The Treasury Department has extended a deal with Comerica Bank to distribute benefits to the elderly and disabled on payment cards despite vowing last year to seek a new vendor for the program, which exposed poor and elderly Americans to fraud.
Treasury’s inspector general plans to review the selection process that led to another contract with Comerica, his counsel said in an email Monday.
Treasury’s announcement that it had signed a new, five-year deal with Dallas-based Comerica to distribute Social Security and disability on bank-issued, taxpayer subsidized cards came in the second-to-last paragraph of a blog entry posted on Friday afternoon. Treasury agreed last year to seek another bank partner after a report by The Center exposed fraud in the program and poor oversight of the contract to provide the cards, known as “Direct Express.”
Under the previous contract, Treasury also paid Comerica an extra $32.5 million for work the bank had promised to do for free. The payments turned a potential loss for the bank of $24.2 million into $8.4 million of profit, according a March report by Inspector General Eric Thorson.
The extra payments might “provide Comerica with a future competitive advantage in the rebid” of the contract, Thorson warned in the report.
Treasury hired Comerica to distribute benefits payments as part of a plan to push people into using electronic payments. The goal was to cut the cost to the government of printing and mailing paper checks.
The cards were supposed to help people without bank accounts access their benefits while avoiding high fees charged by check cashers. Aggressive marketing by Treasury and Comerica eventually netted the bank more than a million customers who did not need the cards because they already had bank accounts. The card fees are far higher than direct deposit into a bank account.
Thousands of poor people who never requested the cards received them anyway, likely causing them to pay more fees than necessary, The Center reported. Thousands more allegedly had their Social Security and other benefits illegally rerouted to criminals’ accounts because of weak fraud controls.
A spokesman for Comerica did not respond to a request for comment. Treasury declined to elaborate on the blog post and did not disclose details of the new Comerica contract.
Thorson’s audit criticized Treasury officials for making multi-million dollar decisions based only on unverified information provided by Comerica. The Treasury bureau that runs the program “was often lacking” documentation and “ongoing monitoring of a program involving tens of millions of taxpayer dollars,” Thorson wrote.
A senior Treasury official announced the decision to seek another bank partner after senators pummeled him during a hearing. Sen Elizabeth Warren asked incredulously if “we agreed to give Comerica — we, the U.S. government, through Treasury — an additional $30 million without knowing if they were already making substantial profits on this contract?”
Treasury’s process for seeking a new partner was less transparent and competitive than standard government contracting. Using an obscure, Civil War-era authority, Treasury can pick bankers to work on some projects without publicly soliciting bids or choosing the least expensive option.
“Treasury has very specific requirements that all actions and decisions be documented” in the course of selecting a bank under this authority, Rich Delmar, counsel to the inspector general, said in an email Monday. He said those are the standards by which his office had evaluated Comerica’s earlier deal and would evaluate such contracts in the future.
In this case, Treasury publicly posted an invitation for first-round bidders. After that, it reverted to a process without public oversight that excludes many potential bidders — the same process used to select Comerica for the first time seven years earlier.
Treasury officials declined to say if any other banks sought the assignment or to elaborate on the extension of Comerica’s deal. The blog entry Friday referred to “several new innovative benefits and features, including an expanded ATM network and reduced fees.”