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Treasury’s Monitoring of Compliance
with TARP Requirements by Companies
Receiving Exceptional Assistance

SIGTARP-10-007
JUNE 29, 2010

Office of the special inspector general
For the Troubled Asset Relief Program
1801 L Street, NW
Washington, D.C. 20220

June 29, 2010

MEMORANDUM FOR:

Mr. Herbert M. Allison, Jr.
Assistant Secretary for Financial Stability

SUBJECT:

Treasury’s Monitoring of Compliance with TARP Requirements
by Companies Receiving Exceptional Assistance (SIGTARP-10007)

We are providing this audit report for your information and use. This report is part of broader
audit work examining companies that received exceptional assistance under the Troubled Asset
Relief Program (“TARP”), including American International Group, Inc., Bank of America
Corporation, Chrysler Group, LLC, Citigroup, Inc., General Motors Company, and GMAC,
LLC. This report discusses the requirements imposed on exceptional assistance recipients and
how the Office of Financial Stability has established monitoring of their compliance with those
requirements. Under separate cover, the Government Accountability Office (“GAO”) will
publish a report discussing a review conducted by Special Inspector General of the Troubled
Asset Relief Program (“SIGTARP”) and GAO of Government involvement in companies
receiving exceptional assistance.
SIGTARP conducted this audit under the authority of Public Law 110-343, as amended, which
also incorporates the duties and responsibilities of inspectors general under the Inspector General
Act of 1978, as amended.
We considered comments from the Department of the Treasury when preparing the final report.
The comments are addressed in the report, where applicable, and a copy of Treasury’s response
to the audit is included in the Management Comments appendix E of this report.
We appreciate the courtesies extended to our staff. For additional information on this report,
please contact Mr. Kurt Hyde (Kurt.Hyde@do.treas.gov / 202-622-4633).
U

U

Sincerely,

Neil M. Barofsky
Special Inspector General
for the Troubled Asset Relief Program

Table of Contents
Introduction

1

OFS-Compliance Has Developed a TARP Compliance
Monitoring Strategy, But Implementation Has Been Slow

5

OFS-Compliance Relies on Companies to Identify
Instances of Non-Compliance

9

Conclusion and Recommendations

13

Management Comments and Audit Response

15

Appendices
A. Scope and Methodology

16

B. Companies’ TARP Compliance Efforts

17

C. Acronyms

19

D. Audit Team Members

20

E. Treasury’s Management Comments

21

TREASURY’S MONITORING OF COMPLIANCE WITH TARP
REQUIREMENTS BY COMPANIES RECEIVING EXCEPTIONAL
ASSISTANCE
SIGTARP REPORT 10-007

JUNE 29, 2010

Introduction
In response to a request from Senator Max Baucus, Chairman of the Senate Finance Committee,
the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”)
and the Government Accountability Office (“GAO”) initiated a review of Government
involvement in companies receiving exceptional assistance under the Troubled Asset Relief
Program (“TARP”). 1 As part of this review, SIGTARP and GAO reviewed: (1) Government
involvement in these companies, including input on day-to-day management, changes to boards
of directors and senior management, and limits on executive compensation; (2) Treasury’s
efforts to ensure that these companies comply with the requirements associated with receiving
such assistance; and (3) Treasury’s monitoring of the various investments made in these
companies, its plans for an exit strategy, and lessons learned in case future investments in private
industry prove necessary. This report addresses the second issue—Treasury’s efforts to date to
ensure companies that received exceptional assistance comply with the conditions of their
agreements.
F F

Under separate cover, GAO is issuing a report that reflects GAO’s and SIGTARP’s high-level
review of the Government’s involvement in companies receiving exceptional assistance.
Moreover, both SIGTARP and GAO have ongoing work that will provide additional insights into
the role the Government has played in these companies. Over the next several months,
SIGTARP will issue reports related to the decision to provide Citigroup assistance under the
Targeted Investment Program and the Asset Guarantee Program; the role that Treasury’s Auto
Team played in decisions by General Motors Company (“GM”) and Chrysler Group LLC
(“Chrysler”) to eliminate about 2,000 dealerships as part of their overall restructuring efforts; and
an independent review of Treasury’s oversight of executive compensation. Finally, SIGTARP
continues to monitor the Government’s involvement in the American International Group, Inc.
(“AIG”) Credit Facility Trust, participating companies’ compliance with TARP requirements,
the tax implications of Treasury’s disposition of Citigroup stock, the restructuring and
disposition of AIG assets, and the disposition of Treasury’s equity ownership interests in GM
and Chrysler. SIGTARP intends to announce audit work soon in several of these governance
areas and others, building on the joint GAO/SIGTARP effort represented by these reports.
1

Institutions that have received exceptional financial assistance, as defined by Treasury Interim Final Rule 31
C.F.R. 30.1, are those that participate in TARP’s Targeted Investment Program, Systemically Significant Failing
Institutions Program, Automotive Industry Financing Program, and any future program designated by the Treasury
Secretary as providing exceptional assistance.

