The GAO report sheds light on another interesting angle to the conflict of interest problem with Treasury’s administering of the bailout.
The department has hired outside private contractors to administer parts of the bailout program, notes GAO. Given the reports we’ve seen about Treasury lacking staff — and lacking the right staff — to implement the program, that may be a good move.
But as the report explains, outside contractors aren’t subject to the conflict of interest rules that govern Treasury staff. As a result, Treasury asked the contractors to identify potential conflicts. There were many:
From the report:
In their responses to Treasury’s requirements, six of the eight service providers selected as of November 25, 2008, identified potential or actual sources of conflict. According to our review, the identified conflicts generally involve organizational conflicts of interest, though some also involve personal conflicts of interest:
Five contractors indicated that they either already had clients or could have clients who were receiving TARP assistance.
⢠One contractor indicated that a potential conflict of interest would arise if it received information proprietary to multiple clients with competing investment interests.
⢠One company identified conflicts regarding troubled assets owned either directly by the company or by clients that were eligible for assistance under TARP.
Treasury also asked contractors to explain how they would work with Treasury to avoid such conflicts. And it sounds like some didn’t exactly go the extra mile in that regard.
The submitted plans provided few details, however, on how the companies
would notify and communicate with Treasury if conflicts were identified during the course of performance:⢠Two firms’ plans indicated that they would either maintain an “open dialog” or would “work in good faith” with Treasury should conflicts of interest emerge.
⢠Two other plans did not describe how the firms would address conflicts of interest or how they would notify Treasury.
By comparison, one plan indicated that the company would provide information on conflicts of interest to Treasury in its weekly reports and offer recommendations for addressing each issue.
This section of the report concludes, not reassuringly:
Treasury relies on its financial agents and contractors to disclose conflicts of interest. Treasury officials stated that while under current procedures, they might not know if an agent or contractor did not disclose a conflict, they believed that the consequences for nondisclosure were sufficiently severe to deter such behavior. Finally, Treasury has noted in its solicitations that it intends to oversee and enforce compliance with conflict of interest mitigation plans. For example, Treasury noted in one of its solicitations for legal services that it would incorporate the offeror’s final negotiated conflict of interest mitigation plan into the contract and then oversee and enforce the contractor’s compliance with the plan. At the time we conducted our work, however, Treasury was still in the process of developing an oversight mechanism for enforcing financial agents’ and contractors’ mitigation plans. (our itals.)
