Management Audit of the
Department of Public Safety’s
Contracting for Prison Beds and
Services
A Report to the
Governor
and the
Legislature of
the State of
Hawai‘i

Report No. 10-10
December 2010

THE AUDITOR
STATE OF HAWAI‘I

Office of the Auditor
The missions of the Office of the Auditor are assigned by the Hawai‘i State Constitution
(Article VII, Section 10). The primary mission is to conduct post audits of the transactions,
accounts, programs, and performance of public agencies. A supplemental mission is to
conduct such other investigations and prepare such additional reports as may be directed
by the Legislature.
Under its assigned missions, the office conducts the following types of examinations:
1.

Financial audits attest to the fairness of the financial statements of agencies. They
examine the adequacy of the financial records and accounting and internal controls,
and they determine the legality and propriety of expenditures.

2.

Management audits, which are also referred to as performance audits, examine the
effectiveness of programs or the efficiency of agencies or both. These audits are
also called program audits, when they focus on whether programs are attaining the
objectives and results expected of them, and operations audits, when they examine
how well agencies are organized and managed and how efficiently they acquire and
utilize resources.

3.

Sunset evaluations evaluate new professional and occupational licensing programs to
determine whether the programs should be terminated, continued, or modified. These
evaluations are conducted in accordance with criteria established by statute.

4.

Sunrise analyses are similar to sunset evaluations, but they apply to proposed rather
than existing regulatory programs. Before a new professional and occupational
licensing program can be enacted, the statutes require that the measure be analyzed
by the Office of the Auditor as to its probable effects.

5.

Health insurance analyses examine bills that propose to mandate certain health
insurance benefits. Such bills cannot be enacted unless they are referred to the Office
of the Auditor for an assessment of the social and financial impact of the proposed
measure.

6.

Analyses of proposed special funds and existing trust and revolving funds determine if
proposals to establish these funds are existing funds meet legislative criteria.

7.

Procurement compliance audits and other procurement-related monitoring assist the
Legislature in overseeing government procurement practices.

8.

Fiscal accountability reports analyze expenditures by the state Department of
Education in various areas.

9.

Special studies respond to requests from both houses of the Legislature. The studies
usually address specific problems for which the Legislature is seeking solutions.

Hawai‘i’s laws provide the Auditor with broad powers to examine all books, records,
files, papers, and documents and all financial affairs of every agency. The Auditor also
has the authority to summon persons to produce records and to question persons under
oath. However, the Office of the Auditor exercises no control function, and its authority is
limited to reviewing, evaluating, and reporting on its findings and recommendations to the
Legislature and the Governor.

THE AUDITOR
STATE OF HAWAI‘I
Kekuanao‘a Building
465 S. King Street, Room 500
Honolulu, Hawai‘i 96813

Management Audit of the Department of
Public Safety’s Contracting for Prison Beds
and Services
Department’s misleading cost data and improper contracting
make prison solutions more elusive
Office of the Auditor
465 S. King Street
Rm. 500
Honolulu, HI 96813
Ph. (808) 587-0800
Marion M. Higa
State Auditor
State of Hawai‘i

“… if the contract between
the PSD and the City of Eloy
is such where the City of
Eloy is not contributing to
the performance of the contract, and is a pass-through
mechanism to contract with
CCA, this would be considered a circumvention of the
statutes and an inappropriate use of the inter-governmental exemption….”
— chief procurement officer

Recommendations

Responses

Previous Audits

For the full text of this and other
reports, visit our website:
http://www.state.hi.us/auditor

“Quick and dirty” numbers
In December 1995, in an effort to address persistent prison overcrowding, the Department of Public
Safety (PSD) began transferring inmates to out-of-state facilities. The transfer was viewed as a
stop-gap measure that would give prison officials time to increase in-state capacity. Today, about 2,000
male inmates, approximately one-third of Hawai‘i’s inmate population, are held at facilities in Arizona.
Department officials have testified that sending inmates off-island is a temporary measure. However,
we found that management does not understand the necessity of providing detailed and accurate
financial information to policymakers and the public, a key component in solving this crisis. For
instance, PSD reports that it spends about twice as much to maintain an inmate in-state. However, we
found that these cost estimates are based on a flawed methodology designed around what is easiest
for the department to report, or, as one PSD official characterized, “quick and dirty” numbers. The
department ignores a major component for calculating these costs—capacity versus use. In
addition, PSD underutilizes the capabilities of its inmate tracking management system, which can
collect and compute inmate days and other information that would assist managers. Moreover, this
inmate tracking system is often used incorrectly. In one analysis, we found errors in 28.4 percent of
the tracking system’s reports. The interim director contends that PSD provided a simple cost estimate
because it could not articulate the complexity of calculating the myriad expenses incurred by individual
inmates at differing facilities on a specific day. The department misses the point. The Offendertrak
management system, if used accurately and to its capabilities, would enable prison managers and
policymakers to make decisions with reliable information.

Circumventing the law
In 2006, the past department director signed an inter-governmental agreement (IGA) with the City
of Eloy, Arizona, to consolidate housing for Hawai‘i inmates to three prisons owned and operated by
Corrections Corporation of America (CCA), a for-profit provider of correctional facilities. At the time, the
corporation was building a $95 million prison in Saguaro, Arizona, specifically for Hawai‘i inmates.
As the name indicates, IGAs are agreements that involve government-to-government
transactions. These agreements are exempt from competitive procurement methods that
state agencies must generally employ when soliciting proposals, a requirement of the Hawai‘i
Public Procurement Code. However, in the department’s IGA with Eloy, the department actually
conducts all transactions directly with CCA. We found no evidence that Eloy sub-contracted
inmate services to CCA, nor is the city compensated for its role in the agreement. In the State chief
procurement officer’s opinion, such a contract inappropriately used the IGA exemption and is
circumventing the law. Through this misuse of the exemption, the department was able to secure CCA
as its preferred provider. In addition, we found that the IGA does not contain safeguards that protect
the State’s interests in the event of a dispute or if funds are not appropriated or available to pay CCA,
so the State is exposed to a liability risk.
We found that the department has no written policies or procedures for contract administration, and the
administrator and staff readily accepted CCA’s representations and conclusions of its performance
without verifying statements against documented evidence. At the time of our fieldwork, the department
had no plans for contracting for private prison beds beyond June 30, 2011, when its contract with Eloy
and CCA will expire. The interim director reports that the department is working with the City of Eloy
and CCA to establish a separate agreement that will specify and document the working relationship
between the two parties. However, the fundamentally flawed agreement should not be revisited.
Instead, the department would be better served by guidance and training from the State Procurement
Office. Doing so would better address the need for private prison beds beyond 2011 by helping to
ensure that procurment occurs properly in the first place.

Management Audit of the
Department of Public Safety’s
Contracting for Prison Beds and
Services
A Report to the
Governor
and the
Legislature of
the State of
Hawai‘i

Submitted by

THE AUDITOR
STATE OF HAWAI‘I

Report No. 10-10
December 2010

Foreword

This report on the management audit of the Department of Public Safety
responds to a request by the president of the Senate and the speaker
of the House of Representatives to initiate an audit that focuses on
contracting for prison beds and services with non-Hawai‘i entities and
compares in-state and out-of-state incarceration costs. We conducted the
audit pursuant to Section 23-4, Hawai‘i Revised Statutes, and Article VII,
Section 10 of the Hawai‘i State Constitution, which require the Auditor
to conduct postaudits of the transactions, accounts, programs, and
performance of all departments, offices, and agencies of the State and its
political subdivisions.
We wish to express our appreciation for the assistance extended to us
by the director and staff of the Department of Public Safety, the State
Procurement Office, and others whom we contacted during the course of
the audit.

Marion M. Higa
State Auditor

Table of Contents

Chapter 1

Introduction
Background..................................................................1
Objectives of the Audit .............................................. 10
Scope and Methodology ............................................ 11

Chapter 2

Management Evades Accountability for
Prison Costs and Contracts
Summary of Findings ................................................ 15
Background................................................................ 16
Prison Overcrowding Cannot Be Addressed Since
True Incarceration Costs Are Unknown .................. 16
Procurement Process Circumvented, Oversight
Responsibility Ignored ............................................ 26
Conclusion ................................................................. 39
Recommendations...................................................... 40

Responses of the Affected Agencies .................................. 61
List of Appendixes
Appendix A

Appendix B

Appendix C

Exterior and Interior Photographs of Saguaro
Correctional Center and Halawa Correctional
Facility.................................................................... 43
Acceptance and Acknowledgement of Exhibit B,
“Compensation and Payment Schedule” from
Department's City of Eloy Contract ........................ 47
IGA between City of Eloy, Arizona and U.S.
Immigration and Customs Enforcement ................. 51

List of Exhibits
Exhibit 1.1
Exhibit 1.2
Exhibit 1.3

Department of Public Safety Organization Chart .........5
Department of Public Safety Capacities of
Correctional Centers and Facilities ...........................7
Department of Public Safety, Mainland/FDC Branch
Organization Chart....................................................8

v

Exhibit 1.4
Exhibit 2.1
Exhibit 2.2

Exhibit 2.3
Exhibit 2.4
Exhibit 2.5

Non-State Facilities, FY01-FY09 Expenditures...........9
Department’s Cost Per Inmate Day Breakdown for
FY07 Through FY09 .............................................. 18
Allocation of Administrative Costs to In-State,
Out-of-State, and Federal Detention Facilities,
FY08 ....................................................................... 21
Incidents Found in Review of Offendertrak Report
Generated by the Department ................................. 23
Payments to CCA FY06 to FY09 ............................... 27
Rate of Contract Adjustment for IGA With City of
Eloy and CCA......................................................... 38

vi

Chapter 1
Introduction
This report responds to a request by the speaker of the House of
Representatives and the president of the Senate asking the Auditor to
exercise her authority to conduct a management audit that 1) focuses
on the Department of Public Safety’s contracting for prison beds and
services with non-Hawai‘i entities and 2) compares in-state and out-ofstate incarceration costs. The audit was undertaken pursuant to Section
23-4, Hawai‘i Revised Statutes (HRS) and Article VII, Section 10 of the
Hawai‘i State Constitution, which requires the State Auditor to conduct
post audits of the transactions, accounts, programs, and performance
of all departments, offices, and agencies of the State of Hawai‘i and its
political subdivisions.

Background

Prison overcrowding has been a significant problem in Hawai‘i. In
September 1984, the American Civil Liberties Union filed a class-action
lawsuit on behalf of inmates at the O‘ahu Community Correctional
Center and the Women’s Community Correctional Center, calling
crowded conditions life-threatening. As part of the settlement, the State
consented to federal court supervision of both facilities. From June 1985
to September 1999, under the federal consent decree, the Department of
Public Safety was required to address deficiencies related to health care,
sanitation, inmate idleness, and staff shortages. The most significant
problem was overcrowding, which the consent decree addressed by
setting maximum capacities for both facilities based on standards
of professional organizations such as the American Correctional
Association.
In 1993, the Legislature determined that a permanent solution to
overcrowding was needed to terminate federal court supervision, prevent
future litigation, and enable the department to more effectively operate
its facilities. Act 343, Session Laws of Hawai‘i (SLH) 1993, created
the Corrections Population Management Commission to maximize
inmate population limits for each correctional facility and recommend
cost-effective mechanisms, legislation, and policies to prevent the
inmate population from exceeding those limits. The commission
developed an Omnibus Corrections Population Management Plan with
recommendations to control inmate populations and overcrowding
through: 1) intermediate sanctions to divert offenders from the prison
system; 2) programs to facilitate rehabilitation and reintegration of
incarcerated persons to reduce their length of stay in prison; and
3) expansion of the correctional system by building more jail and prison
bed space.

1

Chapter 1: Introduction

Use of non-state
facilities

In December 1995, in an effort to address the prison overcrowding
crisis, the department initiated a transfer of prison inmates to out-of-state
facilities. From 1995 to 1998, the department housed 600 inmates in
Texas with the Bobby Ross Group. The first transfer of Hawai‘i inmates
was viewed as a “short-term solution to chronic overcrowding”—an
attempt to give prison officials “breathing room” until new prison cells
could be built to accommodate bed space needs and future demands.
In screening inmates for possible transfer to mainland prisons, the
department rejected those with: 1) pending court cases; 2) serious
health problems; 3) maximum-security classification; 4) a history of
institutional violence; and 5) an escape record.
In 1998, a downturn in the economy derailed funding for major prison
expansion, and both state legislators and prison officials began to
reexamine the use of out-of-state facilities as a longer-term solution than
first proposed. What started as a temporary solution to relieve prison
overcrowding is today a matter of state policy.

Policy to transfer adult inmates out-of-state
Today, the department’s policies and procedures for the transfer of
inmates to out-of-state facilities is based on the inmates’ classification,
individual needs, resources and facilities available, the exigencies of the
community, and in consideration of the provisions of the Community
Safety Act of 2007. The department’s Mainland and Federal Detention
Center Branch (Mainland/FDC Branch) is responsible for determining
the eligibility status of each inmate screened for out-of-state transfer.
The current considerations are: 1) time left to serve on sentence; 2)
program refusals, non-clinical discharge, or misconducts incurred;
3) parole violators with more than 12 months to serve; 4) no pending
criminal charges; 5) no medical or mental health conditions that may
affect an inmate’s ability to function within a normal range; and 6)
inmates that volunteer and have cleared all facility holds. The Mainland/
FDC Branch makes all transfer arrangements with the private prison
vendor, which completes the final screening and selection in accordance
with appropriate state statutes.

Corrections
Corporation of America

2

The Corrections Corporation of America (CCA) is the owner and
operator of privatized correctional and detention facilities and the
nation’s leading provider of correctional solutions to federal, state, and
local governments. As of April 2010, CCA operated 65 correctional and
detention facilities, including 44 facilities that it owns, with a total design
capacity of approximately 87,000 beds in 19 states and the District of
Columbia. The corporation reportedly offers offenders in its prisons a
variety of rehabilitation, vocational, and education programs, including
addictions treatment, General Educational Development preparation

Chapter 1: Introduction

and testing, post-secondary studies, life skills, employment training,
recreational options and work opportunities.
In July 1998, the department entered into its first contract with the CCA
to address prison overcrowding. As of June 2010, 55 of Hawai‘i’s
medium security male inmates were housed at the Red Rock Correctional
Center, two at Florence Correctional Center, and 1,883 at Saguaro
Correctional Center. The corporation owns and operates these three
correctional centers in Arizona. In FY07, the contract price per inmate
per day was reportedly $57. This price has steadily increased to $61.68
as of July 2009.
From September 2005 to September 2009, some of Hawai‘i’s female
inmates were housed in Otter Creek Correctional Center in Kentucky,
which is also owned and operated by CCA. The contract price was
$51.90 per inmate per day. In September 2009, the contract was
cancelled and 128 female inmates were returned to Hawai‘i.

Federal Detention
Center

The Federal Detention Center (FDC) operated by the U.S. Bureau of
Prisons is located near Honolulu International Airport. It opened in
2001 with an original bed capacity of 670 inmates. Today, FDC has a
capacity for about 862. Since June 2001, the State has leased bed space
at the detention center primarily to relieve jail overcrowding. The center
holds a combination of pre-trial detainees and sentenced felons, male and
female, with less than one year to serve. As of June 2010, the FDC held
about 400 Hawai‘i inmates, 300 males and 100 females.
The department pays a rate equal to the FDC’s per day cost, which is
set annually by the U.S. Bureau of Prisons. In July 2001, the first 25
inmates to occupy the center cost the State $90 per inmate, per day. The
initial inter-governmental agreement allowed the State to house up to 200
male inmates. Since August 2009, the State may house up to 550 male
and female inmates at the FDC. The 2010 rate is $89.18.

Organization of the
Department of Public
Safety

The Department of Public Safety is responsible for formulating and
implementing state policies and objectives for correctional, security, law
enforcement, and public safety programs and functions, and maintaining
all public or private correctional facilities and services. The department’s
mission is to provide for the safety of the public and state facilities
through law enforcement and correctional management.
The department is headed by a director who oversees, directs, and
coordinates the plans, programs, and operations to provide for the
safety of people, both residents and visitors, from crimes against people

3

Chapter 1: Introduction

and property. The director is assisted by three deputy directors for
administration, corrections, and law enforcement.
•

The Administration Division oversees the department’s
expenditures, capital improvement projects, procurement of
goods and services, and statewide training program for both
uniform and civilian departmental personnel.

•

The Corrections Division manages the State’s community
correctional centers (jails) on O‘ahu, Hawai‘i, Maui, and
Kaua‘i, and correctional facilities (prisons) located on O‘ahu
and the mainland, to provide for the care, custody, control, and
educational and reintegration programs for prison inmates.

•

The Law Enforcement Division is responsible for preserving
the peace. The division protects the public in designated areas,
including all state property and facilities, and enforces specific
laws and rules for the prevention and control of crime. The
division is made up of the Narcotics Enforcement Division and
the Sheriff Division.

Exhibit 1.1 shows the department’s organization chart. We focus our
discussion on processes within relevant sections of the administration
and corrections divisions.

Corrections Division

Jails are normally a county responsibility; however, in Hawai‘i,
corrections management is solely a state function. The department’s
corrections division is responsible for managing both jails and prisons.
The Office of the Deputy Director for Corrections provides for the
custody, care, and assistance of all persons incarcerated by the courts or
otherwise subject to confinement based on an alleged commitment of a
criminal offense. The deputy director oversees seven divisions or offices:
1) Offender Management Office; 2) Intake Service Centers Division;
3) Inmate Classification Office; 4) Institutions Division; 5) Corrections
Program Services Division; 6) Health Care Division; and 7) Correctional
Industries Division.

O‘ahu Intake Service Center
The O‘ahu Intake Service Center completes an intake screening for
all newly admitted individuals that are detained or committed to the
O‘ahu Community Correctional Center. The initial classification of a
jail or prison inmate is conducted to determine the custody designation
appropriate to the inmate’s needs and the risk the inmate represents
to security. The five custody designations to which an inmate can be
assigned are: maximum, close, medium, minimum, and community.

4

Chapter 1: Introduction

Exhibit 1.1
Department of Public Safety Organization Chart

Source:

Organization chart created by Office of the Auditor with information provided by the Department of Public Safety.