1

SIGTARP and GAO have previously reported and made recommendations about Treasury’s
efforts to establish programs designed to monitor and report on TARP recipients’ compliance
with the terms of their assistance and to include important oversight-enabling conditions in its
contracts with companies receiving TARP assistance. For example:
•

On December 23, 2008, just eight days into SIGTARP’s existence, SIGTARP
recommended that the Office of Financial Stability (“OFS”) require that TARP recipients
establish internal controls to ensure compliance with their requirements, report
periodically on the implementation of those controls and their compliance, and provide a
signed certification from a senior official that such report is accurate. OFS subsequently
adopted this recommendation for companies receiving exceptional assistance, as well as
aspects of other TARP programs. Treasury considered this recommendation closed in
September 2009.

•

In December 2008, GAO reported that Treasury’s ability to identify and address any
potential problems in participants’ compliance with program requirements would be
limited without a consistent monitoring process.2 Treasury agreed that it must continue
to develop its internal controls, procedures, and policies for program activities.

•

In April 2009, SIGTARP recommended that OFS significantly increase staffing levels to
ensure the timely development and implementation of an integrated risk management and
compliance program. In response, Treasury has consistently noted on several occasions
that they continue to seek and add experienced compliance professionals and that they
draw upon OFS employees from across the agency as well as contractors and financial
agents to supplement the monitoring effort.

•

In July 2009 Congressional testimony,3 GAO noted that, although OFS has made
progress in establishing its management infrastructure, continued attention to hiring
remained important because some offices within OFS, including the Office of the Chief
Risk and Compliance Officer, still had a number of vacancies that had to be filled as
TARP programs were fully implemented. GAO recommended that OFS expedite its
hiring efforts and, according to GAO, this recommendation has been implemented.

This report provides the results of SIGTARP’s review of OFS’s monitoring of compliance with
TARP requirements by companies receiving exceptional assistance. Specifically, SIGTARP
reviewed OFS’s efforts to ensure that these companies comply with the conditions for receiving
such assistance and OFS’s progress towards developing and implementing a compliance
strategy. During the course of our review, we found that, although some progress has been
made, OFS’s implementation of its compliance strategy has been slow and incomplete.
Moreover, it relies almost exclusively on participants to identify and report compliance failures
according to their own judgment and policies.

2

3

Government Accountability Office, Report No.09-161, “Troubled Asset Relief Program: Additional Actions
Needed to Better Ensure Integrity, Accountability, and Transparency,” December 2, 2008.
Government Accountability Office, Report No. 09-920-T, “Troubled Asset Relief Program: Status of Efforts to
Address Transparency and Accountability Issues,” July 22, 2009.

2

To ascertain OFS’s progress in developing and implementing a compliance strategy, we met with
officials from OFS’s Office of Internal Review (“OFS-Compliance”) and the Auto Team to
discuss their compliance and monitoring efforts. We also interviewed officials from AIG, Bank
of America Corporation (“Bank of America”), Chrysler, Citigroup, Inc. (“Citigroup”), GM, and
GMAC, LLC (“GMAC”).4 We conducted this review from August 2009 to April 2010 in New
York, Charlotte, Detroit, and Washington, D.C., in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the review to
obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions. The evidence obtained provides us a reasonable basis for our findings and
conclusions.

Audit Objectives
This audit, which was conducted in response to a request by Senator Max Baucus, seeks to
determine the extent to which Treasury follows a clear, consistent, and effective process to
ensure companies receiving exceptional assistance adhere to the requirements of their TARP
agreements.
This audit complements other reports previously released by SIGTARP and GAO that touch on
various aspects of the Government’s monitoring of compliance with TARP program
requirements. However, this audit specifically focuses on the Government’s monitoring of
compliance with TARP contractual requirements by companies receiving exceptional assistance.
We reviewed OFS’s monitoring of such compliance through April 30, 2010.

Background
Pursuant to SIGTARP’s December 23, 2008, recommendation, Treasury has required each
company receiving exceptional assistance to establish internal controls to ensure compliance
with key TARP requirements and to provide OFS with certifications verifying compliance on a
quarterly basis. (Appendix B provides information on the companies’ efforts to comply with
TARP requirements). Table 1 sets forth the types of compliance requirements imposed on
companies receiving exceptional assistance.

4

In May 2010, GMAC rebranded its name to Ally Financial Inc.

3

Table 1—Key Requirements in Agreements with Treasury
Key Requirements

Description

Internal Controls and
Compliance Reports1

TARP exceptional assistance recipients agree to promptly establish appropriate internal
controls for compliance with certain requirements. They must report to Treasury on a
quarterly basis regarding their implementation and compliance with these requirements
(including any instances of non-compliance). They must also provide signed
certifications, on a quarterly basis, from a senior officer attesting that, to the best of his
or her knowledge, such report(s) are accurate, under the threat of criminal penalty.

