Bailout watchdog: Who's the boss?

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WASHINGTON (CNNMoney.com) -- The watchdog charged with investigating fraud in the government bailout programs is feuding with the Treasury Department about who he answers to.

The question revolves around whether Treasury should play any role supervising Neil Barofsky, the special inspector general overseeing the $700 billion Troubled Asset Relief Program.

Since Barofsky took the job in December, he has launched at least 20 criminal investigations and six audits looking for wasted dollars.

There's no question the TARP law makes clear that Barofsky reports to the president, who has the power to appoint and dismiss him, and Congress, to whom he must give quarterly reports.

But does Barofsky also report to Treasury Secretary Tim Geithner? Treasury believes the law is unclear on that point and is seeking a legal opinion to clarify it, a department official said Monday.

Barofsky asserts that he would lose some of his investigative muscle if he has to report to Treasury.

That "could potentially have a serious impact on the independence of our agency and our ability to carry out our mandate," Barofsky said in a June 19 letter to Sen. Charles Grassley, R-Iowa, and Rep. Darrell Issa, R-Calif.

A Treasury official asserts that the question of who oversees the TARP inspector general was first raised last December by "career, nonpolitical" staff.

Barofsky sees the origin of the dispute differently.

In a letter to lawmakers, Barofsky said the question came up in early April when he sought to interview a Treasury attorney about the department's role in controversial bonus payments made to the unit of American International Group (AIG, Fortune 500) responsible for that company's downfall.

In the days before the AIG audit interview, Treasury and attorneys working with Barofsky swapped several emails over whether Geithner supervises the inspector general, according to a Barofsky memo.

Most federal inspectors general ultimately report to the heads of the department they inspect, according to the Inspector General Act of 1978.

Treasury notes that the provision that created the special IG post cites the 1978 inspector general law. Yet, it doesn't spell out that Treasury has a role overseeing the inspector general. And it doesn't use the word "independent."

Barofsky maintains that his office is different and reports to the president and to Congress -- period.

Treasury has asked the Justice Department's Office of Legal Counsel to weigh in. It wants an opinion on whether Barofsky also reports to the Treasury in addition to the president and Congress.

In his June 19 letter, Barofsky assured lawmakers that Treasury has not withheld any documents from his office and has made its staffers available for questioning.

But the tiff -- and the interest of some lawmakers in it -- underscores the continuing political sensitivity surrounding TARP. Many lawmakers, especially Republicans, have been critical of the $700 billion program, even introducing legislation to bring TARP to an early end.

Republicans have pounced on the squabble, which comes on the heels of a dustup over Obama's dismissal of an inspector general unrelated to the Treasury Department.

"At a time when the Treasury and Federal Reserve are exercising unprecedented powers intervening in our economy, the independence of the SIGTARP is one of the few checks and balances that remain," Rep. Issa said in a statement.