GAOCONT. FROM PAGE 1
Key Takeaways
Y The Government Accountability Officereleased its report on high-risk federalprograms.
Y The report recommends financial regulatorsbe consolidated, but didn’t mention the NCUAspecifically.
Y The GAO found nearly 900,000 errors bylenders of the Paycheck Protection Program.
The massive report cited severalareas affecting financial services:
Financial Regulation
As it has in the past, the GAOsaid that Congress should consider consolidating the numberof federal agencies involved insupervising the safety and soundness of financial institutions. TheGAO did not name which agencies might be consolidated, so it isunclear whether the agency is including the NCUA in the mix.
“The current structure introduces significant challenges forefficient and effective oversightof financial institutions and activities,” the GAO said, notingthat in the years leading up tothe 2007-2009 financial crisis, theregulatory system had not adapted to significant changes in themarketplace.
For instance, the GAO said entities that played critical roles in thefinancial markets were not beingregulated effectively.
Again, the GAO was vagueabout the changes it believesshould be adopted, but did saythat Congress should considerchanges to ensure the consistency of consumer protections andthe consistency of financial oversight for similar institutions andservices.
The GAO noted that while Con-
gress created the Financial Sta-
bility Oversight Council (FSOC)
in the Dodd-Frank Act, it did not
give the council sufficient author-
ity to address risks from financial
activities that include multiple
entities. For instance, the FSOC
can recommend but not require
regulators to act on problems in-
volving systemic risk.
Specifically, the FSOC can recommend but not compel regulators to act with respect to systemicrisk arising from such activities.This presents a challenge to holding the FSOC and financial regulators accountable for addressingsystemic risk.
“Hence, addressing weakness-es in the U.S. financial regulatorystructure will require additionalcongressional leadership,” theGAO concluded.
Paycheck ProtectionProgram
The program, created as a response to the coronavirus crisis,has faced allegations of inefficiency and waste after it was hastilycobbled together to provide businesses with loans to stay in operation during the pandemic. InDecember, the SBA’s auditors issued a “disclaimer of opinion” onthe SBA’s financial statements forthe year ending Sept. 30.
The GAO said that as of January
2020, the SBA continues to suf-
fer delays in providing oversight
plans and estimates of improper
payments, adding that until the
SBA produces such plans, the
GAO cannot fully evaluate how
well the program is operating or
whether the SBA is conducting ef-
fective oversight.
Between May and October, financial institutions filed morethan 1,400 suspicious activity reports with the Financial CrimesEnforcement Network related tothe PPP loans.
The SBA’s auditors said thatmore than two million approvedloans, totaling $189 billion, potentially were not in conformancewith the requirements of the program and that 896,000 errors fromlenders were noted.
Flood Insurance
The National Flood Insurance Program (NFIP) is seriously underwater, according to the GAO. It istasked with two competing goals –keeping flood insurance affordableand keeping the program solvent.The result has been that an emphasis on keeping rates affordable hasresulted in premium charges thatare not sufficient for paying claims.
The GAO first added the NFIP tothe high-risk list in 2006.
The program has been forced toborrow from the Treasury Department to pay claims from naturaldisasters. As of August 2020, theFederal Emergency ManagementAgency (FEMA) owed the Treasury $20.5 billion despite Congress having cancelled $16 millionin debt in 2017.
Problems with the program
abound, the GAO said. “For
example, after multiple delays,
FEMA’s effort to modernize NFIP’s
insurance policy and claims man-
agement system ultimately took 17
years to complete,” the GAO said.
The program’s authorizationhas expired, but Congress hasbeen unable to enact legislationto update the flood insurance program; instead, the program hasbeen funded through a series ofshort-term measures.
Postal Ser vice
“USPS’s overall financial condi-
tion is unsustainable and deterio-
rating,” the GAO bluntly declared.
“Savings from USPS’s cost-reduc-
tion efforts have dwindled in re-
cent years.”
Postal service expenses exceed-
ed revenue by $18 billion in 2018
and 2019, as labor costs contin-
ued to increase while the volume
of the most popular mail products
decreased.
The Postal Service is expectedto be self-sufficient, which is notnecessarily an issue for creditunions. However, some lawmakers and think tanks have recommended that basic banking services be offered in post offices tohelp generate revenue. In fact,several years ago, the Postal Service’s Inspector General suggested that postal banking might helpalleviate the system’s problems.
The IG in 2015 estimated thatthe USPS could generate $1.1 billion annually by expanding thefinancial products it offers. In aseparate report on the issue, theGAO said considering the cost involved, the services would generate $100 million to $200 million innet revenue.
The GAO also said while offering additional non-postal productsat post offices could provide consumer, government or communitybenefits, “viability may be limited.”The GAO said some other countries offer banking at post offices,
but that USPS and banking associations interviewed pointed outthat other nations have vastly different regulatory structures. In addition, it said, some foreign postaloperators are selling their banks.
Housing Finance
The GAO said that Congress willhave to enact changes to finallysettle the federal government’srole in housing finance. Andwhile hearings have been held,the House and Senate have notagreed on the issue.
Meanwhile, the federal role inhousing finance increased duringthe financial crisis and the federalgovernment currently supportsabout two-thirds of the mortgagemarket.
To complicate matters, theFederal Home Financing Agency,
which placed the housing Government Sponsored Enterprisesin conservatorship, reportedthat the enterprises had received$191.4 billion in capital supportas of the end of the last fiscal year.And the GAO said it is up toCongress to fix the problem.
“Overall progress on resolvingthe federal role in housing financewill be difficult to achieve untilCongress provides further direction by enacting changes to thehousing finance system,” the accountability office said.
Cybersecurity
Federal agencies must take “urgent action” to implement a comprehensive cybersecurity strategy,perform oversight of the system,secure and protect it, the GAOsaid.
The Treasury Department hasbeen designated as the lead agency for the sector, but by the endof the fiscal year, the departmenthad not implemented recommendations to establish a system formeasuring efforts to mitigate cybersecurity risk. n
