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Audit Finds California Prison Receiver Broke State Law by Making No-Bid Contracts with Verizon

An investigation by the California Bureau of State Audits has revealed that Prison Health Care Services, the office overseeing prison health care reform in California, violated legal requirements and bypassed internal controls when it acquired $26.7 million in information technology (“IT”) goods and services without inviting competitive bids. The investigation, conducted by state Auditor Elaine M. Howle pursuant to the California Whistleblower Protection Act, was initiated when, shortly after his appointment in January 2008, J. Clark Kelso, the office’s new receiver, discovered that some of the IT contracts executed during his predecessor’s tenure may not have followed appropriate state laws and policies. Coincidentally, Kelso had gained familiarity with IT contracting problems of a similar nature during his tenure as California’s Chief Information officer (prior to his federal-court-appointment as Receiver). In responding to the audit, Kelso noted that, “For better or for worse,” his predecessor had devoted the bulk of the resources of the receiver’s office to addressing the very immediate problems posed by “abhorrent clinical conditions on the ground in the prisons.” Kelso acknowledged that, as a consequence, perhaps not enough attention had been paid to the administration of the state’s contracting system -- a system which he characterized as “also in shambles” when the receivership was originally established (in 2006).

The auditor detailed the results of her investigation in a report submitted to the Governor and legislative leaders on January 22, 2009. Although the report included a copy of the Receiver’s response to the audit, neither Kelso nor his predecessor, Robert Sillen, was otherwise specifically named in the report. And similarly, while the report exposed the failures of four officials and two managers in the Prison Health Care Services bureaucracy to fulfill their contracting responsibilities, those officials and managers -- one of whom was identified in a footnote as having been terminated -- were not named either.

Conspicuously absent from the auditor’s otherwise exhaustive report was any mention of either the identity of the vendor who seemingly benefited from the failure of Prison Health Care Services to invite competitive bids, or the specific nature of the IT goods and services thus acquired. That missing information was supplied by Don Thompson of the Associated Press; in a press release on January 22, 2009 (the same day as the audit itself was released), the vendor was identified as Verizon Communications Inc. According to the press release, communications giant Verizon (and an unidentified subcontractor) signed a contract with Prison Health Care Services to install its telephone and data lines.

While the audit concluded that the state could not be certain that Prison Health Care Services had spent $26.7 million in public funds “prudently” or that it had received the test value for its money, there was no finding of wrongdoing on the part of Verizon (or the subcontractor). Nor was there any evidence that any employee of Prison Health Care Services had personally benefited from the noncompetitive manner in which the deal with Verizon had been struck.

In responding to the audit, Kelso indicated that his office had established policies and procedures to ensure that Prison Health Care Services would consistently apply proper contracting procedures in making future IT acquisitions. Then, in what may prove to be a concession to the ultimate inevitability of business-as-usual, Kelso indicated that his office had sought and obtained “an appropriately justified approval” from the state Department of General Services to continue its noncompetitive contracting arrangement with Verizon. The audit is available on PLN’s website.

Sources: California Prison Health Care Services Audit, January 2009 Report no. 2008-0805, January 22, 2009; Audit: California Prison Receiver Gave No-Bid Contracts, by Don Thompson, Associated Press, 1/22/09.

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