Michigan Prison Industry Audit Report 2009

• Topics: Misconduct/Corruption, Corrections Audits

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MICHIGAN
OFFICE OF THE AUDITOR GENERAL

AUDIT REPORT

PERFORMANCE AUDIT
OF THE

BUREAU OF CORRECTIONAL INDUSTRIES
DEPARTMENT OF CORRECTIONS

June 2009

THOMAS H. MCTAVISH, C.P.A.
AUDITOR GENERAL

471-0130-08

The auditor general shall conduct post audits of financial
transactions and accounts of the state and of all branches,
departments, offices, boards, commissions, agencies,
authorities and institutions of the state established by this
constitution or by law, and performance post audits thereof.
– Article IV, Section 53 of the Michigan Constitution

Audit report information can be accessed at:
http://audgen.michigan.gov

Michigan

Off ice of the Auditor General
REPORT SUMMARY
Performance Audit
Bureau of Correctional Industries
Department of Corrections

Report Number:
471-0130-08

Released:
June 2009

The Bureau of Correctional Industries (BCI), Department of Corrections (DOC),
employs prisoners to produce products and provide services for sale to
governmental entities and nonprofit organizations in Michigan and other states.
BCI goals include providing professional growth opportunities for staff and
marketable job skills to prisoners of DOC.

Audit Objective:
To assess the effectiveness of BCI's
efforts to efficiently provide products and
services.
Audit Conclusion:
We concluded that BCI's efforts to
efficiently provide products and services
were not effective. We noted one material
condition (Finding 1) and three reportable
conditions (Findings 2 through 4).
Material Condition:
BCI needs to initiate further measures to
ensure that it operates as a total selfsupporting system (Finding 1).
Reportable Conditions:
BCI had not developed and implemented a
comprehensive business plan (Finding 2).
BCI did not efficiently schedule and utilize
its trucks and drivers for delivery of
products and services (Finding 3).

BCI had not established comprehensive
policies and procedures for setting prices
and discounts for products and services
(Finding 4).

~~~~~~~~~~
Audit Objective:
To assess the effectiveness of BCI's
efforts to provide marketable job skills to
prisoners.
Audit Conclusion:
We concluded that BCI's efforts to provide
marketable job skills to prisoners were
moderately effective.
We noted one
reportable condition (Finding 5).
Reportable Condition:
BCI had not established a comprehensive
continuous quality improvement (CQI)
process to evaluate and improve the
effectiveness of its operations (Finding 5).

~~~~~~~~~~

Audit Objective:
To assess the effectiveness of BCI's
efforts to market products and services.
Audit Conclusion:
We concluded that BCI's efforts to market
products and services were moderately
effective. We noted one reportable
condition (Finding 6).

Agency Response:
Our audit report includes 7 findings and 7
corresponding recommendations. DOC's
preliminary response indicated that it
agrees and will comply with all of the
recommendations.

~~~~~~~~~~

Reportable Condition:
BCI had not developed a comprehensive
marketing strategy (Finding 6).

