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Arizona Auditor’s Report Finds Underfunding of DOC’s Capital Funding Requests and Unreconciled Prisoner Trust Fund Accounts

by Matt Clarke

In October 2020, the Arizona Auditor General’s Office published a report on a performance audit of the Department of Corrections, Rehabilitation and Reentry (DOC). The audit reviewed the DOC’s revenues, expenditures, capital funding, and management of prisoners’ monies. Although the auditors found DOC spending was largely compliant with applicable statutory and other requirements, it did note that the DOC was allocated less than 5% of its requested capital funding. It also had 480 unreconciled transactions involving prisoners’ monies between January 2015 and January 2019, and had not reconciled any prisoner account statements since November 2019.

The DOC operates ten state prison complexes and contracts for six privately-owned or -managed prisons. As of August 31, 2020, it was responsible for supervising 39,153 prisoners in state and private prisons and 5,189 persons under community supervision.

DOC finances are handled in 19 separate funds from a variety of sources, including legislative appropriations, portions of the luxury tax allocated by statute, transfers from other funds and government agencies, income from DOC-owned property, sales of DOC-made goods, and donations. The largest is the General Fund which receives an almost $1.1 billion annual appropriation. About 60% of the fund’s expenditures are for payroll and related benefits. Medical services and payments to private prisons account for about another 30%.

The Corrections Fund is funded by a portion of the luxury tax on alcohol and tobacco products and transfers from other funds. The fund is required by statute to transfer $2.5 million annually to the Building Renewal Fund.

Although this fund is supposed to be earmarked for major and minor maintenance expenditures, about 80% of its expenditures consist of payments to private prison companies. Another 9% pays for prisoners’ food.

The Building Renewal Fund is primarily funded by transfers from other funds which amounted to $4.5 million in Fiscal Year (FY)2019. It also received about $1.2 million from a 1% fee on deposits made into prisoners’ accounts and a $25 visitor background check fee.

The auditor’s report noted that the DOC’s largest expenditures in the audited period—FY 2016 - FY 2019—were for payroll and related benefits (56%), contracted services, including prisoners’ food and privately-owned or -managed prisons (31%), and other operating expenses such as rent, utilities, supplies, uniforms, and prisoners ‘wages (11%).

Capital funding includes appropriations for new construction and major repairs of pre-existing buildings. This can include, for instance, replacing nonfunctioning door locks or fire alarms or upgrading security lighting and perimeter alarm systems (all of which were requested funding items).

To receive capital funding, the DOC submits a funding request each FY to the Arizona Department of Administration (ADOA). The ADOA reviews the request and submits its own funding request to the Governor. The Governor, in turn, makes capital funding recommendations to the Legislature in the executive budget. During FY 2016 through FY 2020, the AODA’s recommended capital funding was 13.4% of that requested by the DOC. The Governor’s recommended funding averaged 20.8% of the ADOA’s recommendation (2.7% of the DOC’s request) and the Legislature appropriated 2.38% of the amount requested by the DOC (87.6% of the amount in the executive budget). Most years, the DOC received a mere $5.5 million in capital funding.

The auditors found that capital funding was woefully underfunded, increasing security risks and resulting in a minimum of $125 million in deferred maintenance costs. They reported that the required maintenance costs far outstripped the amount the Building Renewal Fund receives each year.

The auditors compared the DOC’s $0.85 average annual per capita capital funding from FY 2016 through FY 2020 with that of four other states and found that Arizona received the lowest capital funding in the group. The other states were Ohio ($7.47), Texas ($1.85), Virginia ($3.28) and Washington ($3.16).

The auditors examined the critical issue of repairing nonfunctional locks at the Lewis prison complex and found that the DOC had received approval to use $17.7 million in non-appropriated funds to begin a 3-phase project to replace the locking, fire detection, and evaporative cooling systems at the Lewis and Yuma prison complexes.

A redesign of that project from using sliding doors to swinging doors saved about $20 million, but that savings was more than expended when the decision was made to replace evaporative coolers with air conditioning to prevent humidity damage to the buildings. The total project costs are estimated at just over $60 million with completion expected in August 2022.

In auditing the prisoners’ trust fund accounts, which have a combined balance of over $19.7 million, the auditors found that, although most of the deductions they reviewed were accurate and supported by documentation, the DOC had not reconciled prisoners’ accounts since November 2019.This goes against state policy which requires anomalies, deficiencies, imbalances, and errors to be detected through reconciliation and resolved within 30 days.

Further, some of the 480 unreconciled items, dating from January 2015 through January 2019, no longer had validating documentation.

The DOC explained the lack of monthly reconciliation as difficulties it was having with a new computer program called Keep Track designed to track the trust fund. It explained that, during the data migration from the old system to the new system, many records were loaded into the new system that should not have been. Further, staff lack of familiarity with the new system was causing delays which would soon be overcome and the reconciliations brought up to date. The DOC also agreed with the auditors’ recommendation to develop a method to maintain historic records under the Keep Track system. 



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