Executive Compensation

In his determination letters to TARP exceptional assistance recipients, the Special
Master for TARP Executive Compensation required that (A) there can be no guarantee
of any “bonus” or “retention” awards among the compensation structures approved by
the Special Master; (B) base salary paid in cash should not exceed $500,000 per year,
except in appropriate cases for good cause shown; the majority of each individual’s
base salary generally will be paid in the form of stock that will immediately vest, in
accordance with the Interim Final Rule, but will only be redeemable in three equal,
annual installments beginning on the second anniversary of the date stock salary is
earned, with each installment redeemable one year early if the company repays its
TARP obligation; (C) total compensation for each individual must be appropriate when
compared with total compensation provided to persons in similar positions or roles at
similar entities and should generally target the 50th percentile of total compensation for
such similarly situated employees; (D) any and all incentive compensation paid to
covered employees will be subject to recovery or “clawback” if the payments are based
on materially inaccurate financial statements, any other materially inaccurate
performance metrics, or if the employee is terminated due to misconduct that occurred
during the period in which the incentive was earned; and (E) “other” compensation and
perquisites, and supplemental executive retirement plans must remain subject to
limitations described in Special Master determinations.

Expense (to include Luxury
Expenditures) Policies

TARP exceptional assistance recipients must implement and maintain an expense
policy that covers the use of corporate aircraft, lease or acquisition of real estate,
expenses related to office or facility renovations or relocations, expenses related to
entertainment and holiday parties, hosting and sponsorship of conferences and events,
travel expenses, and third-party consultations, among others. They must incorporate
mechanisms for internal reporting and oversight for addressing non-compliance. Any
material amendments to the policy require Treasury’s prior written consent. Material
deviations should be promptly reported to Treasury.

Lobbying Policy2

TARP exceptional assistance recipients agree to implement and maintain a lobbying
policy that covers lobbying of U.S. government officials, provisions of items of value to
governmental officials, and political activity. They must include internal reporting and
oversight, and mechanisms for addressing non-compliance. Any material amendments
to the policy require Treasury’s prior written consent. Material deviations should be
promptly reported to Treasury.

1

AIG, Chrysler, and GM’s initial agreements did not require internal control certifications. These requirements were
incorporated in AIG’s April 2009 securities exchange agreement, Chrysler’s June 2009 lien credit agreement, and GM’s
July 2009 secured credit agreement.

2

Note:

The implementation and maintenance of a lobbying policy was not included in the original agreements for GM and
Chrysler. On April 30, 2010, Treasury and Chrysler agreed to include the lobbying policy covenant in a recent loan
amendment. GM and Treasury are discussing a similar agreement. In 2009, GM and Chrysler spent $8.4 million and
$3.1 million, respectively, on lobbying.

Source: SIGTARP’s analysis of Treasury’s agreements with TARP exceptional assistance recipients. Executive compensation
information was obtained from the October 2009 pay determinations issued by Treasury’s Office of the Special Master
for TARP Executive Compensation (“Special Master”).

4

OFS-Compliance Has Developed a TARP
Monitoring Compliance Strategy, But
Implementation Has Been Slow
Within Treasury, OFS-Compliance has stated that they have developed a process to monitor
exceptional assistance recipients’ compliance with their requirements:
•

As a first step, OFS-Compliance requests that the companies document their compliance
and governance framework, including identification of TARP requirements and
corresponding controls, aggregation of multiple business units/individual infractions and
pattern detection, nature of independent verification of effectiveness of internal controls,
and waiver processes.

•

As a second step, it reviews this information and meets with company officials to discuss
their risk of non-compliance and the internal controls environment.

•

Finally, OFS-Compliance reviews the work of the companies’ internal audit groups to
validate the effectiveness of controls and the companies’ compliance with TARP
requirements. OFS-Compliance will perform independent assessments (if necessary)
after reviewing the companies’ internal audit plan and reviews.

OFS-Compliance has completed the first step of its compliance process for all six companies
receiving exceptional assistance (AIG, Bank of America, Chrysler, Citigroup, GM, and
GMAC), 5 and requested that each company document its TARP compliance framework.
However, with the exception of AIG, OFS-Compliance’s initial requests to obtain companies’
compliance frameworks were made 6 to 14 months after TARP requirements were imposed, as
shown in Table 2.6 According to OFS-Compliance, it waited until a company’s first quarterly
certification of internal controls was received before requesting the compliance framework in
F F

5

6

There were initially seven exceptional financial assistance institutions, the seventh being Chrysler Financial.
Chrysler Financial was not subject to internal controls certification and paid off its direct TARP obligations on
July 14, 2009. It remained an exceptional financial assistance recipient for purposes of the Special Master’s
jurisdiction, by reason of its common ownership with the Chrysler bankruptcy entity, until May 14, 2010, when
Chrysler LLC (“Old Chrysler”) repaid $1.9 billion to Treasury. OFS-Compliance plans on reviewing Chrysler
Financial’s implementation of executive compensation determinations required by the Special Master as part of
OFS-Compliance’s executive compensation assessment. Because of repayments by Bank of America and
Citigroup in December 2009, there are currently four exceptional financial assistance recipients remaining.
SIGTARP calculated 6 to 14 months from the time Treasury and the companies entered into their respective initial
agreements that contained key requirements―including establishing internal controls and submission of quarterly
certifications of compliance for some of the companies—to the time OFS requested the companies’ internal
controls compliance framework. OFS officials told SIGTARP that they did not believe they had explicit authority
to review the compliance of AIG, GM, and Chrysler with TARP requirements until internal controls provisions
were added in subsequent amendments to those agreements. Given that the companies involved received massive
Government infusions (infusions that ultimately resulted in majority ownership of two of the three), the idea that
these companies had obligations but that Treasury could not take steps to make sure that the companies complied
with those obligations is one that SIGTARP rejects unequivocally. In SIGTARP's view, OFS had, from the
outset, both the responsibility and the ability to ensure that these companies adhered to key TARP requirements.

