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Pennsylvania Correctional Industries Overcharges Customers, Stockpiles Cash, Fails Mission

On September 13, 2005, Jack Wagner, the Pennsylvania Auditor General issued a report on his audit of Pennsylvania Correctional Industries (PCI). The audit covered, the period of July 1, 2000, through February 18, 2005, and was generally critical of PCI. Jeffery A. Beard, the Secretary of Corrections, agreed that the audit was a fair assessment of PCI overall.

PCI operates manufacturing and service facilities at 18 prisons, employing 213 staff members and over 1,600 prisoners. Its FY 2004 expenses were $32.1 million with FY 2004 profits of $1.4 million. Products include: signs, vehicle license plates, apparel, personal care items, containers, bags, furniture, food, and household items such as linens and cleaners. Services include: laundry, printing, engraving, vehicle restoration and freighting.

Wagner found that PCI overcharged its customers for its products when compared to similar products produced by other prison industries or products available through a private supplier. He noted that, despite general customer satisfaction with the quality of the goods and services, PCI sales had fallen by 25 % over the audit period. He found that this overcharging costs the taxpayers money and that money was being allowed to stockpile in a large, $32 million fund that was not being used by PCI to improve its products, develop new products or improve its sales. Therefore, Wagner recommended that a law be enacted allowing PCI to return the $32 million to the general revenue fund.

Operations profits for PCI dropped during the audit period from $8.5 million in FY 2001, to $5.6 million in FY 2002, to $3.1 million in FY 2003, ending with $1.4 million in FY 2004. This occurred despite the fact that PCI uses a captive labor force paid between 19 cents and 42 cents an hour with an average prisoner pay of 59 cents an hour, including production bonuses. How could this happen? Wagner found that it was chiefly caused by insufficient planning, lack of marketing and a failure to train or provide incentives for sales staff. A more likely reason is the bloated bureaucracy and civilian staffing of PCI which is not paid slave wages. The audit did not include the additional security staffing required for PCI operations. PCI also failed to track prisoners success following their release; so it could not determine whether its work programs reduced recidivism.

PCI does not even track costs by product or service, making it impossible to determine the difference between costs and prices. No wonder PCI was running 14 of its 23 plants at a loss. The biggest money losers over the audit period were Coal Township furniture production shop ($1.7 million in losses), Camp Hill freight transportation center ($1.3 million in losses), Mercer sign and engraving operation ($1.3 million in losses) and Albion vehicle restoration center ($1.3 million in losses). Albion hasnt shown a profit in more than eight years.

One problem that led to inefficiencies is the decentralization of production control. Each production manager makes decisions independent of the other production managers, resulting in a lack of production uniformity and effectiveness. PCIs policy manual calls for centralized quality control, but ignores production control. Thus, the policy, which--like most of PCIs policies--is fifteen years old, is largely responsible for the inefficiency.

The inept bureaucracy of PCI showed up not only in its continuing operation of money-losing businesses without attempting innovations to make them profitable, but also in its sales forces training and work ethic. Sales personnel at PCI have little incentive for good performance and no possibility of advancement in what is essentially a dead-end job. Therefore, there is a large turnover of sales personnel leaving their positions for higher-paying jobs elsewhere. There are no commission incentives for sales. Thus, sales personnel have no reason to seek new customers or even keep in regular contact with current customers. Most current PCI customers reported less than one sales personnel contact a year. Most potential PCI customers reported never having heard of PCI. This explains why, despite overall favorable customer appraisals of PCI products and services, sales declined drastically throughout the audit period. Such a flawed sales scheme would never be tolerated in private enterprise.

When the auditor compared PCI prices with that of similar prison-made goods made in other states, PCI's prices were generally higher. When compared to similar goods available from a private importer/supplier of prison goods, they were much higher. Thus, PCI goods, despite their general high quality, were not competitively priced and PCI's profitability would have suffered greatly were it not for its largest customer, the Department of Corrections (DOC). Every audit of prison industries has concluded that the private sector which does not use prison slave labor can produce goods cheaper and usually at better quality than those made by prison industries.

PCI improperly gave a $2 million rebate to the DOC, then improperly disguised the subsidy through irregular accounting. The DOC had a budget shortfall in FY 2002. A direct transfer of funds was not authorized by law. Therefore, PCI developed a 10% retroactive rebate for DOC. It then booked the rebates as increased administration costs, distorting the true costs of production for the goods. PCI did not inform its other customers of its preferential pricing treatment of the DOC.

In summarizing PCI's performance during the audit period, Wagner said, PCI did not meet its mission to serve prisoners, state agencies, and most of all, taxpayers. Under PCIs management, Pennsylvanias prisoner work program is costing rather than benefiting taxpayers.

This program is not properly run and needs to be seriously overhauled, concluded Wagner. PLN agrees and adds that the entire concept of prisoner industrial and slave labor is flawed in that it cannot be shown to reduce recidivism, or save taxpayers money. Rather it operates as a government boondoggle while proven, low cost programs such as education and family visiting are eliminated. Thus, the entire concept should be overhauled or, even better, abandoned.

Sources: Pennsylvania Department of the Auditor General Performance Audit of Pennsylvania Correctional Industries dated 09/13/05 and press release dated 09/15/05 (both reports available at;; Pittsburgh Post-Gazette

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