5

Chapter 1: Introduction

Jail inmates should have an initial custody screening instrument
completed within 72 hours of admission. Prison inmates must have
an initial custody instrument completed by the assigned case manager
within 60 days upon transfer to the Reception, Assessment, and
Diagnostic (RAD) unit. The RAD unit identifies medical, mental health,
and other service needs and recommends an initial housing placement
and security classification.

Institutions Division
The Institutions Division consists of jails, in-state prisons, and the
Mainland/FDC Branch. The community correctional centers provide
the customary jail function for pretrial detainees, and short-term
(misdemeanants) sentenced population and convicted offenders serving
sentences of less than one year. There are four jails—located on O‘ahu,
Hawai‘i, Maui, and Kaua‘i. The jails also provide furlough or re-entry
programs for those who have almost completed their felony sentences,
and are returning to the community. Jail population consists of both male
and female detainees and inmates.
The prisons, referred to as correctional facilities, hold the higher-level
sentenced offenders (felons) according to their assigned classification
with longer incarceration terms. As of October 2009, with the closing
of the Kūlani Correctional Facility, there are three Hawai‘i prisons all
located on O‘ahu: Hālawa Correctional Facility, Waiawa Correctional
Facility, and the Women’s Community Correctional Center. Based
on their risk to other inmates, staff, and the community, male felons
who require more controls are placed at the Hālawa Special Needs or
Medium Security Facility. Those who present lesser risks are placed
in the minimum security Waiawa Correctional Facility. Female felons
are assigned to the Women’s Community Correctional Center and the
Federal Detention Center.
Exhibit 1.2 details the capacities of the in-state and non-state facilities
utilized by the department.

The Mainland and FDC
Branch

6

The Mainland/FDC Branch was initially created as a special program
in November 2004 to “deal with approximately 2,100 inmates with
contracts [totaling] $60,211,435.” Sections 64 and 65 of Act 178, SLH
2005, authorized the general fund appropriations. The branch oversees
and monitors the state contracts with private mainland prisons and
the FDC in Honolulu for the housing and care of Hawai‘i’s inmates.
Its primary responsibility includes custody and programming of
inmates housed in private contract facilities on the mainland and fiscal
responsibility for the inmates placed at the FDC. Prior to 2004, the
program was personally managed by the deputy director of corrections.

Chapter 1: Introduction

Exhibit 1.2
Department of Public Safety Capacities of Correctional
Centers and Facilities

LOCATION

DESIGN CAPACITY

OPERATIONAL BED
CAPACITY

Hawai‘i Community Correctional Center

Hilo, Hawai‘i

206

226

Kaua‘i Community Correctional Center

Lihu‘e, Kaua‘i

110

128

State Correctional Centers (Jails)

Maui Community Correctional Center

Wailuku, Maui

209

301

O‘ahu Community Correctional Center

Honolulu, O‘ahu

628

954

1,153

1,609

Total
State Correctional Facilities (Prisons)
Hālawa Correctional Facility

‘Aiea, O‘ahu

586

1,124

Waiawa Correctional Facility

Waipahu, O‘ahu

294

334

Women’s Community Correctional Center

Kailua, O‘ahu

258

260

Kūlani Correctional Facility

Hilo, Hawai‘i

160

160

Total

1,298

1,878

Total Capacity, State Facilities

2,451

3,487

Non-State Facilities
Red Rock Correctional Center

Eloy, AZ

1,596

*

Saguaro Correctional Center

Eloy, AZ

1,896

*

3,492

*

670

862

Total Capacity, Non-State Facilities

4,162

862

Total Capacity, All Facilities

6,613

4,349

Total
Federal Detention Center

Honolulu, Hawai‘i

*Kūlani Correctional Facility closed October 2009. All inmates were transferred to other locations. We include here to
note bed capacity as a result.
Source: Compiled by the Office of the Auditor from the Department of Public Safety 2008 Annual Report and Corrections Corporation of
America website.

In 2006, the Legislature authorized and approved ten permanent civil
service positions to monitor the out-of-state contracts and inmates.
This branch provides for the basic needs of prison inmates by developing
and maintaining a secure, safe, healthy, and humane social and physical
environment. This branch also facilitates participation in academic
and work/training programs designed to prepare these inmates for
reintegration into the community. The branch’s goal is to monitor and
ensure compliance with the agreements for the secured care, custody,
and availability of programs for Hawai‘i inmates housed in out-of-state

7

Chapter 1: Introduction

facilities and the FDC. In addition to monitoring the current agreements,
the branch is tasked with ensuring that the quality of programs in the
contracted out-of-state facilities is equal to or better than programs in
the state facilities. Exhibit 1.3 provides the Mainland/FDC Branch’s
organization chart.

Exhibit 1.3
Department of Public Safety, Mainland/FDC Branch Organization Chart
Department of Public Safety
Director

Corrections Division
Deputy Director

Institutions Division
Administrator

Mainland /Federal Detention Center
Branch Program Manager

Secretary II

Program Supervisor

Contract Monitoring
Section

Security Threat Group
Section
Investigator IV*

Office Services Section
Account Clerk IV

Clerk Typist II

Social Worker IV
(four positions )

*Position abolished by Legislature in 2009 under Act 162
Source:

8

Organization chart created by Office of the Auditor with information provided by the Mainland/FDC Branch

Chapter 1: Introduction

General funds for all costs associated with housing out-of-state and FDC
inmates are appropriated in the PSD 808 Non State Facilities program.
Prior to FY08, the appropriations were included with the PSD 900
Administration program. Exhibit 1.4 details actual amounts expended as
reported annually in required legislative reports. Since FY01, the actual
amounts expended for the out-of-state facilities have more than tripled,
as shown in Exhibit 1.4.
Exhibit 1.4
Non-State Facilities, FY01-FY09 Expenditures

Source:

Data compiled by the Office of the Auditor from FDC/Mainland branch expenditures reports

Prior audits

Although this is our first management audit of the department’s
contracting for private prison beds and services, we have conducted
several audits of the department’s security staffing and procurement
practices.
•

Report No. 92-27, A Review of a Formula for Security Staffing
at the Department of Public Safety, recommended that the
department prioritize all security posts and work positions. The
audit also recommended that the department limit the use of
overtime to emergencies or non-coverage of security posts.

•

Report No. 94-18, A Follow-Up Review of Security Staffing
in the Department of Public Safety found that the department
had made steps towards implementing our earlier audit
recommendations, but implementation was limited.

9

Chapter 1: Introduction

•

Report No. 00-05, the Management and Financial Audit of
the Department of Public Safety, found the director of public
safety failed to provide the leadership and guidance needed
to efficiently staff facilities and control the department’s
extraordinary overtime costs. We found breaches in prison
security that seriously jeopardized public safety where the misclassification of inmates resulted in inmates being improperly
confined in lower-security levels or incorrectly released into
community furlough programs. We also found that inmates were
not provided with adequate access to health care services nor
were inmate grievances addressed in a timely manner.

We have also conducted several financial audits of the Department of
Public Safety.

Objectives of the
Audit

•

Report No. 92-26, Financial Audit of the Department of Public
Safety, reported on the department’s failure to exercise adequate
control over the use of leave and overtime, stating that this
resulted in excessive overtime costs.

•

Report No. 02-10, Financial Audit of the Department of
Public Safety, KPMG LLP found deficiencies in the financial
accounting and internal control practices of the department. The
department continued to experience unusual patterns of sick
leave, and overtime costs were significant. The department
continued to maintain a significant outstanding balance of salary
overpayments that cannot be collected.

•

Report No. 06-05, Financial Audit of the Department of Public
Safety 2006. While the certified public accounting firm of
KPMG LLP found the financial statements were presented fairly,
there were several deficiencies in the internal controls over
financial reporting and operations. The department had difficulty
reconciling and transferring inmate trust account balances
accurately and timely. Uninhibited sick leave usage continued
to result in significant overtime costs. Lastly, the department
continued to maintain a significant outstanding balance of salary
overpayments that cannot be collected.

1. Evaluate the Department of Public Safety’s data relating to
incarceration costs.
2. Assess the department’s efforts to procure and administer contracts
for prison beds and services.
3. Make recommendations as appropriate.

10

Chapter 1: Introduction

Scope and
Methodology

Our audit focused on the department’s contracting for prison beds and
services. We reviewed in-state and out-of-state incarceration costs and
analyzed the methodology used. We evaluated management’s cost data
utilization. In addition, we evaluated the department’s procurement
process for sending inmates to out-of-state facilities, including the
procurement methods selected, execution of agreements, contract
administration, and overall monitoring.
We conducted interviews with legislators, department personnel and
managers, and representative officials from the non-state facilities. We
reviewed pertinent policies and procedures, reports, and other documents
to assess management’s adherence to state laws. We conducted site visits
to observe processes in place for monitoring contractor performance and
to determine comparability between facilities. Our audit focused on the
time period of July 1, 2006 through June 30, 2010.
Our audit was conducted between May 2010 and October 2010 according
to the Office of the Auditor’s Manual of Guides and generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.

Auditor’s access to
information

Our audit was marked by numerous roadblocks to our access to
information. Department officials repeatedly attempted to deny us direct
access to individuals and documents, define our audit scope, and stop us
from conducting an audit at all, among other issues.
At the onset of our audit, we provided our request for information to the
department, a standard procedure during the preliminary planning phase
of an audit. Our first request for documents was made to the department
on June 22, 2010. We repeated this request on July 13, 2010 and
July 21, 2010. Documents were provided piecemeal and oftentimes,
had been filtered through management, as opposed to directly by the
responsible individual.
For requests specific to Offendertrak, the department’s inmate tracking
system, the deputy director of administration questioned our need for
the information, maintaining that it was not pertinent to the scope of
our audit. The management information system administrator was
instructed not to meet with our analyst or provide answers to questions
about Offendertrak. Instead, all inquiries were directed to the business
management officer and the deputy director of administration. We took

11

Chapter 1: Introduction

the alternate route of interviewing the Motorola engineer who installed
Offendertrak in order to understand the system’s capabilities. We also
researched the budget history through which the department obtained the
appropriation for the system.
During the preliminary planning phase of this audit, the department
director and the Mainland/FDC Branch administrator invited members
of the audit team to accompany the contract monitors on their quarterly
site visit—from June 29 to July 1, 2010—to observe the monitoring
practices in place. On the second day of observation, the Saguaro
warden informed us that he would not allow us to obtain copies of any
documents on instructions from the department director. The director
questioned our legal authority to proceed with the audit because of the
governor’s veto of House Bill No. 415, House Draft 1, Senate Draft 2,
Conference Draft 1 of the 2010 legislative session which had called for
a prisons audit that included the closure of Kūlani Correctional Facility.
The director wanted requests to be routed through his office for review
and final release of documentation.
On several occasions, the director screened our requests, raised
questions, and denied access in an attempt to define our scope and
control our workflow, thus causing delays in fieldwork. For example,
on July 14, 2010 we sent an email to the director requesting the
documents previously reviewed by the audit team at Saguaro. On
July 21 and July 27, 2010 we followed up on that request, and on
July 30, 2010, we received notice that the director would not provide
the documents because he deemed them confidential and beyond
the scope of our audit objectives. We proceeded, anticipating that
the supporting documentation would be included in the final audit
report by the department’s own contract monitoring audit team that
we had been invited to join. We again experienced some delays in
our fieldwork because the final audit report was not released until the
director authorized the branch administrator to do so. Lastly, towards the
end of our fieldwork, the Institutions Division administrator issued an
advisory email to all wardens to submit any response to our inquiries to
management first for approval.

Audit delays
Our requests for information in this audit do not differ from requests
made in prior audits. We routinely request preliminary information to
plan and define our audit fieldwork, such as department organization
charts, functional statements, budget documents, and procedural
manuals. Lacking such foundational information, we filled in gaps in our
knowledge with interviews of departmental employees and contracted
parties.

12

Chapter 1: Introduction

Auditor’s authority to access information
The Auditor’s constitutional (Article VII, Section 10 of the Hawai‘i State
Constitution) and statutory (Chapter 23, HRS) powers in their totality
support the principles of objectivity and independence that the 1950
constitutional drafters envisioned for a fearless “watchdog of public
spending.” Section 23-5, HRS, gives the Auditor authority to examine
and inspect all accounts, books, records, files, papers, and documents
and all financial affairs of every department, office, agency, and political
subdivision. Further, Section 92F-19, HRS, of the Uniform Information
Practices Act, requires agencies to share records with the Office of the
Auditor. The administration’s withholding of records and questioning
of our need for information caused delays in carrying out the Auditor’s
constitutional and statutory authority to conduct post-audits.
It is the constitutional duty of the Auditor to conduct post-audits of the
transactions, accounts, programs, and performance of all departments,
offices, and agencies of the State and its political subdivisions. The 1978
Constitutional Convention clarified these duties, making clear that the
office’s post-auditing functions are not limited to financial audits, but
also include program and performance audits of government agencies.
While financial audits attest to the accuracy of financial statements and
adequacy of financial records and internal control systems of agencies,
program and performance audits assess the performance, management,
and effectiveness of government agencies and programs—providing
information to improve operations, facilitate decision making, and
increase public accountability.

13

Chapter 1: Introduction

This page is intentionally left blank.

14

Chapter 2
Management Evades Accountability for Prison
Costs and Contracts
We found the Legislature is not given sufficient information regarding
the costs associated with the care and custody of offenders in out-of-state
and in-state facilities. Instead, management chooses to report artificial
cost figures derived from a calculation based on a flawed methodology,
designed entirely on what is easiest for the department to report.
Because funding is virtually guaranteed, management is indifferent to
the needs of policymakers and the public for accurate and reliable cost
information. As a result, true costs are unknown. Unfortunately, without
accurate and reliable cost data, the State cannot appropriately address the
continuing problem of prison overcrowding.
Our audit also assessed the department’s efforts to procure and
administer contracts for prison beds and services. We focused primarily
on the department’s contracts to house a majority of Hawai‘i’s male,
medium security inmate population in out-of-state prison facilities,
owned and operated by the Corrections Corporation of America (CCA).
We found that department directors, past and present, have misused
their procurement authority to circumvent the process that agencies are
required by law to follow. By treating CCA as a government agent,
instead of a private for-profit corporation, the department was able to
secure the company as the vendor of choice, relieving it from the open
competition that the Hawai‘i Public Procurement Code was designed to
ensure.
Moreover, the department director has ignored his oversight
responsibility to administer contracts for the care and custody of inmates
housed in out-of-state facilities, thus leaving the operational staff illprepared to contract for private prison beds beyond June 30, 2011,
when the current contract expires. The director leaves for the next
management team a department with no policies and procedures aligned
with the Hawai‘i Public Procurement Code, no objective evaluation to
measure CCA’s performance, and no plan for contracting for private
prison beds to reasonably ensure fiscal responsibility in obtaining the
best value at prices the State can afford.

Summary of
Findings

1. Long term solutions for prison overcrowding cannot be addressed
since true incarceration costs are unknown.
2. In “partnership” with its vendor, the department circumvented the
procurement process and ignored oversight responsibility for out-ofstate contracting.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Background

In December 1995, the department initiated a transfer of prison inmates
to a privately-run facility in Texas. Initially, the transfer out of state
was viewed as a temporary solution to relieve prison overcrowding in
an effort to give prison officials time to increase in-state capacity to
meet future demands. However, an economic downturn several years
later derailed funding for major prison expansion, and what started as
a temporary solution to relieve prison overcrowding is now a matter of
state policy.
Today, there are approximately 2,000 inmates currently held at
Corrections Corporation of America facilities in Arizona. Both the
director and deputy director for administration stated that there is no
available bed space to bring back the 2,000 inmates housed in mainland
prisons. The Mainland and Federal Detention Center Branch (Mainland/
FDC Branch) administrator concurred, stating that the department will
need to enter into another agreement to house those inmates.

Prison
Overcrowding
Cannot Be
Addressed Since
True Incarceration
Costs Are
Unknown

Management reports
misleading cost data

16

We found that the department does not provide accurate and reliable
incarceration cost data to policymakers and the public. Without this
information, policymakers cannot begin to address long-term solutions to
the problem of prison overcrowding.
The department repeatedly misled policymakers and the public by
reporting inaccurate incarceration costs. To justify the practice of
sending inmates to mainland facilities and guarantee funding, the
department reports that it spends approximately twice as much to
maintain an inmate in-state. These reported costs are calculated
through a flawed methodology, designed entirely on what is easiest for
the department to report. The department willfully ignores a major
component for calculating these costs—an accounting of inmate days.
Although the department is equipped with tools to effectively track
inmate data through Offendertrak, a computer-based, inmate-tracking
system installed in 1999, department management has not emphasized
the need for accountability and chooses instead to provide artificial
inmate costs.
The department reports annually to the Legislature the cost per day
to house inmates in-state, in mainland facilities, and in the Federal
Detention Center in Honolulu. These costs are misleading because
they are based on non-comparable data. For instance, there are
inconsistencies in the usage of the number of days inmates are housed.
In addition, we found that shared costs are not being allocated or
assigned appropriately, resulting in skewed cost reporting.

Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Lastly, the department has woefully underutilized Offendertrak, designed
as a comprehensive inmate management tool. Relevant to the cost per
inmate day calculation, Offendertrak has the capabilities to provide
actual inmate day counts. However, the actual data input and reports
generated by Offendertrak are not reliable due to inconsistencies in
system usage by the correctional facilities. Department officials lack a
basic understanding of the system’s capabilities that could be used to aid
in their planning and decision making as originally intended.