5

order to provide the company time to identify and implement new controls. For example, Bank
of America’s first required certification (which covered the quarter that ended on March 31,
2009), was submitted to OFS-Compliance on May 11, 2009, five months after it entered into the
agreement with Treasury. OFS-Compliance requested Bank of America’s TARP compliance
framework two months later, in July 2009. Similarly, GM and Chrysler submitted their first
certifications in October 2009 and OFS-Compliance subsequently requested those companies’
compliance frameworks four months later, in February 2010.
Table 2―OFS-Compliance Monitoring Efforts, as of April 30, 2010
Date of Agreement
with Treasury1

Requested
Compliance
Framework

Met with Company
Compliance Officials

Review Audit
Documentation

AIG

November 20082

June 2009

July – December 2009

December 2009

Citigroup

December 2008

August 2009

September –
November 2009

December 2009;
Citigroup exited Targeted
Investment Program on
December 23, 2009

Bank of
America

January 2009

July 2009

August – October
2009

None; Bank of America
exited TARP on
December 9, 2009

GMAC

May 2009

January 2010

March 2010

April 2010

Chrysler

December 2008

2

February 2010

March 2010

Expected in 3rd Qtr. 2010

GM

December 20082

February 2010

April 2010

Expected in 3rd Qtr. 2010

Note:

1

Refers to the dates of the agreements in which compliance with the specific requirements described in Table 1 were
required.
2
As discussed previously, see footnote 6.

Source: Treasury’s OFS-Compliance.

OFS-Compliance had only four staff members at the beginning of 2009 to manage reporting,
oversight, conflicts, and compliance efforts for more than 300 TARP recipients, including those
companies that received exceptional assistance. OFS-Compliance now has 23 staff members to
conduct compliance and conflict of interest monitoring. In response to both SIGTARP’s and
GAO’s ongoing recommendations regarding staffing, OFS has indicated that it continues to
interview for appropriate compliance professionals, leverages other agency positions (such as
Legal and the Office of the Chief Investment Officer) and uses contractors (such as
PriceWaterhouseCoopers) and financial agents (such as the Office of the Federal Home Loan
Mortgage Corporation’s Making Home Affordable Compliance agent) for compliance
monitoring. Finally, OFS officials have stated that it plans to hire 15 additional staff members
but has not yet been able to identify and hire qualified candidates.
As referenced in Table 2, OFS-Compliance has completed the second step of its process—
meeting with company officials to discuss the internal control environment—for all six
companies. It met with AIG, Citigroup, and Bank of America officials over a period of several
months in 2009 to gain a better understanding of these companies’ internal controls framework.
It conducted on-site meetings with GMAC and Chrysler officials in March 2010, 10 and 15
6

months, respectively, after the companies entered into their initial agreements with Treasury.
OFS-Compliance conducted the initial on-site meetings with GM at the end of April 2010. OFSCompliance officials stated that, due to significant restructuring efforts required at GM, GMAC,
and Chrysler, they decided to wait until their compliance frameworks had time to mature based
on their new organizational structures.
The final step of OFS-Compliance’s monitoring process involves a review of the companies’
internal audit work papers7 to validate the companies’ own assessment of their compliance with
TARP requirements. OFS-Compliance has performed partial work under the final step at just
two of the six companies, as shown in Table 3.
Table 3―Completed Reviews of Company Audit Documentation, as of April 30,
2010
AIG

Citigroup2

Bank of
America2

GMAC

Chrysler

GM

No

No

No

No

No

No

Aircraft Use

Yes

Yes

No

No

No

No

Real Estate
Lease/Acquisition

Yes

Yes

No

No

No

No

Conferences
Hosting/Sponsorship

Yes

Yes

No

No

No

No

Travel Expenses

Yes

Yes

No

No

No

No

No

No

No

No

No

N/A

Executive Compensation1
Expense/Luxury
Expenditure Policies

Lobbying
Note:

1

OFS-Compliance delayed reviewing these controls until 2010 because the Office of the Special Master for TARP
Executive Compensation was working with the companies to determine executive compensation from August to
December 2009.
2
Bank of America exited TARP and Citigroup exited Targeted Investment Program in December 2009, and OFSCompliance subsequently ceased its planned reviews of their compliance activities as exceptional assistance recipients.
However, OFS-Compliance intends to review executive compensation compliance in 2010.

Source: OFS-Compliance.

OFS-Compliance has only reviewed documentation from AIG’s and Citigroup’s internal audit
groups regarding compliance with each company’s respective expense/luxury expenditure
policies. To summarize the status of OFS-Compliance’s reviews to date:
•

7

With respect to AIG, OFS-Compliance’s review of audit reports on expense policies was
limited to only one of the company’s 23 major business units―the International Lease
Finance Corporation (“ILFC”). After reviewing internal audit documentation relating to
ILFC’s expense policies in December 2009, OFS-Compliance concluded that the audit of
that unit was properly documented, the lead auditor had the necessary experience for the
role, and the scope and approach of the audit was consistent with the risks associated with

Audit work papers include a company’s internal audit report as well as all supporting documentation used for
internal audit to develop their conclusion.

