It’s an inconceivable scheme that rewards bad behavior with big bucks from taxpayers who have no say in the matter. In fact, the U.S. Treasury was forced by Congress to create rules against it yet a new federal audit reveals the agency repeatedly violates them to enrich the very people responsible for the companies’ failures (and need for a government bailout). The rescued firms include American International Group (AIG), General Motors Corp. (GM) and Ally Financial Inc.

Combined they have received an astounding $135 billion from Uncle Sam, according to government figures, yet the Treasury has approved 18 raises totaling $6.2 million for their top dogs. Half of the pay increases went to executives at GM, which got a whopping $50.2 billion bailout. One chairman at AIG, which is labeled “Systematically Significant Failing Institutions” by the Treasury, got an unbelievable $ 1 million raise. AIG has received $67.8 billion from TARP, according to the audit made public this week by the Special Inspector General for the Troubled Asset Relief Program.

The report is scathing and blasts the Treasury for repeatedly disregarding its own rules to approve fat raises for the heads of these rescued firms. In fact, the agency consistently approved cash salaries in excess of $500,000 for the CEO of each company that asked, the inspector general writes in the report, which says the GM, Ally and AIG executives continue to rake in multimillion-dollar pay packages approved by the Obama Treasury.

“While taxpayers struggle to overcome the recent financial crisis and look to the U.S. government to put a lid on compensation for executives of firms whose missteps nearly crippled the U.S. financial system, the U.S. Department of the Treasury continues to allow excessive executive pay,” the report says. It also explains how President Obama quickly implemented prohibitions on excessive pay for executives of bailed out firms after public outrage ensued in 2009 over press reports that TARP recipients paid billions in bonuses.

President Obama called the bonuses “shameful” and responded by setting salary caps for top executives, the audit points out, offering a rambling quote from the commander-in-chief: “In order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on

Wall Street. We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves customary lavish bonuses. As I said last week, this is the height of irresponsibility. It’s shameful. And that’s exactly the kind of disregard of the costs and consequences of their actions that brought about this crisis…what gets people upset – and rightfully so – are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves.”

Indeed a powerful statement from the nation’s leader that inspired the Treasury to issue guidelines proposing compensation limits on the same day he delivered it. Of course, the rules are only good for; say picking up dog poop, if they’re not enforced. The rest of the report, which spans 78 pages, is littered with a number of other enraging examples of how the government is rewarding the heads of failing companies that came to taxpayers for a rescue with their tail between their legs.

This is hardly earth-shattering news considering the well-documented history of the $700 billion Troubled Asset Relieve Program (TARP), the president’s brilliant idea to rescue the nation’s ailing financial institutions. Instead, it’s turned out to be a troubling experiment of U.S. tax dollars with virtually no oversight.

In the last few years a variety of federal probes have documented that TARP is severely mismanaged and that its rife with waste and abuse. In fact, a 2009 TARP Inspector General report revealed that dozens of criminal investigations had been launched into the controversial bailout experiment and that the risk would only grow. The probes have centered on securities fraud, tax law violations, mortgage modification fraud and insider trading involving recipients of the federal money.

A separate audit—by the Congressionally-created panel charged with overseeing the Treasury’s actions—divulged that the government actually paid collapsed mortgage giants Fannie Mae and Freddie Mac $240 million to help “administer” TARP. Think about it! These are the scandal-plagued mortgage companies that were seized by the government in 2008 getting millions more from taxpayers to “administer” yet another fraud-infested federal program.

This week the Special Inspector General for TARP revealed that the monstrous bailout program’s losses stand at about $60 billion and that financial institutions owe Uncle Sam a whopping $118.5 billion. Furthermore, hundreds of small banks can’t afford to repay the federal bailout loans so taxpayers will get stuck with the exorbitant tab, according to the TARP inspector general. Just last month the Congressional Budget Office (CBO) estimated that TARP would lose $32 billion.

TARP’s IG disclosed the latest figures to Congress in a 330-page report that outlines the bailout’s monumental failures. “It is a widely held misconception that TARP will make a profit,” the IG writes in the report. It goes on to say: “While TARP and other government responses to the financial crisis may have prevented the immediate collapse of our financial and auto manufacturing industries, and improved stability since 2008, the trade-off is not without profound long-term consequences.” A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed ‘too big to fail.”’

Judicial Watch has been a frontrunner in investigating the administration’s handling of the nation’s financial crisis and has sued the U.S. Treasury Department to obtain records related to evaluation procedures used by the government to determine which financial institutions get TARP funds. As a result of the ongoing probe, JW obtained documents involving a controversial $12 million bailout grant provided to an unqualified Boston bank at the behest of California Congresswoman Maxine Waters and Massachusetts Congressman Barney Frank.