Cost per inmate day calculation methods lack comparability
Typically a cost calculation begins with the costs of resources consumed,
usually measured by the amount expended, allocated to a specific output.
In the case of incarceration costs, the specific output is the housing
of an individual inmate. Therefore, a reasonable incarceration cost
calculation consists of total amount expended allocated to the number
of inmates housed. The department’s model for determining costs does
not follow this basic premise. The department reports three different
costs per inmate day: in-state cost includes all in-state prisons and
jails; a mainland facilities cost, used for prison overflow; and a Federal
Detention Center (FDC) cost, used primarily for jail overflow. These
costs differ in calculation due to a lack of comparable costs and the
inconsistent usage of actual number of inmates housed.
For instance, the department uses the operational bed capacity for in-state
calculations instead of actual inmate days. The director explained that
day-to-day data is unknown because each facility reports its head counts
on a weekly and monthly basis. In addition, according to the director,
the Legislature and the public would be very confused if the department
provided daily or monthly calculations because Hawai‘i facilities do not
have a stable population. Exhibit 2.1 details the department’s cost per
inmate day breakdown.
The calculation for in-state cost per inmate day begins with all general
fund incarceration costs. This includes all the state facilities, programs,
and health care costs. For the FY07-FY09 calculations, the facilities
included prisons—Hālawa Correctional Facility, Kūlani Correctional
Facility, Waiawa Correctional Facility, Women’s Community
Correctional Center; and jails—Hawai‘i Community Correctional Center,
Maui Community Correctional Center, O‘ahu Community Correctional
Center, and the Kaua‘i Community Correctional Center. Program
services include such items as education, substance abuse treatment
program, sex offender treatment program, library programs, and food. In
addition to costs for these programs, a portion of general administration
is allocated to the total expenditures for in-state facilities.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Exhibit 2.1
Department’s Cost Per Inmate Day Breakdown for FY07 Through FY09
DESCRIPTION

FY07

FY08

FY09

In-state cost per day calculation
In-state costs

$151,232,338

$161,237,232

$166,372,908

$9,462,439

$13,532,643

$10,020,220

Total

$160,694,777
1,272,755

$174,769,875
1,272,755

$176,393,128
1,272,755

In-state cost per inmate day

$126

$137

$139

$50,291,460

$55,524,915

$57,384,990

$50,291,460

$55,524,915

$57,384,990

724,088

745,108

746,207

$69

$75

$77

$79

$84

$87

Administration
Inmate days (3,487 bed x 365 days)

Mainland facility cost per day calculation
Mainland costs
Administration

Total

Inmate days (actual)
Mainland cost per inmate day

Federal Detention Center cost per day calculation
Federal Detention Center cost per inmate day
Source: Department of Public Safety

To complete the in-state cost per inmate day calculation, the department
divides total expenditures by the total fixed annual operational bed
capacity, not current head counts, for the facilities listed above.
Operational bed capacity refers to the maximum capacity, in excess of
original design, for the facility. As a result, the calculation is skewed,
because it does not reflect the actual number of inmates housed. The
department completely ignores the fact that the actual number of inmates
is the driver of costs. The department purposefully skews reporting of
in-state costs.
In comparison, the out-of-state incarceration cost calculation is driven
primarily by the per diem cost per inmate charged under the State’s
contract with its private prison vendor. Additional expenditures incurred
such as transportation, health care, and administrative costs for the
Mainland/FDC Branch that oversees contract performance are also
included. The total amount expended for the housing and care of these
inmates is then divided by the actual number of inmate days (based on
contractor billings) to determine the mainland cost per inmate day.
Lastly, the cost per inmate day calculation for the FDC is much simpler.
The department reports only the per diem cost charged the State by

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

the U.S. Bureau of Prisons and does not include either the branch’s
administrative costs or allocate any share of general administrative costs.
Medical costs are not included but are absorbed by the department.
In addition, no share of administrative expenditures (i.e., accounting,
finance, training, etc.) is allocated to either the mainland or the FDC
calculation and costs are absorbed within the in-state calculation.
Besides the lack of comparability in cost calculation methods, the
department fails to analyze costs based on the differences in each
facility’s spending, driven not only by the actual head count but also
other factors. The in-state calculations include all inmates, regardless of
gender, security classification, or other factors. The mainland facilities
house a very specific population: male, medium security or protective
custody inmates. The FDC houses primarily jail overflow, both male and
female.
In keeping with our project scope, we attempted to isolate for
comparison purposes the inmate per day costs for male, medium security
prison inmates housed at the Saguaro Correctional Center and Hālawa
Correctional Facility. A true cost comparison could not be performed
because of differences in the building design that drives staffing needs,
the program offerings specifically needed at each location, and the level
of medical and other services provided. For example, the Saguaro
Correctional Center, built in 2007, can house up to 1,896 inmates, with
uniformed staff of 226. In contrast, the medium security Hālawa facility,
built in 1987, houses 992 inmates with a corresponding security staff of
290. Photographs documenting our observations of both facilities can be
found at Appendix A.

Flawed methodology results in artificial cost reporting
The department’s inmate cost methodology is flawed because it reports
costs per inmate day in the aggregate and does not distinguish between
differences in facilities or security classifications. Also, administration
expenses which support the total department (i.e., accounting, finance,
training, etc.) are not shared with the mainland and FDC populations.
Moreover, in-state/out-of-state costs are not identified or classified
accurately. The resulting reported costs are artificial at best, because the
calculations are based on inaccurate and incomplete data.
According to the Statement of Federal Financial Accounting Standards
4: Managerial Cost Accounting Standards and Concepts, reporting
entities should report the full costs of outputs in general purpose financial
reports. Full cost can be described as having two major components
of direct and indirect costs. Direct costs can be readily identified as
contributing directly or indirectly to the output. For example, direct

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

costs can include salaries, materials, equipment, and office space.
Indirect costs are for identifiable supporting services. Examples
include general administration services, general research and technical
support, and security. These indirect costs are pro-rated based on a
common denominator across responsibility segments, such as number of
employees, or direct costs incurred in segments.
We found that the department does not allocate its indirect general
administration costs to its mainland and FDC populations, skewing
further the inmate cost calculations. These omissions have resulted in
understated costs per inmate day for those specific populations. The
department’s general administration provides department-wide support
services such as managerial and technical support, budget preparation,
budget execution, fiscal accounting, payroll, procurement, and training.
General administration costs attributed to corrections were included
in the in-state cost per inmate day. However, the department does not
allocate these corrections administration costs to the per inmate day rate
for the non-state facilities.
The department’s budget supervisor, responsible for calculating the per
inmate day costs, does not allocate any share of general administration
to the non-state inmate costs because she maintains the share is minimal.
We disagree. Using FY08 year-end inmate numbers for state, mainland,
and FDC shares of population, the mainland inmates comprise 34.7
percent of year-end incarcerated inmates. Cost accounting guidance
states that shared costs can be allocated using a common divisor. In
this case, using inmate population would be reasonable. We found
this practice in use in other states, such as the Mississippi Department
of Corrections. If this principle of shared costs was applied to FY08
general administrative costs, Hawai‘i’s share of corrections’ general
administration costs of $13,532,643 would be allocated, adding
$4.7 million to mainland expenditures. Because this principle was not
applied, the corresponding in-state per inmate day cost is overstated.
Exhibit 2.2 details the FY08 year-end inmate head count and
corresponding allocation of general administrative expenditures by instate, mainland, and FDC categories.
Management should define and establish responsibility segments to
measure and report the costs of each segment’s outputs. A responsibility
segment is defined as a component of an entity that is responsible for
conducting a major line of activity. For each segment, managerial cost
accounting should define and accumulate outputs, and quantify each type
of outputs in units. Accounting for entity-wide revenues and expenses in
aggregate (total) does not serve costing purposes.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Exhibit 2.2
Allocation of Administrative Costs to In-State, Out-of-State, and Federal Detention
Facilities, FY08
Facilities

FY08 YearEnd Inmate
Head Count

Percentage of
Inmates to Total
Population

FY08 General
Administrative
Costs,
Allocated

Total
Expenditures
(before cost
allocation)

Total,
Expenditures
and General
Admin. Costs

In-state

3,482

60.1%

$8,129,859

$161,237,232

$169,367,091.00

Mainland

2,014

34.7%

4,702,337

55,524,915

60,227,261.60

FDC
Total

300

5.2%

700,447

7,873,335

8,573,782.40

5,796

100%

$13,532,643

$224,635,482

$238,168,125.00

Source: Department of Public Safety

One possible way to identify responsibility segments could be to mirror
program budget identification numbers utilized by the Legislature. The
department’s accounting system tracks revenues and expenditures using
the program identification numbers. If the department provided cost
per inmate day amounts on a per facility basis, a comparison of actual
expenditures against appropriations across cost categories could be
useful. Other states that apply these practices are able to report their
inmate costs in greater detail. For example, the Mississippi Department
of Corrections reports costs per inmate classification (minimum,
medium, maximum). The Florida Department of Corrections produces
costs per inmate data by type of facility. By reporting inmate costs by
jail or prison facility, the differences in facility requirements may be
better captured and available for further analysis, planning, and decision
making. For example, the department could use the costing calculation
discussed previously, and for a given time period allocate the total
amount expended to the number of inmates housed, and apply to the
different facilities, population, or security classification, as necessary.
Although it is feasible for the department to report inmate costs by
facility, management chooses not to do so. According to the director,
producing such a report is not useful because various cost factors cannot
be compared. He cited such reasons as a facility’s physical location, the
building itself, and movement of inmates. While the deputy director for
administration stated that it is difficult to break down shared expenditures
such as corrections programs and health care at the facility level, the
fiscal officer asserted it could be done. By segregating and allocating
this cost data, the department would be able to determine costs on a per
facility basis. Even though differences between Hālawa and Saguaro
cannot be compared, the cost data would be useful to compare a
facility against its own historical performance or compare specific cost
components at a facility for best practices. Both the director and deputy
director failed to comprehend the utility of applying these best practices
for accurate cost data.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

We also found costs were incorrectly classified. For example, out-ofstate expenditures for interstate corrections compacts authorized under
Chapter 353B, HRS, are recorded as in-state costs. The department
has 24 inmates housed in seven out-of-state prisons through interstate
corrections compact agreements. In exchange, Hawai‘i houses ten
inmates of other states at CCA facilities on the mainland. Most of
the agreements provide for an exchange of services, and neither state
is billed. The only exception is in the case of two inmates housed
in Virginia. The department is billed for those costs—$62,986 in
FY07, $84,429 in FY08, and $49,887 in FY09—and reflects them
as in-state costs classified as a general administration expenditure by
the deputy director for corrections. Over the three fiscal years these
amounts were minimal, averaging less than 1 percent of total out-ofstate costs annually. Nevertheless, this contributed to the inaccuracy of
the department’s report to the Legislature on in-state and out-of-state
incarceration costs.

Management fails to utilize available tools for accurate data
collection
Management does not utilize available tools for accurately tracking,
collecting, and reporting inmate data. Offendertrak, a state-of-the-art
correctional information system, was installed in 1999 to replace an
outmoded inmate database system. In justifying the purchase of the
system, the department explained that, “Accurate and timely information
for the administrators [was] critical in planning for the direction of the
correctional facilities and in handling overcrowding.” The Legislature
concurred, stating, “an effective information system is needed to track
inmates within the correctional facilities and to improve planning and
decision making with regards to public safety.”
According to the Offendertrak representative, the system can track the
number of inmate days by custody level (community, minimum, medium,
close, maximum) or facility over a fiscal year. Other standard features
include tracking inmate program participation and completion, initial
medical assessments and medical conditions, visitations, work release
or work furloughs, commissary purchases, and inmate trust account
balances. However, the department has not taken advantage of these
capabilities nor has it been able to input or maintain reliable inmate data.
We reviewed an Offendertrak prison inmate roster report for the Hālawa
Correctional Facility dated August 9, 2010, and found examples of
incorrect or missing data, values outside valid time periods, and values
outside a designated range. Exhibit 2.3 summarizes the errors we found
in the department’s report.
The term “release date” is defined by the department’s policy COR.23.01
as “the date an offender is administratively released from a facility

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Exhibit 2.3
Errors Found in Review of Offendertrak Report Generated by
the Department

Error Description
List as having scheduled a release date that has already
passed
Minimum security classification with no scheduled release
date recorded
Unclassified over a year; no reclassification

No. of
Errors

Total
Record

Percentage
of Total
Record

280

985

28.4%

28

985

2.8%

4

985

0.4%

Source: Office of the Auditor analysis based on Department of Public safety inmate report

operated by the [d]epartment. The offender will not be returning to the
facility, nor will he/she be moved to another facility.” Based on this
definition, the scheduled release date recorded should not be one that
has already elapsed. We found 280 out of 985 release date errors in our
report review.
In another example, department policy requires that inmates classified
as minimum security should have scheduled release dates because they
are to be released within 48 months, and a formal reassessment of the
inmate’s custody designation is supposed to be conducted at least every
six months after the last classification action. We found 28 out of 985
instances of no updates recorded. In addition, we found four inmates
with an unclassified security status even though they had been at Hālawa
Correctional Facility for over a year.
Offendertrak data and the reports generated are only useful to support
costing purposes if the data contained in it is sufficiently reliable. This
information, if accurate, can be used in making decisions about allocating
resources, authorizing and modifying programs, and evaluating program
performance. Staff interviewed stated that the Offendertrak data are
not reliable. One staff stated that another report is needed to verify the
Offendertrak data because transfer data are sometimes missing from
Offendertrak, another admitted that the data were not up-to-date, and
another stated that the data in Offendertrak are “not as accurate as it
should be.”
However, the deputy director for administration was unaware of the
system’s features and capabilities and admitted that he did not know
if utilizing Offendertrak properly would result in a more accurate
inmate cost calculation. Management has failed to embrace a useful
and comprehensive inmate management tool that could support sound
management decisions. Without the use of such a tool, the number of

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

inmates, the driver of incarceration costs, is not accurately recorded,
thereby limiting the accuracy of the cost-per-day calculation.

Management
indifferent to the needs
of policymakers and
the public

Department management does not provide useful cost information to
the detriment of public accountability. Cost information is essential
for decision making, specifically to monitor expected results and to
alert managers to waste and inefficiencies. While the department
reports annually to the Legislature its costs per inmate day for the
inmate population housed in-state, at mainland facilities, and at the
Federal Detention Center, the department director and deputy director
for administration admitted the department does not utilize the
information to drive management decision making. Moreover, as we
discuss above, department management did not understand the need to
either utilize or provide this information in a more detailed or accurate
manner. Department management needs to ensure accurate reporting
of incarceration costs is in place, based on improved methodologies for
compiling and calculating these costs. This would reassure policymakers
and the public of the department’s accountability in carrying out program
objectives with the public resources entrusted to them.
Much of the department’s decision making is based on the fact that
prisons are overcrowded. Years of budget testimony note that funds
are needed to house inmates in non-state facilities to assist with the
overcrowding problem. The department provides cost data, which as
we discuss above, is misleading. Relying on the information provided,
the Legislature has appropriated increasing amounts of funds to house
inmates in non-state facilities. With the Legislature providing funding
without a proper review, there is no incentive for the department to
identify cost savings or inefficiencies or areas for improvement within
in-state facilities.

Department fails to use cost information for management
decisions
The department reports annually to the Legislature the cost per inmate
day for in-state and non-state facilities. These calculations are of limited
use and performed solely to fulfill requests from the Legislature. The
director stated, “other than for information purposes, the [inmate day
cost] data is not used to drive other [management] decisions.” The
director’s perspective is contrary to commonly accepted principles on
cost data.
The deputy director for administration admitted that the department
calculates and compares in-state and out-of-state inmate costs per day
solely to fulfill annual legislative requests. He explained that the in-state
and non-state inmate cost information is a more simplified “quick and

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

dirty” approach used to answer the Legislature’s queries. The deputy did
not know why and admitted he never asked why the Legislature would
need the in-state and out-of-state cost information.
We find this response curious considering that, at different junctures
during the course of this audit, the deputy director of administration
himself questioned why we wanted access to certain information, his
rationale being, in order to best provide a response. It would stand to
reason that the department would take a similar approach to legislative
inquiries—in order to best provide needed information to legislators.
Cost information is essential for decision making, specifically to monitor
expected results and to alert managers of waste and inefficiencies.
Accountability for the use of public resources is key to our State’s
governing processes.
As policymakers, the Legislature relies on the inmate day cost
information for department budget and decision making matters. For
example, during the 2010 legislative session, the Senate Ways and Means
Committee chairperson relied on information that it costs more to keep
a prisoner in-state versus out-of-state to justify budget cuts made to
the Hālawa Correctional Facility. The lack of complete and accurate
inmate cost data compromises the Legislature’s decision making ability
concerning the department’s in-state and out-of-state facility matters. We
urge that the department consult with legislators to develop cost reporting
that would be useful for both the department’s and the Legislature’s
purposes.

Funding is ensured by State policy on prison overcrowding
The department operates under the assumption that funding will be
available for the continued use of Corrections Corporation of America
facilities to alleviate overcrowding. For example, the current CCA
facility utilized by the department, the Saguaro Correctional Center, is
nearing operational capacity. According to the Mainland/FDC Branch
administrator, if the department needs more space, it could move the
inmates to another CCA facility.
For the period of July 1, 2005 through June 30, 2009, the Mainland/FDC
Branch was appropriated a combined $237 million for the inmates held
in non-state facilities. In its 2006, 2007, and 2008 budget testimony,
the department repeatedly noted that resources were required to house
additional inmates in out-of-state prison facilities and the Federal
Detention Center to address overcrowding. Specifically, in 2006,
the rationale for sending inmates off-island was until a “permanent
solution to the problem of overcrowding can be addressed” and in 2008
“until other secure facilities are built.” This resulted in $47 million
appropriated in FY06, $60 million in FY07, $65 million in FY08, and
$66 million in FY09.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

While it has been the policy of the State to handle overcrowding by
sending inmates off-island, legislators, and families of the incarcerated
have stated that they would like the inmates to be returned to Hawai‘i.
However, before the Legislature can even address this policy issue,
the department must provide better costing data to properly evaluate
the specific performance of facilities and compare alternatives. The
Legislature needs to hold the department’s management accountable for
the funds appropriated. Moreover, the Legislature cannot continue to
allow management to hide behind the issue of prison overcrowding as
justification for not providing better cost data.