7

the business activities. Additional actions taken by OFS-Compliance regarding AIG are
discussed later in this report.
•

With Citigroup, OFS-Compliance focused on Citigroup’s internal audit group’s reports
and processes for assessing compliance with expense policies. In December 2009, OFSCompliance reviewed Citigroup’s audit documentation on its corporate aircraft usage and
concluded that the audit was also properly documented and that controls were “detailed,
thorough, and appropriate to prevent violation of TARP [requirements].” 8
F

•

In April 2010, OFS-Compliance reviewed GMAC’s audit scope for executive
compensation and governance audit work papers, but has not completed its review.

•

OFS-Compliance plans to complete reviews of internal audit reports at Chrysler and GM
between June and September 2010.

•

OFS-Compliance has not, to date, conducted its own TARP internal control review for
any company receiving exceptional assistance.

By the end of December 2009, almost a year after TARP requirements were imposed, Bank of
America repaid its TARP funds, and Citigroup repaid its Targeted Investment Program
investment and exited the Asset Guarantee Program, and thus both had exited exceptional
assistance recipient status. OFS-Compliance subsequently ceased its reviews of these
companies’ compliance with the TARP requirements applicable to exceptional assistance
recipients, essentially concluding that a retrospective review of such compliance was
unnecessary. For Bank of America, OFS-Compliance ended its monitoring activities before
performing any reviews of audit documentation regarding the effectiveness of its controls.9
However, OFS-Compliance stated that they reserved the right to monitor 2009 executive
compensation determinations for both Citigroup and Bank of America, because these two
companies had agreed to comply with the Office of the Special Master for TARP Executive
Compensation’s (“Special Master”) determination letters for the remainder of 2009.
F

OFS-Compliance has not completed reviews of audit documentation on executive compensation
for any of the exceptional assistance recipients, nor audit documentation on lobbying
compliance. Its staff explained that they were working with the Special Master on executive
compensation plans from August through December 2009. Thus, OFS-Compliance decided to
wait until this process was completed before conducting any detailed reviews of compliance
activities.10 Although the Special Master had issued its 2009 compensation determinations for all
8

In addition to work completed for Citigroup’s Targeted Investment Program agreement, from May 2009 through
December 2009, OFS-Compliance worked with Citigroup’s senior management and internal audit organization
regarding the governance for the Asset Guarantee Program agreement. During this time, OFS-Compliance
participated in weekly meetings with Citigroup’s senior management team and had at least monthly discussions
with internal audit regarding their planning, activities, and results. According to OFS-Compliance, through these
discussions, it gained insights into Citigroup’s internal control environment for purposes of implementing it’s
mandated governance plan.
9
OFS-Compliance had planned to review documentation pertaining to Bank of America’s compliance with the
luxury expenditure restrictions. However, this review was scheduled for the day after Bank of America exited the
TARP. The review was canceled.
10
SIGTARP's Investigations Division continues to investigate instances of possible violations of executive
compensation rules.

8

covered employees by the end of 2009, OFS-Compliance chose not to perform due diligence to
determine whether the pay requirements and controls were followed until after compensation had
been paid. Accordingly, OFS-Compliance has only completed a review of GMAC’s executive
compensation internal audit scope and anticipates completing its review of 2009 compensation
plans in the second and third quarters of 2010. With respect to the lobbying requirement, OFSCompliance did not provide a timeframe of its plans to review the companies for compliance.

9

OFS-Compliance Relies on Companies to Identify
Instances of Non-Compliance
Each TARP exceptional assistance recipient must provide a self-certification of its compliance
with TARP requirements, including instances of material non-compliance. OFS-Compliance has
left it to the officials at each company to determine whether deviations from policy are material
and therefore require disclosure. In addition, OFS-Compliance has not provided them with any
written guidance on appropriate levels of materiality, thus leaving the participants broad
discretion to determine whether they should report compliance failures to Treasury. 11 OFSCompliance officials stated that they discussed the requirement to report material deviations with
each company and made suggestions for enhancing governance frameworks and internal
controls. For example, OFS-Compliance provided suggestions that AIG create a group to
identify and determine the materiality of deviations identified. For Bank of America, OFSCompliance suggested implementation of a process to approve waivers for senior management or
business units from established policies.
F

