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Financial Statements United States Government Accountability Office Washington, DC 20548 November 9, 2012 Congressional Committees Subject: Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2012 and 2011 Financial Statements This report transmits the GAO auditor’s report on the results of our audit of the fiscal years 2012 and 2011 financial statements of the Office of Financial Stability (Troubled Asset Relief Program), which is incorporated in the enclosed Office of Financial Stability (Troubled Asset Relief Program) Agency Financial Report for Fiscal Year 2012. As discussed more fully in the auditor’s report that begins on page 41 of the enclosed agency financial report, we found the financial statements are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles; the Office of Financial Stability (OFS) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2012; and no reportable noncompliance in fiscal year 2012 with provisions of laws and regulations we tested. The Emergency Economic Stabilization Act of 2008 (EESA)1 that authorized the Troubled Asset Relief Program (TARP) on October 3, 2008, requires that TARP, which is implemented by OFS,2 annually prepare and submit to Congress and the public audited fiscal year financial statements that are prepared in accordance with U.S. generally accepted accounting principles.3 EESA further requires that GAO audit TARP’s financial statements annually.4 We are also required under EESA to report at least every 60 days on the findings resulting from our oversight of the actions taken under TARP.5 This report responds to both of these requirements. We are sending copies of this report to the Secretary of the Treasury; the Assistant Secretary for Financial Stability; the Financial Stability Oversight Board; the Special 1Pub. L. No. 110-343, div. A, 122 Stat 3765 (Oct. 3, 2008), codified in part, as amended, at 12 U.S.C. §§ 5201- 5261. 2Section 101 of EESA, 12 U.S.C. § 5211, established OFS within the Department of the Treasury to implement TARP. 3Section 116(b) of EESA, 12 U.S.C. § 5226(b). 4Section 116(b) of EESA, 12 U.S.C. § 5226(b). 5Section 116 of EESA, 12 U.S.C. § 5226, requires the Comptroller General to report at least every 60 days on findings under section 116. Page 1 GAO-13-126R OFS’s Fiscal Years 2012 and 2011 Financial Statements Inspector General for TARP; the Acting Director of the Office of Management and Budget; interested congressional committees and members; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you have questions about this report, please contact me at (202) 512-3406 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Gary T. Engel Director Financial Management and Assurance Enclosure Page 2 GAO-13-126R OFS’s Fiscal Years 2012 and 2011 Financial Statements List of Committees The Honorable Daniel K. Inouye Chairman The Honorable Thad Cochran Vice Chairman Committee on Appropriations United States Senate The Honorable Tim Johnson Chairman The Honorable Richard C. Shelby Ranking Member Committee on Banking, Housing, and Urban Affairs United States Senate The Honorable Kent Conrad Chairman The Honorable Jeff Sessions Ranking Member Committee on the Budget United States Senate The Honorable Max Baucus Chairman The Honorable Orrin G. Hatch Ranking Member Committee on Finance United States Senate The Honorable Harold Rogers Chairman The Honorable Norman D. Dicks Ranking Member Committee on Appropriations House of Representatives The Honorable Paul Ryan Chairman The Honorable Chris Van Hollen Ranking Member Committee on the Budget House of Representatives Page 3 GAO-13-126R OFS’s Fiscal Years 2012 and 2011 Financial Statements The Honorable Spencer Bachus Chairman The Honorable Barney Frank Ranking Member Committee on Financial Services House of Representatives The Honorable Dave Camp Chairman The Honorable Sander Levin Ranking Member Committee on Ways and Means House of Representatives Page 4 GAO-13-126R OFS’s Fiscal Years 2012 and 2011 Financial Statements THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 Table of Contents MESSAGE FROM THE ASSISTANT SECRETARY FOR FINANCIAL STABILITY ......................................... v EXECUTIVE SUMMARY ................................................................................................................................................ vii Part 1: Management’s Discussion and Analysis Background, Mission, and OFS Organization Structure ................................................................................... 2 Overview of TARP for Fiscal Year 2012 ................................................................................................................. 4 Key Trends/Factors Affecting TARP Future Activities and Ultimate Cost ............................................. 12 Systems, Controls, and Legal Compliance ........................................................................................................... 14 Limitations of the Financial Statements ............................................................................................................... 17 Operational Goals .......................................................................................................................................................... 18 Operational Goal One: Ensure the Overall Stability and Liquidity of the Financial System .......... 18 Capital Purchase Program .................................................................................................................................. 18 Targeted Investment Program ......................................................................................................................... 20 Asset Guarantee Program .................................................................................................................................. 20 Community Development Capital Initiative ............................................................................................... 21 Public-Private Investment Program .............................................................................................................. 21 Term Asset-Backed Securities Loan Facility .............................................................................................. 23 Small Business Administration 7(a) Securities Purchase Program .................................................. 23 Automotive Industry Financing Program .................................................................................................... 24 American International Group, Inc. (AIG) Investment Program ........................................................ 27 Operational Goal Two: Prevent Avoidable Foreclosures and Preserve Homeownership .............. 28 Operational Goal Three: Protect Taxpayers’ Interests .................................................................................. 33 Operational Goal Four: Promote Transparency ............................................................................................... 34 Part 2: Financial Section MESSAGE FROM THE CHIEF FINANCIAL OFFICER (CF0) ............................................................................ 40 GOVERNMENT ACCOUNTABILITY OFFICE AUDITOR’S REPORT ............................................................. 41 Appendix I: Management’s Report on Internal Control Over Financial Reporting .................... 47 Appendix II: OFS Response to Auditor’s Report ....................................................................................... 48 FINANCIAL STATEMENTS ......................................................................................................................................... 49 NOTES TO THE FINANCIAL STATEMENTS ......................................................................................................... 54 REQUIRED SUPPLEMENTARY INFORMATION ................................................................................................. 86 OTHER ACCOMPANYING INFORMATION – SCHEDULE OF SPENDING .................................................. 88 Part 3: Appendices APPENDIX A: TARP GLOSSARY ........................................................................................................................ 91 APPENDIX B: ABBREVIATIONS AND ACRONYMS.................................................................................... 93 WEBSITES .......................................................................................................................................... inside back cover MESSAGE FROM THE ASSISTANT SECRETARY iii THE DEPARTMENT OF THE TREASURY | OFFICE OF FINANCIAL STABILITY This page intentionally left blank. AGENCY FINANCIAL REPORT | FISCAL YEAR 2012 MESSAGE FROM THE ASSISTANT SECRETARY FOR FINANCIAL STABILITY November 9, 2012 I am pleased to present the Office of Financial Stability’s (OFS) Agency Financial Report for Fiscal Year (FY) 2012, which describes our financial and performance results for the fourth year of the Troubled Asset Relief Program (TARP). The report contains the financial statements for TARP and the Government Accountability Office (GAO) audit opinion on those financial statements, a separate opinion on OFS’ internal control over financial
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