Obama Administration to Keep TARP Inspector General from New Small Business Program

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The Obama administration is trying to prevent a bailout watchdog from overseeing an upcoming program to boost lending to small businesses, according to a letter sent to a top Treasury Department official.

The expected decision already has Republicans crying foul, with the GOP lawmaker on a key Congressional oversight panel saying Monday that the plan sent a "disturbing" and "chilling" message that the administration will take revenge on watchdogs who criticize their efforts.

The dispute emerged in a letter sent last Friday by Neil Barofsky, the special inspector general for the $700 billion Wall Street bailout (SIGTARP), to Herb Allison, the assistant treasury secretary for financial stability.

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In the letter, Barofsky warned that to exclude his office from oversight of the program would be "terribly wasteful" and "could lead to significant exposure to waste, fraud and abuse."

While the administration has not yet finalized its legislative proposal for the $30 billion program, Allison indicated to Barofsky last week that his office would not have any oversight of the program.

"I was surprised to learn from you Wednesday that Treasury is contemplating excluding SIGTARP from the oversight provisions of its legislative proposal concerning the Small Business Lending Fund, contrary to what you previously told us," Barofsky wrote in his letter to Allison.

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Only two weeks ago Allison had indicated to Barofsky that the watchdog would "expressly have jurisdiction over" the small business effort, but that all changed last week. The about-face, Barofsky said, was "a curious change".

To exclude Barofsky's office from oversight, he warned, would be "contrary to the best interests of the taxpayer."

As Barofsky noted, the new small business effort bears numerous similarities to one of the programs that his office has been overseeing for more than a year: the Capital Purchase Program [CPP], part of the larger $700 billion Troubled Asset Relief Program (TARP).

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"The funds being utilized, the core mechanics, the economic terms of the program, and even many of the participants all stem from TARP's CPP," Barofsky said.

"Disregarding that expertise when developing a program that has the same goals, a very similar basic structure, that is being run by the same people, and that involves many of the same participants…would, at best, be terribly wasteful and lead to duplicative efforts and, at worst, could lead to significant exposure to waste, fraud, and abuse as another oversight body gets up to speed," he wrote.

Barofsky emphasized that the small business program's structure "leaves it vulnerable to potential fraud and will require vigorous and experienced oversight from the onset of the program."

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"For all of these reasons," he said, "I strongly urge Treasury to reconsider its positions with respect to the oversight provisions" of the small business effort.

Rep. Darrell Issa, R-Calif, the top Republican on the House Oversight & Government Reform Committee, called Treasury's expected move "disturbing" and "chilling" and urged the agency to reverse course.

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