~~~~~~~~~~
Audit Objective:
To assess the effectiveness of BCI's
efforts to provide products and services of
a quality that meets or exceeds customer
expectations.
Audit Conclusion:
We concluded that BCI's efforts to provide
products and services of a quality that
meets or exceeds customer expectations
were moderately effective. We noted one
reportable condition (Finding 7).
Reportable Condition:
BCI had not actively surveyed its
customers to determine whether its
products and services met or exceeded
customer expectations (Finding 7).

~~~~~~~~~~

A copy of the full report can be
obtained by calling 517.334.8050
or by visiting our Web site at:
http://audgen.michigan.gov

Michigan Office of the Auditor General
201 N. Washington Square
Lansing, Michigan 48913
Thomas H. McTavish, C.P.A.
Auditor General
Scott M. Strong, C.P.A., C.I.A.
Deputy Auditor General

STATE OF MICHIGAN

OFFICE OF THE AUDITOR GENERAL
201 N. WASHINGTON SQUARE
LANSING, MICHIGAN 48913
(517) 334-8050
FAX (517) 334-8079

THOMAS H. MCTAVISH, C.P.A.
AUDITOR GENERAL

June 9, 2009

Ms. Patricia L. Caruso, Director
Department of Corrections
Grandview Plaza Building
Lansing, Michigan
Dear Ms. Caruso:
This is our report on the performance audit of the Bureau of Correctional Industries,
Department of Corrections.
The report contains our report summary; description of agency; audit objectives, scope,
and methodology and agency responses and prior audit follow-up; comments, findings,
recommendations, and agency preliminary responses; five exhibits, presented as
supplemental information; and a glossary of acronyms and terms.
The agency preliminary responses were taken from the agency's responses subsequent
to our audit fieldwork. The Michigan Compiled Laws and administrative procedures
require that the audited agency develop a formal response within 60 days after release
of the audit report.
We appreciate the courtesy and cooperation extended to us during this audit.
Sincerely,

Thomas H. McTavish, C.P.A.
Auditor General

471-0130-08

This Page Left Intentionally Blank

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TABLE OF CONTENTS

BUREAU OF CORRECTIONAL INDUSTRIES
DEPARTMENT OF CORRECTIONS

Page
INTRODUCTION

Report Summary

Report Letter

Description of Agency

Audit Objectives, Scope, and Methodology and Agency Responses
and Prior Audit Follow-Up

COMMENTS, FINDINGS, RECOMMENDATIONS,
AND AGENCY PRELIMINARY RESPONSES

Effectiveness of Efforts to Efficiently Provide Products and Services

Unprofitable Operations

Business Plan

Scheduling and Utilization

Price Setting

Effectiveness of Efforts to Provide Marketable Job Skills to Prisoners
5.

Continuous Quality Improvement (CQI)

Effectiveness of Efforts to Market Products and Services
6.

Comprehensive Marketing Strategy

22
25
25

Effectiveness of Efforts to Provide Products and Services of a Quality
That Meets or Exceeds Customer Expectations
7.

Customer Surveys of Product Quality

28
28

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SUPPLEMENTAL INFORMATION

Exhibit 1 - Summary of Net Profit (Loss) From Operations

Exhibit 2 - BCI Sales Distribution Schedule by Customer Type

Exhibit 3 - Correctional Industries Revolving Fund Statement of Revenues,
Expenses, and Changes in Fund Net Assets

Description of Surveys

Exhibit 4 - Summary of Survey Responses From BCI Customers

Exhibit 5 - Summary of Survey Responses From Potential BCI Customers

GLOSSARY

Glossary of Acronyms and Terms

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Description of Agency

The Bureau of Correctional Industries (BCI), doing business as Michigan State
Industries (MSI), operates under the authority of the Department of Corrections (DOC),
specifically under Sections 800.321 - 800.334 of the Michigan Compiled Laws.
Section 800.325 of the Michigan Compiled Laws created the Correctional Industries
Revolving Fund, a self-supporting fund, to account for BCI operations.
According to its mission* statement, BCI will produce products and provide services that
meet or exceed customer expectations while providing professional growth
opportunities for staff and marketable job skills to prisoners of DOC. Through these
accomplishments, BCI will remain economically sound and will make a continuous,
positive contribution to the State of Michigan.
BCI operates 28 factories in 13 prisons and 1 camp. Some of the major commodities
manufactured or produced by BCI are office furniture, including desks, chairs, tables,
cabinets, and partitions; garments, including prisoner clothing, officer uniforms, and
shoes; and other products, including bed linens, towels, blankets, vehicle license plates,
road signs, binders, folders, corrugated cartons, cleaning chemicals, dimensional
lumber, eye glasses, dentures, and dairy, beef, pork, and turkey products. Also, BCI
