Louisiana Legislative Auditor - Prison Enterprises - Evaluation of Operations, Department of Public Safety and Corrections, 2019
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PRISON ENTERPRISES EVALUATION OF OPERATIONS DEPARTMENT OF PUBLIC SAFETY AND CORRECTIONS PERFORMANCE AUDIT SERVICES ISSUED MAY 1, 2019 LOUISIANA LEGISLATIVE AUDITOR 1600 NORTH THIRD STREET POST OFFICE BOX 94397 BATON ROUGE, LOUISIANA 70804-9397 LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE ASSISTANT LEGISLATIVE AUDITOR FOR STATE AUDIT SERVICES NICOLE B. EDMONSON, CIA, CGAP, MPA DIRECTOR OF PERFORMANCE AUDIT SERVICES KAREN LEBLANC, CIA, CGAP, MSW FOR QUESTIONS RELATED TO THIS PERFORMANCE AUDIT, CONTACT EMILY DIXON, PERFORMANCE AUDIT MANAGER, AT 225-339-3800. Under the provisions of state law, this report is a public document. A copy of this report has been submitted to the Governor, to the Attorney General, and to other public officials as required by state law. A copy of this report is available for public inspection at the Baton Rouge office of the Louisiana Legislative Auditor and online at www.lla.la.gov. This document is produced by the Louisiana Legislative Auditor, State of Louisiana, Post Office Box 94397, Baton Rouge, Louisiana 70804-9397 in accordance with Louisiana Revised Statute 24:513. Ten copies of this public document were produced at an approximate cost of $19.00. This material was produced in accordance with the standards for state agencies established pursuant to R.S. 43:31. This report is available on the Legislative Auditor’s website at www.lla.la.gov. When contacting the office, you may refer to Agency ID No. 9726 or Report ID No. 40170017 for additional information. In compliance with the Americans With Disabilities Act, if you need special assistance relative to this document, or any documents of the Legislative Auditor, please contact Elizabeth Coxe, Chief Administrative Officer, at 225-339-3800. LOUISIANA LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE May 1, 2019 The Honorable John A. Alario, Jr., President of the Senate The Honorable Taylor F. Barras, Speaker of the House of Representatives Dear Senator Alario and Representative Barras: This report provides the results of our performance audit of Prison Enterprises (PE). The purpose of the audit was to evaluate PE’s overall operations, including whether it met its statutory purposes. Overall, we found that PE met its three statutory purposes: to use the resources of the Department of Corrections (DOC) in the production of food, fiber, and other items needed by inmates to help lower the cost of incarceration; to provide products and services to state agencies, parishes, municipalities, other political subdivisions, and public employees; and to provide work opportunities for offenders. However, we also found some areas in which the organization could strengthen its operations. For instance, although PE was able to help reduce the costs of incarceration by paying $3.8 million in wages to offenders between fiscal years 2016 and 2018, it could provide officials with information about how it lowered other incarceration costs as well. In addition, between fiscal years 2016 and 2018, 22.7 percent of PE’s total sales were to state agencies other than DOC. Those sales might have been higher if a mechanism were in place to ensure state agencies complied with the law that requires them to buy products and services from PE if the prices are less than those of the Office of State Procurement. PE also provided work opportunities for offenders. However, nearly 40 percent of the offenders working for PE are serving life sentences, and some offenders are working in fields that the Louisiana Workforce Commission has projected to decrease in the future. This means many of the offenders working for PE may not be learning job skills that could help them after they are released. We found, as well, that PE’s expenses exceeded its revenues and that the organization used more cash than it generated in 11 of the past 23 years. PE also did not comply with its 1600 NORTH THIRD STREET • POST OFFICE BOX 94397 • BATON ROUGE, LOUISIANA 70804-9397 WWW.LLA.LA.GOV • PHONE: 225-339-3800 • FAX: 225-339-3870 The Honorable John A. Alario, Jr., President of the Senate The Honorable Taylor F. Barras, Speaker of the House of Representatives May 1, 2019 Page 2 pricing policy for some manufactured items between fiscal years 2016 and 2018. As a result, the organization overcharged customers by at least $55,306 and undercharged customers by at least $81,947 for items whose prices should have been fixed. In addition, PE had no comprehensive marketing plan to help promote its products and services, nor did it have a process for tracking whether the approximately $117,000 spent on marketing efforts between fiscal years 2016 and 2018 generated a financial benefit proportionate to the costs. PE also did not ensure that all complaints were logged and resolved in a timely manner, and it did not have an effective process in place to make sure orders were delivered on time. We found that the number of complaints PE received increased by 121.2 percent between fiscal years 2016 and 2018, and late deliveries increased from 30.7 percent to 40.3 percent. The following report contains our findings, conclusions, and recommendations. Appendix A contains PE’s response to this report. I hope this report will benefit you in your legislative decision-making process. We would like to express our appreciation to the management and staff of PE and DOC for their assistance during this audit. Respectfully submitted, Daryl G. Purpera, CPA, CFE Legislative Auditor DGP/aa PRISON ENTERPRISES Louisiana Legislative Auditor Daryl G. Purpera, CPA, CFE Prison Enterprises - Evaluation of Operations Department of Public Safety and Corrections May 2019 Audit Control # 40170017 Introduction We evaluated Prison Enterprises’ (PE) overall operations, including whether it met its statutory purposes. PE is an ancillary agency within the Department of Public Safety and Corrections. We conducted this audit because of legislative interest, and because we have not conducted a performance audit of PE since 1997.1 State law (R.S. 15:1153) requires that PE meet the following three purposes, in order of priority: The mission of Prison Enterprises is to lower the costs of incarceration by providing productive job opportunities to offenders that instill occupational and skills training while producing quality products and services for sale to state and local governments, non-profit organizations, political subdivisions, and others. Operations of PE’s programs serve to further the DOC Reentry Initiative by enabling offenders to increase the potential for successful rehabilitation and reintegration into society. To utilize the resources of the Department of Corrections (DOC) in the production of food, fiber, and other necessary items used by the inmates in order to lower the cost of incarcerating offenders. To provide products and services to state agencies and agencies of parishes, municipalities, other political subdivisions, and public employees. To provide work opportunities for offenders. During fiscal year 2018, PE operated 27 different operations within manufacturing, wholesale, service, and agricultural industries at seven of the state’s eight correctional facilities and one privately-run correctional center.2 PE produces various products, such as garment items, furniture, and license plates, and provides canteen items to state correctional facilities and janitorial services to state buildings. As of June 30, 2018, 62 full-time state employees assist PE with performing administrative functions and overseeing industry operations and transportation activities across the state. PE is funded solely through interagency transfers; fees; self-generated revenues from its sales to state agencies, municipalities, parishes, and non-profit organizations; as well as sales of agricultural products on the open market. In fiscal year 2018, PE’s total revenues for all industries were approximately $27.9 million, and total expenditures were approximately $28.0 million. The majority of PE’s expenditures (approximately $21.2 million, 1 Our 1997 performance audit of PE can be found here: http://www.lla.state.la.us/PublicReports.nsf/D4B512B51DF4B38986256FF80067E151/$FILE/00000960.pdf. 2 Winn Correctional Center in Winnfield, LA 1 Evaluation of Operations Prison Enterprises or 75.2%) in fiscal year 2018 was spent on the costs of goods sold, which includes raw materials, factory overhead, and related personnel expenses. As of June 30, 2018, 7673 offenders worked for PE operations, representing approximately 7.2% of the 10,692 offenders who were earning incentive wages or good time while incarcerated in state facilities at that time. Exhibit 1 shows PE’s operations across the state, and Appendix C contains a detailed overview of these operations. Exhibit 1 Map of PE Operations as of June 2018 Source: Prepared by legislative auditor’s staff using information provided by PE. The objective of this performance audit was to: Evaluate PE’s operations, including whether it met its statutory purposes. Our results are summarized on the next page and discussed in further detail throughout the remainder of the report. Appendix A contains PE’s response to this report, and Appendix B details our scope and methodology. In addition, Appendix D summarizes the findings and recommendations from our 1997 performance audit of PE, Appendix E lists selected best practices from Correctional Industries: A Guide to Reentry-Focused Performance Excellence, Appendix F details PE net income by industry for fiscal years 2016 through 2018, and Appendix G details PE expenditures during this time. 3 This number includes 82 offenders working at the privately-run Winn Correctional Center. 2 Evaluation of Operations Prison Enterprises Objective: To evaluate PE’s operations, including whether it met its statutory purposes. Overall, we found that PE met its three statutory purposes; however, we found areas where it could strengthen its operations. We identified the following: PE met its first statutory purpose of reducing the cost of incarceration by paying $3.8 million in offender wages from fiscal year 2016 through 2018, but could better demonstrate how it lowered other incarceration costs. For example, PE sold $17 million in products and services to DOC in fiscal year 2017 but needs to work with DOC to demonstrate whether these sales reduced costs for correctional facilities. PE met its second statutory purpose of providing products and services to state and local agencies. From fiscal years 2016 to 2018, 22.7% of its total sales were to state agencies other than DOC. However, sales to state agencies may have been higher if a mechanism existed to ensure that state agencies comply with the law that requires them to purchase products and services from PE if the prices are less than those of the Office of State Procurement. PE met its third statutory purpose of providing work opportunities for offenders. However, this statutory purpose does not align with other states and best practices that recommend correctional industries teach transferable job skills to help offenders get jobs after release. Currently, 39.2% of offenders in PE are serving life sentences, and 32.5% of PE offenders are working in fields that the Louisiana Workforce Commission (LWC) has projected to have a decrease in future employment. In addition, PE no longer participates in the Prison Industries Enhancement program that includes partnerships with businesses to provide offenders with work opportunities that are relevant to the job market and pay higher wages. During fiscal years 1996 through 2018, PE’s expenses exceeded its revenues, and PE used more cash than it generated in 11 (47.8%) of the last 23 years. In addition, operations, such as silk screen, printing, and corn and cotton production were not profitable at all during fiscal years 2016 through 2018. Because best practices recommend that correctional industries be financially sustainable and maintain positive cash flow in order to ensure long-term viability, PE should document its evaluation of the profitability of each operation and limit non-essential expenditures that affect its financial sustainability. PE did not comply with its pricing policy for some manufactured items during fiscal years 2016 through 2018. As a result, PE overcharged customers by at least $55,306 and undercharged customers by at least $81,947 for items whose prices should have been fixed based on PE’s statewide contract. In addition, unlike other states, both PE and DOC markup 3 Evaluation of Operations Prison Enterprises wholesale prices for canteen items, such as candy bars, which may result in offenders paying higher prices for these items. PE has not developed a comprehensive marketing plan that describes how it will promote its products and services, as recommended by best practices. In addition, PE does not have a process for tracking whether the approximately $117,000 spent on marketing efforts during fiscal years 2016 through 2018 generated a financial benefit, such as increased sales, that is proportionate to the costs, as required by policy. PE has not ensured that all complaints are logged and resolved timely and has not developed an effective process to ensure that orders are delivered on time. According to best practices, good customer service is important because it directly impacts sales; however, the number of PE complaints increased by 121.2% between fiscal years 2016 and 2018, and late deliveries increased from 30.7% to 40.3%. Many of these findings are the same or similar to the findings we cited in our 1997 performance audit of PE. These issues and our recommendations to strengthen PE’s processes are explained in further detail in the sections below. PE met its first statutory purpose of reducing the cost of incarceration by paying $3.8 million in offender wages from fiscal year 2016 through 2018, but could better demonstrate how it lowered other incarceration costs. For example, PE sold $17 million in products and services to DOC in fiscal year 2017 but has not demonstrated whether these sales reduced costs for correctional facilities. PE’s first statutory purpose is to lower the cost of incarcerating offenders, which it meets by paying incentive wages for all DOC offenders, whether they work for PE or DOC, that would otherwise be paid out of the state general fund. As mandated by the Louisiana Administrative Code,4 PE paid approximately $1,243,779 in incentive wages to all offenders during fiscal year 2018, of which approximately $145,325 (11.7%) was paid to offenders working in PE operations.5 PE incentive wage rates range from an introductory rate of $0.02 to $0.20 per hour depending on the skill, industry, and nature of the work performed by the offender. According to PE, although state law6 authorizes it to pay higher salaries to offenders working in PE operations, it has not yet done so because of budget constraints. With the exception of three states, 4 LAC 22:I.331 According to the 2018 National Correctional Industries Association (NCIA) Directory, Louisiana is only one of three states that require its correctional industries to pay non-correctional industry offender wages, along with North Carolina and Massachusetts. 