Introduction

Government auditors are investigating exclusive contracts held by Bank of America Corp. and JPMorgan Chase & Co. to provide financial services inside federal prisons.

Treasury’s inspector general, Eric Thorson, will audit Treasury’s “awarding and administration” of the contracts with Bank of America and JPMorgan “in response to recent media reports concerning the selection of and high fees charged by these two financial agents,” the watchdog’s general counsel, Rich Delmar, told The Center for Public Integrity.

The Center first reported this month that the banks have exclusive access to the more than 214,000 federal inmates under contracts awarded by the U.S. Treasury Department about 15 years ago. The deals, called financial agency agreements, lack the competitive bidding or transparency requirements for most federal contracts.

Bank of America has been paid at least $76.3 million by Treasury to manage inmates’ accounts, money transfers, email service and other technology inside the 121 facilities managed by the Federal Bureau of Prisons. The contract has been amended 22 times since it was awarded without competitive bidding in 2000.

The accounts hold the money inmates earn from prison jobs paying as little as 12 cents an hour and supplemental funds sent by family and friends. Inmates use the money for clothing, phone calls, food and other expenses.

Treasury says the payments to Bank of America were reimbursed by the Department of Justice, the Bureau of Prisons’ parent agency.

JPMorgan issues debit cards to inmates when they are released that contain the balance remaining in their prison accounts. JPMorgan’s original contract was awarded in 1998 and amended at least 14 times. It was re-upped in 2008 and amended at least four times since then.

It is unclear how much money JPMorgan has made on the cards because the bank’s compensation comes from fees charged directly to former inmates. A separate Treasury document from 2013 said that about 50,000 released prisoners had been issued cards and listed fees of $2 for withdrawing money from an ATM and $1.50 for leaving an account inactive for three months.

JPMorgan, the Bureau of Prisons and Treasury declined to provide a current list of fees charged to former inmates.

“As always, the Treasury Department will support the inspector general’s review of this program,” an agency spokesman said. JPMorgan and Bank of America declined to comment on the probe.

Delmar said the investigation was launched on Oct. 3, a day after The Center for Public Integrity published a report on the contracts.

Bank of America’s deal also drew questions from Capitol Hill. In a letter to Treasury Secretary Jacob Lew sent Oct. 3, Sen. Charles Grassley, R-Iowa, asked how Treasury can protect taxpayers from fraud and conflicts of interest if the agency sidesteps the oversight, transparency and competition typically required in federal contracting.

Grassley applauded the probe, calling it “just the kind of job inspectors general are set up to do — to take an independent look at whether the government is getting the best deal for taxpayers.”

In his letter, Grassley asked Treasury to detail all payments by Treasury and Justice to Bank of America or its subcontractors. He also asked Treasury to disclose the 22 amendments, only 17 of which were provided to The Center under a Freedom of Information Act request.

Grassley is the senior Republican on the Senate Judiciary Committee, which oversees the Justice Department. He could become chairman of the committee if Republicans gain a majority in the Senate after this fall’s election.

The audit may expand to encompass other financial agency agreements, a sign that Treasury’s inspector general is broadening his scrutiny of the deals. In an audit this spring, Thorson criticized an unrelated financial agency agreement with Dallas-based Comerica Bank. Treasury paid Comerica an extra $32.5 million for work the bank had promised to do for free, the audit found.

Treasury has spent more than $5 billion in the past decade on financial agency agreements often with the same handful of banks, documents show.

The Center’s report about federal prisons was the second in a series about prison bankers, financial companies that profit from inmates’ families through exclusive deals with prisons. The first part of the series detailed how JPay Inc., a Miami-based technology company, has gained access to 70 percent of U.S. offenders and holds a monopoly on transferring money into prisons that house about 450,000 inmates.