runs four institutional laundry facilities, a furniture refinishing operation, and a print shop.
BCI sells its products and services to governmental entities and nonprofit organizations
in Michigan and other states. Throughout the year, approximately 1,900 prisoners fill
approximately 1,000 full-time equated work assignments within BCI.
As of
September 30, 2008, there were 176 BCI employees at the BCI central office and
factories. Fiscal year 2006-07 sales were $46.7 million with a net income of $.6 million.
Fiscal year 2007-08 sales were $41.4 million with a net loss of $2.7 million.

* See glossary at end of report for definition.

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Audit Objectives, Scope, and Methodology
and Agency Responses and Prior Audit Follow-Up

Audit Objectives
Our performance audit* of the Bureau of Correctional Industries (BCI), Department of
Corrections (DOC), had the following objectives:
1.

To assess the effectiveness* of BCI's efforts to efficiently provide products and
services.

To assess the effectiveness of BCI's efforts to provide marketable job skills to
prisoners.

To assess the effectiveness of BCI's efforts to market products and services.

To assess the effectiveness of BCI's efforts to provide products and services of a
quality that meets or exceeds customer expectations.

Audit Scope
Our audit scope was to examine the program and other records of the Bureau of
Correctional Industries. We conducted this performance audit in accordance with
generally accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. Our audit procedures, conducted from April
through September 2008, generally covered the period October 2005 through July
2008.
Supplemental information was provided by DOC and is presented in Exhibits 1 and 2.
Our audit was not directed toward expressing a conclusion on this information and,
accordingly, we express no conclusion on it.

* See glossary at end of report for definition.

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Audit Methodology
To establish our audit objectives and to gain an understanding of BCI activities, we
conducted a preliminary review of BCI operations. This included discussions with
various BCI staff regarding their functions and responsibilities and a review of program
records, DOC policy directives, and BCI operating procedures. We visited 8 factories
and the warehouse/distribution center. We reviewed policy and mission statements,
goals* and objectives*, annual reports, and financial data. We conducted tests of
records to determine compliance with established policies and procedures.
To accomplish our first objective, we interviewed BCI management and staff. We also
obtained and analyzed selected data regarding distribution and warehouse operations,
sales, and inventory. In addition, we reviewed financial statement and expenditure data
for various products and factories and product pricing methods.
To accomplish our second audit objective, we interviewed BCI management and
reviewed BCI's methods to evaluate prisoners employed in its factories. We also
reviewed a sample of parolees to determine if the parolees who had worked for BCI had
reported wage earnings or if they had returned to prison.
To accomplish our third audit objective, we interviewed BCI management and sales
staff. We also reviewed sales meeting minutes and sales data and surveyed BCI
customers and potential BCI customers.
To accomplish our fourth audit objective, we interviewed BCI management and staff.
We also reviewed BCI's complaint processing to determine if complaints were handled
in a timely fashion and properly resolved. In addition, we surveyed BCI customers and
potential BCI customers regarding their association and awareness of BCI (see
Exhibits 4 and 5, presented as supplemental information).
When selecting activities or programs for audit, we use an approach based on
assessment of risk and opportunity for improvement. Accordingly, we focus our audit
efforts on activities or programs having the greatest probability for needing improvement
as identified through a preliminary review. Our limited audit resources are used, by
design, to identify where and how improvements can be made. Consequently, we
prepare our performance audit reports on an exception basis.

* See glossary at end of report for definition.

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Agency Responses and Prior Audit Follow-Up
Our audit report includes 7 findings and 7 corresponding recommendations. DOC's
preliminary response indicated that it agrees and will comply with all of the
recommendations.
The agency preliminary response that follows each recommendation in our report was
taken from the agency's written comments and oral discussion subsequent to our audit