Procurement
Process
Circumvented,
Oversight
Responsibility
Ignored

The department circumvented the competitive procurement process
and ignored its responsibility to oversee the contracting for out-of-state
prison beds by blindly treating CCA as a government agent, instead of a
private vendor operating for a profit. We found the department directors,
past and present, misused their procurement authority and manipulated
the procurement practices to secure CCA as the vendor of choice, freeing
it from the open competition that the Hawai‘i Public Procurement Code
was created to ensure.
Moreover, the department director has ignored his responsibilities to
oversee and administer contracts for the care and custody of inmates
housed in out-of-state facilities. As a result, the operational staff is illprepared to contract for private prison beds beyond June 30, 2011, the
date when the current contract expires. The director leaves for the next
management team a department with no policies and procedures aligned
with the Hawai‘i Public Procurement Code, no objective evaluation to
measure CCA’s performance, and no plan for contracting for private
prison beds to reasonably ensure fiscal responsibility in obtaining the
best value at prices the State can afford.

Department’s
contracting efforts
manipulated to favor
vendor’s interests

26

Instead of ensuring that safeguards in its contracts were in place to
protect the State’s interests, the department directors, past and present,
misused their procurement authority to secure CCA as the vendor of
choice. By treating CCA as a government agent under the guise of
contract administrator for the City of Eloy, the department circumvented
the competitive procurement process. As a result, the corporation
assumed few risks in contracting for Hawai‘i’s prisoners’ care, built
a $95 million prison designed for Hawai‘i inmates, and received over
$111.5 million from FY08 to FY09 for housing about one-third of the
State’s total inmate population.

Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Safeguards in contracts fail to protect State’s interests
The contract most relevant to our audit is the department’s intergovernmental agreement (IGA) with the City of Eloy, Arizona, and CCA,
for prison beds and services at Florence Correctional Center (Florence),
Red Rock Correctional Center (Red Rock), and Saguaro Correctional
Center (Saguaro). In June 2006, while Saguaro was under construction,
the State entered into the IGA with the City of Eloy and CCA in order
to move and consolidate inmates to Arizona at the three correctional
centers. The department’s partnership with CCA culminated in the
development, planning, and construction of Saguaro Correctional Center.
The facility was included in the terms and conditions of the IGA and
completed in June 2007, with a bed capacity of 1,896, one year after the
IGA with the City of Eloy and CCA took effect. This agreement is set to
expire on June 30, 2011. Exterior and interior photographs of Saguaro
Correctional Center are shown in Appendix A.
Based on expenditures reported in PSD’s annual reports, over a fouryear period from FY06 to FY09, the department has paid CCA a total
of $202,706,429 to provide housing and services for Hawai‘i’s prison
inmates in its out-of-state facilities as shown in Exhibit 2.4.
Exhibit 2.4
Payments to CCA FY06 to FY09
FACILITY
OK: Diamondback (male)
MS: Tallahatchie (male)
AR: Florence/Red Rock/
Saguaro (male)

FY06 Exp

FY07 Exp

FY08 Exp

FY09 Exp

Total

$17,916,512

$15,687,449

$1,336,746

$34,940,707

15,455,514

16,776,043

1,312,202

33,543,760

5,579,391

14,009,861

48,519,607

53,136,066

121,244,925

$38,951,418

$46,473,353

$51,168,555

$53,136,066

$189,729,392

2,276,033

3,480,225

3,616,529

3,604,250

12,977,037

Total paid to CCA $41,227,451

$49,953,578

$54,785,084

$56,740,316

$202,706,429

2,010

2,014

2,077

Subtotal, males
KY: Otter Creek (female)
Number of inmates (year-end)

1,844

Source: Department of Public Safety

The Hawai‘i Public Procurement Code was enacted in 1994 and codified
in Chapters 103D, HRS, relating to the purchase of goods and services,
and 103F, HRS, relating to the purchase of health and human services.
The code intends to ensure that all persons dealing with the State’s
procurement system should be afforded fair and equitable treatment to
compete to do business with state government. The code is intended
to foster broad-based competition among vendors while ensuring
accountability, fiscal responsibility, efficiency in the procurement
process, and increased confidence in the integrity of the system.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

Chapter 103F, HRS, applies to contracts entered into after July 1, 1998,
by state agencies to solicit providers for health or human services. The
State’s chief procurement officer administers the provisions of this
chapter. The purpose of Chapter 103F, HRS, is to provide uniform
practices and procedures for drafting, monitoring, and evaluating
contracts awarded by purchasing agencies. The uniform practices
provide certain safeguards to protect the State’s interests. For example,
contracts awarded pursuant to Chapter 103F, HRS, must, at all times,
be subject to legislative appropriation. In addition, all contracts may
be terminated without liability to either the purchasing agency or the
provider in the event that funds are not appropriated or available. More
importantly, under Section 103F-504, HRS, the law limits the remedies
available for aggrieved parties to the procedures and mechanisms
for resolving disputes according to the rules adopted by the State
Procurement Policy Board.
Based on our review of the terms and conditions of the IGA, we found
these safeguards, designed to protect the State’s interests, were missing
from the agreement, the compensation and payment schedule, and
the general conditions. For example, the compensation and payment
schedule shows that payment is “subject to legislative appropriation;”
however, there is no provision between the State and CCA to terminate
without liability in the event that funds are not appropriated by
the Legislature, or if appropriated, not available. A review of the
standardized “General Conditions” identifies the City of Eloy as the
responsible party for fulfilling the terms and conditions of the contract as
the “Provider.” Thus, the State and the City of Eloy, but not CCA, may
terminate without liability in the event that funds are not appropriated or
available.
Moreover, it appears that CCA is not subject to the exclusive remedies
provision for resolving contractual disputes with the State as provided
under Section 103F-504, HRS. These omissions are significant, because
we found no evidence that the City of Eloy obtained written permission
from the State to subcontract with CCA as provided for under subsection
3.2, entitled Subcontracts and Assignments. Further, as we discuss
below, despite representations in the IGA, a contract assigning provider
responsibility from the City of Eloy to CCA as its administrator for all its
inter-governmental service agreements does not exist.

Misuse of procurement exemption benefits vendor
Procurement authority for contracting services under Chapter 103F,
HRS, has resided solely with the department director, and has not been
re-delegated to any departmental personnel such as the procurement
specialist or the Mainland/FDC Branch administrator. As such, the
discretion to apply a procurement exemption for government-to-

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

government transactions under Section 103F-101(a)(2), HRS, rests with
the department director. Inter-governmental agreements are exempt
from the competitive purchase of services method that state agencies
must generally employ when soliciting proposals for services with funds
appropriated by the Legislature. According to the State Procurement
Office, there are no administrative rules or procedures for applying the
exemption or defining government-to-government transactions.
We found that department directors, past and present, misused their
procurement authority through the use of inter-governmental agreements
to secure CCA’s services and facilities. The State’s chief procurement
officer concurs with our conclusion. In his opinion, “Section
103F-101(a)(2) is an exemption that may be utilized to enter into an
agreement limited to governmental entities, and does not include a
private entity, in this case CCA.”
Unlike the department’s lease agreement with the U.S. Bureau of Prisons
for bed space at the Federal Detention Center, the IGA with the City of
Eloy and CCA does not meet the plain statutory language of governmentto-government transactions. Inter-governmental service contracts have
been defined as:
“. . . [A] formal means by which governments undertake mutual
obligations to one another (usually voluntarily) to purchase a
particular service. It is a simple business transaction between or
among government units which enables one unit of government to
contract with another for specific services.”

The department should have known not to use an IGA in contracting
with the City of Eloy and CCA, given problems encountered in 2004
with Brush County in an effort to transfer 63 female inmates to its
correctional facility operated by a private correctional management
company. Negotiations came to a standstill because the City of Brush
was not authorized to execute a contract with the State of Hawai‘i. At
the time, the department director through the former supervising deputy
attorney general sought and obtained an exemption from the procurement
requirements. To support the exemption request, the department notified
the State’s chief procurement officer that it planned “to seek services
to house female inmates on the mainland through the Chapter 103F
procurement process” but, as the supervising deputy attorney general
explained, approximately one year was needed “to develop the first such
proposal and the most complex attempted to date.”
Based on the State chief procurement officer’s written approval, the
department was able to contract directly with the GRW Corporation for
approximately one year. From July 2004 to August 2005, the department
used the time to develop an RFP competitive procurement process
under Chapter 103F, HRS. As the only responsive bidder, CCA was

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

awarded the contracts in October 2005 and October 2008 to house female
inmates at the Otter Creek Correctional Center. In September 2009, the
department terminated the contract with CCA and returned the female
inmates to Hawai‘i.
By June 2006, the department should have been using the RFP process
already developed for housing female inmates for male inmates as
well. Instead, the past department director signed an IGA exempt from
the procurement requirements with the City of Eloy and CCA after
learning that Pinal County, Arizona, had no authority to execute an intergovernmental services agreement.
For five years, from July 1, 2001 to June 30, 2006, the department had
an IGA with Pinal County and CCA to provide housing to its male
inmates at the Florence facility. In June 2006, according to Eloy City
Council special meeting minutes obtained from the city clerk’s office,
the Pinal County Attorneys’ Office raised questions about the county’s
legal authority to enter into an IGA to house inmates in facilities owned
by CCA. On June 28, 2006, two days before the Florence contract
was set to expire, the Eloy city attorney submitted a request for formal
council action and explained that CCA was asking for an IGA to house
Hawai‘i’s inmates at its Eloy facilities. Based on the dates the agreement
was signed, it appears that CCA assumed the Eloy City Council would
act favorably on its request. The CCA vice president of state customer
relations signed the IGA on June 21, 2006, more than a week before
submitting the request for council action. Then, on behalf of the City of
Eloy, the vice-mayor signed the agreement the same day the city council
approved CCA’s request, June 29, 2006, and the department’s then acting
director signed it the next day.
According to the Eloy City Council executive session meeting minutes,
the city attorney had informed the mayor and city council members
that the city had earlier approved an inter-governmental agreement
in February 2006 with CCA and U.S. Immigration and Customs
Enforcement (ICE) in which the city is “paid an administrative fee of
$.25 per day, per inmate.” He clarified, however, that in the IGA with
CCA and the State of Hawai‘i under consideration, “the payment is less
than the ICE inter-governmental agreement.” The city attorney also
“pointed out that the city [would] only serve as a pass through for funds
for CCA and that the citizens would not be taxed.” As discussed below,
unlike the federal ICE agreement, the City of Eloy receives no payments
to pass to CCA because no contract exists between the City of Eloy and
CCA to act as its contract administrator.
Based on the department’s past problems in contracting with Brush
County, the department should have notified the State’s chief
procurement officer to request an exemption for time to develop an

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

RFP to house the male inmate population in facilities owned by CCA.
Instead, in partnership with the CCA, the past department director, who
approved and signed the agreement, misused his procurement authority
to secure CCA’s facilities and services, which then assured CCA of
inmates to fill its Saguaro facility when it was built.

Vendor as agent is a fiction
Contrary to a provision in the IGA that describes the scope of services to
be provided, no contract exists that establishes CCA as the City of Eloy’s
administrator for its inter-governmental agreements with the State. The
State’s chief procurement officer opined that:
. . . if the contract between the PSD and the City of Eloy
is such where the City of Eloy is not contributing to
the performance of the contract, and is a pass-through
mechanism to contract with CCA, this would be considered
a circumvention of the statutes and an inappropriate use of
the inter-governmental exemption HRS §103F-101(a)(2).
We found that although it was understood by the Eloy City Council
that the city would serve as a pass through for funds to CCA, the city
performs no role as the “Provider” other than as a signatory to the IGA.
Instead, the department has been blindly treating CCA as the “Provider’s
administrator” even though no contract establishing such a relationship
exists. By doing so, the department has circumvented the procurement
process.
In effect, the City of Eloy has no role in the agreement except the vice
mayor signed the IGA, and the mayor, who is also a CCA employee at
Red Rock, signed the compensation and payment schedule. The Eloy
City Council authorized the mayor and vice mayor to sign the IGA. An
examination of CCA’s financial records to determine whether the mayor
personally benefitted as a CCA employee was beyond the scope of this
audit.
The Mainland/FDC Branch administrator acknowledged that the
government entities have played no role in providing for inmate housing
services in CCA facilities. We verified this based on interviews and our
review of the department’s contracts with CCA. In eight IGAs in the
department’s files, the government entities named as the providers or
contractors performed no role in receiving payments from the State and
in compensating CCA. Instead, the department received invoices from
CCA, which in turn was directly compensated via wire transfers to its
corporate account.

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

The City of Eloy as the “Provider” receives no compensation despite the
following compensation clause provision:
The PROVIDER shall be compensated . . . based upon referrals
to the PROVIDER from the STATE, payment for each such
referral shall be made according to Exhibit “B” to this
Agreement, which is attached, and made a part of this
Agreement. . . .
Under the terms of the IGA, instead of the City of Eloy, only CCA is
directly compensated based on a per inmate per bed day rate. Exhibit B
is the “Compensation and Payment Schedule” agreed to in October 2006,
approximately four months after the IGA of which it is a part. It was
approved by the deputy attorney general and signed by the acting public
safety director for the State, the City of Eloy mayor as the “Provider,”
and CCA’s vice president for state relations as the “Provider’s
Administrator” as shown in Appendix B.
Unlike as provided by the ICE agreement for the federal Eloy Detention
Center, the City of Eloy does not receive funds from the State of Hawai‘i
to pay CCA. In our search of the contract files at the City of Eloy’s
clerk’s office, we located an IGA executed in February 2006 between
the City of Eloy, and U.S. Immigration and Customs Enforcement for
the care of federal detainees at the Eloy Detention Center owned and
operated by CCA. Under this agreement the federal government pays the
City of Eloy a per diem fee. The IGA was attached as Exhibit A to the
agreement between the City of Eloy and CCA shown in
Appendix C. The City of Eloy agreed to transmit to CCA the per
diem payments within ten working days of the city’s receipt of the
federal funds. On a monthly basis, CCA must in turn pay the city an
administrative fee of $0.25 per day per inmate at the detention center.
In addition, CCA indemnifies the city, its officers and employees from
liability, claims, judgments, and damages arising as a result of CCA’s
acts or omissions in performing the agreement to provide detention
services at the Eloy Detention Center.
In Hawai‘i’s case, we found no similar agreement between CCA
and the City of Eloy that establishes CCA’s role as the “Provider’s
Administrator” or as the City of Eloy’s subcontractor. The department’s
scope of services section of the IGA specifically states: “City of Eloy has
contracted with the Corrections Corporation of America to administer
all of its inter-governmental service agreements relating to the Florence
Correctional Center, the Red Rock Correctional Center and the Saguaro
Correctional Facility.”
Our exhaustive search of the records at the City of Eloy County Clerk’s
office proved futile. In fact, according to CCA’s vice president of
contracts, the City of Eloy did not execute a separate agreement with

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CCA to administer its inter-governmental agreements. Moreover, CCA’s
officer did not “think a separate agreement was necessary.”
The public safety director could not provide a reasonable explanation as
to why no such contract exists. The Mainland/FDC Branch administrator
had not seen such an agreement, did not verify the existence of a contract
that established CCA as the agent of the City of Eloy, and did not think
it was her responsibility to do so. Instead, she deferred responsibility for
validating the existence of the contract to the department’s procurement
and supply specialist. Although she did not insert the provision in the
scope of services agreement, she acknowledged it has been included in
all of the IGAs ever since she started working with the contracts. Based
on our review of the eight IGAs with CCA, we verified the identical
provision is in every contract. Ultimately, responsibility rests with
the head of the purchasing agency with the procurement authority for
contracting services under Chapter 103F, HRS; that is, the department
director.

The department’s weak
control environment
leaves the operational
staff ill-prepared to
contract for private
prison beds and
services

The department’s weak control environment leaves the operational staff
ill-prepared to contract for private prison beds and services beyond
June 30, 2011. The control environment of an organization encompasses
the integrity, ethical values, and competence of an organization’s people.
It also includes the way management assigns authority and responsibility.
Part of the assignment of the authority includes the creation of policies
and procedures. We found no policies and procedures aligned with the
Hawai‘i Public Procurement Code, no objective evaluation to measure
CCA’s performance, and no plan for contracting for private prison beds
to reasonably ensure fiscal responsibility in obtaining the best value at
prices the State can afford. The department director has ignored his
responsibility by failing to ensure policies and procedures were created
to guide and direct the activities of the staff for procurement and contract
administration.

