The U.S. Treasury Department paid Comerica Inc. $32.5 million to run a debit-card program for the poor and elderly that the bank had agreed to run for free, an inspector general audit found.
The Treasury watchdog also faulted the department's office that made the payments, the Bureau of the Fiscal Service, for lax oversight of the program used to pay government benefits to about 5 million people. The fiscal service didn't "identify, consider, or document all the available options before deciding whether and how much to compensate Comerica," the report said.
The program, called Direct Express, was set up in 2008 to deliver payments electronically rather than by paper check. Under the original contract, Comerica didn't charge the government and planned to make money on the deal from various user fees. The Dallas-based bank also told the Treasury it could handle as many as 20 million cardholders in the program, according to the report, which was dated March 26.
In 2011, the fiscal service amended the contract so that the bank would be paid $5 for each new enrollee and as much as $20 million for costs it incurred to build customer services such as call centers. The government paid Comerica $32.5 million as of June 2013, the report said.
The reason the fiscal service gave for revising the deal was that "they did not want Comerica to fail for providing the government a service," the audit said, noting that the bank had $65.2 billion in assets as of December. It was not clear from the report whether Comerica asked for the payments or fiscal service officials decided independently to revise the agreement.
Comerica spokesman Wayne Mielke declined to comment.
Fiscal service spokesman Thomas Santaniello referred to the bureau's written response to the inspector general, which called the program "enormously successful" and noted it had saved taxpayers money.
"Over 5 million beneficiaries, many of whom are unbanked or under-banked, are receiving their monthly payment through Direct Express," the response said. "Not only has this reduced the cost of government operation; recipients now receive their government payments more safely and securely."
Initially, Comerica's income from Direct Express was lower than expected because recipients, including veterans and the disabled who receive supplemental Social Security benefits, used the cards to get cash rather than make purchases that would generate fees for the bank.
While the inspector general's office, led by Eric Thorson, didn't disagree with the government's selection of Comerica, it said the fiscal service couldn't support the conclusion that the bank "would provide the lowest cost/highest quality service to the cardholders."