fieldwork. Section 18.1462 of the Michigan Compiled Laws and the State of Michigan
Financial Management Guide (Part VII, Chapter 4, Section 100) require DOC to develop
a formal response to our audit findings and recommendations within 60 days after
release of the audit report.
We released our prior performance audit of the Bureau of Correctional Industries,
Department of Corrections (47-130-02), in June 2003. Within the scope of this audit, we
followed up 6 of the 7 prior audit recommendations. BCI complied with 3 of the prior
audit recommendations, and 3 of the prior audit recommendations were rewritten for
inclusion in this report.

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COMMENTS, FINDINGS, RECOMMENDATIONS,
AND AGENCY PRELIMINARY RESPONSES

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EFFECTIVENESS OF EFFORTS
TO EFFICIENTLY PROVIDE PRODUCTS AND SERVICES
COMMENT
Audit Objective: To assess the effectiveness of the Bureau of Correctional Industries'
(BCI's) efforts to efficiently provide products and services.
Audit Conclusion: We concluded that BCI's efforts to efficiently provide products
and services were not effective. Our assessment disclosed one material condition*.
BCI needs to initiate further measures to ensure that it operates as a total
self-supporting system (Finding 1).
Our assessment also disclosed three reportable conditions* related to a business plan,
scheduling and utilization, and price setting (Findings 2 through 4).

FINDING
1.

Unprofitable Operations
BCI needs to initiate further measures to ensure that it operates as a total
self-supporting system.
BCI's financial statements, as presented in the State of Michigan Comprehensive
Annual Financial Report (SOMCAFR), reported net income (loss) of ($2,926,000),
($2,291,000), $352,000, and ($2,182,000) for fiscal years 2004-05, 2005-06,
2006-07, and 2007-08, respectively (see Exhibit 3, presented as supplemental
information). The net income in fiscal year 2006-07 resulted from the production of
new standard license plates, which were required by Act 177, P.A. 2006. While it
is not the mission of BCI to maximize profits, Section 11(2) of the Correctional
Industries Act (Section 800.331(2) of the Michigan Compiled Laws) requires BCI to
be "a total self-supporting system." The continuance of certain unprofitable
activities could potentially threaten the sustainability of the entire organization.
BCI's initiatives to reduce costs included closing two factories for an estimated cost
savings of $283,313 and reducing administrative staff by 20% through staff
attrition, saving BCI $370,000 annually. Also, BCI informed us that it moved its

* See glossary at end of report for definition.

12
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shoe and sign operations to another existing factory, resulting in staff alignments;
canceled lease rentals for two sales offices; and built a new distribution center and
canceled the lease on the existing distribution center. These combined efforts
resulted in annual estimated cost savings of $468,936, $27,295, and $151,592,
respectively. BCI should continue to evaluate its operations to identify additional
cost-saving measures. We identified the following circumstances that warrant
management attention in relation to BCI's statutory requirement to be a total
self-supporting system:
a.

BCI sustained financial losses in at least two fiscal years at 13 (46%) of its 28
factories during fiscal years 2004-05 through 2006-07 (see Exhibit 1,
presented as supplemental information).

BCI incurred significant factory supervision expenses in the 13 unprofitable
factories noted in part a. of this finding, resulting in total factory supervision
expenses ranging from 9% to 355%, with an average of 83%, of net sales for
fiscal years 2004-05 through 2006-07. For the 15 remaining factories, the total
factory supervision expenses ranged from 6% to 71%, with an average of
29%, of net sales for fiscal years 2004-05 through 2006-07.

BCI paid prisoners a total of $1,051,338 (29%) of its $3,634,041 total prisoner
labor expenses for idle time or for time not attributable to production in fiscal
years 2004-05 through 2006-07.
BCI management informed us that it did not have the flexibility to reduce
factory supervision and labor cost during periods of lower production. This
resulted in proportionately higher expenses in less profitable factories.

BCI did not have a business plan, a continuous quality improvement process,
and a comprehensive marketing strategy as noted in Findings 2, 5, and 6.

RECOMMENDATION
We recommend that BCI initiate further measures to ensure that it operates as a
total self-supporting system.

13
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AGENCY PRELIMINARY RESPONSE