Management’s lack of policies and procedures hampers
effective contract administration
Management’s role is to ensure that department-specific guidance is
in place over initial planning for goods and services, over monitoring
during the contract, and through final receipt of goods and services.
Without such guidance, there is a greater likelihood of error. We
found the lack of policies and procedures created numerous delays in
contracting and allowed errors to go uncorrected.
The department has had ample time, since the Mainland/FDC Branch
was established in 2004, to update its procurement policies and
procedures for contracting for prison beds and services. Fifteen years

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

after the Hawai‘i Public Procurement Code took effect in 1994, the
department has one procurement-specific policy and procedure applicable
to this audit period. The policy was written in 1986 and updated in
1993, pre-dating the procurement requirements the department must
follow when contracting for prison beds and services. Without adequate
policies and procedures in place, management cannot ensure directives
are carried out and necessary actions are taken to address risks to achieve
the organization’s objectives. Despite the fact the agreement for outof-state prison beds ends within a year, and knowing the State does not
have the capacity to house all inmates in the islands, as of October 2010,
management had not decided how to proceed.
The department’s lack of policies and procedures has led to problems
in procurement planning and execution. Specific to planning for
services, the National State Auditors Association’s (NSAA) best practice
document Contracting for Services states that proper planning provides
the foundation for contract awarding and monitoring. Planning identifies
what services are needed and when, how they should be provided, and
what provisions should be in the contract. Planning also helps ensure
proper information is collected to effectively structure a request for
proposal. Timely planning is crucial in all procurements, but especially
in procurements like RFPs that can take a lot of time to execute.
We discovered that it took more than a year for the department to
develop its RFP competitive procurement process after the procurement
exemption was approved by the State’s chief procurement officer
to contract directly with the GRW Corporation for housing female
inmates at Brush County. The Mainland/FDC Branch administrator
acknowledged the department waited too long to start the RFP
competitive procurement process it needed to develop. The delay
necessitated a two-month extension with the GRW Corporation to
September 30, 2005. Because of the department’s failure to plan in
a timely manner, prepare, and develop the RFP procurement process,
the supplemental agreement with CCA for housing female inmates at
Otter Creek was signed one month after the female inmates had been
transferred from Brush County to Otter Creek Correctional Center. In
other words, CCA accepted custody of 80 female inmates from Brush
County before it had a signed contract in place to pay for the housing
services provided to the State.
In another example, because the department delayed executing the last
two-year extension (July 1, 2009 up to June 30, 2011) with the City of
Eloy and CCA, the State incurred late fees. Instead of executing the
extension by or before June 1, 2009, the department did not execute
Supplemental Contract No. 6 until August 14, 2009. According to the
State of Hawai‘i Accounting Manual, invoices for contracts cannot be
paid until the certification of availability of funds has occurred. That

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Chapter 2: Management Evades Accountability for Prison Costs and Contracts

certification in turn requires that copies of the current contract be
submitted to the comptroller for review, approval, and assignment of
a contract number. Because the department could not pay CCA’s June
housing invoice on time, the department paid $1,975 in interest charges
to CCA in August 2009.
The department director is responsible for setting the tone at the
top within the Department of Public Safety. The deputy director of
administration admitted that the lack of written policies and procedures
was likely due to a lack of oversight; ultimately, the responsibility lies
with the department’s director. The director has failed to provide the
leadership necessary by stressing the importance of written policies and
procedures to establish the control environment.
The Committee of Sponsoring Organizations of the Treadway
Commission (COSO), in its Internal Control-Integrated Framework,
emphasized the importance of management’s use of internal controls to
provide assurance of the effectiveness and efficiency of an organization’s
operations. Internal controls are processes used by an organization’s
management to provide assurance regarding the achievement of the
organization’s objectives. According to COSO, internal controls as
a whole consist of five components. A control environment is the
foundation for the other internal control components and sets the
regulatory tone of an organization.
Control activities, another one of the elements of internal controls, are
the policies and procedures that help ensure management directives
are carried out and that necessary actions are taken to address risks to
achievement of the entity’s objectives. Control activities usually involve
two elements; a policy establishing what should be done and, serving as
a basis for the second element, procedures to effect the policy. A policy
must be implemented thoughtfully, conscientiously, and consistently. A
procedure will not be useful if performed mechanically without a sharp
continuing focus on conditions to which the policy is directed.

Department officials have not decided how to execute new
agreement by end of year
As of October 7, 2010, the department had not decided how it will
pursue contracting for prison beds and services. Allowing the contract
to expire without a plan in place is not an option. The deputy director
of administration admitted that the department has no room to bring
back the approximately 2,000 inmates housed in mainland prisons. The
director, the deputy director for corrections, the Institutions Division
administrator and the Mainland/FDC Branch administrator had not
determined if they should execute a new agreement by December 2010
before the change in administration or begin the procurement planning
process and leave the decision making to the new administration.

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In this situation, timing is critical. The department’s procurement and
supply specialist stated that there are two options: pursue another
inter-governmental agreement, which would take approximately four
to six months to execute, or conduct competitive sealed proposals,
which would take approximately eight to nine months to complete. But,
as we noted above, the use of an inter-governmental agreement is no
longer a viable option. Without a plan to address the incarceration of
approximately 2,000 inmates housed on the mainland, the department is
shirking its responsibility to provide for the safety of the public through
correctional management and leaves the operational staff ill-prepared to
contract for private prison beds and services.
The department should create operating policies and procedures to
govern procurement and contract administration to ensure consistency in
operational oversight. This is one way the department can ensure that the
State is receiving the best value for its money. The department should
require that staff responsible for overseeing the private prisons is trained
in the new operating policies and procedures.

Contract administrator lacks objectivity when monitoring
private vendor
Oversight responsibilities belong primarily to the Mainland/FDC Branch
administrator as the department’s primary enforcement officer for the
non-state prison contracts. According to her position description, the
administrator is responsible for contract development, implementation,
ongoing administration, and statutorily required monitoring of contracts.
The contract administrator is responsible for ensuring compliance with
all of the terms of the contract by managing oversight on a day-to-day
basis. However, we found that the department’s “partnership” with CCA
has resulted in an over-reliance by the administrator and department staff
on CCA’s representations of contract performance.
For instance, a team from the Mainland/FDC Branch and branchidentified “subject-matter experts” visit mainland facilities quarterly
to ensure CCA’s compliance with contract terms. The branch
administrator provides team members with a compliance checklist that
lists specific provisions within the contract’s scope of work section, a
copy of the relevant portion of the contract, notes from prior site visit,
communication between the branch and the facility for the specific
subject matter, and additional blank pages for notes.
During the June 29-July 1, 2010 site visit to Saguaro, we observed
the contract monitoring team take the testimony of the contractor’s
staff without verifying their statements against documentary evidence.
These unverified claims comprised a large body of evidence, and led
the department’s site visit team to conclude that the CCA was in full
compliance with contract requirements.

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The failure to test the reliability of testimony and documentation received
raises concern because the process in place over site visits, while not
fully documented, is the primary internal control used for validating
that services are being received. Interviews with inmates and staff are
usually the least effective means of monitoring a facility, and caution
should be used in weighing staff responses. If record reviews focus
only on whether the report was completed properly, for instance, instead
of validating the information contained therein, little is revealed about
the facility’s operation. Reports should be reviewed, not as isolated
documents, but as part of a whole. The audit team would benefit from
having specific guidance as to what to test or how to validate, such as an
independent sample of items to substantiate testimony, to show greater
evidence of compliance. For example, an inspection of the housing units
might include a determination that all security posts are manned and a
review of log books to determine whether they are being kept properly.
And as needed, the monitor should utilize checklists pertinent to the
walkthrough areas.
Although the Mainland/FDC Branch has informal processes over
contractor monitoring, there are no written policies and procedures for
the contract administration of the contracts related to the care, custody,
and confinement of Hawai‘i inmates in non-state facilities to ensure
consistency of oversight. Moreover, since 2006, neither the Mainland/
FDC Branch administrator, nor the branch supervisor had attended a
training workshop on contract administration sponsored by the State
Procurement Office. The branch administrator had attended only one
workshop for small purchases.
In addition, the Mainland/FDC Branch administrator admitted to relying
on the current vendor to provide pricing information on competitors.
While the branch administrator could not provide documentation to
support her claims that she continually compares prices quoted/charged
with other states, she said she is careful to compare prices for the same
level of service, such as ensuring the prisons are American Correctional
Association certified. In the past, she relied on CCA to provide the
department with the rates being quoted by their competitors whenever a
contract with CCA was up for renewal. Seeking competitors’ rates from
CCA raises concerns on the objectivity of the renewal process.
The department’s multi-year contract with the City of Eloy and CCA
includes a proviso for annual price adjustments. Unlike the Bureau of
Prison’s IGA where the per diem rate is not negotiated but is set annually
by the bureau and based on the cost per inmate per day, CCA’s initial per
diem rate is increased annually by 2.5 percent or by the previous year’s
Consumer Price Index for All Urban Consumers as is shown in Exhibit
2.5. CCA’s initial per diem rate is not based on its cost but rather on a
rate established by CCA. As a result, it is difficult to ensure that the State
is receiving the best value for its money.

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Exhibit 2.5
Rate of Contract Adjustment for IGA with City of Eloy
and CCA
FACILITY

FY07 Exp FY08 Exp FY09 Exp FY10 Exp

Initial per diem rate

$57.00

Adjusted per diem rate
charges

$58.43

$60.18

$61.68

% increase over prior year

2.51%

3.00%

2.49%

Source: Department of Public Safety

Performance evaluation is another component of effective contract
administration. The department should evaluate the contractor’s
performance against a set of pre-established, standard criteria and retain
this record of contract performance for future use. Monitoring should
provide a basis for renewing contracts, imposing financial sanctions, or
terminating contracts. Assessing a contractor’s performance following
the completion of a contract can be useful in instances where a
contractor’s past performance plays a role in decision making for future
contracting. This aids the ultimate goal of selecting the most qualified
vendor at the best prices.
The department also has no policies or procedures regarding the
systematic and formal evaluation of contractors. Though the department
spent approximately $57 million in FY09 to house Hawai‘i inmates
in mainland facilities, the branch administrator has not conducted
any formal performance evaluations prior to extending contracts or at
completion of the contract period. Instead, the administrator relies on
the quarterly inspections, and also assembles the team who assisted with
reviewing contract compliance to determine what has or has not worked
in the current contract. We were unable to verify this process because
the branch administrator could not provide documentation that this had
occurred.
We also found deficiencies in fiscal monitoring, which includes a review
of the contractor’s invoices and supporting documentation. The contract
administrator should verify the accuracy of the contractor’s invoices
and documentation before authorizing payment, whether the contractor
has satisfactorily delivered the contracted services, whether billings are
consistent with contract requirements, and whether total payments are
within the limits set by the contract. Without review and verification, the
branch administrator has no way of knowing that the individuals listed
on the invoice are in fact housed at the facility and that CCA is billing for
the correct number of days.
For example, some invoices had no documentation to validate reviews
or evidence of payment approval. In one instance, an invoice from the

38

Chapter 2: Management Evades Accountability for Prison Costs and Contracts

private prison contractor was modified in writing by the vendor, and the
department paid the invoice without any confirmation that the revisions
were accurate. The same invoice had other errors that had not been
caught or corrected by either the vendor or the Mainland/FDC Branch
staff.
The department’s invoice processing is missing a key component for
validating accuracy. We found that neither the account clerk nor the
branch administrator validates that the individuals listed on the invoice
are in fact housed at the facility. Both stated that they rely on the other to
validate the information, which results in neither performing the task.
The branch administrator fails to understand the full extent of her
responsibilities as the contract administrator. From the branch
administrator’s perspective, her role, as it relates to contracts, is limited
to preparing the contract’s scope of services. She deferred to the
department’s procurement and supply specialist to take care of all the
other contract issues. The branch administrator needs to properly fulfill
her role as contract administrator in order to ensure that the State is
receiving best value for its money. Moreover, the department should
ensure that key individuals in the Mainland/FDC Branch also attend SPO
training workshops related to contract administration and procurement of
health and human services under Chapter 103F, HRS.

Conclusion

The Legislature must hold the Department of Public Safety accountable
for its inadequate cost reporting. Without clarified guidance by
policymakers, the department has no incentive to perform better and will
continue to evade accountability by providing unreliable and inaccurate
reporting of incarceration costs. Moreover, the Legislature will continue
to receive this insufficient cost information and be unable to address
the larger problem of prison overcrowding. To address these issues, the
department must first improve the methodology employed to calculate
comparable inmate per day costs for the department’s use in decision
making and reporting to the Legislature. In addition, management
should be more diligent and improve the compilation of its incarceration
costs data by utilizing available tools such as Offendertrak.
In addition, the department has misused its procurement authority to
circumvent the process designed with safeguards to protect the State’s
interests. By focusing efforts on quarterly site visits, the department
effectively ignored oversight for all other provisions of contracts for
out-of-state prison beds. The department cannot ensure it has been
fiscally responsible in obtaining the best value for housing Hawai‘i’s
male inmate population out-of-state. The department must comply with
the governing procurement practices and procedures if it intends to

39

Chapter 2: Management Evades Accountability for Prison Costs and Contracts

continue its “partnership” with the Corrections Corporation of America
to purchase out-of-state prison beds and housing services to address
prison overcrowding. Because the department failed to comply with the
procurement process, we recommend that the State’s chief procurement
officer assume a more active role specific to procuring prison beds and
services for the State. Moreover, the department needs to strengthen
oversight of its contracts to ensure that the private vendor is adequately
meeting the contract requirements.

Recommendations

1. To improve the compilation of its incarceration cost data, the
Department of Public Safety should:
a. Consider developing a useful calculation to be applied at regular
intervals to more easily use cost accounting for cost savings or
accounting for performance;
b. Utilize a more systematic process for cost comparisons, taking
into consideration a need for a cost-accounting methodology.
c. Rather than provide data simply because it is requested,
communicate with the Legislature to gain an understanding as
to why information is requested in order to provide pertinent
information in return;
d. Compile useful, reliable, and complete data, utilizing available
tools such as Offendertrak, for both the Legislature and its own
use.
2. To improve its processes for monitoring the operations of private
prisons, the department should:
a. Enhance processes used to test compliance with contract
requirements to include what to test and how to validate
compliance. This should include developing standardized tools
that can be used by staff to measure compliance with all areas of
the contract on a regular basis;
b. Develop a quality review program to ensure that the monitoring
records and reports accurately and thoroughly document
inspection results;
c. Establish policies and procedures related to documenting
contract compliance issues and the retention of monitoring
records; and

40

Chapter 2: Management Evades Accountability for Prison Costs and Contracts

d. Update its operating policies and procedures for fiscal
monitoring and the approval and processing of invoices to ensure
that the State is receiving the programs and services that it
contracted for.
3. To improve contracting for private prison beds in out-of-state
facilities, the State chief procurement officer should:
a. Suspend procurement authority delegated to the department for
out-of-state prison contracts with private vendors until:
1) The department’s practices are reviewed and policies and
procedures are in place to ensure compliance with Chapter
103F, HRS;
2) The Mainland/FDC Branch administrator and key staff
have completed procurement training workshops related to
contract administration and procurement of health and
human services under Chapter 103F, HRS.
b. Provide guidance and oversee the procurement process,
including final approval over the next contract to replace the
contract for housing the male prison population at Red Rock
Correctional Center and Saguaro Correctional Center that expires
on June 30, 2011.

41

Chapter 2: Management Evades Accountability for Prison Costs and Contracts

This page is intentionally left blank.

42

Appendix A
Facility Tour: Saguaro Correctional Center, Eloy, Arizona

Opened: 2007
Bed Capacity: 1,898

Recreational Areas

Classroom

43

Appendix A

Facility Tour: Saguaro Correctional Center, Eloy, Arizona (cont.)
Living quarters, common area

44

Appendix A
Facility Tour: Hālawa Correctional Facility

Year Opened: 1962 (Special Needs)
1987 (Medium Security)
Operational Bed Capacity:
Special Needs
132
Medium Security
992
Total
1,124

Recreational Areas

Classroom

45

Appendix A

Facility Tour: Hālawa Correctional Facility (cont.)
Living quarters, common area

46

Il&JVU':/VUo>

Appendix B

ACCEPTANCE AND ACKNOWLEDGMENT
Effective June 30. 2006, the undersigned have reviewed the attached clarifications to
Exhibit B and hereby acknowledge and accept said clarifications.

STATE OF HAWAII

GY;;J,~ SJ-~ G- \OOv:!L
By:

Deputy Attorney General
State of HawaJl

lwalanl D. White
Acting Director

Date: __O_c_t_o_b_e_r_12_,_2_0_0_6

_

PROVIDER:

By: -----:l~~-;u=:=::==-Print Na

Title:
Date:

1\1\4 ~\ 0 r

~en>\:eC 25,2.f.)?!D

PROVIDER'S ADMINISTRATOR:
CORRECTIONS CORPORATION OF AMERICA

By;

~:l.~

Print Name: &,-1111#'/

Title: ~~e
Date:

ttl

0#

t..

C;"A A/bE

a'f""e4~~, $'m.,~ Mj,~r
c

();J. - 0

,

This acknowledgment may be executed with counterpart signatures. This means that
parties are not required to sign on the same page and may sign on different pages. All
required original signature pages may then be reassembled together to constitute the
complete, fully executed agreement and will be treated as such.

ID:SOH PUBLIC SAFETY

PAGE:002

R=97%

47

COMPENSATION AND PAYMENT SCHEDULE
A. COMPENSATION
1. Payment to the Provider's Administrator (PA) shall be made on the, per
inmate per bed day cost, using the per diem schedule below.
1·'-Tier Per Diem Structure:
Effective July 1, 2006 to June 30, 2007, price per day per inmate 10r the- FCC
shall be $49.55. SCF is anticipated for complelion by July 2007. Upon
complelion and readiness 10r occupancy, the daily bed rate for the services
offered shall be under the 2nd -Tier Per Diem Structure.
2 nd -Tier Per Diem Structure:
Effective July 1, 2006 to June 30, 2007, price per day per Inmate for the
RRCC shall be 557.00. SCF is anticipated for completion by July 2007.
Upon completion and readiness for occupancy, the daily bed rate for the
services offered shall be under this 2nd -Tier Per Diem Structure.
Subject to legislative appropriations, on July 1 of each contract year,
beginning July 1J 2007, the basic daily fee shall increase by 2.5% or by the
previous year's Consumer Price Index for all Urban Consumers, West Region
(CPI·U Wesl A.gionl as prepared by the United States Bureau of labor Statistics
(available at hltp:Jldata,bls,QQv/cgi-bin/surveYmosl?cu), whichever is greater, but
no! to exceed 3%.

Funding for the first fiscal year of this agreement is based on the loffowing estimated
calculations:
FCC:
RRCC;

estimated 60 inmates x $49.55 per diemlinmate x 365 days
estimated 154 inmates x $57.00 per diemlinmate x 365 days
esfimated
1 inmate x $57.00 per diemlinmate x 190 days
Total Funding Estimated for 7/01/06 through 6130/07

= $1,085,145.00

= $3,203,970.00

=$

10,830.90

$4.299,945.00

This agreement shall be effective from July 1, 2006 up to June SO, 2009,
subject to the availability of funds beyond June 30,2007. Unless terminated,
the contract may be extended for not more than one (1) additional two-year
period or parts thereof. upon mutual agreement in writing.
2. The daily per diem rates shall include all costs associated with the carrying
out ot the terms of this Contract, inclUding treatment services. Treatment
services shall include personal counseling, educational services, substance
abuse treatment, vocational programming and all inmate services as
specified in this Agreement.