F

Of the 17 self-certifications OFS-Compliance received as of March 31, 2010, only AIG has
identified and reported material deviations. AIG determined that material deviations occurred in
five instances:
“On October 10, 2008, AIG stated its policy on the use of the corporate aircraft in a letter
circulated to all relevant employees by Richard H. Booth, Senior Vice President and
Chief Administrative Officer. This policy was updated in the ‘AIG Policy on Use of
Corporate Aircraft’ effective as of July 20, 2009 and was made available to all relevant
employees. Pursuant to a waiver to this policy granted by a former AIG [Chief Executive
Officer], ILFC, a subsidiary of AIG, did not follow AIG’s corporate aircraft policy until
September 24, 2009. On September 24, 2009, AIG notified ILFC that its waiver was no
longer valid. ILFC has indicated its intent to comply with the policy and has begun
submitting requests for the use of corporate aircraft to the Office of the Chief
Administrative Officer in accordance with the AIG Policy on Use of Corporate Aircraft.”
“The AIG Policy on Use of Corporate Aircraft strictly prohibits the use of corporate
aircraft for personal matters. However, Mr. Robert Benmosche, the AIG Chief Executive
Officer, inadvertently violated this policy by using the corporate aircraft for personal
matters on two occasions. On August 13, 2009, Mr. Benmosche traveled on the
corporate aircraft from Van Nuys, CA to Long Beach, CA and from Long Beach, CA to
Boca Raton, FL at a cost of $12,400. Mr. Benmosche will reimburse AIG in the fourth
quarter 2009 for the full cost of the use of the corporate aircraft….”
“AIG is aware of certain instances where businesses and corporate functions did not
adhere to the prior approval policy for meetings, events, and third party consulting
services. The [Chief Administrative Officer] reviewed these events, meetings, and third11

In some of the companies, the same executives that were present at the time of the institutions’ need for
exceptional assistance are, in fact, still present.

10

party consulting engagements after the fact and found them to be appropriate businessrelated activities….”
“AIG has become aware of variances between ILFC’s expense policies and AIG’s
Expense Policy related to: real estate; travel and entertainment; employee gift and
celebrations; and membership dues. ILFC is reviewing its current policies to either
harmonize them with AIG’s policy or request formal waivers from AIG’s policy….”
“AIG became aware that specific clauses required to be in employee benefit plans and
contracts have been implemented domestically but may not have been implemented
internationally. AIG is now implementing this internationally. AIG has commenced a
review and is setting up processes with outside counsel to comply globally with [AIG’s]
HR requirements under the U.S. Department of Treasury agreements.”
F

According to AIG, it does not have a specific dollar amount threshold for purposes of the selfcertifications, but instead evaluates potential exceptions on a case-by-case basis. Furthermore,
AIG did not report some of these deviations in its previous certifications, even though they
occurred in previous quarters, because they were not identified until the third quarter of 2009.
AIG subsequently reported that they were “implementing enhanced compliance reporting and
exception trends” to prevent future deviations in these areas. OFS-Compliance stated that it has
conducted several discussions with AIG on these findings and communicated their expectations
for remediation, including changes to policies, exception trend monitoring, and implementation
of senior management reviews.
Other companies told SIGTARP that they also found deviations in their policies. However,
based on their own internal review processes, the companies determined these deviations to be
immaterial and therefore did not formally note them in the quarterly certifications. For example,
GM identified inadequate documentation of required preapprovals for certain purchase orders,
incomplete documentation of actual travel expenditures, and an omission from the tax calendar
resulting in the untimely filing of a subsidiary’s state and city tax returns. According to GM, a
steering committee determined that these issues were not material deviations from established
company policy. Therefore, GM did not formally report them in its third quarter 2009
certification. Because OFS-Compliance had not yet met with GM, it did not know of these
deviations before SIGTARP brought them to OFS’s attention in connection with this audit. GM
reported that it has taken steps, such as reinforcing policies with employees and filing voluntary
disclosure for omitted state and city taxes, to ensure internal remediation of the issues and that
action plans were implemented to prevent future deviations in these areas. In discussions with
Bank of America, officials also noted that deviations were identified, such as minor disparities
from expense policy requirements, but, as with GM, these were determined to be immaterial and
were not formally included in the compliance certifications. Bank of America officials stated
that they use their judgment in determining the materiality of the deviations.
While other companies did not identify any deviations in their certifications, they also stated that
they did not develop specific thresholds to determine materiality of a deviation from established
policy. For example, a GMAC official said that the company made a conscious decision not to
establish a specific dollar threshold and believed that its system of controls, monitoring, and
reporting provided an appropriate structure to oversee the compliance process. According to
11

Citigroup, the company considers the relative dollar amount, type of deviation, and the time
period of any possible non-compliance when deciding to escalate the issue for further review and
determination of materiality.

12

Conclusion and Recommendations
To increase accountability and better protect taxpayer interests in those cases in which
exceptional TARP assistance was necessary to stabilize particular companies—specifically, AIG,
Bank of America, Chrysler, Citigroup, GM, and GMAC—Treasury mandated that those
companies comply with special conditions concerning executive compensation, certain company
expenses and lobbying. As the taxpayer’s primary representative with respect to TARP,
Treasury bears the responsibility of ensuring that each such participant faithfully observe those
obligations.
This audit has found, however, that Treasury has, so far, not adequately carried out this
responsibility in a number of key respects:
•

