In the first official review of the federal government’s $700 billion bailout, the Government Accountability Office wants Treasury to address ‘critical’ oversight issues of the financial rescue plan. The auditors also asked the department to communicate better in the future to Congress and the public about how the bailout program is changing and why those changes are necessary, so as “to avoid information gaps and surprises.”

Since the October 3 bailout program - when the Treasury was authorized with the passage of the Emergency Economic Stabilization Act – it has injected $150 billion in capital into the financial system, by buying preferred shares in 52 institutions. Henry Paulson, the Treasury Secretary, said that the department is reviewing hundreds of applications from banks seeking funding.

The auditors found that the Treasury Department’s scramble to set up the new Office of Financial Stability and hire employees to run the bailout program over the last two months got well ahead of the development of the necessary internal controls.

Moreover, the Treasury Department still does not have the tools needed to monitor whether the banks that received Treasury investments are keeping their side of the bargain by using the money to expand available credit and address mortgage foreclosures.

The Government Accountability Office’s report, presented to Congress on Tuesday, said that the Treasury program needs more staff, better management, an improved transition effort and facilities to ensure banks are using bailout funds effectively. The report also called for a consistent process for monitoring participating institutions, so that Treasury can identify and address any potential compliance issues with banks receiving funds from the Troubled Asset Relief Program.