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Audit Reveals Federal Prison Industries Faces Declining Revenue, Job Losses

A recent audit by the Office of the Inspector General of the U.S. Department of Justice highlights the many challenges the Bureau of Prisons (BOP) and its wholly-owned government corporation, Federal Prison Industries, Inc. (FPI), face with respect to the FPI’s increasing financial problems. The audit, which covers FPI’s operations from 2001 to 2012, also documents growing losses in prisoner job positions.

Congress created FPI, also known as UNICOR, “to provide a meaningful work program to inmates in federal penal institutions. To minimize its impact on the private sector, Congress authorized FPI to sell its products only to the federal government, and the Executive Order establishing FPI required it to diversify its product offerings so that no single private industry would bear a disproportionate burden of competition.”

Further, according to BOP Program Statement 8120.02, “FPI was designed to allow inmates the opportunity to acquire the knowledge, skills, and work habits that will be useful when released from prison.”

However, as previously reported in Prison Legal News, prison industry programs can negatively impact free-world businesses and result in free-world job losses when businesses are unable to compete with low-cost prison slave labor. [See: PLN, Feb. 2013, p.42; July 2009, p.21]. Additionally, prisoners’ rights advocates have noted there is little evidence that prison work programs provide real-world skills that prisoners can utilize after their release and, more significantly, that the skills developed in such programs are not in high demand in private industry.

Although the population of the United States has tripled over the past 80 years, the number of federal prisoners has increased more than twenty-fold, and prison industry has become big business. FPI’s impact on the economy has grown to be greater than anticipated and its failures have thus become more apparent.

From fiscal year (FY) 2007 to 2012, FPI closed 38 prison factories while opening 17, for a net loss of 21 prison industry programs. As of June 2012, FPI operated a total of 83 factories in 65 federal correctional facilities nationwide.

FPI manufactures household items, chairs and seating, desks, tables, filing and storage cabinets, optics and eyewear, and solar panels, and provides fleet management and recycling services. Additionally, FPI produces military apparel, body armor, fencing, and circuit board and cable assemblies, and provides screen-printing, communications, call center, and data and document conversion services.

However, these programs have not been exempt from criticism by government watchdogs. For example, the Inspector General previously criticized FPI for its inattention to safety in its Electronic Waste Recycling Program, noting that it had “identified significant safety and environmental problems ... including a failure to implement adequate measures to address the safety of staff and inmates who were employed in the program.” [See: PLN, Oct. 2011, p.44].

FPI does not receive direct taxpayer funding and is responsible for generating its own revenue. Prior to 2009, FPI “achieved financial sustainability” and had annual net revenue averaging $26 million. The Inspector General noted that this was “primarily attributable to a surge in sales to the Department of Defense (DOD) as a result of the wars in Afghanistan and Iraq.”

FPI had $745 million in gross revenue in FY 2011, mainly from the sale of goods and services to the federal government; the DOD and Department of Homeland Security accounted for 69% of FPI sales during that fiscal year. Yet the agency has incurred “average net losses of $31 million annually from FYs 2009 through 2012.” Further, FPI’s net sales dropped 32% over that time period.

The decline in revenue in recent years was due to a number of factors, including the winding down of the wars in Iraq and Afghanistan plus legislative changes that limited FPI’s “mandatory source” authority, which historically has required federal agencies to buy goods and services produced by FPI instead of seeking competing bids from private-sector companies.

To stem its financial losses, FPI has slashed prisoner job positions – including terminating some 7,000 prisoner workers in 2010. [See: PLN, Dec. 2010, p.44]. The reduction in job positions was “primarily the result of efforts to compensate for declining revenues and earnings,” the Inspector General found.

FPI employed 12,394 prisoners as of June 2012 – around 7% of eligible BOP prisoners and the agency’s lowest level of employment since 1986. “As a result,” the audit found, “FPI is currently employing the smallest proportion of the eligible federal inmate population in its more than 75-year history.”

In response to the job losses, FPI implemented a “job-sharing initiative intended to employ two inmates on a half-time basis instead of one full-time inmate, thereby introducing more inmates to FPI.” However, the auditors noted that they “were unable to gauge FPI’s job-sharing progress over the past 2 years due to a lack of reliable data, as FPI headquarters initially did not provide clear instructions to factory management on how to capture and track the results.”

The Inspector General made several recommendations to address the problems identified in the audit, including adjusting the performance metric for FPI’s job-sharing program; establishing targets for the job-sharing program and ensuring that FPI officials have incentives to meet those targets; replacing the agency’s “previous inmate employment goal with one that is better aligned with the FPI’s current operational and economic environment”; and ensuring that FPI does not employ non-citizen prisoners who are subject to deportation.

However, unless the culture of FPI changes, the audit’s recommendations are unlikely to be successfully implemented.

Outside the prison context, the free-market, private-sector economy is ruthless in culling companies and even entire industries that become unprofitable or irrelevant. Clearly, FPI has not followed the lead of private industry in upgrading its manufacturing and management practices to mirror real-world conditions.

Although few criticize the BOP for its efforts to use prison labor to provide goods and services necessary for the housing and maintenance of its prisoner population, private companies could likely provide the same goods and services for millions of dollars less. The resulting savings could be used for rehabilitative programs that benefit prisoners and reduce recidivism – but so long as BOP officials and federal lawmakers buy into the fiction that the benefits of FPI outweigh its costs and weaknesses, little will change.

Source: “Audit of the Management of Federal Prison Industries and Efforts to Create Work Opportunities for Federal Inmates,” DOJ Office of the Inspector General (September 2013)

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