6 R.S. 15:873 states that the rate of compensation for DOC offenders is no more than 20 cents per hour; for offenders assigned to Prison Enterprises is up to 40 cents per hour; and for offenders who work as certified academic and educational tutors is up to $1.00 per hour. 5 4 Evaluation of Operations Prison Enterprises Louisiana has the lowest incentive pay rate ranges for offenders working in correctional industries,7 according to the 2018 National Correctional Industries Association (NCIA) Directory.8 Some offender workers can choose to earn a reduction in their sentences, known as good time, instead of wages. However, DOC policy9 states that offenders not eligible to earn good time must work three years before they can earn incentive pay. Exhibit 2 shows the pay rates of offenders working for PE as of June 30, 2018. Exhibit 2 Pay Rates for Offenders Working in PE Operations As of June 30, 2018 Number of Percentage of Pay Rate Per Hour Offenders Offenders $0.00* 104 13.6% $0.02** – 0.10 180 23.5% $0.11 – 0.20 350 45.6% Suspended Pay Due To Disciplinary Action 2 0.3% Good Time Earned 131 17.0% Total 767 100% *DOC policy states that offenders not eligible to earn good time must work three years before they can earn incentive pay. **Introductory incentive pay rate starts at $0.02 per hour in accordance with DOC Policy. Source: Prepared by legislative auditor’s staff using information provided by PE. PE also states that it reduces the cost of incarcerating offenders by having its staff supervise offenders working in PE operations, reimbursing correctional facilities for correctional officers that supervise PE janitorial crews, and obtaining lower prices for meat and canteen items with bulk purchases for all state correctional facilities. In addition, PE states that it further lowers incarceration costs because offenders working in its operations consistently have lower recidivism rates than the overall offender population. According to DOC, the five-year recidivism rate for offenders in state correctional institutions was 43.4% in 2018, compared to 31.9% for offenders working in PE operations. Although not required by law, PE could better document how it has lowered other incarceration costs, including how its $17 million in sales to DOC and correctional facilities during fiscal year 2017 helped reduce incarceration costs. PE was also cited in our 1997 report for not measuring or documenting the cost-effectiveness of providing products and services to DOC. Exhibit 3 outlines PE’s $17 million in sales to DOC in fiscal year 2017, by PE operation. 7 Best practices refer to PE and its counterparts in other states as correctional industries. According to the 2018 NCIA Directory, offenders in Arkansas, Georgia, and Texas do not receive incentive wages. 9 DOC Regulation No. B-09-001, Offender Incentive Pay and Other Wage Compensation 8 5 Evaluation of Operations Prison Enterprises Exhibit 3 PE Sales to DOC by PE Operation Fiscal Year 2017 PE Operation Sales $ Sales % Canteen Distribution Center $7,722,269 45.3% Wakefield Meat Plant 3,704,406 21.7% Hunt Soap Plant 1,140,534 6.7% LCIW Garment Factory/Uniforms 1,087,657 6.4% Winn Garment Factory 1,022,378 6.0% Hunt Garment Factory 631,133 3.7% Embroidery/Uniforms 424,133 2.5% Metal Fabrication 408,384 2.4% Mattress, Broom, and Mop Factory 397,867 2.3% Print Shop 236,705 1.4% DCI Chair Plant 132,683 0.8% Allen Furniture Restoration 94,041 0.6% Silk Screen Shop 34,196 0.2% Tag Plant 741 0.0% Total $17,037,126 100.0% Source: Prepared by legislative auditor’s staff using information provided by PE. Demonstrating PE’s cost-effectiveness is important, in part, because state law10 authorizes Louisiana correctional facilities to purchase products and services from vendors located in the parish in which the correctional facility is located, if the prices are less than those of OSP or PE. However, DOC internal policy requires all state correctional facilities to purchase products from PE unless there is a compelling reason to utilize another vendor. Two of the three facilities we spoke with purchased their products from PE without researching other vendors that may have offered products of similar quality at lower prices. The third stated that it rarely gets DOC approval for such purchases from another vendor. Other states, such as Mississippi and California, are required to issue annual reports to the legislature and other stakeholders that provide information about their correctional industries. Although PE issues an annual report to DOC, this report is not on PE’s website and does not include detailed information on how it lowers the cost of incarceration. In contrast, PE’s contract of available products with prices is available on OSP’s website and is updated annually. Matter for Legislative Consideration: The legislature may wish to consider requiring PE to report annually on how it lowered the cost of incarcerating offenders and complied with its first statutory purpose. 10 R.S. 15:1157, revised by Act No. 248 of the 2017 Regular Legislative Session, effective June 14, 2017. 6 Evaluation of Operations Prison Enterprises PE met its second statutory purpose of providing products and services to state and local agencies. From fiscal years 2016 to 2018, 22.7% of its total sales were to state agencies other than DOC. However, sales to state agencies may have been higher if a mechanism existed to ensure that state agencies comply with the law that requires them to purchase products and services from PE if the prices are less than those of the Office of State Procurement. PE met its second statutory purpose to provide products and services to state and local agencies. From fiscal years 2016 through March 2018, PE sold over $74.4 million in products and services. Of this amount, approximately $42.8 million (57.5%) was sold to DOC, and approximately $16.9 (22.7%) million was sold to other state agencies. Exhibit 4 shows a breakdown of all PE sales from fiscal years 2016 through 2018. Exhibit 4 PE Sales ($74.4 Million Total Sales) Fiscal Years 2016 through 2018* Department of Corrections $42,768,634 57.5% Other State Agencies $16,869,250 22.7% Agricultural Commodities $8,716,843 11.7% Local Governments 2,924,673 3.9% Other $3,091,992 4.2% *We obtained JD Edwards data from PE in March 2018; therefore, this analysis does not include all sales for fiscal year 2018. Source: Prepared by legislative auditor's staff based on JD Edwards data provided by PE. State agencies purchase items such as furniture, cleaning supplies, license plates, and garments from PE. Exhibit 5 shows what state agencies purchased from PE during fiscal year 2017. 7 Evaluation of Operations Prison Enterprises Exhibit 5 PE Sales to State Agencies Fiscal Year 2017 Executive Branch State Agency Examples of Purchases Department of Public Safety (Excluding DOC) License plates, cleaning supplies, furniture Division of Administration Janitorial services, furniture Department of Transportation and Development Janitorial services, furniture Office of Juvenile Justice Meat products, garments, canteen Louisiana Workforce Commission Janitorial services, garments, cleaning supplies Department of Health Furniture, garments Department of Children and Family Services Garments, mattresses Department of Culture, Recreation, and Tourism Furniture, garments Secretary of the State Furniture, silk screen services Department of Environmental Quality Silk screen services Department of Civil Service Furniture restoration Department of Justice Furniture, silk screen services Department of Wildlife and Fisheries Furniture, cleaning supplies Department of Revenue Silk screen services Department of Natural Resources Silk screen services Department of Agriculture and Forestry Embroidery services, cleaning supplies Department of Veterans Affairs Print services, silk screen services Department of Education Silk screen services Public Service Commission Print services, silk screen services Total Note: Total amounts do not match due to rounding. Source: Prepared by legislative auditor’s staff based on JD Edwards data provided by PE. Amount $3,226,794 2,327,921 389,661 323,498 252,034 202,510 126,687 37,114 24,906 11,364 9,690 9,050 4,388 1,515 1,250 984 964 837 344 $6,951,509 Sales to state agencies may have been higher if a mechanism existed to ensure that state agencies comply with the law11 that requires them to purchase products and services from PE if the prices are less than those offered on statewide contracts through the Office of State Procurement (OSP).12 According to OSP management, it does not have any processes to ensure that state agencies follow the statutory requirement to buy from PE. OSP stated that one way for PE to increase sales would be to monitor invitations for bids from other state agencies and contact these agencies directly with its offer if it can provide the products or services requested. According to OSP, it advises other state agencies to contact PE when services and products they are requesting for OSP to bid may be available through PE (i.e., furniture, signage, uniforms, etc.). According to the 2018 NCIA Directory, 12 of the 32 states that mandate their correctional industries receive preference in the State Procurement process also have a mechanism to enforce this requirement. For example, five of these states13 require state agencies to obtain a certification from correctional industries staff that correctional industries cannot provide a product as requested before an agency’s purchase from another vendor can be approved. Matter for Legislative Consideration: The legislature may wish to consider specifying who should enforce R.S. 15:1157(A)(1)(2) to ensure that state agencies are in 11 R.S. 15:1157(A)(1) OSP manages the purchasing of equipment, goods, supplies, and operating services needed by state agencies by researching, developing, and issuing statewide and agency-specific contracts. 13 Colorado, Missouri, Ohio, Virginia, and West Virginia 12 8 Evaluation of Operations Prison Enterprises compliance with the requirement to purchase products and services from PE when the prices are less than those offered on statewide contracts through OSP. PE met its third statutory purpose of providing work opportunities for offenders. However, this statutory purpose does not align with other states and best practices that recommend correctional industries teach transferable job skills to help offenders get jobs after release. Currently, 39.2% of offenders in PE are serving life sentences, and 32.5% of PE offenders are working in fields that LWC has projected to have a decrease in future employment. Unlike 21 other states and best practice14 recommendations, PE’s statutory purpose of providing work opportunities for offenders does not require that the work opportunities explicitly assist offenders with finding employment after they are released. Other states’ laws require their programs to focus specifically on providing work opportunities to help offenders become productive citizens once they are released. For example, Colorado15 is required to provide offenders with training and general work skills that will assist them in finding employment upon release, and Washington16 provides work training and experience so offenders can qualify for better work upon release. Best practices17 also recommend that PE create a work environment that simulates real world work experience and effectively trains and prepares offenders for the transition to private sector employment upon release. This includes creating a culture focused on offender reentry success through employment readiness, implementing certificate based soft skills training, providing certified technical skills training, and providing post release employment services. Most offenders participating in PE are serving sentences longer than 10 years, and 32.5% of PE offenders are working in fields that LWC has projected to have a decrease in employment in the future. Of 76718 total offenders working for PE as of June 30, 2018, 301 (39.2%) were serving life sentences and will likely never be released from correctional facilities. However, according to PE, offenders serving life sentences serve as a stable workforce for its operations and provide training to new offenders. Exhibit 6 shows the number of PE offenders working in each industry broken down by their earliest eligible release dates as of June 30, 2018. 14 Correctional Industries: A Guide to Reentry-Focused Performance Excellence (see Appendix E) Colorado R.S.17-24-102 16 Revised Code of Washington 72.09.100 17 See Appendix E. 18 This number includes 82 offenders working at the privately-run Winn Correctional Center. 15 9 Evaluation of Operations Prison Enterprises Exhibit 6 Earliest Release Dates for PE Offenders As of June 30, 2018 Earliest Release Date Number of Percentage of Eligibility Offenders Offenders Within 10 years 325 42.4% Within 11 to 20 years 74 9.6% Within 21 to 30 years 29 3.8% Within 31 to 40 years 12 1.6% Within 41 to 60 years 19 2.5% Within 61 to 90 years 7 0.9% Life Sentence 301 39.2% Total 767 100.0% Source: Prepared by legislative auditor’s staff using information provided by PE. Although any job training for offenders has value, not all of PE’s job opportunities mirror employment opportunities available in the private sector in Louisiana. For example, according to PE, 30.1% of its offenders worked in garment factories as of June 30, 2018, but industry projections from LWC from 2016 to 2026 estimate that employment in textile product mills19 will decrease by 4.3%, and apparel manufacturing jobs will decrease by 4.5%.20 However, 27.0% of PE offenders worked in the furniture manufacturing and metal fabrication operations during this same time, and LWC projected employment in these areas to increase by 10.0% and 8.4%, respectively. Best practices21 recommend that correctional industries conduct research to ensure that the skills offenders learn align with the needs of the current job market. Correctional industries should also consult directly with private sector employers and business associations to determine the types of technical and soft skills they require. One of PE’s strategic goals for fiscal years 2015 through 2022 is to increase involvement with DOC’s Office of Reentry Services, which aims to prepare offenders for successful reintegration into their communities. By better coordinating with DOC’s reentry division, PE could create a mechanism that tracks whether released offenders were successful in finding employment related to the training they received while working for PE. In July 2018, PE and DOC’s reentry division received approval from the State Apprenticeship Council to establish a welder/fitter Registered Apprenticeship Program at Angola. Offenders who successfully complete this program will have their certification placed in a nation-wide federal database available to potential employers upon release. While PE is certified to participate in the Prison Industries Enhancement (PIE) program,22 it has not been able to find a private sector partner to participate in the 19 According to the Bureau of Labor Statistics, textile product mills manufacture textile products by purchasing materials and adding decorative stitching such as embroidery or other art needlework on textile products, including apparel. 20 “State of Louisiana 2016-2026 Projected Employment by Industry” http://www.laworks.net/LaborMarketInfo/LMI_OccIndustryProj.asp?years=20162026 21 See Appendix E. 22 The Bureau of Justice Assistance, a part of the United States Department of Justice, certified the Department of Public Safety and Corrections as a PIE program participant on January 20, 1994. 