued the following statement on a new GAO report issued regarding AIG. The report found inconsistent accounts of attempts by the Federal Reserve Bank of New York to negotiate with AIG’s counterparties to lower U.S. taxpayer exposure.

“GAO’s report cries out for the full and immediate implementation of the Dodd-Frank Act. As distasteful as the AIG bailout was, the systemic risk posed by AIG to the domestic and international economies was real, and cannot be overstated. This report reinforces the need to implement provisions in Dodd-Frank that will prohibit the use of tax-payer dollars to artificially prop up or benefit one firm, and ensure that massive, nonbank companies cannot engage in financial transactions that put our nation’s economy at risk again.”

Cummings was one of the Members of Congress who asked GAO to examine the decision to provide AIG with taxpayer funds. The report echoes the findings of investigations conducted, at Cummings’s request, by the House Oversight and Government Reform Committee and the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) which found clear shortfalls in the Federal Reserve Bank of New York’s negotiations with AIG counterparties regarding the payments they would receive for credit default swap contracts they held.

Highlights of the GAO report include the following:

  •        “The possibility of AIG’s failure drove Federal Reserve aid after private financing failed.”
  •        “[Federal Reserve Bank of New York’s] Maiden Lane III design likely required greater borrowing, and accounts of attempts to gain concessions from AIG counterparties are inconsistent.”
  •        “The Federal Reserve’s actions were generally consistent with existing laws and policies, but they raised a number of questions.”
  •        “Initial Federal Reserve lending terms were designed to be more onerous than private sector financing.”
  •        “The AIG crisis offers lessons that could improve ongoing regulation and responses to future crises.”

[ipaper docId=71150009 access_key=key-1wi59nkni374d1nq7v93 height=600 width=600 /]

 

 

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Financial Crisis: Review of Federal Reserve System Financial Assistance to American International Group, Inc.

Financial Crisis: Review of Federal Reserve System Financial Assistance to American International Group, Inc.


Summary

In September 2008, the Board of Governors of the Federal Reserve System (Federal Reserve Board) approved emergency lending to American International Group, Inc. (AIG)–the first in a series of actions that, together with the Department of the Treasury, authorized $182.3 billion in federal aid to assist the company. Federal Reserve System officials said that their goal was to avert a disorderly failure of AIG, which they believed would have posed systemic risk to the financial system. But these actions were controversial, raising questions about government intervention in the private marketplace. This report discusses (1) key decisions to provide aid to AIG; (2) decisions involving the Maiden Lane III (ML III) special purpose vehicle (SPV), which was a central part of providing assistance to the company; (3) the extent to which actions were consistent with relevant law or policy; and (4) lessons learned from the AIG assistance. To address these issues, GAO focused on the initial assistance to AIG and subsequent creation of ML III. GAO examined a large volume of AIG-related documents, primarily from the Federal Reserve System–the Federal Reserve Board and the Federal Reserve Bank of New York (FRBNY)–and conducted a wide range of interviews, including with Federal Reserve System staff, FRBNY advisors, former and current AIG executives, AIG business counterparties, credit rating agencies, potential private financiers, academics, finance experts, state insurance officials, and Securities and Exchange Commission (SEC) officials. Although GAO makes no new recommendations in this report, it reiterates previous recommendations aimed at improving the Federal Reserve System’s documentation standards and conflict-of-interest policies.