Exhibit B
Page 1

)CT-02-2006 09:S6RM

48

FAX:615 263 3100

ID:SOH PUBLIC SAFETY

PAGE:003

R=97%

3. The PA shall provide all health, dental and vision care to inmates at no
additional cost to the State except for the following reimbursable expenses:
services requiring hospitalization that includes physician reimbursement.
services/procedures requiring anesthetics other than Novocain or similar local
anesthetics or nitrous oxide that includes physician or anesthetist
reimbursement, major surgical and other Invasive procedures that Includes
. physician reimbursement and any procedure requiring the use of special
limited-use equipment not available at the facility. Of these reimbursable
services, the PA shall pay one hundred percent (100%) of the reimbursable
expenses up to two thousand dollars ($2,000) per incident The Slate shall
pay one hundred percent (100%) of the reimbursable expenses in excess of
that amount for any single incident, excep1 as provided in paragraph below.
The State shall not be responsible for health care, any Illness or injuries, or
any cost incurred while an Inmate is on escape status or resulling from the
negligence or fault of the PA or the PA's employees or agents.

4. The State shall be responsible for medication or regimens specifically aimed
at the treatment of conditions associated with AlOSIHIV and Hepatitis C.
provided that the PA follows State protocols for treatment. Routine medical
care for inmates who have Hepatitis C or AIDS or are HIV positive are the
responsibility of the PA.
5. II the PA charges any other entity a per diem for the provision of the exact
same services set out herein at lhe Facility that is lower than specified in this
Exhibit, the PA agrees lo notify the State of Hawaii of SUCh, and wUJ, upon
request of the State of Hawaii, agrees to amend thls Contract to reduce the
State of Hawaii's per diem to the lower per diem amount on the same day the
lower fee becomes effective for the other entity under similar terms and
conditions contained in the other entity's contract.

B. INVOICING & PAYMENT
1. The PA shall submit an advance copy of the following monthly invoices via
facsimile (80S) 837-8026 for accuracy and verification of information:
1)
2)
3)
4)

Housing Per Diem Invoice
Medical Services and HIVIHEP C Invoices
Workline Wages Invoice
Miscellaneous Invoice (Le. telephone charges for video Visits, etc.)

2. Original invoices shall be mailed to:
State of HawaD
Department of Public Safety
Mainland & FOe Branch
919 Ala Moans Boulevard, 4111 Floor
Honolulu, HI 96814
Attn: Mainland Branch Administrator

Exhibit B
Page 2

JCT-02-2006 09:56AM

FAX:615 263 3100

ID:SOH PUBLIC SAFETY

PAGE:00Q

R=97~

49

0/02/2006 15:06

FA~

61~ ~a3 ~lUU
"ttl .......... ,

All invoices shall reference the conlract number and solicitation number. If
any invoices are sent via Federal Express, please call the PSD Mainland
Branch Administrator.
3. Pursuant to Section 103-10, Hawaii Revised Statutes, the State of Hawaii
shall have up to 30 calendar days after receipt of the original invoice to make
payment. A facsimile copy shall not serve as the originsI copy. The State will
take all reasonable steps to eNact payment to the PA by wire transfer. AU
payments shall be made In accordance with and subject to Chapter 40,
Hawaii Revised StaMes.

4. The PA shall not be responsible for paying workline wages of the Hawaii
female Inmates.
5. Final Payment Requirement., The PA Is required 10 submit a tax clearance
certificate for final payment on the conlract. A tax clearance certificate, not
over two months old, with an anginal green certified copy stamp, must
accompany the invoice for final payment on the contract.

E)(hlblt B
Page 3

TD:SOH PUBLIC SAFETY

50

PAGE:005

R=97:.(

.:; .......

Appendix C

CITY OF ELOY, ARlZONA

DROIGSA-06-0002

INTER-GOVERNMENTAL SERVICE AGREMENT
CITY OF ELOY, ARIZONA

This Inter-Governmental Service Agreement (IGSA) is for Detention Services to be provided to United
States Immigration and Customs Enforcement, hereinafter referred to as "ICE", for the detention and care
of aliens (thereafter referred to as "DETAINEES").
FACILITY LOCATION:

The PROVIDER shall provide detention services for detainees at the following institution:
Eloy Detention Center
1705 East Hanna Road
Eloy, Arizona 85231
PERFORMANCE:

The PROVIDER is required to house ~CE detainees, to perform in accordance with the most current
editions onCE Detention Requirements, American Correctional Association (ACA) Standards for
Adult Local Detention Facilities (ALDF). and Standards Supplement, Standards for Health Services
in Jails, latest edition, National Commission on Correctional Health Care (NCCHe). Some ACA
standards are augmented by ICE policy and/or procedure. In cases where other standards conflict with
DHSIICE Policy or Standards, DHSIICE Policy and Standards prevail. ICE Inspectors will conduct
periodic inspections of the facility to assure compliance of the aforementioned standards.
The PROVIDER shall maintain continual compliance with ACA accreditation standards during
performance of this agreement.
The PROVIDER shall be responsible for all costs associated with obtaining and maintaining full
accreditation by ACA.
PERIOD OF PERFORMANCE:

This Agreement shall become effective upon the date offmal signature by ICE and the PROVIDER and
shall remain in effect indefinitely unless terminated in writing, by either party. Either party must provide
written intentions to terminate the agreement, 120 days in advance of the effective date of formal
termination.
PAYMENT RATE

Page 1 of 6 Pages

51

CITY OF ELOY, ARIZONA

DROIGSA-06-0002

In consideration for the PROVIDER'S performance under the Terms and Conditions of this Agreement,
ICE shall make payment to the PROVIDER for each detainee accepted and housed by the PROVIDER.
The rate is the per diem rate for the support of one Detainee per day and shall include the day of arrival but
not the day of departure.
The PROVIDER shall not charge for costs, which are not directly related to the housing and detention of
detainees. Such costs include, but are not limited to:
A)

Salaries of elected officials.

B)

Salaries of employees not directly engaged in the housing and detention of detainees.

C)

Indirect costs in which a percentage of all local government costs are pro-rated and
applied to individual departments.

D)

Detainee services which are not provided to, or cannot be used by detainees.

E)

Operating costs offacilities not utilized by detainees.

F)

Interest on borrowing (however represented), bond discounts, cost(s) of
financing/refmancing, and legal or professional fees.

This agreement in no way obligates Immigration and Customs Enforcement to any minimum population
guarantee.
MODIFICATION:

This Agreement, or any of its specific provisions, may be revised or modified by signatory concurrence of
the undersigned parties, or their respective official successors.
TRANSPORTAnON SERVICES:

1. The PROVIDER shall provide all ground transportation services as may be required to
transport detainees securely, in a timely manner, to off-site medical providers.
Transportation mileage reimbursable rates will be commensurate with current applicable
federal travel allowance rates. When officers are not providing transportation services the
PROVIDER shall assign the employees to supplement security duties within the facility
or on-call duties to assist ICE as directed by the COTR or designated ICE official.
However, the primary function of these officers is transportation. On-call duties as
directed by the COTR utilizing these officers shall not incur any additional expense to the
government.
2. The PROVIDER personnel provided for the above services shall be of the same
qualifications, receive the same training, complete the same security clearances,
and wear the same unifonns as those PROVIDER personnel are provided for in

Page 2 of 6 Pages

52

CITY OF ELOY, ARlZONA

DROIGSA-06-0002

the other areas of this agreement.
3. During all transportation activities, at least one officer shall be the same sex as the

detainee(s). Questions concerning guard assignments shall be directed to the
COTR for final determination.
4. The PROVIDER shall, upon order ofthe COTR, or upon his own decision in an urgent
medical situation, transport a detainee to a hospital location. An officer, or officers, shall
keep the detainee under constant supervision 24 hours per day until the detainee is ordered
released from the hospital, or at the order ofthe COTR. The PROVIDER shall then
transport the detainee to the detention site.

5. When the COTR provides documents to the PROVIDER concerning the detainee(s) to be
transported and/or escorted, the PROVIDER shall deliver these documents only to the
named authorized recipients. The PROVIDER shall ensure the material is kept
confidential and not viewed by any person other than the authorized recipient.

6. The PROVIDER shall establish a communications system that has direct and immediate
contact with all transportation vehicles and post assignments. Upon demand, the COTR
shall be provided with current status of all vehicles and post assignment employees.
GUARD SERVICES:

The PROVIDER agrees to provide stationary guard services as requested or required for detainees who
are committed to, or require, medical services beyond the secure perimeter of the facility. Qualified law
enforcement or correctional officer personnel employed by the PROVIDER under their policies,
procedure and practices will perform such services. The PROVIDER agrees to augment such practices as
may be requested by ICE to enhance specific requirements for security, detainee monitoring, visitation, and
contraband control. Reimbursement for these stationary guard services is not separately priced and is
included in the per diem rate.
MEDICAL SERVICES:

In the event of an emergency, the PROVIDER shall proceed immediately with necessary medical
treatment. In such event, the PROVIDER shall notify ICE immediately regarding the nature of the
transferred detainee's illness or injury and type of treatment provided.
The PROVIDER agrees to accept and provide for the secure custody, care, and safekeeping of detainees
in accordance with the State, and local laws, standards, policies, procedures, or court orders applicable to
the operations of the facility.
The PROVIDER agrees to provide ICE detainees with the level of medical care and services as
appropriate as part of the per diem rate. This rate includes but is not limited to:

Page 3 of 6 Pages

53

CITY OF ELOY, ARIZONA

DROIGSA-06-0002

•

On-site sick call, medical appointments/services;

•

Medication (over the counter/non-legend and routine drugs and medical supplies);

•

Escort/security services for transport to/from emergency or non-emergency health care services as
either an in-patient or outpatient.

When specifically requested by ICE, the PROVIDER agrees to arrange for and/or provide non-emergency
ambulance transportation service to transport detainees from one off-site medical care facility to another.
ICE agrees to provide reimbursement, over and above the per diem rate, to the PROVIDER for such
ambulance transportation services when the costs are included with the regular monthly billing for
detention services.
The PROVIDER agrees to cover all outside medical costs up to $3,000.00 per event associated with
hospital or health care services specifically provided to any detainee.
The PROVIDER shall also notifY the designated contact person at the local ICE office, when any
reimbursable medical care is provided to a detainee, in accordance with procedures to be established and
mutually agreed upon. Notification must be made in advance of treatment other than in emergency
situations.

RECEIPT AND DISCHARGE OF FEDERAL DETAINEES:
The PROVIDER agrees to receive and discharge Federal detainees only from and to properly identified
law enforcement officers and with prior authorization. Admission and discharge of Federal detainees shall
be fully consistent with PROVIDER policies and procedures.
ICE detainees shall not be released from the facility into the custody of other Federal, state, or local
officials for any reason, except for medical or emergency situations, without express authorization ofICE.

INSPECTION:
The PROVIDER agrees to allow periodic inspections of the facility by ICE inspectors. Findings will be
shared with facility administrators in order to promote improvements to facility operations or conditions of
detainment.

PER DIEM RATE AND ECONOMIC PRICE ADJUSTMENT
The per diem rate shall be $68.45 and may not be adjusted prior to September 30, 2007. Thereafter, the per
diem rate shall be subject to adjustment based on the actual and allowable costs associated with the
operation of the facility. When a rate increase is desired, the Local Government shall submit a written
request to Immigration and Customs Enforcement at least sixty (60) days prior to the desired effective date
of the rate adjustment. All such requests must contain a detailed cost proposal to substantiate the desired
rate increase. The Local Govemment agrees to provide additional cost information to support the requested
rate increase and to permit an audit of accounting records upon request by Immigration and Customs

Page 4 of 6 Pages

54

DROIGSA-06-0002

CITY OF ELOY, ARIZONA

Enforcement. The rate may be renegotiated not more than once per year.
Criteria used to evaluate the increase or decrease in the per diem rate shall be those specified in the Office
of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and Indian Tribal
Governments.
The effective date of the rate modification will be negotiated and specified in a modification to this IGSA,
which is approved by the ICE Contracting Officer. The effective date will be established on the first day of
the month for accounting purposes. Payments at the modified rate will be paid upon the return of the
signed modification by the authorized Local Government official to ICE.
BILLING PROCEDURE:

(A) Invoices - Invoices shall itemize each detainee by name, register number, dates of stay, and
appropriate detainee-day rate. Billing shall be based upon the actual number of detainee days
used.

(B)

Invoices Submission

U.S. Immigration and Customs Enforcement
Phoenix Field District Office
2035 North Central Ave
Phoenix, Arizona 85004
(602) 379-3426

(C)

Payment - Payments will be made to the PROVIDER after receipt of a complete invoice,
which shall contain a remittance address. All transfer(s) will be accomplished through
Electronic Funds Transfer (EFT) on a monthly basis. The Prompt Payment Act shall
apply.

IN WlTNESS WHEREOF, the undersigned, duly authorized officers, have subscribed their names on behalf of

the City of Eloy, Arizona and U.S. Immigration and Customs Enforcement.

ACCEPTED I

U.S. Immigration and Customs Enforcement

Page 5 of 6 Pages

55

CITY OF ELOY, ARlZONA

DROIGSA-06-0002

By:----;,.e.'----"'~--,f---------

Date:

,_~+/_'J-I-/~....;.(I...;:(;.:._.__

_

Page 6 of 6 Pages

56

Agreement
Between
Eloy, Arizona

And
Corrections Corporation of America
THIS Agreement is made and entered into by and between the City of Eloy, Arizona (the
City), a political subdivision of the State of Arizona and Corrections Corporation of
America (CCA), a Maryland corporation with its principal offices located at 10 Burton
Hills Boulevard, Nashville, Tennessee 37215.
WHEREAS, the City intends to enter into an Intergovernmental Service Agreement
(IGA) with the United States Immigration and Customs Enforcement (ICE), a copy of
which will be attached hereto as Exhibit A;
WHEREAS, CCA owns the Eloy Detention Facility in Eloy, Arizona (Facility) and
desires to house federal inmates at the Facility;
WHEREAS, the federal government has a need for beds at the Facility; and
WHEREAS, the City will benefit from CCA's housing of the government's inmates at
the Facility through the creation ofjobs and the payment of applicable property taxes:
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, CCA and the City hereby agree as follows:
1.
2.
3.
4.
5.

6.

7.

The City shall enter into the IGA with ICE, subject to CCA' s advance
approval.
The City shall place federal inmates at the Facility as directed by the
applicable federal entity pursuant to the IGA.
For every federal inmate accepted into custody at the Facility, CCA shall
provide services in compliance with the terms of the IGA.
The City will not amend, terminate or otherwise change the terms of the IGA
without the advance written approval of CCA.
CCA is not obligated to house federal inmates at the Facility if space is not
available or if the IGA is changed without CCA's approval or if the
acceptance of inmates would be financially impractical for CCA as
determined by CCA.
Should CCA desire to seek an increase in per diem from the federal
government under the IGA, CCA shall provide all documentation necessary
and appropriate to that effort, and the City shall provide all necessary and
reasonable cooperation in the pursuit of the increase.
CCA shall indemnify, defend and hold harmless the City and its officers and
employees from liability and any claims suits, judgments and damages to the
extent such claims, suits,judgments and damages arise as a result ofCCA's

57

8.

9.
10.

11.

12.

13.

14.
15.
16.

17.

acts and/or omissions in the perfonnance of this Agreement. Nothing herein
shall be construed to require CCA to defend or indemnify any party for any
claims, lawsuits, damages, expenses, costs or losses arising from the acts or
omissions of the City, its departments, its officers, agents or employees or
allegations regarding the City's authority to enter into this Agreement.
Neither shall anything herein be construed to require CCA to defend or
indemnify any party for any claims, lawsuits, damages, expenses, costs or
losses arising from any Habeas Corpus action or other action challenging the
validity of a conviction or sentence.
The City shall pay CCA the per diem fee paid to the City pursuant to the IGA
within 10 working days of the City's receipt of the funds from the
government. CCA agrees to submit the necessary documentation for payment
as set forth. in the IGA. To the extent allowed under the IGA, CCA will be the
designated Payee and funds due pursuant to the IGA will be paid directly to
CCA.
On a monthly basis, CCA shall pay the City an administrative fee of $.25 per
day per inmate held at the Facility pursuant to this Agreement and the IGA.
The term of this Agreement shall commence on March 1,2006 and remain in
effect thereafter so long as the IGA remains in place unless otherwise
terminated.
Either party may terminate this Agreement if a breach of the Agreement by
the other party remains uncured for sixty (60) days after the date of written
notice of the breach.
The failure of perfonnance of any of the terms and conditions of the
Agreement resulting from acts of God, war, civil insurrection or riot shall not
be a breach.
The provisions of this Agreement are for the sole benefit of the parties hereto
and shall not be construed as conferring any rights on any other person or
entity, including but not limited to, inmates held pursuant to the IGA.
This Agreement shall be interpreted under the laws of the State of Arizona.
This Agreement shall not be altered, changed or amended except in writing
signed by both parties.
This Agreement incorporates all the agreements, covenants and
understandings between the parties. No prior contract or understandings,
verbal or otherwise, of the parties and/or their agents shall be valid or
enforceable unless embodied in this Agreement.
All notices sent pursuant to this Agreement shall be sent certified mail, return
receipt requested to:
City:

CCA:

58

G.A. Puryear, IV
General Counsel
Corrections Corporation of America

10 Burton Hills Boulevard
Nashville,1N 37215
And

18.

Warden
Eloy Detention Center
1705 East Hanna Road
Eloy,~zona 85231

No waiver of any breach of the terms or conditions of this Agreement shall be
a waiver of any other or subsequent breach, nor shall any waiver be valid or
binding unless the same shall be in writing signed by the party charged.

CITYOFELOY

By: - - - " ' - / " " 9 1 ' - - - 1 ' - - - - - - - -

Date:

----1--"------

Date:

---'--------

ORATION OF AMERICA
By:
_
Damon T. Hininger, CCA Vice President
Federal Customer Relations

59

This page is intentionally left blank.