10 Evaluation of Operations Prison Enterprises program since fiscal year 2011. The PIE Certification Program was created by Congress in 1979 to encourage states and units of local government to establish employment opportunities for offenders that approximate private sector work opportunities. PIE is designed to place offenders in a realistic work environment, pay them the prevailing local wage for similar work, and enable them to acquire marketable skills to increase their potential for successful rehabilitation and meaningful employment upon release. This program also requires that offenders receive minimum wage and allows that victim restitution, room and board, and other financial obligations be deducted from offender wages. According to the 2018 NCIA Directory, of the 45 correctional industries that were PIE certified as of August 2017, 23 had offenders working in a PIE program. During our 1997 audit, we found that PE was participating in only one PIE program, Company Apparel Safety Items, Inc. (CASI), which sold garments for medical use and employed 30 offenders. Our report cited PE for not actively pursuing PIE projects and instead, waiting for businesses to approach them. According to PE management, CASI was closed in 2011 because state hospitals consolidated their purchasing and it was cheaper for them to buy overseas. PE management stated it is currently seeking private businesses to partner with for PIE programs. Matter for Legislative Consideration: The legislature may wish to consider amending R.S. 15:1153 to specify that the work opportunities PE is required to provide to offenders reflect LWC’s employment projections and be prioritized for offenders who will be released. Recommendation 1: PE should work with DOC’s Office of Reentry Services to better coordinate work opportunities in PE industries with those in the current job market to enhance offenders’ successful reintegration into their communities. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will continue working with the DOC Office of Reentry Services and will also continue to demonstrate that offenders participating in its programs have lower recidivism than the overall Department. See Appendix A for PE’s full response. Recommendation 2: PE should continue to actively seek businesses to partner with and to again participate in the PIE program and provide offenders with work opportunities that are relevant to the job market and pay higher wages. Summary of Management’s Response: PE agrees with this recommendation and stated that it will continue to actively seek businesses to partner with and will participate in a PIE program should a viable opportunity become available. See Appendix A for PE’s full response. 11 Evaluation of Operations Prison Enterprises During fiscal years 1996 through 2018, PE’s expenses exceeded its revenues, and PE used more cash than it generated in 11 (47.8%) of the 23 fiscal years. In addition, operations such as silk screen, printing, and corn and cotton production were not profitable at all during fiscal years 2016 through 2018. Because best practices recommend that correctional industries be financially sustainable and maintain positive cash flow in order to ensure long-term viability, PE should document its evaluation of the profitability of each operation and limit non-essential expenditures that affect its financial sustainability. R.S 15:1157 requires PE to sell its manufactured Financial sustainability exists when products at a cost that is not less than cost of raw sales revenue generated covers all costs and financial obligations associated with materials23 and its services at a cost that is not less than correctional industries operations. the cost for providing the services. Best practices24 also recommend that correctional industries be financially Source: Correctional Industries: A Guide to sustainable and maintain positive cash flow in order to Reentry-Focused Performance Excellence, 2017. ensure long-term viability (see text box). It is important for PE to be financially sustainable because it is not appropriated any state general funds by the legislature. Our 1997 audit found that expenses exceeded revenues for 17 (43.5%) of PE’s 39 operations in fiscal year 1995. To evaluate its financial sustainability, PE policies require it to develop forecasts (such as offender labor projections, inventory requirements, overhead expenses, and cash flow projections), review monthly and annual financial statements for each industry, and develop new product structures25 reflecting changes in the cost of finished goods. According to PE management, it analyzes gathered information along with any factors26 that impacted or are expected to impact sales and expenses. However, PE does not document how the review of this information impacts management’s decisions concerning financial sustainability. During fiscal years 1996 through 2018, PE’s expenses exceeded its revenues for 11 of the 23 fiscal years. Exhibit 7 shows PE’s net income for fiscal years 1996 through 2018. Appendix F details PE’s net income, by industry, for fiscal years 2016 through 2018, and Appendix G details PE expenditures during this time. 23 While the law requires PE to recoup at least the cost of raw materials, it does not require PE recoup costs associated with personnel expenses, incentive wages, factory overhead, and operating and administrative expenses. 24 See Appendix E. 25 A product structure lists all materials needed to produce and ship a particular product. 26 Since PE provides a wide variety of products and services, different factors drive costs differently in each industry. For example, the floods in 2016 resulted in the LCIW Garment factory moving to a different location and operating at a smaller scale. 12 Evaluation of Operations Prison Enterprises Exhibit 7 PE Net Income Fiscal Years 1996 through 2018 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 -$500,000 -$1,000,000 -$1,500,000 -$2,000,000 Source: Prepared by legislative auditor's staff using information from PE's Income Statements for FY96 through FY18. During fiscal years 1996 through 2018, PE used more cash than it generated in 11 of the 23 years. Exhibit 8 shows PE’s net cash flow for fiscal years 1996 through 2018. A cash flow analysis shows how well an agency is generating cash for future operations and, if an agency uses more cash than it is producing, how this will impact future operations. Best practices27 state that correctional industries should maintain sufficient operating funds needed to pay monthly bills and to purchase raw materials and goods to efficiently run business operations. According to PE, it has been able to meet all financial obligations during fiscal years 1996 through 2018. 27 See Appendix E. 13 Evaluation of Operations Prison Enterprises Exhibit 8 PE Net Cash Flow Fiscal Years 1996 through 2018 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 -$500,000 -$1,000,000 -$1,500,000 Source: Prepared by legislative auditor's staff using information from PE's Income Statements from fiscal years 1996 through 2018. During fiscal years 2016 through 2018, PE’s chair plant, silk screen, print shop, rangeherd,28 corn, cotton, orchard, and flight bird operations never incurred enough revenue to exceed their expenses and lost a total of $4.7 million during this time period. According to PE management, while it would be ideal for all of PE’s operations to be selfsupporting, it believes that financial sustainability only applies to PE overall and not to individual operations. Exhibit 9 summarizes the net income for individual operations from fiscal years 2016 through 2018. 28 Excludes DCI Rangeherd operations. 14 Evaluation of Operations Prison Enterprises Exhibit 9 PE Net Income by Operation Fiscal Years 2016 through 2018 Industry/Operation FY16 FY17 FY18 Manufacturing Garment Operations Hunt Garment Factory Winn Garment Factory LCIW Garment Factory Furniture Operations Allen Furniture Restoration DCI Chair Plant Other Manufacturing Operations Silk Screen Embroidery Hunt Soap Tag Plant Metal Fabrication Mattress, Broom, and Mop Plant Print Shop Net Income Manufacturing Canteen Distribution Center Wakefield Meat Plant Net Income Wholesale Janitorial Canteen Package Program Net Income Services Rangeherd Operations DCI Rep Heifers LSP Rangeherd Hunt Rangeherd RLCC Rangeherd Wade Rangeherd Crop Operations LSP Corn Cotton Soybeans Milo Other Agricultural Operations Land and Ag Management DCI Orchard Horse Program* Flight Bird* Net Income Agriculture DOC Incentive Wages Transfer to General Fund Net Income Support PE Total Net Income ($193,804) 192,384 315,248 ($12,787) 312,588 265,750 $115,679 426,330 35,981 (166,965) (70,894) (171,900) (43,675) 57,141 (36,913) (98,692) (7,739) 116,870 565,688 (29,861) 12,072 (69,972) 564,336 Wholesale 476,840 133,573 610,413 Services 47,611 47,611 Agriculture (112,671) 42,269 250,993 1,181,435 (19,714) 149,524 (6,191) 1,835,620 (93,445) 60,910 170,126 346,461 81,163 66,420 (36,222) 1,193,630 277,827 85,412 363,239 336,666 123,939 460,605 122,853 148,676 271,529 127,912 201,392 329,304 181,159 (756,378) (155,326) (41,543) (199,544) 5,155 (481,359) (35,974) (21,711) (180,290) 224,649 (936,655) (83,034) (18,129) (104,025) (237,314) (5,193) (58,805) (22,889) (182,168) (105,874) (20,880) (47,113) (259,315) (146,197) 18,451 - (62,512) (5,719) (180,737) (36,824) (1,581,626) Support (1,225,375) (331,106) (1,556,481) ($1,915,747) 34,937 (5,733) 28,178 (92,903) (1,105,735) 197,331 (5,762) (7,486) (1,120,173) (1,076,327) (1,076,327) $288,326 (1,098,454) (1,098,454) ($235,087) *Horse Program and Flight Bird operations closed in FY17 and FY18, respectively. Note: Total amounts do not match due to rounding. Source: Prepared by legislative auditor’s staff using information from PE’s Income Statements for FY16 through FY18. 15 Evaluation of Operations Prison Enterprises PE should document its analysis of each operation’s financial sustainability and management’s subsequent business decisions. This documentation should include an assessment of the corrective action needed to improve profitability and whether non-financial benefits, such as providing work opportunities to offenders, outweigh any financial losses. According to PE management, in some cases it operates unprofitable operations because these operations support other profitable operations, such as using corn to feed livestock. However, other states, such as Colorado, require managers of unprofitable shops to prepare business plans to improve the shops’ performance. These plans are required to include corrective actions, such as market expansion, price adjustments, staffing and offender employment changes, and other efficiency measures that shop managers plan to take to improve profitability. Providing work opportunities to offenders is a key aspect of PE’s statutory purpose and realizing non-financial benefits by utilizing offenders in operations, even if unprofitable, may actually outweigh the losses the operations experience. In fact, best practices29 suggest that correctional industries’ more lucrative business units can be used to offset the financial losses associated with operating other business units that are not financially self-sufficient but employ numerous offenders or offer valuable work skills. However, PE does not document when a loss is acceptable or whether the losses are offset by the benefits achieved. For example, PE stated that it shut down its Horse Program in fiscal year 2017 and Flight Bird Operations in fiscal year 2018 because the market shrunk for these operations so revenues did not consistently cover their expenses and management determined that resources could be better used in other operations. PE management should also document what specific factors it takes into consideration when deciding to maintain operations that are not self-sufficient. During fiscal years 2016 through 2018, PE’s expenditures included mandated payments of over $1.6 million to other state agencies. According to PE management, trying to effectively operate a financially sustainable business within a government setting is challenging. For instance, PE is mandated to pay the Office of Technology Services for IT support, the Office of Risk Management for insurance coverage, the Department of Civil Service for the cost of operating the state civil service system,30 and OSP for bidding services on PE’s behalf. Furthermore, the legislature swept $331,106 from PE into the General Fund during fiscal year 2016 even though PE does not receive any state general funds. Exhibit 10 shows mandated payments PE incurred during fiscal years 2016 through 2018. 29 30 See Appendix E. R.S. 42:1383 16 Evaluation of Operations Prison Enterprises Exhibit 10 PE Mandated Interagency Payments Fiscal Year 2016 through Fiscal Year 2018 Agency FY16 FY17 FY18 Total Office of State Procurement $185,136 -* -* $185,136 Office of Risk Management 261,858 315,516 370,859 948,233 Office of Technology Services 19,063 56,314 22,990 98,366 Department of State Civil Service 23,940 25,296 23,949 73,185 Transfer to General Fund 331,106 331,106 Total $821,103 $397,126 $417,798 $1,636,026 *DOC paid PE’s OSP charges for fiscal years 2017 and 2018. Source: Prepared by legislative auditor’s staff based on documentation provided by PE. PE management should consider limiting non-essential expenditures that affect its financial sustainability, including at least $5,164 in agency funds spent during fiscal years 2016 through 2018 that that do not appear necessary to meet its statutory purposes. According to PE, some of these expenses are used for its Annual Awards and Training Conference to show appreciation for its staff. PE also paid for staff to participate as a team and sponsored a hole during the Louisiana Correctional Association (LCA) Golf Tournament held in Lake Charles, LA during fiscal years 2016 and 2018. According to PE, the golf tournament is part of the LCA conference, which is attended by a large portion of PE customers, and gives PE the opportunity to advertise its products and services as well as interact with existing and potential customers. Exhibit 11 contains PE expenses we identified as not related to its purpose during fiscal years 2016 through 2018. Exhibit 11 PE Expenses not Related to Agency Purpose Fiscal Year 2016 through Fiscal Year 2018 Purpose Expense Plaques for PE employees PE Annual Awards and Training Conference Duffle Bags for PE employees Annual Awards and Training Conference Sponsorship of Golf Hole and Louisiana Correctional Association Golf Team Registration Tournament, FY16 and FY18 Coasters for PE employees PE Annual Awards and Training Conference Screened Shirts PE Annual Awards and Training Conference Total Source: Prepared by legislative auditor’s staff based on documentation provided by PE. Amount $2,858 739 720 653 194 $5,164 In addition, even though it is not against the law for PE to use its self-generated funding to feed its offenders or staff that oversee these offenders, PE could improve its financial sustainability by minimizing non-essential expenses. For example, during fiscal years 2016 through 2018, PE spent at least $29,447 on holiday and appreciation meals for offenders and staff and $20,700 for canteen items that PE states was for offenders working overtime and other incentives. According to PE management, it attempts to create an environment similar to a work environment as recommended by best practices.31 Since PE’s budget does not allow it to give pay raises or bonuses to offenders or staff, feeding them during holidays and providing canteen items as incentives is PE’s way of showing its appreciation and boosting morale. 31 See Appendix E. 17 Evaluation of Operations Prison Enterprises Recommendation 3: PE should document how its review of forecasts, financial statements, updated product structures, and other financial information impacts management’s decisions concerning financial sustainability. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will continue to produce, analyze, and document its financial position to further enhance its overall financial sustainability. See Appendix A for PE’s full response. Recommendation 4: PE should considering limiting non-essential spending on food and other items for offenders and staff. