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New Jersey Comptroller Criticizes, Questions Halfway House Contracts

In a June 15, 2011 letter and separate audit report, the New Jersey State Comptroller’s office sharply criticized a number of issues related to the Department of Corrections’ (DOC) contracts with private halfway houses. Singled out for special attention was Education and Health Centers of America, Inc. (EHCA), a non-profit corporation that operates about half of the halfway houses under contract with the DOC.

The Comptroller stated, in reference to EHCA, “One of the issues that we found is there are questions about the eligibility of one of those halfway houses to be a part of this program. We sent a letter to the [DOC] suggesting that on this issue they seek formal legal advice from the [State] Attorney General’s Office and they’ve agreed to do that.”

The Comptroller’s office noted that of the $400 million New Jersey had paid to EHCA since 1997, $390 million went to an affiliated for-profit company, Community Education Centers, Inc. (CEC). EHCA subcontracts with CEC for the “operation, support services, management, and maintenance” of EHCA’s halfway houses.

This arrangement skirts a state law requiring halfway houses to be non-profit facilities. While EHCA owns the halfway houses, it basically serves as a shell corporation for CEC, a for-profit company, which provides day-to-day operations and receives the vast majority of the state funds funneled through EHCA for halfway house contracts. [See: PLN, April 2011, p.48].

According to the Comptroller, “The same individual who serves as EHCA’s President/CEO ... also serves as the President/CEO of CEC. Similarly, there are several other people serving in executive management positions with both entities. According to EHCA’s 2010 proposal for [halfway house] services, CEC ‘maintains a staff of approximately 800 in New Jersey specifically to service EHCA contracts,’ while EHCA has a staff of ten employees, five of whom are also employed by CEC.”

“It appears that at this point a primary business purpose of EHCA is to receive public contracts on behalf of CEC,” the Comptroller concluded.

CEC senior vice president and general counsel for public affairs Bill Palatucci said the company was “still operating under the same agreement that was approved by the Attorney General back then, so we’re a bit puzzled by the report. We’ll take a look and talk to the Department of Corrections about it.”

Palatucci was described in news articles as a political adviser and close friend to New Jersey Governor Chris Christie. In fact, Palatucci had previously helped run Christie’s election campaign, served as co-chair of Christie’s inaugural committee and was Christie’s former law partner. Before becoming governor, Christie was registered as a lobbyist for CEC. This may explain the success of EHCA/CEC in New Jersey, considering that EHCA holds around half of the state’s halfway house contracts.

Additionally, in its June 15, 2011 audit report, the Comptroller’s office accused the DOC of inadequately monitoring halfway houses, failing to maintain an adequate disciplinary process for halfway house residents, and failing to sanction providers for contract violations such as staffing levels and escapes. Further, the audit questioned whether the DOC was adequately measuring performance results for halfway houses, since the DOC currently does not collect recidivism data for halfway house residents.

The Comptroller’s report also indicated that New Jersey overpaid 10 halfway houses a total of $587,000 over a six-year period due to miscalculating per diem rates. The Comptroller questioned the adequacy of some halfway houses that let residents with disciplinary problems leave before they could be re-incarcerated. According to the audit report, six halfway house residents escaped before they could be returned to prison for probation violations because they were not placed in a secure holding area as required. Three of the facilities did not even have such a secure holding area.

In 2009, four DOC monitors documented spending 104 days in the field for site visits at halfway houses; however, they should have documented over 600 visits. Two of the halfway houses did not receive any documented site visits, indicating a gross failure by the DOC to monitor those facilities.

“This is a $64 million program whose success or failure has important consequences for public safety,” said State Comptroller Matthew Boxer. “And yet as a state we have done a poor job of monitoring the program and have made no real attempt to find out what taxpayers are getting for their money. It is critical that the state takes a more active role in ensuring the success of these programs. It cannot simply cut these halfway houses a check and hope for the best.”

In response to the Comptroller’s criticisms, DOC Commissioner Gary Lanigan stated, “We acknowledge there are specific areas of oversight of [halfway houses] that can be strengthened and feel confident that we can quickly improve our performance in these areas through measures that have already been implemented or are already in progress.”

Sources: Associated Press; “Residential Community Release Program,” State of New Jersey Office of the State Comp-troller, Report PA-13 (June 15, 2011); Letter from New Jersey State Comptroller, Procurement Division Director Dorothy Donnelly, dated June 15, 2011; New Jersey Office of the State Comptroller press release; New York Times

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