The Bureau of Prisons paid its halfway houses late 70% of the time. It still didn't have room for everyone the law says has earned a bed.

The last stretch of a federal sentence is supposed to run through a Residential Reentry Center — a halfway house — or home confinement, on the theory that nobody reenters society better by walking straight out of a cellblock.▸ Congress wrote that theory into two laws, the First Step Act and the Second Chance Act, and told the Bureau of Prisons to make sure there's capacity to honor it. A GAO audit released in February 2026 found BOP running both ends of that promise badly: paying the halfway houses it contracts with late so often it owes them millions in interest, while simultaneously failing to give thousands of eligible people the earned time in those same halfway houses the law says they're owed — because BOP doesn't have enough beds and, more damning, doesn't actually know how short it is.

BOP pays roughly 150 Residential Reentry Centers, plus other contractors, for the services that keep the reentry system running: housing, food, drug treatment, job placement.▸ Federal law — the Prompt Payment Act — requires an agency that pays a business invoice late to pay interest on it, currently set at 4.625 percent annually. GAO's review of BOP's payment system found the bureau made about 64,912 late payments to all its contractors between October 2021 and March 2025, worth $2.8 billion combined, and paid $12.5 million in interest penalties as a result. RRCs alone accounted for 5,876 of those late payments — worth $1.1 billion — and $5.6 million of the interest bill.

The lateness wasn't a one-time stumble.▸ GAO found BOP paid RRCs late about 70 percent of the time across fiscal years 2023 and 2024. Late payments averaged 54 days overdue across all contractors — 66 days for RRCs specifically — but the tail is worse than the average: 92 payments were two to three years late, one was almost 11 years late, and 23 of the RRC-specific late payments ran more than two years overdue. BOP officials told GAO the lateness traces to staffing shortages, repeated continuing resolutions, and a bumpy 2022 conversion to a new financial system — a transition officials said was resolved by 2024, except GAO found late payments continuing into the first three months of 2025 anyway.

RRC operators told GAO what that unreliability costs them directly: one provider said its leadership had to take out private loans just to make payroll while waiting on BOP; another said the interest BOP eventually paid didn't even cover the interest the RRC itself owed on the bank loan it took out to cover the gap.▸ Some RRCs, GAO reported, have grown reluctant to bid on new BOP contracts at all — which cuts directly against the capacity the system is already short of.

That shortage is real and measurable, even if BOP hasn't measured it comprehensively.▸ As of September 30, 2024, BOP was using 8,169 of its contracted RRC beds — 91 percent of capacity — and 4,495 home-confinement slots, 121 percent of what was contracted, a level BOP says is possible because RRC staff can oversee more home-confinement placements than their contracts nominally cover. Those topline numbers understate how tight individual facilities run: of the 149 RRCs under contract that September, 57 — 38 percent — were at or above 95 percent bed capacity, and 92 — 62 percent — were at or above 95 percent capacity for home confinement.

GAO's central finding isn't just that capacity is tight — it's that BOP doesn't know how tight, because it has never comprehensively assessed RRC capacity or the budget needed to fix it.▸ The bureau's own market analysis, used contract-by-contract to forecast bed needs, doesn't meet two of the three modeling practices GAO checked it against, and BOP officials confirmed they don't compare their projections back against actual results to see how far off they were.

The clearest cost of that undercounted shortage falls on the people it's supposed to serve.▸ Under the First Step Act, eligible incarcerated people earn "time credits" toward early transfer to an RRC or home confinement — generally 10 or 15 days for every 30 days of program participation. GAO previously reported, in January 2026, that most people who earn these credits can't use all of them. This audit quantified it: reviewing everyone who had earned enough credit to transfer between March 31 and December 31, 2024, GAO found BOP did not apply all the earned time for 21,190 of 29,934 people — 71 percent. BOP officials told GAO that insufficient RRC and home-confinement capacity was one reason, alongside detainers and other case-specific holds.

The shortage BOP can't quantify is also, by its own logic, a shortage that costs it money.▸ Bureau officials told GAO that RRC and home-confinement placement is generally cheaper per day than a federal prison bed, and that people who complete a full reentry stint are less likely to return to custody. Every day someone sits in a costlier prison bed instead of an earned RRC placement runs against BOP's own numbers. In March 2025, facing funding constraints under a continuing resolution, BOP briefly cut the maximum Second Chance Act placement from 365 days to 60 — before reversing the change a month later.

Figures are GAO's own analysis of BOP payment and case data, drawn from one audit period (October 2021-March 2025 for payments; March-December 2024 for earned-time credits) and reported as of GAO-26-107353's February 2026 publication. BOP concurred with all seven of GAO's recommendations; the report does not track whether they have since been implemented.