A report by Minnesota?s Office of The Legislative Auditor (Auditor) has found conflicts of interest, the improper disposition of surplus property, and questionable contracting practices existed at MINNCOR Industries, Minnesota?s prison industry.
That special review came after former MINNCOR sales representative Larry Williams blew the whistle on the practices. After he was laid off in May 2006, Williams sued MINNCOR under whistle blower protection laws. His union, the Minnesota Association of Professional Employees, says the report confirms Williams? allegations.
MINNCOR was created in the 1870?s to provide Minnesota prisoners an opportunity to work and acquire certain knowledge and skills prior to release. It currently operates in eight prisons, providing various products and services that are sold to state agencies, local units of governments, and businesses. Some of the services and products include custodial supplies, park and patio accessories, data entry, market research, laundry and sewing services, and office, library, and residential furniture. The Minnesota Department of Corrections (MDOC) oversees MINNCOR?s operation.
The Auditor?s first conclusion was that MDOC failed to adequately resolve a conflict of interest that it was aware occurred between three MINNCOR employees and ?a business partner.? The conflict occurred when the employees, who had influence over business partnership agreements, went to Green Bay, Wisconsin to discuss manufacturing processes and contract terms.
The company offered the MINNCOR employees tickets to view the Green Bay Packers and Minnesota Vikings? November 21, 2005, Monday Night Football game from the company?s private box. While the employees reimbursed the company the $67 face value of the tickets, ?that did not reflect the full value of attending the game, which included the private box, food, and beverages.? The actual value was determined to be $400. The Auditor concluded a conflict occurred by accepting the tickets. Additional conflicts occurred because the tickets were not available to the general public, but only to the company and the guests. The company also paid for the employee?s meals and hotel accommodations.
The Auditor recommended the employees reimburse the company $333 for the game attendance and MDOC reimburse it for the meal and hotel accommodations. Training of employees in this area was found to be necessary, the Auditor said.
State laws and policies were found violated by MINNCOR when it disposed of surplus property. In January 2006, MINNCOR discontinued its Minnesota Line of farm equipment. It sent out flyers to farm implement customers and on its website that ?all wagons and gravity boxes will be sold? at discount prices. There were also service parts for sale in lots.
Under Minnesota law, MINNCOR was required to contact the Department of Administration before selling the equipment or service parts. MDOC?s own policies required MINNCOR to advertise the sale to the general public and sell the items either by pre-pricing or making them available through sealed bids. MINNCOR, however, accepted verbal bids. While its inventory records reflect the items originally cost $400,000, MINNCOR accepted a verbal bid of $10,000.
MINNCOR also violated state law when it donated 52 wooden cabinets to a local nonprofit organization. Before that material could be donated, the nonprofit ?must be certified eligible by the [Department of Administration?s] Surplus Services in order to receive surplus property from any state agency.? The nonprofit was not so certified. The Auditor recommended MDOC assure MINNCOR complies with state law and policies when disposing surplus property.
In addition, MINNCOR failed to comply with policies when executing business partnership agreements and establishing sale prices. There exists no evidence that several contracts had been approved by MINNCOR?s executive team before being sent to the business partner for signature.
Despite MDOC policy requiring MINNCOR officials to review and approve contracts, their executive team minutes or other documents do not reflect this ever occurred.
To determine product and service sale price, MINNCOR was to calculate the cost of raw materials, overhead, general and administrative expenses and any other expenses. Once determined, the cost is to be increased by ten percent for profit. The Auditor could not determine how MINNCOR ?established product and service sale price.? The Auditor did determine MINNCOR violated state law by failing to ?pay vendors within 30 days following the receipt of the invoice for the delivery of the product or service,? subjecting MDOC to additional and unnecessary costs.
Finally, the Auditor found that MDOC had created a nonprofit organization, the Minnesota Correctional Education Foundation (MCEF) without statutory authority. Moreover, it had transferred MINNCOR and MDOC funds to MCEF. The Auditor found many questionable practices with MCEF.
MCEF was created to support MDOC?s postsecondary education program for prisoners. By MDOC creating MCEF without statutory authority, MDOC undermined the state?s ability to define the composition, standards, or expectations for the foundation?s operations. A conflict was found to exist because MDOC employees were on the foundation?s board.
The conflict resulted in MDOC donating $25,000 to MCEF and providing it another $24,000 worth of office space, supplies, and equipment, MDOC also issued three payments totaling $60,500 from MINNCOR?s revolving fund. A further conflict occurred when MCEF contracted with Inver Hills Community College (IHCC). Not only was IHCC?s president on MCEF?s board, but an employee of IHCC became MCEF?s executive director. She was paid $55,000 by MCEF for salary, benefits, and travel expenses while remaining on IHCC?s payroll.
MCEF?s executive director?s salary was paid from a federal grant to benefit prisoners 25 years old or younger. The Auditor questioned whether the federal grant provisions were violated; thus, the U.S. Department of Education should be consulted to determine if this is an allowable use of grant funds. The Auditor also said legislative authority for MCEF should be obtained or MDOC separate itself from MCEF. Moreover, MDOC should seek reimbursement of all funds provided MCEF.
MDOC agreed with all the Auditor?s recommendations and set out a plan and target date to comply. ?We thought we were being really innovative and cost effective,? said MDOC Commissioner Joan Fabian. In the prison industrial complex, there is nothing innovative about establishing self-serving entities and enterprises.
See: Office of Legislative Auditors, report numbers 06-20 and 06-21, available on PLN?s website.
Additional Source: Associated Press
As a digital subscriber to Prison Legal News, you can access full text and downloads for this and other premium content.
Already a subscriber? Login