60

Responses of the Affected Agencies

Comments
on Agency
Responses

We transmitted a draft of this report to the Department of Public Safety
(PSD) and the State Procurement Office (SPO) on December 14, 2010.
A copy of the transmittal letter to the interim director is included as
Attachment 1. A similar letter was sent to the SPO administrator who
opted not to respond. The interim director’s response is included as
Attachment 2.
To her credit the interim director is open to reviewing our audit findings
and recommendations to improve the department’s core function as a
whole and the deficiencies in the Mainland and Federal Detention Center
Branch. However, in her response the interim director misses the point
in several key areas.
•

With respect to our finding regarding misleading cost data,
the interim director goes to great lengths to explain that the
department took an average of its entire operational capacity
in totality rather than breaking down each facility’s actual
population or a “snapshot of a particular day” because of the
complexity in calculating all costs incurred per inmate per
day. She asserts the department knows it is cheaper to house
inmates on the mainland. But auditors are trained to ask: how
do you know? We found the department does not know the
true incarceration costs because it calculates in-state costs on
the basis of total operational bed capacity. In comparison, the
out-of-state costs are based on actual use, that is, actual head
count. Lost in the director’s discussion is a basic understanding
of what the data is used for. For example, if the department
provided cost per inmate day amounts on a per facility basis, a
comparison of actual expenditures against appropriations across
cost categories could be useful. By reporting inmate costs by
jail or prison facility, the differences in facility requirements may
be better captured and available for further analysis, planning,
and decision making. Even though differences between Hālawa
Correctional Center and Saguaro Correctional Center (SCC)
in Arizona cannot be compared, the cost data would be useful
to compare a facility against its own historical performance or
compare specific cost components at a facility for best practices.

•

The interim director reports that the department is working with
the City of Eloy and the Corrections Corporation of America
(CCA) to establish a separate agreement that will specify and

61

document the working relationship between the two parties.
We see no point in doing so when the existing contract does
not allow for further extensions and expires on June 30, 2011.
Moreover, the SPO administrator has opined that using the City
of Eloy as a pass through mechanism to contract with CCA
circumvents the Hawai‘i Public Procurement Code and is an
inappropriate use of the inter-governmental exemption used
by the department in the first place to avoid the competitive
procurement process for its preferred prison vendor. Instead, the
department should focus its attention on the request for proposal
process similar to the competitive contracting process it properly
followed to secure housing for its female inmates in Kentucky.
More importantly, the director should seek guidance from the
SPO administrator to better understand her responsibility when
exercising her procurement authority because ultimately she is
accountable for the spending of taxpayer dollars.

62

•

Contrary to the interim director’s statement that our audit team
chose not to review the working files containing the contract
monitoring team’s written documentation, we did review those
files on August 18, 2010 and in fact copied documents for
analysis. We found that the contract monitors had performed
very limited independent reviews of contractor testimony and
documents, if they did any at all. The department has learned the
importance of having an audit checklist in its contract monitoring
in order to comply with the American Correctional Association
auditing standards. The fact that we use different standards
appropriate to our audit work does not excuse the failure of
the monitoring team to test the reliability of testimony and
documentation received from CCA during the site visit in July
2010. As the interim director pointed out, the department has yet
to create policies and procedures to guide staff in their contract
monitoring activities. Until the department does so, a checklist,
no matter what its affiliation or certifying organization, will
be of little value. As noted in our report, one of those contract
monitoring procedures is the verification of contractor staff
statements and assertions against documentary evidence.

•

The interim director asserts that the Mainland and Federal
Detention Center Branch administrator clearly understands
the role of the position and is not a procurement specialist,
which is the function of the purchasing and contracts office.
If the branch administrator had received the SPO training for
contract administrators, she would have learned that planning,
procurement and contracting is a team process that involves the
contract administrator from the beginning. The SPO’s training
handout on contract administration defines the role of the

contract administrator as the one who: manages the day to day
oversight; is the expert regarding contract requirements; is the
point of contact for correspondence; provides technical guidance
to contractor and users; maintains the file and documentation;
ensures the goods/services are received; and is responsible
for ensuring other team members are informed of significant
events, issues/problems. According to the SPO, good contract
administration ensures that the procurement process results in
the organization getting what it pays for and is one of the biggest
areas that could be improved for most government agencies.
Due to her lack of training, the branch administrator blindly
treated CCA as a government agent for the City of Eloy instead
of seeking guidance from the SPO when problems arose.
Finally, we corrected on page 19 of our report the total number of
uniformed staff (including correctional officers) at SCC from 96 to 226
on clarification of definitions in CCA documents. Subsequent to our
fieldwork, we learned that one correctional officer was hired after an
incident in July to increase the uniformed staff to 227. The correction
does not change our finding that a true cost comparison of inmate per day
costs for male medium security prison inmates could not be performed
because of differences in the building design that drive staffing needs, the
program offerings specifically needed at each location, and the level of
medical and other services provided.
We share the interim director’s bewilderment over the lack of
cooperation our audit team received from the department throughout the
audit process, and we, too, look forward to an improved relationship.

63

ATTACHMENT 1

STATE OF HAWAI'I
OFFICE OF THE AUDITOR
465 S. King Street, Room 500
Honolulu, Hawai'i 96813-2917

MARION M. HIGA
State Auditor
(808) 587-0800
FAX: (808) 587-0830

December 14,2010

COpy

The Honorable Jodie Maesaka-Hirata
Interim Director of Public Safety
919 Ala Moana Boulevard
Honolulu, Hawai'i 96814
Dear Ms. Hirata
Enclosed for your information are three copies, numbered 6 to 8, of our confidential draft report,
Management Audit of the Department of Public Safety's Contracting for Prison Beds and
Services. We ask that you telephone us by Thursday, December 16,2010, on whether or not you
intend to comment on our recommendations. If you wish your comments to be included in the
report, please submit them no later than Tuesday, December 21,2010.
The State Procurement Office, Governor, and presiding officers of the two houses of the
Legislature have also been provided copies of this confidential draft report.
Since this report is not in final form and changes may be made to it, access to the report should
be restricted to those assisting you in preparing your response. Public release of the report will
be made solely by our office and only after the report is published in its final form.
Sincerely,

Marion M. Higa
State Auditor
Enclosures

64

A TT ACHMENT 2
NEIL ABERCROMBIE

JODIE F. MAESAKA-HIRAT A

GOVERNOR

INTERIM DIRECTOR
Deputy Director
Administration
STATE OF HAWAII

Deputy Director
Corrections

DEPARTMENT OF PUBLIC SAFETY
919 Ala Moana Boulevard, 4th Floor
Honolulu, Hawaii 96814

Deputy Director
Law Enforcement
No.

2010-2334

December 21,2010

RECEIVED
Ms. Marion Higa, State Auditor
Office of the Auditor
465 S. King Street, Room 500
Honolulu, Hawaii 96813

2010 DEC 21 PM 3= 22
OfC. OF THE AUDITOR
STATE OF HAWAII

Dear Ms. Higa:
Thank you for the opportunity to respond to the audit conducted by your Office on the
Department of Public Safety's Contracting for Prison Beds and Services. I would also
like to thank your staff, Ms. Kathleen Racuya-Markrich and Ms. Tricia Oftana for
providing the Department and I a second exit meeting as the new Interim Director.
As the new Interim Director of the Department of Public Safety (PSD), I will be
reviewing the cited Prior audits to utilize as additional information to address as I
review the Department's management, budgetary, security, operational, programmatic
and overall health and safety needs. To begin with, I am currently reviewing the
financial accounting and internal controls practices of the Department to determine
how best to address the financial crisis that we are in. The unusual patterns of sick
leave and overtime costs are currently being reviewed with the implementation of the
New Attendance Program for the Adult Corrections Officers (ACOs), which began on
September 1, 2010. We will be meeting shortly with all the Wardens for their first
three-month review to determine the program's impact on lowering the sick leave of
the ACOs as it relates to costs of overtime (OT). If it is determined that this
Memorandum of Understanding (MOU) with the United Public Workers (UPW) has
created a significant amount in saving of OT costs and/or has reduced sick leave, the
Department will seek to continue this program.
Second, the Department is diligently working towards collecting the overpayments
made to staff. The current problems for collection are related to staff that are no
longer employed by the Department (e.g. separation from service which includes
discharge, retirement, death, no forwarding address, etc.). Please note that
employees who are currently employed by the Department have been contacted and
are processed for repayment as soon as we are informed about the situation.

"An Equal Opportunity Employer/Agency"

65

Department of Public Safety Auditor's Response
December 21,2010

Third, the Department has recently implemented a new Inmate Classification System
that we are confident will address the classification i~sues for offenders. The goal of
this new classification instruments will assist the Facilities' in determining the
offenders' proper placement not only based on scheduled release dates, but on
programmatic needs as well. Although it may have appeared that many of the
offenders' have been previously misclassified, exceptions to their custody may have
been granted due to exemplary behavior and need for community reintegration
services.
Fourth, due to the volume of offender grievances and the lack of appropriate staffing
based on budgetary constraints, the Department is be working on re-establishing
abolished positions to address this matter. We will also be looking to determine if
pooling of resources can address the matter on a temporary basis. We will need the
Legislature's assistance in re-establishing positions and funding to adequately
address these matters.
The Department is working diligently to address the Health Care/Mental Health and
Dental needs of the offenders. We will be seeking the Legislature's assistance in
funding to fill already established positions. Due to the State's financial crisis and
limited financial resources the Department does not have sufficient funds to recruit
Doctors and/or Mental Health Specialists such as Psychiatrists, Psychologists,
Psychiatric Social Workers, Physical Therapist, Occupational Therapists, Nurses,
Health Aides, etc., competitively in the employment world.
In response to the Scope of Methodology in relation to the auditor's report in which
your Office utilizes the Manual of Guides, the Department would like to acknowledge
for the record that the Mainland and Federal Detention Center Branch (MFDCB)
utilizes the National operational standards of the American Correctional Association
(ACA) standards when conducting its audits of the Mainland Facilities. Thus, this may
have caused the disparity in both findings.
Again, I am unclear as to the rationale why the Auditor's Office was unable to speak to
PSD's Management Information System (MIS) Administrator regarding the use of
Offendertrak. Note that this program and software was in existence before the last
administration, thus, making the MIS Administrator and his staff the experts on the
matter.
I am a little perplexed by the lack of cooperation your Team received. The
Department will take this process as a measure of where the PSD's MFDCB
deficiencies are and use it as a tool to improve upor). As such, I will be utilizing this
Audit Report as a means to improve the PSD's standing with your office, the
Legislature and more importantly with the community.

66

2

Department of Public Safety Auditor's Response
December 21,2010

In reviewing Chapter 2: Management Evades Accountability for Prison Costs and
Contracts, it was found that the Supplemental Contract NO.6 to Contract 55331, '
. dated, June 16, 2009, which was also reviewed and signed by the Attorney General
(AG) was with the City of Eloy (COE) and noted the Corrections Corporation of
America (CCA) as the Provider's Administrator. Contract NO. 55331 (dated, June 30,
2006) clearly denotes that CCA, its administrator of inter-governmental services
agreement of COE. Pages 5 and 6 of this signed and notarized contract (by PSD,
COE, CCA and the AG) shows that COE has acknowledged that CCA as its Provider's
Administrator. Moreover, this contract has been provided to the State's Procurement
Office (SPO) without any complaint about circumvention of the procurement process.
As such, PSD will be reviewing its practice on contract implementation to ensure such
violations do not occur. At present time, the MFDCB Administrator is working with the
City of Eloy to address the Auditor's concern to ensure that PSD meets the
requirement of SPO and the Auditor's 'Manual of Guides.
In addition, PSD will be reviewing all administrative rules, practices, and existing
policies as it relates to the MFDCB to ensure that we are in alignment with Hawaii's
Public Procurement Code and formulate clear objective performance evaluations for
correctional services based on National operational standards from the American
Correctional Association.
Although I am unable to directly answer for the past administration on ignored
oversight responsibility to administer contract for the care and custody of inmates
housed in out-of-state facilities, PSD is now working towards properly preparing and
educating operational staff to address private prison beds beyond June 30,2011 (if
needed). This includes but is not limited: training on procurement process by SPO,
working directly with the Attorney General's Office on clear contract language,
addressing PSD policies and practices on the use of private prison contractors,
creating objective performance measures and evaluation system by aligning PSD with
the standards of ACA for operational purposes and the Auditor's Manual of Guides for
financial and procurement purposes.

RESPONSE TO THE DRAFT MANAGEMENT AUDIT OF THE DEPARTMENT OF
PUBLIC SAFETY'S CONTRACTING FOR PRISON BEDS AND SERVICES

Prison Overcrowding Cannot Be Addressed Since True Incarceration Costs Are
Unknown:
Upon reviewing total expenditures for fiscal year 2010, it was found the Auditor's
report stated PSD purposefully skews reporting of in-state costs. It does not clearly
explain the Department took an average of its entire operational capacity's average
rather than a snapshot of a particular day to meet the requirements of the Auditors'
report. As one may imagine, a snapshot of one day may not be reflective of the next
as the jail population is very transient making it difficult to determine the cost per
inmate per day as releases may occur at anytime of the day or night. Thus making a
difference in cost per inmate (e.g. # of actual meals served, healthcare costs, program

67
3

Department of Public Safety Auditor's Response
December 21, 2010

costs, etc.) rapidly changing the Department's average. A clear example would be the
Oahu Community Correctional Center (OCCC). An offender may have received
medical care, medication, breakfast, attended a program, etc., before heading to court
on any given day. This same offender is fed lunch at the Sheriff's Cellblock for
arraignment, trial, etc., and then is released by the Court during the last hearing
session. Now, his/her day's costs incurred an additional meal, ACO transport and
supervision and needed medication because s/he maybe homeless and is entitled to a
ten-day supply of medication to ensure that s/he is able to obtain needed mental
health services, once again driving up costs. Below is a snapshot of one day and the
difference in costs from the Operational Bed Capacity versus the costs based on Total
Population based on FY 2010 total expenditure of $167,539,688.

Population as captured on November 8, 2010
Facility

Operational
Bed Capacity

Total
Male
Population

Hawaii CCC
HCF-SNF
HMSF
KCCC
KCF
MCCC
OCCC
WCCC
WCF

226
132
992
128
160
301
954
260
334

330
114
861
137

288
114
861
109

42

371
1086
299
220

314
975
299
220

57
111

3487

3418

Total

Female

28

Total Expenditure for FY 2010: $167,539,688/3487 inmates =$ 48,046 per year
$48,046 per year/365 days= *$131.63 per day per inmate average
* Denotes costs before closure of Kulani Correctional Facility on September 17, 2010
Still utilizing FY 2010 Expenditures:
Total Expenditure for FY 2010: $167,539,688/3418 inmates =$ 49,017 per year
$ 49,017 per year/365 days= *$134.29 per day per inmate average
• Denotes costs before closure of Kulani Correctional Facility on September 17,
2010 and includes Administrative and Program Services Costs
•

68

Please note that I utilized the date of November 8, 2010, as it is the date in which I
presented Governor Neil Abercrombie with on November 27, 2010 as snapshot of
the Department's population by Operational Beds and actual population count.

4

Department of Public Safety Auditor's Response
December 21, 2010

Cost per inmate day calculation methods lack comparability:
The Department did not utilize the number of inmates in the costs reported because
there are costs (e.g. staffing, food, healthcare, dental, mental health, programs,
operations, maintenance, etc.) that changes daily by the number of offenders housed
and the costs encumbered to operate a facility on a daily and monthly basis. As
stated earlier, the difficulty in this is the four Community Correctional Centers (Oahu,
Kauai, Maui, Women's). Their populations change on a daily, sometimes hourly basis
due to the jail populations (e.g. those who get bailed out soon after arraignment, those
who get released on their own recognizant, those who come in for the weekends, etc.)
as the dynamics of each individual's case is unpredictable. At present time, PSD
would not be able to provide an accurate cost per day per inmate for November 8,
2010, as not all actual encumbrances would have been paid for by December 8, 2010.
In short, vendors often provide bills months after a delivery, food prices change
constantly (e.g. fresh vegetables, delivery, stable items such as paper products, etc.),
water, sewage and electric bills fluctuate based on use and may also vary based on
how the product is obtained, cost of medically caring for an offender (e.g. one who is
healthy and needs little medical maintenance versus one who has a terminal condition
versus someone who has high mental health needs), the list can go on. The
Department provided a simple calculation to both the Auditor's Office and State
Legislature, as it could not articulate the complexity of calculating a given day.
I believe that the Department could have provided the Auditor's Office and Legislature
a closer breakdown by Facility of costs per inmate based expenditures for FY 2010 in
relation to both Operational Beds and Total Population for a date such as June 30,
2010 or in April 2010 when this process began. Comparatively speaking, the Halawa
Correctional Facility's expenditure of $29,672,225 (Note this includes only personnel
and operating budget and does not include Administrative costs, such as that for
personnel who process hires for HCF, training of recruits and/or staff, fiscal
processing, etc. and/or Program Services, such as Corrections Program and/or
Healthcare costs. Based on operational beds HCF cost per inmate would be: $72.20
per day (based on the Operational Beds of 1,124 offenders) with an additional $35 for
Program Services and an additional $7 per day for Administrative costs totaling
$114.20 a day for an offender at HCF. This would be the most reasonable
comparison of cost by Facility to the Mainland Facilities as Arizona secures the
majority of Hawaii's medium custody offenders. Although they also secure minimum
and community custody offenders, it is reasonable to compare this to HCF as there
are individuals housed at HCF who are minimum and/or maybe qualified for
community custody that are unable to participate in transitional minimum and/or
community program due to health, mental health, behavioral and/or safety restrictions
(e.g. Offender has requested Protective Custody, high profile cases in which the
Department may have received actual threats of harm against the person, etc.).
The use of the Total Population of 975 offenders on November 8, 2010 with the
calculation from FY 2010 for HCF's total expenditure of $29,672,225 would result in
the following cost per offender per ,day: $83.23 with an additional $35 for Program

5

69

Department of Public Safety Auditor's Response
December 21,2010

Services and an additional $7 for Administrative Services resulting in a cost of
$125.23.
Hence, the comparison between a Mainland bed and a HCF bed would be as follows:
MB:
MB:
FOC:
FOC:

$62.73
$62.73
$89.18
$89.18

HCF
HCF
HCF
HCF

(Operational Bed 1124):
(Total Population 975):
(Operational Bed 1124):
(Total Population 365):