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will continue to monitor and limit non-essential expenses. See Appendix A for PE’s full response. PE did not comply with its pricing policy for some manufactured items during fiscal years 2016 through 2018. As a result, PE overcharged customers by at least $55,306 and undercharged customers by at least $81,947 for items whose prices should have been fixed based on PE’s statewide contract. In addition, unlike other states, both PE and DOC markup wholesale prices for canteen items. PE’s pricing policy states that the current price quoted in its statewide contract through OSP will be utilized when pricing its products. In addition, R.S. 15:1157 requires PE to sell its manufactured products at a cost that is not less than the cost of raw materials used to manufacture the product. For PE to remain financially sustainable, it should charge prices for its manufactured products that cover its operating expenses beyond the cost of raw materials and consider current economic conditions and competitors. Some customers were charged less or more for manufactured products than what was allowed by PE’s pricing policies. We identified 1,536 instances when customers were charged prices different from those listed on the statewide contract. During fiscal years 2016 through 2018, PE overcharged customers by approximately $55,306 and undercharged customers by approximately $81,947 for items whose prices should have been fixed based on PE’s statewide contract.32 In some cases, PE charged all customers the same price for an item throughout an entire contract period, but that price was different than the price stipulated in PE’s statewide contract and no explanation was provided in its financial system. In other cases, PE charged different prices for the same items for different customers during the same contract 32 Some records where the prices charged did not match statewide contract prices had descriptions in the sales order data explaining why some customers were charged more (added features, different specifications than the contract, etc.) or less (showroom models sold “as is,” discounts given for volume, etc.) than the contract price. However, we excluded these sales orders from our analysis. 18 Evaluation of Operations Prison Enterprises period, as shown in Exhibit 12. In our 1997 report, we also found that some products were potentially underpriced or overpriced. Exhibit 12 Examples of Different Prices Charged by PE for Same Items on Statewide Contract Fiscal Years 2016 through 2018 Item Description Bed Locker without Hanger Densified Polyester Foam Mattress Customer Sheriff Correctional Facility Correctional Facility Correctional Facility Police Jury Sheriff Order Period March 2016 to June 2016 December 2016 to January 2017 Contract Price $130.00 $42.00 Sheriff August to DOC October $61.75 Correctional Facility 2017 Non-Profit Other State Agency One Dozen Heavy September Non-Profit $73.00 Duty Mops 2017 Correctional Facility Source: Prepared by legislative auditor’s staff using data provided by PE. 5 Gallons Non-Skid Floor Wax Price Charged $85.00 $125.00 $115.00 $42.00 $40.00 Number of Units 8 25 200 553 1,000 $42.00 15 $61.75 $56.75 $56.75 $61.75 $73.00 $68.00 $73.00 4 12 8 5 2 50 40 In addition, PE charged customers prices for custom items that were below the set pricing model. PE’s policy stated that prices could be set below the pricing model with approval; however, it did not require this approval to be documented. We reviewed the product structures and prices of 67 custom items sold during fiscal years 2016 through 2018 and found that 31 (46.3%) had a markup at least 10.0% lower than the pricing model, including 12 (17.9%) with a markup at least 50.0% lower than the pricing model, all without documentation of justification for the lower prices. Examples of comparable items ordered in the same fiscal year with different markups are shown in Exhibit 13. 33 33 A pricing model is a factor by which PE multiplies raw material costs in order to calculate the preliminary selling price that will cover overhead costs. PE management establishes a pricing model for each manufacturing operation annually. 19 Evaluation of Operations Prison Enterprises Exhibit 13 PE Custom Products Sold at Different Markups for Different Customers Fiscal Year 2016 Customer Nonprofit Organization Correctional Institution Nonprofit Organization Correctional Institution Nonprofit Organization Sheriff's Office State Agency Sheriff's Office Item Mahogany Table Desk with One Drawer Mahogany Bookshelf and Cubby Poplar Porch Swing Mahogany Conference Table Mahogany Printer Table Mahogany Conference Chairs Reupholstered Side Chairs Conference Room Chairs with Arms on Casters and Embroidered Logo Pricing Model Actual Markup Pricing Model Price Actual Price Charged Difference in Pricing 2.85 2.85 2.85 2.85 2.85 2.85 2.85 1.03 2.14 1.03 2.50 1.04 2.13 1.26 $555 $1,323 $441 $1,862 $329 $602 $215 $200 $995 $160 $1,635 $120 $450 $95 ($355) ($328) ($281) ($227) ($209) ($152) ($120) 2.85 2.43 $763 $650 ($113) Source: Prepared by legislative auditor’s staff using PE data and information contained in sales order files. PE does not require that deviations from its pricing policy be documented. PE management stated that they sometimes charge customers lower prices if doing so will allow them to get a sale that would otherwise go to competitors, increase the volume of sales, or create a relationship with a new customer. In addition, according to PE, it may need to change the price of a product from what is listed on its statewide contract if it notices that the statewide contract price is wrong. However, PE’s policy does not require that it document the reasons for any deviations from the statewide contract prices, nor that PE staff periodically review the prices posted on OSP’s website to ensure they are correct. Requiring and reviewing such documentation would help ensure that PE charges customers consistent and correct prices, which is the goal of setting annual statewide contract prices through OSP. PE’s policy states that the marketing manager or higher level supervisor must approve prices that do not follow the pricing policy; however, the marketing manager is the same person who calculates prices for custom orders. In addition, PE does not document the reasons for changing product prices or markups for customers so it is not possible to determine if price reductions for certain customers generated a sales benefit proportionate to the reduction in prices. Documenting price changes is important because PE changed its pricing policy in fiscal year 2018 to allow it to use the pricing model to determine the preliminary selling price rather than the minimum price of a product. The marketing manager has the latitude to adjust the preliminary selling price as deemed appropriate, but the policy does not require the marketing manager to document an explanation for the price change. Unlike other states, both PE and DOC markup wholesale prices for canteen items, which may result in higher prices for offenders.34 PE canteen operations consist of PE purchasing canteen items in bulk from vendors, marking the price up by approximately 20%,35 and then reselling the bulk items to correctional facilities. According to PE, this markup covers PE’s costs of operating the Canteen Distribution Center at Louisiana State Penitentiary at 34 State laws and rules governing PE do not provide any specific guidance on pricing for items purchased for resale, such as canteen items. 35 As of fiscal year 2018, markup on canteen items is 20.5%, 19.0% on tobacco items, and varies for personal property items. 20 Evaluation of Operations Prison Enterprises Angola, delivering products to correctional facilities, and other expenses. However, state correctional facilities then further markup canteen prices and resell the items to offenders. According to DOC, this markup is used to cover the costs of operating the individual canteens and to invest in offender programs such as vocational/educational, religious, recreational, or library services. On average, correctional facilities charge approximately 33.3% markup on canteen items purchased from PE. As a result, both PE and DOC make excess revenue from canteen items sold to offenders (see example at right). In turn, PE is able to subsidize other industries operating at a loss with its net income from canteen operations. During fiscal years 2016 through 2018, PE received approximately $1.1 million in net income from its canteen operations. Canteen Markup Example Beef Stew (11.25 oz.) PE purchases from vendor for $1.66 PE sells to correctional facility for $2.00 (20.5% markup) DOC sells to offender for $2.67* (Additional 33.3% markup) *Total markup of $1.01 or 60.8% The additional 33.3% markup by correctional facilities on all canteen items sold by PE during fiscal years 2016 through 2018 resulted in DOC making approximately $378,000 in excess revenue from offenders for canteen items. We spoke with officials from 12 other states’ correctional industries36 and found that in all 12 states canteen items are sold directly to offenders, unlike PE’s process of selling bulk canteen items to Louisiana correctional facilities who then in turn sell to offenders. The canteen vendors in four states own the inventory and set prices,37 whereas the remaining eight states’ correctional industries that buy items in bulk and sell them directly to offenders provided us with their markup percentages for canteen items. Apart from Minnesota, which charges markups ranging from 0-50%, none of the remaining seven states charge a markup higher than 32.75%. Recommendation 5: PE should document the reasons for the deviations from the statewide contract prices to ensure that PE charges customers consistent prices. In addition, PE should document the reasons for charging customers prices that deviate from the pricing model as well as who authorized any deviations so that these changes can be monitored and analyzed for reasonableness. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it does document deviations from the pricing model as reflected in the price of the products it sells. Due to the thousands of items sold throughout the year, it would be difficult to document to the degree that is being recommended since every situation is different and the pricing model is used as a guide and not a unilateral calculation. See Appendix A for PE’s full response. 36 We contacted correctional industries in 12 of the 14 states that run canteen operations through correctional facilities: Colorado, Indiana, Iowa, Kansas, Minnesota, Montana, North Dakota, Pennsylvania, Utah, Washington, West Virginia, and Wisconsin. 37 Four states’ correctional industries are contracted to pick and package offenders’ individual orders, but canteen vendors own the inventory, price products, and process offenders’ orders. 21 Evaluation of Operations Prison Enterprises LLA Additional Comments: Documenting the reasons for any deviations from the statewide contract prices as well as who authorized any deviations would help ensure that PE charges customers consistent and correct prices, which is the goal of setting annual statewide contract prices through OSP. Recommendation 6: PE should require staff to periodically review its statewide contract prices posted on OSP’s website for accuracy so that it can ensure that customers are charged correct prices. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will work with the Office of State Procurement to ensure the prices published on the statewide contract match with what is submitted by PE. See Appendix A for PE’s full response. Matter for Legislative Consideration: The legislature may wish to consider providing guidance on how PE should price its wholesale products, including markup for canteen products. PE has not developed a comprehensive marketing plan that describes how it will promote its products and services, as recommended by best practices. In addition, PE does not have a process for tracking whether the approximately $117,000 spent on marketing efforts during fiscal years 2016 through 2018 generated a financial benefit that is proportionate to the costs, as required by policy. PE policy requires that it develop a written marketing plan that is reviewed regularly to ensure it remains consistent with changing markets. Furthermore, PE policy states that promotional items must be of minimal cost, constitute an expenditure that is dedicated to public purposes, and create a public benefit proportionate to the cost. According to the Principles of Marketing,38 a marketing plan enables management to evaluate whether an organization can meet customers’ needs in a way that allows for its financial sustainability. These best practices also state that the process of achieving sustainable growth requires a systematic approach including the evaluation of current operations, the identification of long term goals, and the strategies to reach those goals. In addition, because of the prohibitions under Article VII, §14 of the Louisiana Constitution regarding the donation of public funds or property, PE should document the public purpose for giving away promotional items and whether this donation created a public benefit proportionate to the cost to ensure compliance with the law. While PE has developed a written marketing plan as required by policy, it is not comprehensive as recommended by best practices.38 Instead, PE provided us with a two-page 38 Principles of Marketing, 2010: https://open.lib.umn.edu/principlesmarketing/chapter/16-2-functions-of-themarketing-plan/ 22 Evaluation of Operations Prison Enterprises Marketing Overview from July 2016 that discusses how PE serves its customers through an updated website, showrooms, and experiments with email marketing. This document also discusses how the state’s budget issues and the privatization of state correctional facilities and parish jails make it more difficult for PE’s sales staff to compete with private sector vendors for business in these facilities. However, PE should develop a more comprehensive marketing plan (as outlined below) to ensure it remains financially sustainable in changing markets. Our 1997 report found that PE did not have a marketing plan and recommended that PE develop formal sales and marketing plans that documented the needs of all of PE’s product lines. According to the Principles of Marketing, a good marketing plan should do the following: Identify customers’ needs. Evaluate whether the organization can meet those needs in some way that allows for profitable exchanges with customers to occur. Develop a mission statement, strategy, and organization centered on those needs. Pursue advertising, promotional, and public relations campaigns that lead to continued successful exchanges between the organization and its customers. Engage in meaningful communications with customers on a regular basis. During fiscal years 2016 through 2018, PE spent $117,058 on travel, conference registrations, promotional items, and samples but did not determine the return on investment, such as whether these costs led to future sales or other positive business outcomes. According to the Principles of Marketing, a marketing plan allows an organization to pursue successful advertising and promotional activities. While not included in its Marketing Overview, PE management developed a policy that allows it to give away promotional items and product samples to attract new customers and encourage current customers to purchase additional products. For example, during fiscal years 2016 through 2018, PE spent $41,102 in travel expenses for staff to attend conferences and promote PE products and services, $19,759 to register as a vendor at these conferences, and gave away $27,054 worth of promotional items such as coasters, umbrellas, and koozies. In addition, PE spent over $500 on a lunch in March of 2016 for 10 newly-elected sheriffs at its headquarters to introduce them to PE’s products and services. Exhibit 14 contains a breakdown of promotional materials given away by PE staff during fiscal years 2016 through 2018. 