BCI informed us that it agrees with Finding 1; however, it disagrees that Finding 1
is a material condition. BCI informed us that, beginning December 2007, DOC and
BCI began engaging a nationally recognized supply chain firm to assist DOC and
BCI to fundamentally streamline the BCI comprehensive realignment plan and
implement a properly integrated system. BCI indicated that this integrated strategy
identified 30 plus savings opportunities for BCI. BCI indicated that it has begun
realigning its factories and administration to save $1 million annually. Upon final
completion of DOC and BCI's realignment plan, BCI believes that it will save an
additional $3 million per year fully regaining self-sufficiency. For example:
•

BCI informed us that, beginning in June 2008, DOC and BCI created a
collaborative, integrated, and inclusive supply chain strategy that includes
defined continuous quality improvement measures. BCI believes that the plan
identifies efficiencies and strategies to reduce operating costs, maintain
security, and improve department-wide resource utilization. BCI also believes
that by the completion of the implementation of the supply chain infrastructure,
BCI will reduce distribution costs by $500,000 annually.

•

BCI informed us that, by moving the shoe factory to a more efficient building, it
avoided $350,000 in costly electrical updates to the former building. BCI also
informed us that the net result of the savings allowed BCI to reduce the cost of
producing prisoner shoes for DOC.

•

BCI informed us that DOC and BCI performed a feasibility study during fiscal
year 2008 for consolidating the purchasing and accounts payable functions of
Grandview Plaza and BCI.
BCI indicated that this realignment was
successfully implemented in March 2009 realizing cost savings to DOC and
BCI of $150,00 annually.

•

BCI informed us that Act 102, P.A. 2007, expanded BCI's sales market to
include being able to sell cut and sewn textiles to the public. BCI indicated
that the change in the public act immediately created the ability to create
strategic alliances between BCI and two private vendors to make cut and
sewn textiles for wholesale increasing BCI's market and sales opportunities.

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BCI informed us that a total of $1,051,338 in indirect labor expense for prisoner
wages accounts for only .004% of the overall MSI operating costs, which it believes
is not material to the overall cost of the operation. BCI indicated that during
periods of lower production, BCI continues to strive to put prisoners in work
situations providing life skill development and preparing prisoners for the next
planned production cycles at the factory.
BCI believes that it provides intrinsic value to prisoner labor in several ways such
as prisoners learning how to maintain a job, job skills learned while working for
BCI, and the potential for reduced recidivism rates among prisoners that are
paroled that worked for BCI. BCI believes that it also enhances safety and security
by employing over 1,000 prisoners on any given day.
BCI indicated that it produces many of the goods and services that DOC needs on
a daily basis (e.g., prisoner clothing, officer uniforms, linens, cleaning products,
laundry, mattresses, and foot lockers). BCI also indicated that, if not for BCI, DOC
would have to purchase these goods and services from other suppliers and would
not receive the prisoner workforce development benefits, custody/security
enhancements, and decreased idleness currently provided through BCI.

FINDING
2.

Business Plan
BCI had not developed and implemented a comprehensive business plan.
A well-developed comprehensive business plan may have helped to prevent or
lessen the financial losses sustained during the audit period as noted in Finding 1.
Developing and implementing a business plan will help BCI to determine its
long-range plans and help guide its operations. Also, it will help BCI evaluate the
viability of its operations before expending its resources.
A business plan typically describes the major characteristics of an entity, such as
products and services, industry, market, manner of operating (production,
marketing, and management), and financial outcomes, with an emphasis on the
entity's present and future. Also, a business plan provides a basis for BCI to
assess its operations and to verify that business strategies are appropriate.

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Our review disclosed:
a.

BCI had not identified its non-State customer's needs.
BCI non-State customers accounted for 64% and 68% of the total BCI
customers in fiscal year 2005-06 and fiscal year 2006-07, respectively.
However, the related revenue activity accounted for only $2.6 million (6%) of
