WASHINGTON -- The federal government overpaid by about $78 billion for stock and other troubled assets when it bailed out big banks last year, and it lacks sufficient internal controls to police and protect taxpayers' investment in the institutions, government watchdogs said yesterday.

The new special inspector general for the bailout effort, formally called the Troubled Asset Relief Program, issued his first report yesterday and said that the Treasury Department needs more safeguards to protect taxpayers.

Neil Barofsky said that the Treasury Department, under the Bush administration, focused on buying assets from troubled banks and failed to put a plan in place for managing more than $279 billion in preferred stock that was acquired during the bailouts.

Now, Barofsky is asking 319 financial institutions for detailed accountings of how $300 billion in taxpayers' bailout money has been spent. He said his office also will examine whether any bank had misrepresented the value of securities exchanged for the cash.

"If any entity lied to get our money, we will investigate that. We will find it out, and we will ... make sure those people are brought to justice," Barofsky said. "It is a fundamental part of our mission to root out those types of fraud."

The inspector general's office is working with the FBI and other federal law-enforcement agencies, he said. It has hired veteran prosecutors and investigators with a broad range of experience, including securities law.

This morning on Capitol Hill, Elizabeth Warren, the chairwoman of the program's congressional oversight panel, will release a report on the overpayment of $78 billion for bank stocks and other assets.

Testifying before the Senate Banking Committee yesterday, she said that the Treasury Department paid $254 billion when it bought stocks and other bank assets last year. It received assets worth only about $176 billion, however. Her numbers are close to but don't correspond exactly with the inspector general's.

"Because Treasury has failed to delineate a clear reason for such an overpayment, however, the panel is unable to determine whether (the) objectives have been met or whether they justified the large subsidy that was created," Warren said in prepared remarks.

She challenged Bush administration assurances that all purchases of Wall Street bank warrants and stocks were at "par," meaning that for every $100 injected into the banks, taxpayers got securities worth $100. A valuation study of 10 transactions -- part of the oversight panel's report due today -- suggests the government overpaid by $78 billion, she said.

The Treasury Department, according to the report, has invested almost $300 billion in 319 financial institutions and received $279.2 billion worth of preferred shares in these lenders. It has received common stock from 230 institutions.

Yet, no asset manager is overseeing these shares, and no strategy is in place for government stewardship. "How long these securities should be held and when, and under what circumstances, they should be sold into the market are vitally important questions that implicate not only the taxpayers' return on investment but also the stability of the markets," the report says.

Meanwhile, Treasury Secretary Timothy Geithner has announced new executive-compensation restrictions and other measures designed to improve transparency in the program. On Monday, he's expected to outline his plans for new rescue efforts.

Barofsky's report also says that insufficient safeguards are in place for a $600 billion program that the Federal Reserve is about to unveil. The Fed and Treasury Department are set this month to start buying top-rated asset-backed securities. These are pools of car loans, student loans and credit-card debt that are bundled together and sold to investors in a secondary market.

Private investors won't touch these securities, so the Fed is stepping in to unfreeze this vital credit market. However, the Fed is relying too much on rating agencies and investor due diligence to evaluate the health of these assets, Barofsky warned.