23 Evaluation of Operations Prison Enterprises Exhibit 14 PE Promotional Items Given Away Fiscal Years 2016 through 2018 Promotional Item Quantity Cost Tote Bags 2,448 $5,681 License Plate Candy Dishes 21,000 5,250 Koozies 3,100 4,421 Pens 4,000 3,045 Lip Balm 3,300 2,892 Keychains 1,100 1,906 Coasters 500 1,131 Tape Measures 1,206 993 Umbrellas 100 749 Back Packs Unknown 723 USB 2GB 50 263 Total $27,054 Source: Prepared by legislative auditor’s staff based on documentation provided by PE. For some orders, customers requested that PE build prototypes of the product, such as triple bunk beds, barbeque pits, locker boxes, and garbage cans. PE documents these expenditures as samples and stores some of the prototypes in the PE showrooms for other potential customers to view. PE also gives away samples of its products, such as cleaning supplies, shirts, and sheets, to potential customers with the hope that they will be satisfied with the product and place an order with PE. However, PE does not consistently document who received the samples or if the expenses incurred by building/giving away these samples resulted in any return on investment, such as attracting new customers or generating additional revenues. For example, according to PE, the $2,856 in furniture prototypes given to Bayou Segnette State Park resulted in more than $175,000 in subsequent furniture sales; however, PE did not designate this additional revenue as a related sale to the prototypes in its financial system. Exhibit 15 lists some examples of the total $28,635 in product samples that PE built or gave away during fiscal years 2016 to 2018 along with the costs for these samples. Exhibit 15 Examples of PE Prototypes/Samples Given to Customers Fiscal Years 2016 through 2018 Sample Product Customer Quantity Cost Furniture Prototypes Bayou Segnette State Park 11 $2,856 High-Back Intensive Use Chairs* Not documented 4 2,020 Sheets Not documented 144 760 Mattress Warden 2 163 Name Plates/Holders Office of State Parks 10 71 Embroidered Shirts Allen Parish 15 59 *According to PE, these chairs are used by its sales department as samples to show the product to its customers at trade shows and in its showroom. However, PE could not provide us with supporting documentation. Source: Prepared by legislative auditor’s staff based on documentation provided by PE staff. 24 Evaluation of Operations Prison Enterprises While PE has developed a policy that states that promotional items should be dedicated to public purposes and create a public benefit proportionate to the cost, it does not require staff to document such purposes or benefits. We reviewed selected sales documentation39 for fiscal years 2016 through 2018 and identified $14,081 in products that PE did not charge to customers. For example, PE embroidered briefcases with the DOC logo and employee names for DOC’s Annual Awards Day. However, PE did not bill DOC for these products because it classified them as promotional since they show potential customers what PE can do. However, DOC is already PE’s biggest customer, as shown in Exhibit 4. Exhibit 16 details products we identified that PE did not bill to customers during fiscal years 2016 to 2018. Exhibit 16 PE Products Delivered But Not Billed* Fiscal Years 2016 through 2018 Item Quantity 7,700 30 3 108 25 9 cases 15 1 10 2 1,000 Amount Not Billed $9,149 2,736 799 374 258 213 158 157 151 63 21 $14,081 Holiday Decorations Refurbished Furniture for DOC Inaugural Seals Sheets for DOC Awards Day Briefcases embroidered with DOC employee names and logo Household Items for DOC Credit Union Golf Signs for Golf Tournament sponsors Refurbished chair for DOC employee Briefcases embroidered with sheriff logo Plaques Business cards for DOC employees Total Note: Total amounts do not match due to rounding. *This amount could be underestimated because PE expenses non-inventory items at the time of purchase instead of linking the costs to the appropriate interdepartmental sale. Source: Prepared by legislative auditor’s staff based on documentation provided by PE. In addition to the prohibitions under Article VII, §14, against the donation of public funds or property, R.S. 15:1157(A)(4) mandates that PE recovers the costs of raw materials used to manufacture its products.40 Therefore, to satisfy both R.S. 15:1157 and Article VII, §14, PE must ensure that it receives compensation for its services or products in an amount that covers its costs. If these products were promotional items or samples, PE should document the public purpose served and whether the public benefit was proportionate to the cost. If PE staff were required to track promotional materials given away at each conference, entities that attended each conference, and whether these attendees became new customers of PE or increased their current purchasing, management could determine whether PE targeted the right customers at the right locations (i.e., conferences, expos). According to PE’s sales manager, attending conferences is part of PE’s marketing process; however, the July 2016 Marketing 39 We reviewed documentation that was designated as interdepartmental sales but had shipping addresses for customers outside of PE industries or operations. 40 A limited exception is afforded in situations in which the manufactured product is deemed to be spoiled, overstocked, obsolete, or otherwise not saleable at a cost equal to or greater than the raw material costs. Such situations must be documented before the Director of PE may authorize a sale at less than the raw material cost. 25 Evaluation of Operations Prison Enterprises Overview does not list conferences as means of serving current or potential customers. Management could monitor the success of its marketing practices by specifying the business purpose of each employee attending conferences, listing the conferences staff will attend, and requiring staff to track whether the promotions given away at the conferences increase PE sales. Documenting the samples given away to customers and tracking whether those samples generated future orders would also allow PE to determine if the cost spent on samples was justifiable. Recommendation 7: PE should develop a comprehensive marketing plan that includes factors such as goals and direction for attainable future marketing efforts; clear, realistic, and measurable targets; deadlines for meeting those targets; and a budget for all marketing activities. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will work to further enhance its marketing plan to meet goals and objectives that will continue to allow PE to be self-sufficient. See Appendix A for PE’s full response. Recommendation 8: PE should require staff to document customers attending and reasons for attending each conference; track the quantity of promotional items and product samples given away, to whom they are given, and for what purpose; and track whether the public benefit was proportionate to the cost and whether future sales were generated. Summary of Management’s Response: PE disagrees with this recommendation and stated that it will continue to monitor the public benefit of its marketing efforts and ensure the expense is proportionate to the cost of these efforts. However, to track these efforts to the degree of this recommendation would not align with industry standards and require substantial investment in staff and resources that could potentially create inefficiency with its marketing department. This recommendation would also provide a result that is not readily defensible as PE cannot prove that a specific promotional item results in a particular or immediate sale and it could even be several years before a customer tries PE’s products as a result of repeated marketing efforts over time. See Appendix A for PE’s full response. LLA Additional Comments: In addition to measuring marketing efforts’ success, documenting the recipients and purpose of these efforts would strengthen PE’s internal controls to ensure that promotional items are not given away for purposes other than marketing. Recommendation 9: PE should bill customers for all services and products provided to ensure compliance with R.S. 15:1157 and Article VII, §14 of the Louisiana Constitution. 26 Evaluation of Operations Prison Enterprises Summary of Management’s Response: PE agrees with this recommendation and stated that it will continue to bill customers appropriately and comply with all applicable laws. See Appendix A for PE’s full response. PE does not ensure that all complaints are logged and resolved timely and has not developed an effective process to ensure that orders are delivered on time. According to best practices, good customer service is important because it directly impacts sales; however, the number of PE complaints increased by 121.2% between fiscal years 2016 and 2018, and late deliveries increased from 30.7% to 40.3%. According to the Principles of Marketing, Exhibit 17 customer service is important because it directly PE Logged Complaints impacts sales.41 In accordance with this best practice, Fiscal Years 2016 through 2018 PE has two performance indicators related to customer Total Cost Fiscal Number of Related to service. One states that PE will decrease the percentage Year Complaints Complaint of customer complaints received by 5.0% by fiscal year FY16 33 $5,944 2019. The other states that PE will deliver 100% of FY17 50 3,665 orders on time. However, according to PE’s complaint FY18* 73 11,432 log, customer complaints increased from 33 to 73, or by Total 156 $21,041 121.2%, from fiscal year 2016 to fiscal year 2018; and *FY18 includes complaints through 6/11/18. 42 the total cost related to these complaints increased Source: Prepared by legislative auditor’s 92.3%, totaling $21,041 as shown in Exhibit 17. In staff using information provided by PE. addition, according to our analysis, late deliveries increased from 30.7% in fiscal year 2016 to 40.3% in fiscal year 2018. PE is required by the American Correctional Association (ACA) Standards for Correctional Industries to have a formalized and active customer service program that provides periodic feedback to management to ensure customer satisfaction. In addition, according to the Principles of Marketing, tracking customer satisfaction is one way to measure marketing effectiveness. PE developed a policy that complies with ACA Standards and states that when staff receives a complaint about an order of manufactured products, they forward it to the Customer Service Representative (CSR) for resolution.43 PE does not ensure that all complaints and their related costs are logged and resolved timely. Although PE’s policy establishes a process for tracking and resolving customer complaints for manufactured products, the policy does not clearly define what constitutes a 41 Principles of Marketing, 2010: https://open.lib.umn.edu/principlesmarketing/chapter/16-2-functions-of-themarketing-plan/ 42 This is the cost of repair or replacement of the item plus transportation cost associated with the pick-up of the damaged item or delivery of the fixed or replacement item. 43 The CSR is also the PE headquarters warehouse manager but is not a part of PE’s sales and marketing staff. 27 Evaluation of Operations Prison Enterprises complaint and how to categorize complaints. As a result, some issues are treated as complaints while other similar issues are not. For example, we reviewed sales documentation from fiscal year 2018 and identified 51 issues that were not logged as complaints. These issues, shown in Exhibit 18, were similar to other complaints that were included in the log, such as wrong item specifications, incorrect order quantities, and missing items. Properly capturing and categorizing complaints is important because PE policy requires management to conduct a complete analysis of trends in complaints received at the end of each month and each calendar year. Exhibit 18 PE Complaints by Category Fiscal Years 2016 through 2018 Number of Complaints in Log Number of Complaints Not in Log* Total** Number of Complaints Wrong Item Specifications 91 25 116 Incorrect Quantity of Item 10 8 18 Missing Items 15 7 22 Damaged Items 7 6 13 Item Quality 38 12 50 Return or Exchange 6 1 7 Complaint Category Number of Complaints by Operation*** Silk Screen (37), Print (24), Embroidery (12), Embroidery/Uniforms (9), Tag (7), LCIW Garment/Uniforms (6), Winn Garment (6), LCIW Garment (4), Allen Furniture (3), Mattress/Broom/Mop (3), Hunt Soap (2), Metal Fabrication (2), Canteen Distribution Center (1) Mattress/Broom/Mop (3), Silk Screen (3), Embroidery/Uniforms (2), Hunt Soap (2), LCIW Garment (2), Allen Furniture (1), Embroidery (1), Hunt Garment (1), Tag (1), Winn Garment (1) Silk Screen (6), DCI Chair (4), Print (4), Embroidery (3), Embroidery/Uniforms (1), LCIW Garment (1), Winn Garment (1) Allen Furniture (5), DCI Chair (3), Silk Screen (3), Hunt Soap (2) Allen Furniture (21), DCI Chair (11), Silk Screen (7), Metal Fabrication (3), LCIW Garment (2), Print (2), Embroidery/ Uniforms (1), Hunt Garment (1), Hunt Soap (1) Silk Screen (3), Canteen Distribution Center (1), Embroidery (1), Embroidery/Uniforms (1), Mattress/Broom/Mop (1) Total 167 59 226 Note: Since the complaint log does not categorize the reason for complaints, we created these categories based on our review of the sales documentation. *Complaints not in the log are only from fiscal year 2018. **The number of complaints in this table exceeds the total number of complaints received because complaints can fall under multiple categories. ***Five complaints concerned more than one operation and the operation could not be identified for nine complaints. Source: Prepared by legislative auditor’s staff using information from PE sales documentation. PE also does not ensure that the costs of all complaints are included in the complaints log, as required by policy. The cost of a complaint includes the cost of repair or replacement of the item plus transportation costs associated with the pick-up of the damaged item or delivery of 28 Evaluation of Operations Prison Enterprises the fixed or replacement item. In the log, the cost of 63 (44.1%) of 143 closed complaints was blank or marked $0, but we found that 38 of these complaints were missing the associated costs for repaired or replaced items that staff had noted in the supporting documentation. We also found that 23 (45.1%) of the 51 missing complaints we identified had associated costs, including one complaint that resulted in the reprinting of 20,000 envelopes. In addition, PE’s policy does not specify a timeframe in which complaints should be resolved. We found that PE sometimes took months to resolve customers’ issues. For example, we found documentation on eight orders in which customers or PE staff specifically stated that the customer reached out to PE between two and five times over a period of up to 74 days before receiving a response. In addition, our review found that 29 (16.8%) of 173 complaints44 took at least three months to resolve, with one complaint taking 456 days to be resolved. According to best practices in resolving customer complaints published by the Federal Benchmarking Consortium,45 a speedy response to complaints can improve customer loyalty by as much as 25%. PE could increase customer satisfaction by requiring staff to make initial contact with