The US Treasury has failed to address "critical issues" in implementing the $700bn financial rescue plan, including how to ensure that banks are complying with executive pay limits, a congressional watchdog said on Tuesday.

The Government Accountability Office (GAO) said the Treasury had yet to develop policies to make sure the troubled asset relief programme, or Tarp, was achieving its goals or that banks receiving government money were complying with restrictions on executive compensation and dividend payments.

"Moreover, further actions are needed to formalise transition planning efforts and establish an effective management structure and an essential system of internal control," it said.

The findings come amid concerns among some legislators about the handling of the $700bn fund. The first $250bn was allocated to buy direct stakes in banks, while the government's purchase of distressed mortgage securities was abandoned last month.

"This shift in the direction of the programme heightened the need for Treasury to proactively provide sufficient information to external stakeholders about not only the change in strategy but also the rationale for the new focus," the GAO said.

Neel Kashkari, the Treasury official managing Tarp, said in a letter accompanying the GAO report that the department disagreed on what was needed to evaluate how individual banks were spending Tarp funds, saying that it welcomed discussion on "general metrics" for evaluating the overall success of the capital purchase programme.

The legislation authorising the $700bn plan included "a number of requirements applicable to individual financial institutions," and Treasury was developing compliance programs for these requirements.

He added, however, that the Treasury had made "significant efforts" to ensure transparency and good communication with its external stakeholders, but "more can and will be done".

The GAO said it was "too soon" to determine whether Tarp was having the intended effect of thawing the credit markets, but that, "without a strong oversight and monitoring function, Treasury's ability to help ensure an appropriate level of accountability and transparency will be limited".

There are other concerns. The Treasury's Office of Financial Stability, which manages the rescue plan, could need as much as 200 full-time staff but had about 48 employees assigned to Tarp as of November 21.

The GAO added that the Treasury had not yet finalised oversight procedures for its growing number of contractors and financial agents, while there was no procedure for monitoring potential conflicts of interest arising from the department's growing reliance on the private sector.

A Treasury spokeswoman, said Tuesday that the department "appreciates GAO's recommendations and looks forward to continuing to work closely with our auditors as we work to fully implement these new programs."