$114.20
$125.23
$114.20
$125.23

State
State
State
State

Saving
Saving
Saving
Saving

$51.52
$62.50
$25.02
$36.07

a day
a day
a day
a day

I am unclear what information was requested to the past administration by the
Auditor's Office and/or the Legislature in terms of cost breakdown, however, the
Department is willing to provide a breakdown of total Fiscal Year expenditure by
institutions and can provide an average cost of Program and Administrative Services
that would be additional to the per day cost per offender as each institution does not
control those costs (e.g. personnel costs for program and/or health care staff,
contracts, administrative, operational, maintenance, food, treatment services, etc.).
Please note PSD would need additional time to collect and process this information
with the understanding it would be related to the past Fiscal Year based on the
inability to take a current day's cost due to possible delays from vendors in processing
their billing statements and the limited amount of Administrative staff (due to
Legislative cuts and State budgetary restrictions) available to process the information
immediately. Given the calculations above, the State of Hawaii would save
approximately $2,224,187.50 per year if the 975 offenders incarcerated at HCF were
placed in Arizona.
It is also noted that FDC's costs can be compared to both the OCCC's and Women's
Community Correctional Center's (WCCC) costs per day as the Department has
utilized it for the overflow of both men and women who fall in the realm of the jail
population.
The average cost for OCCC (Operational Beds) per offender per day in FY 2010 was
$104.36 plus the $35 a day Program cost and the additional $7 a day for
Administrative costs, yielding a total of $146.36 a day with an overall cost saving to
the State of $57.18 per day. Based on the Total population on November 8, 2010
utilizing the FY 2010 expenditure the average per day for OCCC would be $91.67 a
day, the $35 a day Program cost and the additional $7 a day for Administrative costs,
yielding a total of $133.67 a day with an overall cost saving to the State of $44.19 per
day. This costs out to $4,403,312.55 per year for the 273 male offenders.
The average cost for OCCC (Operational Beds) per offender per day in FY 2010 was
$90.81 plus the $35 a day Program cost and the additional $7 a day for Administrative
costs, yielding a total of $132.81 a day with an overall cost saving to the State of
$43.63 per day. This costs out to $4,347,511.35 for the male offenders. Based on the
Total population on November 8,2010 utilizing the FY 2010 expenditure the average
per day for WCCC would be $79.97 a day, the $35 a day Program cost and the
additional $7 a day for Administrative costs, yielding a total of $120.97 a day with an

70

6

Department of Public Safety Auditor's Response
December 21, 2010

overall cost saving to the State of $31.19 per day. This costs out to $1,047,360.20
savings for female offenders per year.
Although it appears that PSD's calculations are flawed, the estimated costs savings
for the State of Hawaii to utilize Mainland and Federal Detention Center Beds equates
to the following:
1906 Male offenders (as of November 8,2010) in Arizona X 365 days a year X $62.50
Cost Savings per offender by Total Population= $43,366,562.50 per year. For FY
2010, the State of Hawaii paid $44,752,651 to CCA. The amount would have nearly
doubled had the 1906 male offenders been in Hawaii in FY 2010.
On a final note within this section, the Auditor's report should be corrected on page 19,
paragraph 4 as Saguaro Correctional Center (SCC) has a total of 227 Corrections
Officers. The report reflects 96 operational security staff. This oversight maybe due
to the Corrections Officer staffing levels that were built into the Unit Management
Section at SCC.
Flawed methodology results in artificial cost reporting:
On page 18 the audit states, "the department ignores the fact that the actual number
of inmates is the driver of costs." From the outside looking in one would see this as
true, however, due to the complexity in calculating all costs involved in the actual cost
per day per offender, the Department utilized a simplistic calculating measure by
utilizing its Operational Bed Capacity in totality rather than by breaking down each
Facility's actual total population to derive its computation. PSD took the average of its
Operational Bed costs and factored in the average Program Services and
Administrative costs for each inmate. Program Services were broken down by Facility
as well; however, this may not be an accurate account due to the budget constraints
throughout the State. A clear example would be the pooling of resources from
allotments made for food service per facility or education staff being utilized in multiFacilities to ensure services are rendered, etc. This would include healthcare costs as
well. Many of the doctors service more than one Facility, however, their personnel
cost maybe assigned through the Healthcare Division to one site. Thus, making it
clear that PSD must review its numbers and calculations by Facility to provide a
clearer view of what methodology is utilized and how the calculations are derived.
On page 19 the Audit states, "there is no share of administrative expenditures
allocated to the mainland or FDC calculations." PSD will be reviewing this
methodology to determine an accurate amount to be added to the cost of the Mainland
and/or FDC bed amounts. There are, administrative costs added into the Mainland
contract, such as health care, program services, and budget, etc.
It is also noted that the past Director indicated that the Auditor used comparability
calculations from Florida versus a smaller State like Rhode Island or Delaware with
similar populations sizes. This will also be reviewed by the Department for
comparability purposes.

7

71

Department of Public Safety Auditor's Response
December 21, 2010

Management fails to utilize available tools for accurate data collection:
When the Offendertrak management program was initially purchased in 1999, it
purchased modules that would identify an inmate, the inmates' sentencing structure,
intake/booking dates, confinement and release dates, classification, sentence
computation, movement/ facility transfer and tracking and offender picture uploads.
Shortly thereafter, the Department purchased Incident/Grievance modules, role-based
security, enhanced line-up capabilities and interactive documents (used for staff ID's).
Most recently, the Department has upgraded Offendertrak's inmate's classification
module. Additional modules added to the Offendertrak program are additional costs.
The recent upgrade for the classification module cost the Department approximately
$600,000 to implement. To date, this is not the final cost as glitches in the system are
still being identified and corrected with the vendor. Moreover, the Department's
current computer system being utilized by staff is old, outdated, and unable to process
the full data capacity of the new upgrade. The cost of this recent upgrade requires the
Department to spend an additional estimated $300,000 to purchase new hardware
(computers); the additional cost of software to support this new module is not included
in this estimate.
The Department acknowledges that Offendertrak has the capability of performing
many functions such as inmate program participation tracking, health care
assessments and medical conditions, visitations, work release or work furloughs,
commissary purchases and inmate trust account balance information. However, the
Department will need additional funds from the Legislature to: purchase additional
features/modules for Offendertrak from Motorola, hire administrative and operational
staff to assist with the implementation of the new features, input data, update data,
and maintain this management system. Until we are completely automated, manual:
inmate records, healthcare records, case management reports, etc., are still being
utilized in our Correctional Institutions.

Department fails to use cost information for management decisions:
The responses that were given by the past PSD Administration, as a "quick and dirty
approach" does not represent the New Administration's methodology. The
Department knows it is less expensive to house inmates on the Mainland and that has
driven several decisions because of the lack of sufficient resources here. This
includes the overall cost of living in which the Missouri Economic Research and
Information Center ranked Hawaii as number 51 (all States inclusive of the District of
Columbia) being the State with the highest cost of living. It was noted that Arizona
was ranked 36tll in this study
(www.missourieconomy.org/indicators/cost of living/index.stm).
The Department supports the newly elected Governor in returning all the offenders
back to Hawaii as soon as possible. However, the Department's biggest obstacle still
remains a lack of appropriate bed spaces in our existing Institutions, community, and
other related programs. It is our hope that the Hawaii State Legislature will authorize
the funding for additional prison and community beds in Hawaii. It is clear many of our

72

8

Department of Public Safety Auditor's Response
December 21, 2010

Institutions are in very poor condition based on old infrastructure; poor design and
flawed conceptions that the State does not need a new prison. This may not be
environmentally sound to many, however, by State and Federal Laws we are still
bound to incarcerate those who violate the law and are sentenced to jailor prison
time. It is the goal of the Department to ensure that the offenders are incarcerated
humanely with the least restrictive means conducive to learning, growing, changing to
become productive citizens of Hawaii.

Funding is ensured by State policy on prison overcrowding:
The Department does not operate under the assumption that funding from the
Legislature will be available for the continued use of CCA facilities to alleviate
overcrowding. The Department realizes if funds become unavailable, its only
alternative is to return all 2,000 inmates back to Hawaii and place them in existing
facilities thereby; risking a Federally imposed Consent Decree in which the
Department worked tireless to be free from. The Consent Decree created many new
positions, added additional funds to programs, bed space, however, due to the State's
decline in the economy the State Legislature has not been able to assist the
Department in providing adequate funding to accommodate the offenders in Hawaii.
Governor Abercrombie could impose an Emergency Release by orders from his Office
with specific criteria of the type of offenders to be released, however, this becomes a
no-win situation as many of the offenders identified by the Department for emergency
release based on time left on their Court imposed sentence maybe in the midst of
completing needed treatment and/or educational programs that would assist in their
ability to successfully transition back into the community.
The Department acknowledges that sending inmates out-of-state was the rationale
until a permanent solution to the problem of overcrowding can be addressed or until
other secure facilities were built. In 1998, under the former Governor Benjamin
Cayetano and former Director Keith Kaneshiro, there was strong support to build a
prison in Ka'u on the Big Island. However, it was cancelled when the Ka'u community
voiced their concerns over having a medium-security facility built in their community.
Unfortunately, that was the last serious attempt to build a secure correctional facility
for the return of the out-of-state population. Currently, the Department is in the design
and planning phase of the Maui Regional Public Safety Complex with the Department
of Accounting and General Services (DAGS) and other contracted agencies as well as
community groups. According to DAGS, the cost of the project is estimated at
$235,000,000. DAGS is currently working on a Request for Information (RIF) for
private funding, however, it would not preclude the State Legislature from supporting
this project. This estimated cost is just for the build and not for the cost of staffing,
programming, operational and/or administrative line items. It is hoped that both the
Governor's Office and PSD can partner in submitting a Concurrent Resolution for the
upcoming 2011 Legislative Session to document the Legislature's commitment to
funding this project in addition to its six-year plan and request for appropriations.

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Department of Public Safety Auditor's Response
December 21, 2010

Safeguards in contracts fail to protect State's interests:
As documented on page 28, the Department is clear in its general conditions that
payment is ..... subject to the appropriation of state funds, and may be terminated
without liability to either the Provider or the State in the event that state funds are not
appropriated or available." It is also clearly stated that the Provider (City of Eloy) has
appointed Corrections Corporation of America as its Provider's Administrator as noted
in Contract 55331. All parties have agreed to the State's termination without liability
clause in the event that funds are not appropriated or available.
Written permission from the State of Hawaii with the County of Eloy to subcontract
with CCA is currently under review by the Department. Once again, it is noted that in
the signed Contract 55331, there is clear documentation that the County of Eloy has
named CCA as its Administrative Provider for the PSD. Moreover, the Department is
in the process of having the County of Eloy address the Auditor's concern by clearly
documenting and spelling out its subcontract with CCA to oversee the Hawaii inmates.

Misuse of procurement exemption benefits vendor:
It was never the intent of the Department to maliciously or intentionally misuse and/or
circumvent the procurement exemption. As stated in the report, the State's
Procurement Office does not have ,administrative rules or procedures for applying the
exemption or defining government-to-government transactions. The Directors' of the
PSD, both past and present, have the discretion to apply a procurement exemption for
government-to-government transactions under Section 103F-1 01 (a)(2), HRS. The
use of inter-governmental agreements to secure out-of-state facilities services have
been used for the past 15 years and each agreement has gone through legal reviews
by both the State's Attorney General's Office and Provider's legal division to ensure
that there are no County, State, and Federal law violations.
While the Department acknowledges the Request for Proposals (RFP) is its other
option, the Department has not received any documented issues of concern from the
State's Chief Procurement Officer regarding the inter-governmental agreement
established with the County of Eloy prior to this audit. Although the State's Chief
Procurement Office concurred with the Auditors' conclusion in this matter, the State
Procurement Office was aware that the Department was utilizing the
intergovernmental agreement process as it had been doing for the past 15 years.
The Department's Procurement Officer who was recruited from the State Procurement
Office has been instrumental in reviewing and processing the inter-governmental
agreements and has obtained advisement on several different issues that have come
up in the past from SPO and the Attorney General. All contracts and agreements
must be processed through this office prior to final execution by the Department, the
Attorney General and its vendors.

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Department of Public Safety Auditor's Response
December 21, 2010

Vendor as agent is a 'fiction:
The Department is unclear of what the title of this section means. The Department
acknowledges that there is no separate agreement between the City of Eloy and the
Corrections Corporation of America, however the Provider's Acknowledgment and the
Provider's Administrator's Acknowledgment was viewed as a binding agreement
between the two entities. At the time of executing the agreement, as in executing
agreements in the past, both parties did not believe a separate agreement was
necessary since it is clearly stated in the inter-governmental agreement that the City of
Eloy is the "Provider" and it has selected Corrections Corporation of America as it's
"Provider's Administrator". This practice is currently being addressed and corrected
by the County of Eloy and CCA. In light of this concern, the Department is working
with the City of Eloy and the Corrections Corporation of America to establish a
separate agreement.
The Department will also review the recommendations of the Auditor to create policies
and procedures for the Purchasing and Contracts Office and the Mainland/FDC
Branch.

Managements' lack of policies and procedures hampers effective contract
administration:
The Department will review the recommendations of the Auditor to create policies and
procedures for the Purchasing and Contracts office and the Mainland/FDC Branch as
well as for future establishment of other contracts.
It has been openly discussed that the Department needs additional procurement
specialist positions to assist in the overwhelming workload of processing contracts in a
timely basis. We agree that proper planning is crucial in all procurements especially in
RFPs that can take a lot of time to process. As the Department has only two positions
(Procurement & Supply Specialist IV and I) in its Purchasing and Contracts Office that
handles all contracts, intergovernmental agreements, and RFPs, for the entire
Department, it is our hope the Legislature will allow the establishment of four
additional positions. It is noted that currently the Department's Procurement Specialist
oversees over 230 contracts.

Department officials have not decided how to execute new agreement by end of
year:
Prior to the former Administration leaving office in November 2010, former Director
Clayton Frank directed the Institutions Division Administrator and the Mainland/FDC
Branch Administrator to move forward with the RFP process. The Department is
currently working on an RFP for out-of-state prison services. In addition, in effort to
address identified procurement concerns by the Auditor's Office, the MFDCB is
working with the County of Eloy and CCA to establish a solidified written agreement
between the two entities.

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Department of Public Safety Auditor's Response
December 21, 2010

Contract administrator lacks objectivity when monitoring private vendor:
The Department's Mainland Branch was created utilizing the State of Oklahoma's
Department of Corrections Private Prison Administration as its model since the idea of
"contract monitoring of private prisons" was new to the State. Oklahoma's Private
Prison Administration created a contract monitoring manual and a compliance
checklist based on its contract with its private prison vendors. Due to the positive
relationship the Department's former Director Ted Sakai had with the Private Prison's
Administrator through the American Correctional Association (ACA) , the Department
was allowed to hire one of Oklahoma's contract monitor as PSD's on-site monitor for
male and female inmates housed in private prisons in Oklahoma.
During this time, the Department learned the importance of having an objective
monitoring audit checklist based on scope of services in its contracts and being in
compliance with the American Correctional Association (ACA) national auditing
standards as the State's contracted facilities are nationally accredited. Although the
Department changed its previous practices of monitoring its private prisons based on
national correctional auditing standards, we have yet to create policies and
procedures in this area.
The branch administrator has been instrumental in assisting other states such as
California and Arizona in the creation of their contract monitoring services branch. In
addition to receiving administrative guidance from the State of Oklahoma, the branch
administrator has received administrative guidance from the State of Alaska in
contract monitoring of correctional standards. The branch administrator has also
made contact with the Department's Inter-State Compact State representatives and
the Bureau of Prisons on the ever-changing correctional trends on the national level to
ensure that our offenders receive the best care and programs for the money that the
State spends annually. The branch administrator confers with correctional peers in
comparing contractual agreements, contract language, and per diem prices. Other
states often contact the MFDCB Administrator for the same type of information to
ensure that a level decency is kept in pricing.
Oklahoma's Private Prison Administrator used to query all the States for per diem
rates of its private prison vendors, however, since he retired, the report no longer
exists as the branch administrator shared with the auditor.
The Mainland Branch audit members conduct performance-based audits on the
facility's operations based on the scope of services in its agreements that are identical
to the way the American Correctional Association (ACA) conducts its national
accreditation audits. Formerly assigned as the Halawa Correctional Facility's ACA
accreditation officer for the Residency Section, the branch administrator ensures that
the team of sUbject-ma~erexperts are advised to review the State's agreement, the
facility's policies, then obtain written documentation to show that the facility is in
compliance or non-compliance. Although the auditors observed and reported
otherwise, the audit team members returned from their audit with written
documentation to support their compliance findings that is held in our working files.

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Department of Public Safety Auditor's Response
December 21, 2010

We fully understand that interviews with inmates and staff are usually the least
effective means of monitoring a facility. Thus, it is crucial to review written
documentation to support their claims and statements. Interestingly, the auditor was
given access to these working files for review and did not do so.
The Department acknowledges that the auditing standards of the State Auditor and of
the Department's Mainland Branch are entirely different which was the primary
concern of the former Director during the initial audit meeting. While the State Auditor
based its findings on the Office of the Auditor's Manual of Guides and generally
accepted government auditing standards including the best practices of the State's
Procurement Office, the Department audits are based on the American Correctional
Association (ACA) national auditing standards which covers every aspect of
correctional facility operations and is considered the national benchmark for
correctional facilities in the United States. The U.S. Courts refer to these national
correctional standards for guidance.
Conclusion:
The branch administrator's position is to ensure compliance in the State's contracted
services such as health care, programs, food service, etc. The branch administrator is
responsible for developing the contract's scope of services and for ensuring that the
inmates are receiving the services that the State is paying for. The branch
administrator clearly understands the role of the position and is not a procurement
specialist, which is the function of the Department's Purchasing and Contracts Office.
The MFDCB administrator has made changes to the branch's practice of verifying
invoices with daily inmate head counts as recommended by the auditor. Further, the
Department will work on creating policies and procedures, appropriate training, and
intends to request Legislative support for additional positions for its Purchasing and
Contracts office, and for additional institutional prison bed space and for program bed
space in the community.
The PSD plans to work progressively to address the Auditor's concerns in effort to
improve its overall functioning as a whole.
Thank you again for allowing the PSD to respond to the Auditor's report and findings.
Should there be any further questions and/or concerns, please feel free to contact me
at (808) 587-1350.
Sincerely,

~~-~
Jodie F. Maesaka-Hirata
Interim Director

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