customers and resolve their complaints within a certain amount of time. Unlike its manufacturing industry, PE does not have a formal complaints process established for its wholesale industry. According to Income Statements from fiscal years 2016 through 2018, PE’s wholesale industry, which includes the sale of canteen and meat products almost exclusively to state correctional facilities, accounted for 45.0% of overall sales. DOC policy requires46 state correctional facilities to buy their canteen items and meat from PE, but there is no formal process for filing or resolving complaints regarding these items. According to PE, it does not have a complaints policy for wholesale operations because it does not produce these items. However, PE is responsible for ordering bulk canteen items, warehousing the bulk items, and transporting the orders to correctional facilities, all of which are activities that could result in customers not being satisfied and thus wanting to file a complaint. In practice, PE staff responds to canteen complaints when they receive them via email or phone, but they are not required to formally track these complaints for quality control purposes and timely resolution. PE does not have an effective process to accurately track or report whether orders were delivered on time. The timely delivery of products or services is important because bad customer experiences can negatively impact PE sales and consequently its financial sustainability. PE’s process for calculating delivery time compares the customers’ requested delivery dates to the shipped dates instead of the actual delivery dates, so PE management does not know if customers received orders on time. By tracking the actual delivery date, PE management could accurately determine if its orders are delivered on time and identify and address any production or delivery issues. Using PE’s current methodology comparing requested delivery dates to shipped dates, our analysis of PE sales order data found that the percent of orders not delivered on time increased from 30.7% in fiscal year 2016 to 40.3% in 44 This includes complaints in PE’s log and complaints we identified that were missing from the log. National Performance Review “Serving the American People: Best Practices in Resolving Customer Complaints” https://govinfo.library.unt.edu/npr/library/papers/benchmrk/bstprac.html 46 DOC policy states that correctional facilities shall purchase PE products unless there is a compelling reason to utilize another vendor. 45 29 Evaluation of Operations Prison Enterprises fiscal year 2018.47 Compared to our analysis, the number of orders not delivered on time during fiscal years 2016 and 2017 in LAPAS48 is understated. As shown in Exhibit 19, the percent of orders actually not delivered on time was more than twice what PE reported for fiscal years 2016 and 2017, as well as the first two quarters of fiscal year 2018. Fiscal Year 2016 2017 Exhibit 19 PE Wholesale and Manufacturing Orders Not Delivered On Time Fiscal Years 2016 through 2018* Total Orders Orders Not On % Not On % PE Industry (LLA Time (LLA Time (LLA Reported Not Calculated) Calculated) Calculated) On Time Wholesale 1,985 932 47.0% Manufacturing 2,348 400 17.0% Total 4,333 1,332 30.7% Wholesale 1,791 1,047 58.5% Manufacturing 2,340 651 27.8% Total 4,131 1,698 41.1% 889 457 51.4% 1,145 362 31.6% Wholesale 2018* Manufacturing 14.3% 19.7% 16.6% Total 2,034 819 40.3% Total 10,498 3,849 36.7% *Only includes orders through the end of Quarter 2 (December 31, 2017), which was the latest quarter for which LLA had complete sales order data. Note: We excluded 1,464 duplicate orders that PE included in its calculations. Source: Prepared by legislative auditor’s staff using PE data. According to PE, statutory requirements for bidding sometimes contribute to delays in completing customer orders. PE is subject to the state Procurement Code and therefore must go through OSP for purchases of $5,000 or more. As a result, PE is dependent on OSP to conduct the competitive bidding process to secure raw materials and other products which are necessary to fulfill customer orders. The bidding process can be delayed if bidders are required to submit product samples to confirm that specifications are met or if vendors protest a bid award. Also, if vendors who are awarded a purchase order by OSP do not deliver products as required by the quality, quantity, or timeliness of the bid, PE may have to go through the bid process again, which further delays the process. According to PE, it takes time to file deficiency reports with OSP and go through the process of resolving issues with deliveries for subsequent orders. If PE attempts to keep excess materials in stock to avoid potential delays, this aids its ability to deliver customer orders timely, but it ties up its storage space and financial resources. 47 In PE’s JD Edwards system, the requested delivery date defaults to the order date if staff does not manually change it. We included in our results the 42.1% of wholesale orders and 2.0% of manufacturing orders that had a requested date equal to the order date, as this is the same data that PE used to calculate its performance indicators for fiscal years 2016 through 2018. 48 Act 1465 of 1997 (the Louisiana Government Performance and Accountability Act) required that each agency (budget unit) receiving an appropriation in the General Appropriation Act or the Ancillary Appropriation Act produce a series of performance progress reports. The purpose of these reports is to track the agency’s progress toward achievement of annual performance standards. 30 Evaluation of Operations Prison Enterprises Conducting a survey of current and potential customers would allow PE to formally evaluate customer satisfaction with its products and services. Obtaining customer feedback through surveys is an important tool in ensuring products and services meet customer needs. We found that three other states’ correctional industries’ websites49 have an online survey asking for feedback on customer satisfaction. As discussed above, PE has not consistently collected complaint information and our review identified multiple customer service issues. PE should consider developing an online customer satisfaction survey to put on its website or sending an email or written survey out periodically in order to formally assess customer satisfaction. Recommendation 10: PE should ensure its complaints process includes (1) how customers should file complaints, (2) which PE staff are responsible for resolving complaints and within what timeframe, (3) a requirement that all complaints be logged, and (4) how each type of complaint should be resolved. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will work to further enhance its complaint process and continue to resolve each complaint in an appropriate manner. See Appendix A for PE’s full response. Recommendation 11: PE should categorize complaints to provide feedback to staff and ensure that staff collects all required information in order to use complaints data to identify and address ongoing performance issues. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will continue to categorize complaints in the manner that best serves its operations. See Appendix A for PE’s full response. LLA Additional Comments: PE’s current process does not require it to categorize the reasons for complaints, so we had to create the categories for our analysis based on our review of the sales documentation. Properly capturing and categorizing complaints is important because PE policy requires management to conduct a complete analysis of trends in complaints received at the end of each month and each calendar year. This analysis is also important because according to PE’s complaint log, customer complaints increased from 33 to 73, or by 121.2%, from fiscal year 2016 to fiscal year 2018. Recommendation 12: PE should track all costs of complaints, including transportation costs, in order to measure customer service and industry performance as required by PE policy. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will work to ensure that all excess transportation and other costs are tracked where applicable. See Appendix A for PE’s full response. 49 Texas, Washington, and Pennsylvania 31 Evaluation of Operations Prison Enterprises Recommendation 13: PE should analyze delivery times based on the actual delivery dates to determine if orders are on time. Summary of Management’s Response: PE partially agrees with this recommendation and stated that it will analyze the feasibility of implementing systems or processes that will further enhance the tracking of on-time deliveries. See Appendix A for PE’s full response. Recommendation 14: PE should develop a formal complaints policy for its wholesale operations to help ensure that it addresses all complaints and resolves all issues. Summary of Management’s Response: PE disagrees with this recommendation but stated that it will continue to address all complaints and resolve all issues within its wholesale operations and consider the feasibility of implementing these processes into the complaints policy. See Appendix A for PE’s full response. Recommendation 15: PE should develop and administer a formal survey to assess customer satisfaction with its products and services. Summary of Management’s Response: PE agrees with this recommendation and stated that it will work through its marketing department to create and implement a survey to assess customer satisfaction. See Appendix A for PE’s full response. 32 APPENDIX A: MANAGEMENT’S RESPONSE A.1 A.2 A.3 A.4 A.5 A.6 A.7 A.8 A.9 A.10 A.11 A.12 A.13 A.14 A.15 A.16 A.17 A.18 A.19 A.20 A.21 A.22 APPENDIX B: SCOPE AND METHODOLOGY GEMENT’S RESPONSE This report provides the results of our performance audit of Prison Enterprises (PE), an ancillary agency within the Department of Public Safety and Corrections. We conducted this performance audit under the provisions of Title 24 of the Louisiana Revised Statutes of 1950, as amended. This audit generally covered the period of July 1, 2015, through June 30, 2018, although our analysis included historical information going back to 1996. We focused on PE’s wholesale and manufacturing operations, as they comprised more than 76.6% of PE’s total revenue of approximately $21 million in fiscal year 2018. Our audit objective was to: Evaluate PE’s operations, including whether it met its statutory purposes. We conducted this performance audit in accordance with generally-accepted Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and our conclusions based on our audit objective. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. To answer our objective, we reviewed internal controls relevant to the audit objective and performed the following audit steps: Researched and reviewed Louisiana Revised Statutes, Administrative Code, Executive Budget documents, PE and Department of Corrections (DOC) policies, PE’s 2017 Annual Report, and PE’s website to understand PE’s purpose, operational requirements, and goals. Interviewed personnel at PE, DOC, selected state correctional facilities, and the Office of State Procurement (OSP) to gain an understanding of PE processes as well as challenges faced by PE and its customers. Observed a PE board meeting and operations at the Canteen Distribution Center at Louisiana State Penitentiary, as well as the Garment Factory at Elayn Hunt Correctional Center. Researched and reviewed correctional industries audits conducted by other states and literature on best practices for correctional industries in addition to a 1997 performance audit on PE conducted by our office. Researched and reviewed the statutory purpose of correctional industries in all other states, excluding four states without correctional industries, in order to determine if other states specifically require that correctional industries provide employment opportunities to assist offenders with finding employment after they are released. B.1 Evaluation of Operations Appendix B Obtained and analyzed information from PE staff on PE offenders’ pay rates and sentence lengths as of June 30, 2018. We identified and removed 31duplicates in the offender information provided by PE prior to conducting our analysis. Obtained 2016-2026 Projected Employment by Industry for the State of Louisiana from the Louisiana Workforce Commission website. Contacted correctional industries in 12 of the 14 states that run canteen operations through correctional industries according to 2017 National Correctional Industries Association Directory, the Department of Corrections in five southern states, and Louisiana’s private Transitional Work Program to gather information on canteen and garment prices, pricing practices, and operations. Obtained and analyzed DOC Canteen Quarterly Financial Statements to calculate DOC’s revenue from canteen sales. Obtained and analyzed PE policies, Business Plan, and Marketing Overview, as well as researched and reviewed best practices for marketing and customer service. Obtained PE’s JD Edwards (JDE) database as of March 16, 2018, containing financial information, sales and purchase order information, and inventory information in order to evaluate types of customers that purchased PE products, PE’s types of expenditures, pricing of manufactured products, and timeliness of order delivery. To assess the reliability and validity of the data, we tested for duplicates and blanks, compared totals from JDE data to financial statements, and determined the data was valid and reliable for the purpose of answering our audit objective. To evaluate financial sustainability of PE operations overall, pulled Income Statements and Balance Sheets from the JDE data for fiscal years 1996 through 2017. To evaluate PE’s financial sustainability by industry and operation, we analyzed Income Statements from the JDE data for fiscal years 2016 through 2018. Although the data we received did not include complete information for fiscal year 2018, to include fiscal year 2018 results in this analysis, we obtained and analyzed a copy of the fiscal year 2018 Income Statement and Balance Sheet from PE staff after accounting for that period was complete. To evaluate the types of customers who bought PE products, we pulled sales for fiscal years 2016 through 2018 from the General Ledger table in JDE using Audit Command Language (ACL) software and created categories based on the customer name in Excel. This analysis only included sales through March for fiscal year 2018. To evaluate the types of items purchased by state agencies, we pulled sales to state agencies from the General Ledger table using ACL software and recorded the PE operations from which each agency purchased PE B.2 Evaluation of Operations Appendix B products. Due to the amount of sales records, we only performed this analysis for fiscal year 2017. To evaluate PE’s types of expenditures, we first reviewed expense categories in the income statement and used these categories to create the chart of expenditures in Appendix G. Using the Pivot Table function in Excel, we analyzed details for purchase orders related to food, samples, advertising, travel, or miscellaneous expense categories in the General Ledger from the JDE purchase order tables. We also reviewed all records in the JDE sales order data for transfer sale transactions, or internal sales between PE operations, in order to identify additional promotional materials and samples as well as documentation that was designated as transfer sales but had shipping addresses for customers outside of PE industries or operations. For purchase and transfer sale order records that did not have detailed descriptions in the JDE data, we obtained and reviewed selected paper files. To