There are a lot of things that need to be carefully considered when making this decision. However, the individual's supervisor should know about this incident one way or the other. The easiest way would be for the individual to tell his supervisor, right away, that he broke a rule of the institution and had inmates working for him. If the off duty officer who witnesses the incident reports it, it could lead to tension between the officers, or tension between the officer who reported it and the inmates involved. If the incident is not reported at all, it could lead to a variety of things.
If I were the officer who witnessed the incident, the first thing I would do is try to convince the officer who had the inmates working for him to report it to his supervisor immediately. I would try to convince him by explaining that the inmates could use this against him in the future, to bribe him.
For instance, they could tell him to bring them drugs or they will report him.
Another reason I would give him is that if he doesn't report it immediately, something bad could happen. The inmates could use the money for gambling, which may lead to violence. They could use the money for drugs, which may also lead to violence. The inmates could also use the money to buy weapons such as shanks, or picks. The list of things that could happen as a result of the inmates getting the money goes on. If the officer reports the incident before any of these things happen, the institute will probably be more lenient with him for being honest and reporting it before anything bad happened.
Finally, I would warn the officer that if he did not report himself as soon...