- The Washington Times - Wednesday, October 14, 2009

The Treasury Department failed to investigate adequately a massive and complex employee bonus program at American International Group Inc. before giving the faltering insurance company billions in taxpayer aid, according to a new report by Treasury’s independent watchdog.

The multibillion-dollar “executive” compensation program was so widespread that even kitchen workers and mailroom assistants benefited, says an audit released Tuesday by Neil Barofsky, special inspector general for the Troubled Asset Relief Program (TARP).

Treasury’s lapse in discovering the scope and scale of AIG’s bonus obligations “potentially resulted in a missed opportunity to avoid the explosively controversial events and created considerable public and congressional concern,” the audit says.

“Although broadly aware of the existence of contractually required retention and bonus payments in November 2008, there is little to indicate that Treasury officials took steps to assess the totality of AIG’s compensation.”

The Treasury Department didn’t become aware of the extent of the bonuses until February - after AIG received billions of dollars in taxpayer aid, the audit says.

The audit also says New York Federal Reserve examiners began to realize the magnitude of AIG’s bonus program as early as October 2008. But TARP inspector general auditors said they “saw little indication that the knowledge being developed by the [New York Federal Reserve] about AIG’s compensation obligations was being passed along to Treasury in any systematic way.”

The audit recommends that Treasury and New York Federal Reserve officials “work collaboratively” on future AIG compensation deals.

The report also recommends that Treasury improve its oversight of companies that receive taxpayer aid.

AIG’s compensation package included 620 bonus programs totaling about $455 million for 51,500 employees, 13 employee retention plans allocating about $1 billion to almost 5,200 staffers, and $311 million in deferred compensation paid to about 5,400 employees.

The range of compensation varied greatly, with 62 executives receiving more than $100,000 and a kitchen worker’s bonus of $7,700, the audit says.

A public outcry erupted over executive compensation in March when news broke that AIG doled out at least $165 million in executive bonus pay after being awarded $180 billion in taxpayer loans and incentives.

The aid was part of the federal government’s $700 billion TARP bailout, created last fall as an emergency stopgap to stabilize the nation’s wobbly economy in the midst of the worst recession since the 1930s.

Mr. Barofsky is scheduled to testify on the audit Wednesday morning before the House Oversight and Government Reform Committee.

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