evaluate whether PE charged customers established contract prices for items listed on State Contract through OSP, we used “Item Numbers” identifying unique products to match sales order records from the JDE database to tables with products’ contract prices obtained from the OSP website for fiscal year 2018 and from PE staff for fiscal years 2016 and 2017. Since PE does not update its contract prices on a consistent annual basis and neither PE nor OSP could provide the precise date that contract prices were updated on OSP’s website, we used dates provided by PE management for when each year’s prices became effective. We manually reviewed the 1,794 records where the sale price did not match the effective contract price and excluded 258 (14.4%) records from our results because the item descriptions included different specifications than the contract, extra features, false matches, showroom items that are sold at “as is,” negative or zero quantity, or because the item description did not provide adequate information to determine how to calculate the item’s price. We did not review the 10,114 records with contract items where the sale price did match the effective contract price; however, these records may have included item descriptions indicating that a higher or lower price should have been charged. To analyze the actual markups used to price custom manufactured products not listed on the contract, we narrowed our review to a targeted selection of 103 sales order records in the JDE database because PE only documents custom orders’ cost information in the paper sales order files. We selected custom sales order records from a range of business units by identifying similar products ordered within the same pricing model year that were sold to different categories of PE customers, such as correctional facilities, state agencies, sheriffs, local government, and non-profits. According to PE, its practice is to attach cost information (i.e., product structures) to sales documentation for custom products, but only 67 B.3 Evaluation of Operations Appendix B (65.0%) of the 103 records reviewed had cost information attached. Where available, we used cost information to calculate each product’s actual markup and compared it to the effective pricing model when the order was placed. To determine the percent of orders not delivered on time, we analyzed JDE sales order records based on the parameters of the JDE report that PE uses to calculate the percent of orders on time for performance indicator reporting. To compare our results to reported PE performance indicators, we limited our analysis for fiscal year 2018 to the two quarters for which we had complete data. Our analysis filtered wholesale and manufacturing sales order records to evaluate records based on invoice date, exclude transfer sales, and exclude the six operations that PE does not include in their analysis (e.g., uniforms). We analyzed sales orders by fiscal year overall rather than by month. A sales order can have multiple lines shipped at different times. PE considers an order “not on time” if one line from that order has an Actual Shipped Date after the Requested Delivery Date. By running the JDE report on a monthly basis, PE counts the same order as “on time” or “not on time” in every month that the order was invoiced. Because orders in our scope had lines invoiced in up to 12 different months, counting orders monthly resulted in 1,464 duplicate orders counted. We analyzed whether sales orders had at least one line not on time by fiscal year overall in order to calculate the percent of unique orders not on time by fiscal year. We also calculated the percent of orders where the Requested Delivery Date defaulted to the Order Date in order to determine the percent of orders that may have been misidentified as being not on time; however, we included these orders in our results because they were included in the data that PE used to calculate its performance indicators. To analyze PE’s process for tracking and resolving complaints, we obtained and analyzed the PE complaints log, PE’s binder of paper complaints documentation, information related to complaints found in PE staff emails (obtained by LLA’s Investigative Audit section), and paper sales order files. Due to time constraints, we limited our search for complaints not in the log to fiscal year 2018. We did not include complaints made after June 11, 2018, the date of the last complaint in the log. We counted unique complaints made by customers rather than the number of orders with complaints, as the same order can have multiple complaints and the same complaint can involve more than one order. To analyze the reasons and costs of complaints in the log, we reviewed complaint descriptions and cost information from the complaints documentation and PE staff emails, used auditor judgment to create categories of reasons for complaints, and recorded any costs that were not included in the log (excluding transportation costs). To analyze the time to resolve complaints in the log, we considered a complaint unresolved if the issue had not yet been fully corrected. For 53 (34.0%) of 156 B.4 Evaluation of Operations Appendix B complaints in the log, we found documentation of an earlier complaint date than the log’s complaint date. For 11 (7.7%) of 143 closed complaints, we found documentation that the complaint was unresolved after the log’s close date. Many complaints were unresolved as of the latest documented discussion of the complaint, so we used the earliest and latest date available for each complaint to calculate the minimum time that each complaint was open before resolution. For the 13 open complaints, we compared the earliest date to the date that we received the log (August 7, 2018) in order to determine how long the complaints had been open. To identify complaints not in the log, we searched available documentation for issues similar to those recorded in the log. We compared the order number, customer, date, and description of each complaint found to the log to ensure that it was not already recorded. We categorized complaints by reason, recorded any costs associated with resolving the complaint (excluding transportation), and compared the earliest date and latest date that they were discussed to determine their minimum time to resolution. For 33 (64.7%) of the 51 unlogged complaints, we only found documentation where the complaint was reported, so it was not possible to determine how long they were open. Sent PE the methodologies and preliminary results of our analyses for review; adjusted our analyses based on feedback and additional documentation and information that PE provided. B.5 APPENDIX C: OVERVIEW OF PRISON ENTERPRISES OPERATIONS PE runs its manufacturing, wholesale, service, and agricultural industries at seven of the state’s eight correctional facilities and one privately-run correctional center (Winn). Each correctional facility is responsible for assigning work for the offenders, and any offender can be assigned to work for PE operations. The exception is Janitorial Services, where the offender must be a trusty.50 Because of the availability of land and infrastructure, the majority of PE operations are located at the Louisiana State Penitentiary at Angola. The exhibit bellows contains an overview of PE operations as of June 30, 2018. Correctional Institution Allen Correctional Center Kinder, LA David Wade Correctional Center Homer, LA 50 Industry Manufacturing Established No. of PE Staff (Filled) No. of PE Staff (Vacant) No. of PE Staff (Total) No. of Offenders Allen Furniture Restoration is a full service furniture manufacturing and refurbishing operation. Services offered include rebuilding, stripping, and refinishing wooden desks, chairs, credenzas, and student classroom desks; reupholstering furniture; and manufacturing custom wood and upholstered pieces and production of new chairs. FY95 2 0 2 64 Land and Agriculture Management operations are responsible for managing the timber at each of the state’s correctional facilities. FY95 0 0 0 4 Description of Operations Agriculture Rangeherd (cattle) operations include the sale of calves and proceeds on the sale of breeding cattle which are culled from the herds. FY95 Trusties are offenders classified as minimum security offenders who are given privileges that are not available to the general offender population. C.1 Evaluation of Operations Correctional Institution Industry Manufacturing Dixon Correctional Center Jackson, LA Wholesale Agriculture Services Elayn Hunt Correctional Center St. Gabriel, LA Manufacturing Agriculture Louisiana Correctional Institute for Women St. Gabriel, LA Manufacturing Appendix C Description of Operations No. of PE Staff (Filled) No. of PE Staff (Vacant) No. of PE Staff (Total) No. of Offenders 1 0 1 24 2 0 2 5 2 1 3 8 2 0 2 119 2 0 2 93 FY95 1 0 1 3 FY95 1 0 1 62 Established Chair Plant operations produce a complete line of office chairs. FY02 Embroidery operations produce a wide variety of embroidered emblems and designs, which are placed on items sold by PE garment factories as well as other wholesale clothing. FY01 Wakefield Meat Plant operations, located in Wakefield, Louisiana, procure meat and related products in bulk and ship ordered quantities to the various correctional facilities in the state. FY95 Rangeherd (cattle) operations include the sale of calves and proceeds on the sale of breeding cattle which are culled from the herds. FY95 Orchard operations include growing pecan trees, muscadine trees, etc. FY99 Janitorial Service operations use offender labor to provide cleaning and grounds services to various state office buildings in the Baton Rouge area. FY95 Soap Plant operations produce and package a wide range of janitorial soaps and chemicals. Garment Factory operations produce two major products, jeans and pants, as well as custom garment screening. Rangeherd (cattle) operations include the sale of calves and proceeds on the sale of breeding cattle which are culled from the herds. Garment Factory operations produce T-shirts, scrub suits, offender jumpsuits, sheets, and pillowcases, as well as custom garment screening. C.2 FY95 FY13 Evaluation of Operations Correctional Institution Industry Appendix C No. of PE Staff (Filled) No. of PE Staff (Vacant) No. of PE Staff (Total) No. of Offenders 5 0 5 186 Description of Operations Established Mattress, Broom, and Mop Factory operations manufacture cotton, foam, polyester, and innerspring mattresses; pillows; regular and warehouse push brooms, mops, and scrub brushes; and related items. FY95 Silk Screen operations produce plastic and metal nameplates; screened decals, street and highway signs; screened aluminum, steel and corrugated plastic signs; screening services for T-shirts, caps and other textile items; and the sale of sign hardware. Also offers the capability to laser engrave wood and plastic. FY95 Tag Plant operations produce license plates for distribution by the Louisiana Office of Motor Vehicles, including regular plates, personalized and specialty plates, and motorcycle plates. FY95 Metal Fabrication operations produce beds, lockers, cell vents, security screens, and custom metal items. PE has incorporated powder coating of metal products into this operation. FY95 Print Shop operations include a wide range of printing services, including printing forms, brochures, booklets, newsletters, and business cards; binding services; and various special projects. FY95 Wholesale Canteen Distribution Center operations supply items to state correctional facilities for sale to offenders. PE also sells personal property items purchased by offenders. FY95 2 0 2 13 Services Canteen Packaging Program is a partnership between PE and Union Supply. Family and friends can order pre-approved food and hygiene products and personal property items for eligible offenders incarcerated in state correctional facilities. FY16 1 0 1 21 Manufacturing Louisiana State Penitentiary Angola, LA C.3 Evaluation of Operations Correctional Institution Louisiana State Penitentiary Angola, LA (Cont.) Raymond Laborde Correctional Center Cottonport, LA Industry Appendix C Description of Operations Established No. of PE Staff (Filled) No. of PE Staff (Vacant) No. of PE Staff (Total) No. of Offenders 10 1 11 55 Rangeherd (cattle) operations include the sale of calves and proceeds on the sale of breeding cattle which are culled from the herds. FY95 Crop operations are responsible for growing and harvesting corn, cotton, soybeans and milo, which are sold on the open market or used to feed PE livestock. FY95 Transportation operations are responsible for delivering orders to PE customers. FY95 Support Operations Operations include Administrative Office, Equipment, and Vehicle Maintenance. FY95 5 0 5 24 Agriculture Rangeherd (cattle) operations include the sale of calves and proceeds on the sale of breeding cattle which are culled from the herds. FY95 0 0 0 0 Garment Factory operations produce numerous items including aprons, laundry bags, socks, bath towels, dish towels, boxer shorts, shirts, wash cloths and jackets. FY95 2 0 2 82 Operations include Administration, Accounting, Warehouse, etc. FY95 24 8 32 4 62 10 72 767 Agriculture Winn Correctional Center Winnfield, LA Manufacturing PE Headquarters Baton Rouge, LA Support Operations Total Source: Prepared by legislative auditor’s staff using information provided by PE. C.4 APPENDIX D: SUMMARY OF 1997 PERFORMANCE AUDIT REPORT ON LOUISIANA PRISON ENTERPRISES ISSUED APRIL 1997 Findings 1. Prison Enterprises (PE) should document its claims of saving the state millions of dollars annually. The agency has some examples of individual instances, but no cumulative figure. By developing a cumulative figure, PE can illustrate how effective it is at saving the state money. 2. PE achieved part of its mission of being selfsupporting for fiscal year 1995. However, some individual operations were not selfsupporting, particularly agriculture operations. 3. Some of the Department of Corrections (DOC) policies may make it difficult for PE to reach one of its goals of teaching marketable skills and good work habits. Several PE industries that teach marketable skills are housed at Louisiana State Penitentiary at Angola, a maximum security prison. The inmates housed at this facility usually receive lengthy sentences. Thus, inmates learning skills at these industries may never use them in the private sector or these skills may be obsolete when the inmate is released. 4. The agency’s last long-range strategic business plan covered fiscal years 1989 to 1993. Since then, PE has developed shortterm plans. These short-term plans do not include formally developed performance measures. As a result, management does not measure and document whether goals and objectives are achieved. Recommendation(s) PE should establish formal procedures to measure and document the cost effectiveness of its operations (1997 Recommendation 2.1). DOC should review its policies that may lessen the impact of PE’s efforts to teach marketable skills (1997 Recommendation 2.2). PE should review its goals to determine if the goals are realistic or conflicting (1997 Recommendation 2.3). PE should formally develop and document performance measures for its operations. These performance measures should reflect PE’s mission and goals (1997 Recommendation 2.4). PE should develop a strategic business plan that addresses short-term and long-term goals that are in agreement with the mission statement. The planning process should provide a means to change and alter the business plan to meet changes in the environment (1997 Recommendation 2.5). D.1 Evaluation of Operations Appendix D Findings Recommendation(s) PE should use its computer software to price its products (1997 Recommendation 3.1). 