While warning signs of the company’s difficulties had begun to appear a year before the Federal Reserve System provided assistance, Federal Reserve System officials said they became acutely aware of AIG’s deteriorating condition in September 2008. The Federal Reserve System received information through its financial markets monitoring and ultimately intervened as the possibility of bankruptcy became imminent. Efforts by AIG and the Federal Reserve System to secure private financing failed after the extent of AIG’s liquidity needs became clearer. Both the Federal Reserve System and AIG considered bankruptcy issues, although no bankruptcy filing was made. Due to AIG’s deteriorating condition in September 2008, the Federal Reserve System said it had little opportunity to consider alternatives before its initial assistance. As AIG’s troubles persisted, the company and the Federal Reserve System considered a range of options, including guarantees, accelerated asset sales, and nationalization. According to Federal Reserve System officials, AIG’s credit ratings were a critical consideration in the assistance, as downgrades would have further strained AIG’s liquidity position. After the initial federal assistance, ML III became a key part of the Federal Reserve System’s continuing efforts to stabilize AIG. With ML III, FRBNY loaned funds to an SPV established to buy collateralized debt obligations (CDO) from AIG counterparties that had purchased credit default swaps from AIG to protect the value of those assets. In exchange, the counterparties agreed to terminate the credit default swaps, which were a significant source of AIG’s liquidity problems. As the value of the CDO assets, or the condition of AIG itself, declined, AIG was required to provide additional collateral to its counterparties. In designing ML III, FRBNY said that it chose the only option available given constraints at the time, deciding against plans that could have reduced the size of its lending or increased the loan’s security. Although the Federal Reserve Board approved ML III with an expectation that concessions would be negotiated with AIG’s counterparties, FRBNY made varying attempts to obtain these discounts. FRBNY officials said that they had little bargaining power in seeking concessions and would have faced difficulty in getting all counterparties to agree to a discount. While FRBNY took actions to treat the counterparties alike, the perceived value of ML III participation likely varied by the size of a counterparty’s exposure to AIG or its method of managing risk. While the Federal Reserve Board exercised broad emergency lending authority to assist AIG, it was not required to, nor did it, fully document its interpretation of its authority or the basis of its decisions. For federal securities filings AIG was required to make, FRBNY influenced the company’s filings about federal aid but did not direct AIG on what information to disclose. In providing aid to AIG, FRBNY implemented conflict-of-interest procedures, and granted a number of waivers, many of which were conditioned on the separation of employees and information. A series of complex relationships grew out of the government’s intervention, involving FRBNY advisors, AIG counterparties, and others, which could expose FRBNY to greater risk that it would not fully identify and appropriately manage conflict issues and relationships.

[ipaper docId=71149053 access_key=key-l15eo6l9mnzfzcml7hq height=600 width=600 /]

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Fed Audit Bitterly Opposed By Treasury

Fed Audit Bitterly Opposed By Treasury


Huffingtonpost.com 3/9/2010

The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday. Instead, the official said, the Treasury prefers a substitute offered by Rep. Mel Watt (D-N.C.), and would like to see it enacted as part of the Senate bill.Fed Audit Treasury

The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO’s ability to perform an audit.

Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.

HuffPost reporter Sam Stein lodged what he called a “formal complaint” against the ground rules. The complaint was noted and the briefing began.

Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas), a senior Treasury official said he is intensely opposed to it.

The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.

He said he supports full disclosure when it comes to the scale of Fed lending and wouldn’t draw a bright line around auditing certain activities, but wants to make sure it maintained its independence.

The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO’s ability to perform an audit.

Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.

HuffPost reporter Sam Stein lodged what he called a “formal complaint” against the ground rules. The complaint was noted and the briefing began.

Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas), a senior Treasury official said he is intensely opposed to it.

The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.

He said he supports full disclosure when it comes to the scale of Fed lending and wouldn’t draw a bright line around auditing certain activities, but wants to make sure it maintained its independence.

A lack of independence, he said, could lead to inflation and otherwise undermine progressive priorities.

He said, however, that he would be supportive of efforts that would help the Fed earn back some of the credibility it has lost over the past few years.

HuffPost asked if central bank liquidity swaps — foreign currency trades worth hundreds of billions of dollars — should be subject to an audit. The official said that the identity of the countries that received dollars was made public as was the amount each got. It worked well and was good policy, he said, and opening it to audit could undermine its future effectiveness.

The purpose of the swaps, he said, was to make sure that foreign central banks had enough dollars to meet their obligations. The effort kept interest rates low, he said.

A member of Congress, told of the unnamed Treasury official’s comment, asked not to be named and said that Geithner, a former Fed president, should recuse himself from Fed audit legislation discussions, given that the audit would cover his own actions during the crisis.

And Rep. Grayson said he finds Treasury’s opposition to the audit troubling. “There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street,” said Grayson. “And opposing a measure that passed overwhelmingly in the House with bipartisan support at the [Financial Services] Committee level, based up on legislation that now has 317 cosponsors in the House, shows that the president may be getting bad advice.”

The idea that the Fed’s mission would be undermined by an audit, said Grayson, “is a scarecrow erected by people who want to cover up the actions of the Fed for their own purposes, including those who actually have worked at part of the Fed, to prevent accountability at any cost.”

Geithner served as president of the New York Fed during the financial crisis.

“It’s interesting that the Fed regards the simple fact that people find out what it does as somehow being unduly restrictive. We are a government of laws, not of men,” said Grayson.

“It’s certainly no surprise that banking insiders at Treasury don’t want transparency at the Fed,” said Jesse Benton, a spokesman for Rep. Paul. “They are wrapped up in the central bank shenanagins too, and do not want their wheelings and dealings out in the open any more than Alan Greenspan or Ben Bernanke,”

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