NEWS RELEASE
For Immediate Release
Contact: Ivan Anderson 717-787-1381
Audit Text
Executive Summary
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PCI Press Kit

Auditor General Jack Wagner Finds Dept. of Corrections’
Prisoner Work Program Stockpiled $32 Million in Cash

Pennsylvania Correctional Industries Ineffectively Managed

HARRISBURG, Pa., Sept. 14, 2005 – The Pennsylvania Department of Corrections’ prisoner work program is sitting on a $32 million cash stockpile that was mostly created by overcharging customers – primarily other state agencies – for the products and services it produced, according to a special performance audit released today by Auditor General Jack Wagner.

Wagner said the cash stockpile belongs to taxpayers and should be returned to the state if it is not needed by Pennsylvania Correctional Industries, the Department of Corrections bureau that operates the program.

"In difficult economic times, when state and local governments are struggling to reduce spending and balance their budgets, it’s imperative that every taxpayer dollar be spent effectively and efficiently," Wagner said. "PCI said that it had intended to use at least part of its cash reserve to upgrade its programs and operations, but it failed repeatedly to make these investments. If PCI is not going to use these funds, they should be returned to their rightful owners – Pennsylvania taxpayers."

PCI’s cash stockpile was discovered by the Department of the Auditor General during a special performance audit covering the period July 1, 2000, through Feb. 18, 2005. The report found that PCI was ineffectively managed, used an irregular accounting method to provide a $2 million rebate to the Department of Corrections during a budget shortfall, and routinely overcharged state agencies for its products – in effect, obtaining a taxpayer subsidy.

Pennsylvania law prohibits PCI from reimbursing money directly to the state treasury. Wagner recommended changes to Pennsylvania law to make sure that PCI’s unspent money can be returned.

Wagner said he would seek a change in state law that would permit PCI to reimburse unused funds to the state treasury. That effort is among 21 recommendations contained in the auditor general’s special report.

In a written response, included in the report, Pennsylvania Department of Corrections Secretary Jeffrey Beard said that the audit provided a fair assessment of PCI and committed to considering the report’s recommendations.

PCI was established in 1984 as a bureau within the Department of Corrections. Its mission was to reduce inmate idleness and provide job training for prisoners prior to their release while saving taxpayers money by producing goods and products that could be sold at competitive prices to state agencies, including DOC.

The Department of the Auditor General’s report, however, showed that PCI failed to reach its goals. Auditors found that many of the coveted jobs were being filled by prisoners with life sentences who would never be released, and that the number of employed prisoners actually declined by 230 during the four-year audit period, at a time when the state prison inmate population increased by nearly 3,000.

The 63-page report also found that:

• PCI gave a special, one-time rebate of $2.3 million to the Department of Corrections to help with a budget shortfall. The giveback was listed under office expenses. The irregular accounting practice concealed the rebate from other customers and from the public. PCI acknowledged that this was an accounting error and that the rebate should have been deducted from revenue.
  
  
• In spite of a captive labor force that earns an average of 59 cents an hour, PCI charged state agencies prices that were almost always higher than those charged by six sampled other state correctional industries programs and by those charged by a retail supplier. (See charts for price comparisons.)
  
  
• The overcharges helped PCI report an annual profit, even though 14 of 23 plants PCI operated lost money during the audit period. (PCI has eliminated some unprofitable operations and at the end of the audit had 18 plants.)
  
  
• PCI sales declined by 25 percent during the audit period.

"PCI did not meet its mission to serve prisoners, state agencies, and most of all, taxpayers," Wagner said. "Under PCI’s management, Pennsylvania’s prisoner work program is costing rather than benefiting taxpayers."

The audit found that PCI’s business operations suffered from lack of sufficient planning, marketing, and training of sales staff. Also, PCI did not initiate programs to monitor inmate reentry into the community, nor did it establish methods of tracking or determining the program’s impact on reducing the rate of inmate recidivism.

The audit showed that PCI used the profits from the 9 profitable plants to subsidize the continued operations of the 14 unprofitable plants in operation during the audit period.

According to the audit, three plants accounted for more than 75 percent of PCI’s profits. They were Huntingdon, Pittsburgh and Graterford. (See chart for products made at the three plants.)

Most of the profits generated during the audit period came from built-in sales to the Pennsylvania Department of Transportation and to the Department of Corrections that, respectively, purchased license plates and routine products for prison operations, such as prison uniforms, T-shirts, bar soap, hair shampoo, jackets and cleaning solutions.

Plants that lost the most money during the audit period included: Coal Township, a furniture producing shop, with losses of $1.7 million; Camp Hill’s freight transportation operation, with losses of $1.3 million; and Albion, a vehicle restoration center with losses of $1.3 million. In fact, the vehicle restoration center never made a profit since opening over eight years ago, the audit discovered.

Furthermore, based on a sample of 18 products sold by PCI during the audit period, auditors found that, if PCI would have charged its customers the average price other states’ correctional industries programs charged their customers for the same products, the commonwealth could have saved more than $825,000 in an 18-month period on the sampled products alone.

The audit offered 21 recommendations to improve PCI’s operations. These include:

• Evaluating its pricing structure to consider ways to offer benefits to all customers
  
  
• Incorporating recommended best practices into its strategic planning process
  
  
• Coordinating with other offices in the Department of Corrections to provide job placement assistance and post-release employment monitoring, and to ensure that inmates with shorter-term release dates are given priority in job placement
  
  
• Operating on a break-even basis after paying for operational expenses and justifiable capital needs
  
  
• Using accumulated monies to improve the program and seeking a statutory change that would allow the return of excessive unused funds to the state treasury.

A full report and press kit are available, electronically, at the Department of the Auditor General’s web site, www.auditorgen.state.pa.us.

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits, and special investigations. The Department of the Auditor General conducts more than 5,500 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.

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