In March 2005, the Charlotte Observer reported that Correctional Enterprises (CE), a division of the DOC that operates prison farms and factories, was wasting taxpayer money by circumventing state purchasing rules. [See PLN, Oct, 2005 for more on CE.] Under the rules, state agencies are required to seek competitive bids on orders above $5,000. But what the Observer found--and auditors confirmed--is that CE regularly split large orders for fabric and other raw materials into multiple smaller orders to avoid bidding. Many orders for the same material--some placed only minutes apart--fell just below the $5,000 threshold.
The audit cited several of the many instances in which purchase requisitions were improperly split. On August 11, 2004, for instance, a CE plant placed two orders for the same product for $4,310 and $4,175 within 11 minutes of each other, the audit said.
CE personnel told auditors they had been splitting orders to avoid bidding for more than 9 years. CE managers further said they werent even aware, or only vaguely aware, of the purchasing guidelines and thought splitting orders was an allowable practice. Auditors werent able to determine how much the DOC may have overpaid for materials, but its failure to consolidate on large orders likely meant the prison system was paying a premium.
The audit reported that the DOCs purchasing department largely echoed CEs habit of splitting orders and that different agents often requisitioned the same products. The audit notes one example on January 24, 2005, where a purchasing agent issued two purchase orders and another agent issued a third purchase order for split requisitions from a plant for the same product. All three bids--placed within 9 minutes of each other--were within $500 of the of the $5,000 limit.
Audit agency spokesman Dennis Patterson first said the audit covered the DOCs overall purchasing. After DOC objections, however, Patterson said he was mistaken. What auditors really meant, he said, was that the prison systems purchasing department, which places orders based on requisitions from CE, merely allowed the violations. Even so, based on the audits other findings, Patterson was probably right the first time.
Not only does the prison system lose money through faulty purchasing practices, but it routinely over pays guards and other employees as well--money that may never be recovered due to the high turnover rate, the audit found. Were doing a lot better job of collecting, said Barbara Baker, the DOCs head of procurement and finance. But I dont know if well ever catch up.
During the 7 month audit period, which ended January 31, 2005, the DOC overpaid 377 people, or an average of 54 overpayments a month. Whats more, less than half (48%) of the $242,000 in excess payments had been recouped, the audit reported. Prison officials say the high turnover rate--more than 300 prison employees quit every month--makes it difficult to recover excess payments.
The problem was first noted in a 2000 audit, said Patterson. As of January 31, 2005, $516,000 in overpayments was still outstanding. With 20,000 employees and a $54 million monthly payroll, Baker contends the rate of overpayments is relatively low. One wonders if North Carolina taxpayers, many of whom are unlikely to ever even see half a million dollars, would agree.
The audit also noted that the 2,300 prisoners who work for CE may have also been overpaid. Of the 18 prison manufacturing plants tested by auditors, supervisors at 11 did not sign and retain attendance sheets, making it difficult to verify prisoner work hours, and consequently, their wages. Top pay for prisoners is a miserly $3 a day. An argument can be made that since the paltry slave wages are so low as to be nominal, that it is more expensive to track the prisoners work time than to simply pay them.
The DOCs disbursement process was also prone to error, the audit found. Because payments were not adequately documented, the DOC risked paying for goods or services it did not receive or paying too much.
A test of the 17 largest medical expenditures, for example, found that at least 7 were paid without approval. Although the payments were deemed proper, one invoice for $17,500 was paid 5 times. In another instance, a provider was paid $35,000 from an invoice for $17,500, and then paid again from the same invoice for a total of $70,000. Tests of disbursements in other categories showed they were similarly flawed.
The DOC was no better at managing its cellphone database, making it difficult to detect inaccurate billing, overcharges, or even unauthorized use.
In theory, cellphones are assigned to contact persons or users among the states 78 prisons. Of the 769 phones in the database, however, 462 were not assigned to a specific person. Auditors also found that the DOC was billed for 14 phones not in the database, and that the database still contained data for 36 cellphones that had been cancelled or returned. The audit further noted that of the 40 cellphone expenditures tested, 12 had not been reviewed or validated.
The auditors made a number of uninspired recommendations. Among them, the DOC should: ensure employees are familiar with purchasing rules; seek term contracts where economically advantageous and get permission to split bids when necessary by obtaining a waiver of competition; review policies and procedures regarding payroll overpayments; inform supervisors of the importance of verifying hours worked by prisoners; and regularly maintain the cellphone database and institute measures to verify cellphone expenditures.
PLN has long maintained that prison slave labor is a government subsidized boondoggle that loses far more money than it ever hopes to generate or recoup, despite the fact that prisoners are paid slave wages. Every independent audit to be done of prison industries around the country has confirmed this thesis.
The DOC agreed with the audits findings and promised to do better. Readers can decide for themselves how that is likely to turn out. Get a copy of the report on the Web at www.ncauditor.net, www.prisonlegalnews.org, or by writing Office of the State Auditor, State of North Carolina, 2 South Salisbury Street, 20601 Mail Service Center, Raleigh, North Carolina 27699-0601.
Additional sources: Associated Press, myrtlebeachonline.com, news-record.com, charlotte.com
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