Billions of dollars are at risk: GAO

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Dozens of federal programs – including several affecting financial services – are vulnerable to waste, fraud and abuse due to agency poor oversight or congressional negligence, the Government Accountability Office said in an annual report by this month.

“Tens of billions of dollars in additional benefits and substantial improvements in the health, well-being and security of the nation would be achieved by fully addressing high-risk issues,” GAO said in its report. annual on the “high risk” federal government. programs. To be eligible for the list, at least $ 1 billion must be at risk.

And oversight gaps are not improving, Comptroller General Gene Dorado told the House Oversight and Reform Committee, which held a hearing on the report earlier this month. “In most areas, progress since our last high-risk update has been limited,” he said.

Committee chair Carolyn Maloney (DN.Y.) blamed former President Trump for part of the problem.

“Over the past four years, objective measurements of the High-Risk List show that the federal government has improved less and regressed more than before the former president took office,” he said. he declared to Dorado.

The massive report cited several areas affecting financial services:

Financial regulations

As it has done in the past, GAO has said Congress should consider consolidating the number of federal agencies involved in overseeing the safety and soundness of financial institutions. The GAO did not name the agencies that could be consolidated, so it’s unclear whether the agency includes the NCUA in the mix.

“The current structure presents significant challenges for the effective and efficient oversight of financial institutions and activities,” GAO said, noting that in the years leading up to the 2007-2009 financial crisis, the regulatory system failed. was not adapted to the significant changes in the market. .

For example, GAO said that entities that play a critical role in financial markets are not being effectively regulated.

Again, the GAO has been vague about the changes it believes should be enacted, but said Congress should consider changes to ensure consistency in consumer protections and consistency in financial supervision for institutions and institutions. similar services.

The GAO noted that while Congress created the Financial Stability Oversight Board (FSOC) in the Dodd-Frank Act, it did not give the board sufficient authority to address the risks associated with financial activities which include several entities. For example, the FSOC may recommend but not require regulators to act on issues involving systemic risk.

Specifically, the FSOC can recommend but not require regulators to act with respect to systemic risk arising from such activities. This poses a challenge in holding FSCO and financial regulators accountable for managing systemic risk.

“Therefore, addressing the weaknesses in the US financial regulatory structure will require additional leadership from Congress,” GAO concluded.

Paycheque Protection Program

The program, created in response to the coronavirus crisis, has faced allegations of inefficiency and waste after it was hastily tinkered with to provide businesses with instant loans at the Bridgepayday to stay in business during the pandemic. In December, the SBA auditors issued an “opinion warning” on the SBA’s financial statements for the year ending September 30.

The GAO said that as of January 2020, the SBA continues to suffer from delays in providing monitoring plans and estimates of irregular payments, adding that until the SBA produces such plans, the GAO will not. may not fully assess the functioning of the program or whether the SBA is performing effective monitoring.

Between May and October, financial institutions filed over 1,400 suspicious activity reports with the Financial Crimes Enforcement Network regarding PPP loans.

SBA auditors said more than two million approved loans, totaling $ 189 billion, potentially did not meet program requirements and that 896,000 lender errors were noted.

Flood insurance

The National Flood Insurance Program (NFIP) is seriously underwater, according to GAO. It is charged with two competing goals: to keep flood insurance affordable and to keep the program solvent. The result has been that the focus on keeping rates affordable has resulted in premium charges that are not sufficient to pay claims.

The GAO first added NFIP to the high risk list in 2006.

The program was forced to borrow from the Treasury Department to pay claims from natural disasters. In August 2020, the Federal Emergency Management Agency (FEMA) owed the treasury $ 20.5 billion after Congress canceled $ 16 million in debt in 2017.

Problems with the program abound, GAO said. “For example, after multiple delays, FEMA’s efforts to modernize the NFIP insurance policy and claims management system ultimately took 17 years,” GAO said.

Authorization for the program expired, but Congress was unable to pass legislation to update the flood insurance program; instead, the program was funded through a series of short-term measures.

Postal service

“The overall financial condition of the USPS is unsustainable and deteriorating,” GAO bluntly said. “The savings from USPS ‘cost reduction efforts have declined in recent years.”

Spending on postal services exceeded revenues by $ 18 billion in 2018 and 2019, as labor costs continued to rise as the volume of the most popular mail products declined.

The postal service is expected to be self-sufficient, which is not necessarily a problem for credit unions. However, some lawmakers and think tanks have recommended that basic banking services be offered at post offices to help generate income. In fact, several years ago the Inspector General of the Postal Service suggested that postal banking services could help alleviate problems with the system.

The IG in 2015 estimated that the USPS could generate $ 1.1 billion per year by expanding the financial products it offers. In a separate report on the matter, GAO said that given the cost involved, the services would generate $ 100 million to $ 200 million in net revenue.

GAO also said that while offering additional non-postal products at post offices could bring benefits to consumers, government or the community, “viability may be limited.”

The GAO said some other countries offer banking services at post offices, but the USPS and the banking associations interviewed pointed out that other countries have very different regulatory structures. In addition, he said, some foreign postal operators are selling their banks.

Housing finance

GAO said Congress will need to pass changes to finally settle the federal government’s role in housing finance. And although hearings were held, the House and Senate did not agree on the matter.

At the same time, the role of the federal government in housing finance increased during the financial crisis and the federal government currently supports about two-thirds of the mortgage market.

To complicate matters, the Federal Housing Finance Agency, which placed government-sponsored housing companies under trusteeship, said the companies had received $ 191.4 billion in capital assistance by the end of the program. last exercise.

And the GAO said it was up to Congress to fix the problem.

“Overall progress on resolving the federal role in housing finance will be difficult to achieve until Congress provides further direction in enacting changes to the housing finance system,” the accountability office said.

Cyber ​​security

Federal agencies must take “urgent action” to implement a comprehensive cybersecurity strategy, oversee the system, secure it and protect it, GAO said.

The Treasury Department was designated as the lead agency for the sector, but by year-end the Ministry had not implemented recommendations to establish a system to measure efforts to mitigate cybersecurity risk.

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