•

Treasury’s compliance procedures rely too heavily on the companies to detect and
report requirement violations on their own. Treasury relies entirely upon TARP
participants themselves (in some cases upon the same managers who presided over the
companies as they reached the brink of failure) to abide by their various requirements in a
diligent and well-judged manner. Indeed, although Treasury is taking steps to review the
companies’ compliance procedures, Treasury has not identified any company to review
or otherwise test independently. The fact that Treasury has not provided basic guidance
on how to apply standards for when departures from the requirements are sufficiently
material to require reporting exacerbates this lack of objective verification. The effect of
Treasury’s approach to date has been that decisions on whether a violation is serious
enough to report have been left to the judgment of the companies themselves. Given the
incentives (and latitude) that companies have to deem a violation immaterial, it is not
surprising that (notwithstanding that other companies have discovered violations) only
one, AIG, has reported violations to Treasury; even then, AIG reported the events in
question months after they occurred and included an unconvincing explanation of one.12

•

12

Treasury’s compliance implementation has been too slow. Treasury has not initiated
its compliance reviews of the exceptional assistance recipients in a timely manner.
Treasury took from 6 to 14 months after the companies’ obligations commenced to even
request their compliance frameworks, and 7 to 15 months to meet initially with their
compliance officials. To date, Treasury has only begun its review of three of the six
companies’ audit documentation and does not expect to complete this final process step
for the remaining three until well over a year after their entry into TARP. In the context
of companies that might not have survived absent TARP’s infusion of tens of billions of
taxpayer dollars, the risks (both financial and to the credibility of the Government’s
stabilization efforts) posed by such companies’ failure to comply with these important
conditions are too great to countenance such delays.

Treasury’s compliance staffing levels continue to be inadequate. Although OFSCompliance has continued to add staff over time, shortages of qualified compliance

It is unclear how the Chief Executive Officer’s personal use of a corporate aircraft on two occasions could have
been “inadvertent.”

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personnel persist. Indeed, Treasury itself has stated that it would like to add 15
compliance staff members, but that it has been unable to do so. Twenty months into its
administration of TARP, Treasury simply has no legitimate excuses as to why it has still
failed to accomplish the critically important task of assembling a robust compliance staff.
In sum, Treasury has not adopted the rigorous approach or developed the professional team
necessary for an adequate compliance system to ensure that companies receiving exceptional
assistance under TARP adhere to the special restrictions that were imposed to protect taxpayer
interests.

Recommendations
In light of these findings, SIGTARP recommends that Treasury undertake the following steps to
address the issues identified:
•

First, Treasury should promptly take steps to verify TARP participants’ conformance to
their obligations, not only by ensuring that they have adequate compliance procedures
but also by independently testing participants’ compliance.

•

Second, Treasury should develop guidelines that apply consistently across TARP
participants for when a violation is sufficiently material to merit reporting, or, in the
alternative, require that all violations be reported.

•

Third, SIGTARP reiterates its previous recommendation concerning the need to add
enough infrastructure and staff at OFS-Compliance to ensure TARP recipients’
adherence to their compliance obligations.

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Management Comments and Audit Response
SIGTARP received an official written response to this audit report from Treasury, a copy of
which is reproduced in full in Appendix E. In that response, Treasury stated that it is fully
committed to a robust compliance regime, and is likewise fully committed to protecting the
interest of taxpayers. While Treasury did agree with a portion of SIGTARP’s third
recommendation regarding increasing the Office of Financial Stability’s compliance staff, it
disagrees with the first two recommendations in this report. Treasury indicated that it would
respond more fully to the report’s findings and provide a detailed description of the actions it
intends to take with regard to the concerns raised in the report within 30 days.

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Appendix A—Scope and Methodology
We performed this audit under the authority of Public Law 110-343, as amended, which also
incorporates the duties and responsibilities of inspectors general under the Inspector General Act
of 1978, as amended. The audit’s specific objective was to determine the extent of OFSCompliance’s monitoring of compliance with TARP requirements for companies that received
exceptional assistance.
To research this report, we interviewed senior TARP compliance staff from AIG, Bank of
America, Chrysler, Citigroup, GM, and GMAC. We also interviewed officials at Treasury, to
determine how they established and implemented TARP compliance monitoring. We reviewed
the legal agreements between Treasury and these six companies to understand the requirements
imposed on each company. To determine how Treasury ensured compliance with TARP
requirements, we reviewed relevant certifications submitted to Treasury.
We conducted this review from August 2009 to April 2010 in New York, North Carolina,
Detroit, and Washington, D.C. in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the review to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions.

Limitations on Data
There were two limitations on data during this review. First, in order to determine how Treasury
ensured company compliance with TARP requirements, we reviewed company self-certifications
submitted to Treasury, in which some companies reported material deviations from
requirements. Because the companies were self-identifying these deviations, other instances of
non-compliance could have been omitted. Second, we relied on the judgment of company
officials to provide us with complete information regarding their internal control environment
surrounding TARP requirements.

Use of Computer-processed Data
We did not use computer-processed data during this review.

Internal Controls
As part of this audit, we discussed internal control frameworks at each company to determine
how they ensured compliance with TARP requirements. We also examined OFS-Compliance’s
process to review company internal controls, self-certifications, and internal audit results to
ensure compliance with TARP requirements.

