Introduction

The Treasury Department paid Comerica Inc. tens of millions of dollars for a government payment card that left poor and disabled Americans vulnerable to fraud and shoddy customer service, a new inspector general report says.

U.S. Department of Treasury

Trying to save money, Treasury officials pressured vulnerable citizens to use the Direct Express cards. Comerica issued the cards under a contract that was supposed to be cost-free for the government and relatively cheap for consumers. Officials spent years promoting the card at road shows around the country.

Yet the department did not properly oversee the program, Treasury’s inspector general concluded in the report to be released today. Officials ignored available data about fees charged to customers and call center wait times, and based many decisions on unverified information from Comerica, according to a report due out Friday by Treasury’s inspector general.

Taxpayers ended up paying the bank $32.5 million through March 2013 under an amended deal that officials offered without requiring any evidence that Comerica needed the money or would use it for this program, the report says. The payments turned a potential loss of $24.2 million into $8.4 million of profit for Comerica, it says.

Comerica never formally requested additional payments from Treasury, the report says.

A Treasury official justified the unexpected payments by saying the Department “did not want Comerica to fail for providing the government a service,” the report says. It notes that Comerica had $65.2 billion in assets and equity of $7.2 billion as of December.

The audit broadly criticizes the bureau’s record-keeping, noting that “documentation supporting key decisions and the ongoing monitoring of a program involving tens of millions of taxpayer dollars and the delivery of payments to millions of Federal beneficiaries was often lacking.”

The Direct Express card was created as an alternative to paper checks that Treasury has phased out in an effort to cut costs.

The Center for Public Integrity first reported on the extra payments and other problems with Direct Express in June. That story detailed Treasury’s high-pressure marketing tactics, including mailing cards to thousands of poor and disabled people who had not requested them; and widespread fraud that cut off thousands more from their only source of income.

“It’s disappointing that Treasury spent so much time pushing people to use these cards and so little time making sure the program was being run properly,” said Sen. Bill Nelson, D-Fla., who chairs the Senate Special Committee on Aging and last year conducted a hearing about the cards.

“They needlessly wasted more than $32 million, while at the same time failed to focus on fraud and customer service issues,” Nelson said.

The IG report describes a series of decisions that effectively left the card program on autopilot. Officials kept close track of enrollments and how much money was loaded onto the cards, but “did not review (and in some cases did not realize that it had)” monthly reports on Comerica’s revenue from fees and other sources, identity verification and other sensitive parts of the program.

Officials stood by as Comerica failed to deliver on key contract terms, such as offering online bill payment services. Treasury did not even realize Comerica had fallen short until the bank told them.

Yet they readily agreed to pay Comerica retroactively for cards that had already been issued.

The report’s finding that “Comerica’s contract with the government was renewed and increased without adequate scrutiny is particularly disturbing given the obstacles that Direct Express put in place to prevent seniors from opting out of the system,” said Sen. Elizabeth Warren, D-Mass., who questioned Treasury officials about the program last year during a hearing of the Senate Special Committee on Aging.

“The announcement in January that Treasury will rebid this contract is an important first step, but we need to stand by our seniors and be vigilant right now,” Warren said.

Treasury justified the payments by saying the number of cardholders rose dramatically as a deadline to stop using paper checks neared. Earlier, when it was selecting a bank to issue the cards, Comerica had claimed that it could handle up to 20 million card users without charging the government a penny.

Treasury awards deals to banks without competitive bids under an obscure authority found in a Civil War-era banking law allows the department to select “financial agents” for work that requires contractors who can be held to a higher standard of responsibility to customers, called a “fiduciary standard.” The agency also routinely renews financial agency deals and boosts compensation to agents without opening them to new bids.

Treasury, however, announced that it would rebid the Direct Express contract shortly after the Center’s earlier report was published.

An official from the bureau that manages Direct Express declined to comment or discuss the reprot, but noted in an email that “the word ‘mismanagement’ is not used” by the inspector general.

The inspector general said Treasury’s official response failed to address several recommendations, including to research contract costs more thoroughly and assess bidders’ ability to follow through on promises they make during the less-formal bidding process for financial agency agreements.