American International Group, Inc. and New York State attorney general Andrew Cuomo have reached an agreement to curb expenditures at the failed insurance giant.

Cuomo met today with Edward Liddy, the new chairman and CEO of AIG, to lay out his concerns regarding executive compensation issues and exorbitant expenses at AIG. Yesterday, Cuomo informed AIG that it must recover improper bonuses and other payments and perks from its former executives or he would do so under New York law.

During the meeting, Liddy agreed to take several significant actions with respect to expenditures at AIG. AIG has agreed to provide the New York Attorney General’s Office with an accounting of all compensation paid to its senior executives and has agreed to assist the Attorney General’s Office in recovering any illegal expenditures. This includes all forms of compensation paid to former CEO Martin Sullivan and the former head of the Financial Products unit, Joseph Cassano.

Also, AIG has agreed to establish a special governance committee within AIG, which will institute new expense management controls, and it will be issuing today a new expense policy guidebook. It says that these controls and protections will be designed at the board level to prevent any future unwarranted expenditures, such as salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks.

Additionally, AIG will not make any payments pursuant to the multi-million dollar employment agreement of Steven Bensinger, the company’s chief financial officer, who will be leaving the firm. Cuomo has specifically asked AIG not to make payments under that agreement in light of the ongoing review of the propriety of such payments. Seperately, AIG announced that David Herzog has been named executive vice president and CFO.

The firm has also agreed to immediately cancel all junkets or perks which are not strictly justified by legitimate business needs. AIG will be cancelling more than 160 conferences and events, some exceeding more than $750,000 per event, for a total savings of more than $8 million.

“We’re very grateful for the guidance of Attorney General Cuomo,” said Liddy. “We know that the Attorney General shares our commitment to rebuilding AIG’s business and paying back the U.S. taxpayer, and we will address the Attorney General’s concerns expeditiously.”

Cuomo added, “These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG’s employees, including retention and severance arrangements, who are essential to rebuilding AIG and the economy of New York.”