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Appendix B—Companies’ TARP Compliance
Efforts
According to the companies’ compliance officials, in order to comply with TARP requirements,
they leveraged, among other things, their existing controls, routines, and oversight activities,
such as processes and procedures used to meet requirements imposed by the Sarbanes-Oxley Act
of 2002.13 They also implemented additional measures to comply with TARP requirements.
Each of the companies approached the compliance requirements for internal controls differently
and implemented different sets of processes and oversight mechanisms. Examples of steps taken
are described below.
F

•

AIG expanded some processes—such as requiring that compensation reviews be
conducted semi-annually rather than once a year—to meet TARP requirements. It also
leveraged from processes established to comply with the requirements outlined in the
agreement with the Federal Reserve Bank of New York. 14 In addition, AIG currently
relies on its internal audit department, which is comprised of over 400 auditors, to
conduct TARP-related audits.
F

F

•

Bank of America created a TARP Compliance Committee made up of representatives
from its various divisions to coordinate overall compliance activities. Its Regulatory
Impact Office was also established to monitor TARP compliance efforts as well as
changes in the regulatory environment.

•

Chrysler updated an existing compliance framework and created monitoring tools to
help manage compliance activities.

•

Citigroup appointed senior compliance officers accountable for TARP coordination and
dedicated staff within its existing Audit and Risk Review division to develop TARPrelated audit work. Because Citigroup also participated in the Asset Guarantee Program,
it established a separate Senior Oversight Committee to monitor compliance and
implementation of that agreement. 15
F

•

GM began implementing new controls in December 2008 when it first received TARP
assistance.16 Some of the new controls include requiring the board of directors’ executive
compensation committee review and approve all senior executive compensation plans,
establishing a pre-approval policy and process for capital expenditures to prevent the

13

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Act mandated a number of
reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud,
and created the Public Company Accounting Oversight Board to oversee the activities of the auditing profession.
14
The credit agreement with the Federal Reserve Bank of New York implemented on September 22, 2008, required AIG
to maintain and submit financial statements and reports, placed restrictions on the use of proceeds, investments, loans,
and advances to other parties.
15
SIGTARP is currently conducting a review on Citigroup’s participation in the Asset Guarantee Program.
16
GM received $13.4 billion in December 2008 under the original loan and security agreement with Treasury. It later
received additional TARP funding, totaling $49.5 billion.

17

acquisition or lease of new corporate aircraft, and requiring supervisory approval of all
travel expense reports, among others. 17
F

•

GMAC created the Global Expense Policy (and several related sub-policies) that
provided guidance for the company’s overall expense management.18 In addition to
meeting TARP requirements, GMAC officials explained that the company has had to
update and develop new policies and procedures in order to meet regulatory requirements
of bank holding companies. They stated that because GMAC had recently converted
from a financial services company into bank holding company, it did not have as robust a
compliance framework as compared to other similar companies.

17

Other controls include requiring the Manager of Immigration to review and approve all job offers to foreign workers to
ensure compliance with the Employ American Workers Act of 2009 and requiring the Capital Planning Director to
review the Use of Proceeds report for accuracy prior to submission to Treasury.
18
The Global Expense Policy was implemented shortly after GMAC entered into its first agreement with Treasury in
December 29, 2008 when it received $5.9 billion from the TARP. GMAC received an additional $7.5 billion in May
21, 2009, and another $3.8 billion on December 30, 2009.

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Appendix C—Acronyms
Acronym

Definition

AIG

American International Group, Inc.

Bank of America

Bank of America Corporation

Citigroup

Citigroup, Inc.

Chrysler

Chrysler Group LLC

GAO

Government Accountability Office

GM

General Motors Company

GMAC

GMAC, LLC

ILFC

International Lease Finance Corporation

OFS

Office of Financial Stability

SIGTARP

Special Inspector General for the Troubled Asset Relief Program

TARP

Troubled Asset Relief Program

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Appendix D—Audit Team Members
This report was prepared and the review was conducted under the direction of Kurt Hyde,
Director of Audits, Office of the Special Inspector General for the Troubled Asset Relief
Program.
The staff members who conducted the audit and contributed to the report include:
Michael Kennedy
Tinh Nguyen
Trevor Rudolph
Jeffrey Shue, Esq.

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Appendix E—Treasury’s Management Comments

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SIGTARP Hotline
If you are aware of fraud, waste, abuse, mismanagement, or misrepresentations associated with the
Troubled Asset Relief Program, please contact the SIGTARP Hotline.
By Online Form: www.SIGTARP.gov
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By Phone: Call toll free: (877) SIG-2009

By Fax: (202) 622-4559
By Mail:

Hotline: Office of the Special Inspector General
for the Troubled Asset Relief Program
1801 L Street., NW, 3rd Floor
Washington, D.C. 20220

Press Inquiries
If you have any inquiries, please contact our Press Office:
Kristine Belisle
Director of Communications
Kris.Belisle@do.treas.gov
202-927-8940
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Legislative Affairs
For Congressional inquiries, please contact our Legislative Affairs Office:
Lori Hayman
Director of Legislative Affairs
Lori.Hayman@do.treas.gov
202-927-8941
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Obtaining Copies of Testimony and Reports
To obtain copies of testimony and reports, please log on to our website at www.SIGTARP.gov.
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