5. PE formalized its methodology to price documents in November 1996. In our test of this methodology, we found that some products may be underpriced or over-priced. The legislature may wish to consider legislation that clarifies R.S. 15:1153(A)(1). This clarification should state whether its intent is for PE to conduct all operations at cost or to provide each product or service at cost (1997 Matter for Legislative Consideration 3.1). Based on clarification by the legislature, PE should examine the selling prices of its products to provide the lowest possible price (1997 Recommendation 3.2). 6. 7. PE developed its last marketing plan in fiscal year 1990. It developed a sales plan in the middle of fiscal year 1996 in response to decreasing sales, but the plan only covered six months. PE has two public/private partnerships. One is a federal Prison Industries Enhancement (PIE) program. Inmate workers in this program have contributed more than $180,000 in taxes, room and board, and victims’ compensation. The other is a cooperative endeavor agreement. Inmates in this program can earn regular incentive wages or a reduction in their sentence at double the normal rate, also known as double good time. However, these inmates do not pay taxes, room and board, or victims’ compensation. Using the direction provided by an updated strategic business plan, PE should develop formal sales and marketing plans documenting the needs of all of PE’s product lines. Management should communicate the plan to the entire agency and the role personnel will play in achieving sales and marketing objectives (1997 Recommendation 3.3). DOC and PE should consider the overall benefits of its public/private partnerships before engaging in any future ones. Consideration should be given to partnerships that benefit both the public and inmates (1997 Recommendation 4.1). The legislature may wish to consider legislation that provides for a portion of the wages of inmate workers (not exceeding the federal limitations) in the PIE program to go toward family support (1997 Matter for Legislative Consideration 4.1). The legislature may wish to consider legislation that enhances the public benefit of public/private relationships between DOC and the private sector. In doing so, the legislature may wish to require the department and PE to engage only in partnerships that are under the PIE program or the Louisiana Restitution Industries program (1997 Matter for Legislative Consideration 4.2). Alternatively, the legislature may wish to consider legislation that clearly establishes the types of agreements and partnerships into which PE may engage. This legislation should require that the agreements specify the objectives to be achieved and clearly identify the desired public benefit. The agreements should also include ways to determine if these objectives are achieved and if public benefit is realized (1997 Matter for Legislative Consideration 4.3). Source: Prepared by legislative auditor’s staff using report found at https://lla.la.gov/PublicReports.nsf/D4B512B51DF4B38986256FF80067E151/$FILE/00000960.pdf. D.2 APPENDIX E: SELECTED BEST PRACTICES FROM THE CORRECTIONAL INDUSTRIES: A GUIDE TO REENTRY‐FOCUSED PERFORMANCE EXCELLENCE Best Practice Description Summary Post-release employment services connect individual offenders who were trained in Correctional Industries (CI) to long-term employment. Offenders should be engaged in activities in order to promote retention, help with re-employment in the event of job loss, and assist with advancement opportunities. The goal of post-release employment services is ultimately to reduce recidivism. The approach is as follows: Provide Post Release Employment Services Replicate Private Industry Environment To increase employment opportunities available to CI trained offenders who are trying to successfully reintegrate and remain crime-free by gaining and retaining employment To encourage employers to make individualized determinations about a person's specific qualifications, including the relevance of a criminal record, rather than having restrictions or bans against hiring people with criminal records. The replication of private sector industries and environments CI operations includes work processes, procedures, equipment, training, certification, and associated methodologies. A CI program should create a work environment that emulates real world work experience and effectively trains and prepares offenders for the transition to private sector employment upon release. Employment readiness encompasses several areas including soft skills, cognitive skills and industry-recognized training and certifications employers expect from qualified applicants. Employment readiness/employability pertains to the offender's ability to both obtain and retain a job. CI programs should focus on both. The ability to gain employment and the ability to retain employment are two very different skill sets the offender must acquire to be successful in the workplace. Create a Culture of Offender Employment Readiness and Retention CI work assignments should mirror the community workplace, including: job applications, job interviews, orientation (to include workforce expectations and worker engagement), ongoing training and regular work evaluations, termination for unacceptable performance or conduct and opportunities for performance-based pay raises. Creating a culture of offender employment readiness and retention includes work readiness assessment conducted at entry, at periodic points during employment and at the end of employment with CI. In addition, every position in CI should be identified by its Standard Occupational Classification (SOC) code found at the Department of Labor's "O*Net" website. This is essential in linking CI work with work in the community, and it is the first step in developing a workforce development culture within CI. E.1 Evaluation of Operations Appendix E Best Practice Description Summary Soft skills are characteristics that are behavioral in nature and include factors such as attitude, work ethic, critical thinking, flexibility and the desire to learn and be trained. Soft Skills include: a strong work ethic, a positive attitude, communication skills, decision-making skills, problem solving skills, social skills, time management, flexibility/adaptability, capability to accept and learn from criticism, getting along with others and understanding team concepts. Implement Certificate-Based Soft Skills Training CI will benefit from offenders participating in soft skills programs. As offenders learn these soft skills, which are necessary to excel in a post-release work environment, there will also be a positive impact realized in their CI work assignment and institutional behavior. Soft skills programs support the development of personal responsibility that is highly valued by employers. CI should develop partnerships that reinforce the significance of soft skills training. These include potential employers, community-based and nonprofit organizations such as Dress for Success, YWCA, etc. Certified Technical Skills that lead to professional certification, trade certification, or professional designation, often called simply certification, is a designation earned by a person to assure their qualifications in performing a job or task. Certifications are portable, evidence based credentials that measure essential workplace skills and are a reliable predictor of workplace success. Provide Certified Technical Skills Training Many offender certification programs are created, sponsored, or affiliated with the Department of Labor (DOL), professional associations, trade organizations, or private vendors interested in raising standards. Consult with the DOL in your state to determine the current and projected skill/employment needs. The DOL can provide current and relevant data to assist in deciding where certification programs will have the greatest impact. Conduct independent research with employers to determine their specific technical skills they are seeking. Consult employers in the geographic areas where offenders will be released. CI programs offer a system that promotes the learning, development of skills, values, behaviors and motivation for offenders to make changes in their lives that assist them in a successful transition into the community. CI programs accomplish this through the context of work. Maximize Offender Job Opportunities In an effort to take full advantage of the impact of industry programming, the maximization of offender job opportunities is critical in assisting a correctional organization with its reentry initiatives. This is accomplished using a systems approach that includes the strategic evaluation of resources and programming resulting in a comprehensive plan. A key to sustainable growth is maximizing offender job opportunities. The process of achieving sustainable growth requires a systems approach including the evaluation of current operations, the identification of long term goals, and the strategies to reach those goals. The evaluation of current CI skill development is necessary to determine if what is currently offered is relevant to the needs of the current job market. Given the rapidly changing nature of the job market, it is imperative that leaders access, understand, evaluate, and make existing and new business program decisions based upon labor market information. E.2 Evaluation of Operations Appendix E Best Practice Description Summary Financial sustainability is the generation of sales revenue to cover all costs and financial obligations associated with CI operations. The concept of a triple bottom line has emerged in CI which focuses not only on the needs of customers, but also the funding of the social mission and value provided by the organization to offenders for successful reentry. Maintain Financial Sustainability There may be business units that are not financially self-sufficient but employ numerous offenders or offer valuable work skills. CIs can balance the benefits and maintain this business unit with a more lucrative business unit that can offset the financial loss. If long-term unsustainable conditions occur, a reduction of offender work opportunities, DOC/Correctional Industries staff, and closure of entire operations can result. CI should maintain positive cash flow. Revenue streams are the channels through which money flows into an organization. CI is self-supporting and must rely primarily on sales of products and services. These streams can be direct sales or contracts. Maintain sufficient operating funds needed to pay monthly bills and to purchase raw materials and goods to efficiently run its business operations. E.3 APPENDIX F: PRISON ENTERPRISES REVENUES, EXPENDITURES, AND NET INCOME BY INDUSTRY FISCAL YEARS 2016 THROUGH 2018 Categories Revenues Operating Revenues Interdepartmental Revenues Total Revenues Expenditures Cost of Goods Sold Operating Expenditures Other Expenses & Income Transfers to General Fund DOC Incentive Wages Total Expenditures FY16 Net Income Revenues Operating Revenues Interdepartmental Revenues Total Revenues Expenditures Cost of Goods Sold Operating Expenditures Other Expenses & Income Transfers to General Fund DOC Incentive Wages Total Expenditures FY17 Net Income Manufacturing $8,177,468 216,658 8,394,126 5,576,884 2,303,419 (50,514) 7,829,790 $564,336 $10,522,938 325,549 10,848,487 7,037,874 2,089,913 (114,920) 9,012,867 $1,835,620 Wholesale Services FISCAL YEAR 2016 $14,179,558 14,179,558 Agriculture Support* Total $2,805,894 2,805,894 $3,446,421 62,884 3,509,305 - $28,609,340 279,542 28,888,882 11,752,630 1,769,361 1,833,456 993,415 (16,942) (4,493) 13,569,145 2,758,283 $610,413 $47,611 FISCAL YEAR 2017 4,175,890 687,774 227,267 5,090,931 ($1,581,626) 331,106 1,225,375 1,556,481 ($1,556,481) 23,271,205 5,821,626 155,318 331,106 1,225,375 30,804,630 ($1,915,747) $2,943,124 2,943,124 $2,499,190 63,691 2,562,881 - $27,895,219 389,240 28,284,459 9,754,995 1,752,882 1,829,624 934,914 (17,891) (16,201) 11,566,728 2,671,595 $363,239 $271,529 FISCAL YEAR 2018 3,006,004 514,547 148,065 3,668,616 ($1,105,735) 1,076,327 1,076,327 ($1,076,327) 21,549,244 5,371,508 (947) 1,076,327 27,996,133 $288,326 $11,929,967 11,929,967 Revenues Operating Revenues $9,079,261 $12,168,928 $3,215,202 $3,273,034 - $27,736,426 Interdepartmental Revenues 176,624 48,922 225,546 Total Revenues 9,255,885 12,168,928 3,215,202 3,321,956 27,961,971 Expenditures Cost of Goods Sold 5,969,879 9,838,993 1,807,538 3,579,632 21,193,401 Operating Expenditures 2,138,956 1,886,965 1,094,820 318,766 5,442,148 Other Expenses & Income (46,581) (17,636) (16,459) 543,731 463,056 Transfers to General Fund DOC Incentive Wages 1,098,454 1,098,454 Total Expenditures 8,062,255 11,708,323 2,885,898 4,442,129 1,098,454 28,197,059 FY 18 Net Income $1,193,630 $460,605 $329,304 ($1,120,173) ($1,098,454) ($235,087) *Support operations include PE Headquarters operations, Transportation, Sales and Marketing Department, etc. and are not revenue generating. Related expenses are allocated to the revenue-generating operations. Note: Total amounts do not match due to rounding. Source: Prepared by legislative auditor’s staff using information from PE’s Income Statements for FY16 through FY18. F.1 APPENDIX G: PRISON ENTERPRISES EXPENDITURES FISCAL YEARS 2016 THROUGH 2018 Expense Category Cost of Goods Sold Cost of Sales Factory Overhead Personnel Expenses Total Cost of Goods Sold Operating Expenses Personnel Expenses Inmate Incentive Wages Travel Operating Services Rentals Utilities Insurance Miscellaneous Services Licenses, Fees, and Commissions Telephone Freight Other Operating Services Total Operating Services Operating Supplies Fertilizer Feed Repair Parts – Tractor & Equipment Seed Gas and Oil -Autos & Trucks Miscellaneous Operating Supplies Gas and Oil - Tractor & Equipment Food Repair Parts - Auto & Trucks Herbicides Repair Parts - Buildings and Facilities Medicine Household Other Operating Supplies Total Operating Supplies Professional Services Other Charges Non-Capitalized Outlays Deferred Expenses Total Operating Expenses Other Expenses & Income Transfers to General Fund DOC Incentive Wages Total Expenses FY16 FY17 FY18 Total $20,215,340 350,749 2,705,116 $23,271,205 $18,554,425 406,600 2,588,219 $21,549,244 $18,096,807 424,840 2,671,754 $21,193,401 $56,866,573 1,182,188 7,965,089 $66,013,850 $4,623,831 55,890 39,059 $4,036,986 60,229 27,217 $4,213,344 61,683 39,167 $12,874,162 177,803 105,444 149,818 243,131 182,951 265,010 51,255 64,517 54,929 146,116 1,157,727 416,949 286,613 226,398 94,186 63,715 57,590 63,883 129,557 1,338,890 424,993 294,627 259,602 109,389 70,710 54,686 53,713 171,808 1,439,528 991,760 824,371 668,951 468,585 185,680 176,793 172,525 447,481 3,936,145 464,687 479,935 356,089 248,193 222,437 231,621 129,386 161,636 157,002 163,384 203,211 92,782 56,416 284,851 3,251,627 39,929 539,856 73,568 (3,959,863) 5,821,624 155,318 331,106 1,225,375 $30,804,630 342,195 377,442 353,320 247,190 201,559 190,345 157,475 134,393 136,384 132,810 110,130 84,807 55,626 290,664 2,814,340 27,782 569,277 40,188 (3,543,402) 5,371,509 (947) 1,076,327 $27,996,133 375,162 308,556 376,988 265,379 213,004 163,810 179,757 140,298 138,131 124,830 101,132 85,949 52,564 242,881 2,768,440 28,939 626,656 54,924 (3,790,534) 5,442,148 463,056 1,098,454 $28,197,059 1,182,044 1,165,932 1,086,396 760,761 637,000 585,776 466,617 436,326 431,516 421,025 414,473 263,539 164,606 818,395 8,834,408 96,650 1,735,789 168,680 (11,293,799) 16,635,282 617,428 331,106 3,400,156 $86,997,821 Note: Total amounts do not match due to rounding. Source: Prepared by legislative auditor’s staff using information from PE’s Income Statements for FY16 through FY18. G.1