Staffing the Bailout

Gene Dodardo, the Acting Comptroller over at the Government Accountability, is testifying on the state of the bailout today, and his prepared testimony has some interesting things to say about the challenges of staffing up such a massive undertaking during a presidential transition, when people will leave, priorities will change, and long-term planning is very difficult. Specifically:

While Treasury has filled key positions on an interim basis, these same issues may limit its ability to ensure that key leadership positions at OFS remain filled both during and after the transition, potentially creating uncertainty about the direction of the program and impeding efforts to effectively implement and oversee TARP. Therefore, we made several recommendations aimed at facilitating a smooth transition to the new administration and ensuring effective oversight of the program.

In addition to using permanent staff, OFS plans to rely on contractors and financial agents in several key areas. Treasury used expedited solicitation procedures and structured the agreements and contracts to allow for flexibility in obtaining the required services. Most of the contracts awarded thus far have been priced on a time-and-materials basis, which provides for payments based on a set hourly rate plus the cost of any materials.

As we have noted in past work, this type of pricing arrangement requires enhanced oversight.11 Treasury has also taken steps to help promote the use of small businesses in carrying out TARP. In addition, Treasury has issued interim guidelines to address potential and actual conflicts of interest. As required by Treasury, the financial agent and contractors selected have identified a variety of potential and actual conflicts of interest and proposed a variety of solutions to mitigate identified conflicts. However, the agent and contractors have provided few written details on how they intend to implement mitigation plans or communicate related issues to OFS, and OFS has not yet developed a process for monitoring conflicts of interest. As a result, Treasury must continue to take steps to formalize its oversight of conflicts of interest and monitoring time-and-materials contracts.

There are a lot of huge challenges here. No matter how fast he moves, Neil Barofsky starts his job as bailout Inspector General at a disadvantage, having to track more than $310 billion that's already out the door, much less keeping pace with the money that continues to be spent. Staffing just isn't in place yet. Who knows what appointees Obama will ask to stay on throughout the transition, or how his new Treasury Secretary will choose to oversee the Office of Financial Stability. It's going to be interesting to see the scaffolding come off OFS during the transition, and to see how stable the institution is.