Treasury’s no-bid deals for banks get flak on Capitol Hill

Introduction

The Treasury Department’s practice of offering billions of dollars in no-bid contracts to banks for government services is drawing flak on Capitol Hill.

Several lawmakers are separately criticizing the Treasury for the deals that critics of the system say have exposed poor and elderly Americans to fraud and potentially wasted tens of millions of taxpayer dollars.

The agency’s inspector general has launched multiple audits of the deals and is planning more for next year.

Senators representing three committees have complained, in separate letters sent this winter and spring, that the contracts are awarded in an opaque and arbitrary manner, blocking efforts at congressional oversight. Treasury responded with assurances that the banks are selected carefully and the programs are efficient, yet it has not provided documents or responses to satisfy any of the three letter-writers.

“In a no-bid process the risk that the American taxpayer will not receive the best deal is heightened,” wrote Sen. Charles Grassley, R-Iowa, this month.

The Center for Public Integrity published a series of stories about the no-bid deals, which Treasury awards under an obscure, 150-year-old law giving it the authority to hand-pick banks as “Financial Agents” and pay them for work that the government might otherwise do itself.

Among the Center’s reports was a 2014 investigation of contracts awarded to Bank of America and JPMorgan Chase & Co. to provide financial and technology services in federal prisons. The contracts were awarded in 2000 and 1998 and were amended dozens of times without being subjected to competitive bidding.

The investigation prompted Grassley to request details about the contracts from Treasury. The agency’s response did not satisfy the senator, who oversees federal prisons as chairman of the Senate Judiciary Committee.

Treasury “simply allowed Bank of America to name its own price to build these complex systems,” Grassley wrote in a follow-up inquiry this month. It remains unclear, he wrote, how Treasury “is able to conduct ‘robust’ oversight of services and ensure adequate performance.”

Treasury’s inspector general – an internal, independent watchdog – is auditing some of the deals and “is planning future audits in this area as well,” said Rich Delmar, counsel to the inspector general.

Treasury spokesman Daniel Watson would not comment on the deals, the lawmakers’ letters or the ongoing probes by the inspector general.

One of those investigations was prompted by a June 2013 Center for Public Integrity report that showed how debit cards issued by Comerica Bank under a program called “Direct Express” had exposed hundreds of thousands of mostly poor and elderly benefits recipients to fraud that left some penniless.

The inspector general’s audit found that Treasury paid Comerica $32.5 million for work the bank had originally agreed to do for free. The extra payments to Comerica turned a potential loss for the bank of $24.2 million into $8.4 million in profit. The compensation could “provide Comerica with a competitive advantage” when the contract was rebid last year, the inspector general found.

Treasury then selected Comerica to continue as its card issuer last year despite bids by other banks that appeared to offer the same services for less money. Members of the Senate Special Committee on Aging, then led by Sen. Bill Nelson, D-Fla., questioned the decision in a Dec. 9 letter and asked the agency to justify its decision.

Treasury responded in February that it expected to make the documents available “in the coming weeks.” The senators, including Sen. Elizabeth Warren, D-Mass., and Sen. Susan Collins, R-Maine, have yet to receive the documents they requested.

Sen. Orrin Hatch, R-Utah, accused Treasury of misusing funds set aside by Congress to support Financial Agent services, in yet a third letter critical of the no-bid contracts. The government expected to spend $1.24 billion on Financial Agent services under that appropriation in the 2013 and 2014 budget years, according to the administration’s 2015 budget proposal.

“The administration’s unilateral decision to use taxpayer resources from a permanent indefinite appropriation … is not what Congress intended when the appropriation was established,” wrote Hatch, who oversees Treasury as chairman of the Senate Finance Committee.

Hatch was concerned that Treasury had picked Comerica to run another program — a retirement account called “myRA” — even after it had failed to deliver the benefits cards under the terms it promised.

“Treasury continues to keep Congress in the dark concerning its [agreement] with Comerica for the Direct Express program, in regard to both changes in the underlying agreement and the decision to give Comerica taxpayer funds,” Hatch wrote on Jan 22.

Treasury replied on Feb. 4 that it was compiling responses to his request and expected to make them available within the next two weeks.

Treasury still has not delivered the documents.