the $42.0 million and $2.2 million (5%) of the $46.7 million in sales for fiscal
year 2005-06 and fiscal year 2006-07, respectively. Also, the majority (66%)
of the sales to the non-State customers were for purchases of less than
$1,000.
BCI identified a need to increase its sales to non-State organizations in a
business projections report for fiscal years 2003-04 and 2004-05; however, no
studies were documented to determine if this would be economically sound.
For example, BCI could not determine the proportion of sales staff efforts
attributable to non-State customer sales and had not surveyed current or
potential customers to identify additional business opportunities (see
Finding 6).
Identifying its customer needs will help BCI ensure that it competes in the right
markets and provides the right products and services as noted in BCI's
mission statement. Also, this will help BCI ensure that its efforts are directed
toward customers who recognize BCI's value and who will purchase products
and services to ensure that BCI maximizes its sales.

BCI did not ensure that jobs performed by prisoners provided marketable skills
for outside of prison.
Offering relevant employment training could assist prisoners with employment
upon their release.
BCI monitored "soft skills" of prisoners, including arriving to work on time,
following directions, and putting forth a consistent effort while at work.
However, BCI informed us that it did not have the ability to track if prisoners
received adequate job training that provided the necessary tools to obtain
viable employment when released from prison. As noted in Finding 5, BCI

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could determine this by identifying the percentage of BCI prisoner employees
who obtain marketable job skills resulting in gainful employment after prison.
DOC has created the Office of Employment Readiness, incorporating education,
the Prison Build Program, and Michigan State Industries (MSI) with the goal to
improve academic opportunities and vocational skills for prisoners preparing to
return to the community. With this new emphasis, a business plan would help
ensure that BCI factories provide marketable job skills training in order to meet its
goals.

RECOMMENDATION
We recommend that BCI develop and implement a comprehensive business plan.

AGENCY PRELIMINARY RESPONSE
BCI agrees with the recommendation and informed us that it will comply by
creating a comprehensive business plan that will be updated annually.

FINDING
3.

Scheduling and Utilization
BCI did not efficiently schedule and utilize its trucks and drivers for delivery of
products and services. As a result, BCI made deliveries to the same destinations
within seven days and incurred overtime costs.
Improving the scheduling and utilization of its trucks and drivers will help BCI to
ensure that its resources are used efficiently to schedule, monitor, and deliver
products and services.
BCI's central distribution center in Jackson provides delivery of finished products
from its factories directly to DOC facilities and Michigan customers. Also, BCI has
separate delivery operations for its agribusiness and laundry operations.
BCI factories notify the distribution center when product orders are ready to ship.
The distribution center coordinates the pickup and delivery of orders or products by
geographic area.

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BCI distribution center trucks pick up products from factories in Adrian and
Plymouth on average 2 and 4 days each week, respectively, and provide additional
delivery or shuttle service among the factories in the Jackson area and the DOC
Central Regional Warehouse, located in Jackson. Also, BCI distribution center
trucks pick up and deliver factory products to the Upper Peninsula facilities on a
weekly basis.
Our review noted:
a.

BCI did not determine if fixed routes with regularly scheduled deliveries would
be more efficient for its central distribution center. Also, BCI did not consider
coordinating its distribution center delivery schedules with existing
agribusiness and laundry delivery schedules where feasible.
Fixed routes and regularly scheduled deliveries may assist in planning and
consolidating shipments, resulting in fewer deliveries and lower costs.
BCI trucks for agribusiness and laundry services follow fixed, regular
schedules and service many of the same facilities as the distribution center.
We reviewed BCI central distribution activity for a two-month period. We
excluded the regularly scheduled activity for the distribution center,
agribusiness, and laundry services, as noted in this finding. We found that
BCI distribution trucks made 69 (33%) of 212 deliveries in August 2007 and
55 (59%) of 94 deliveries in February 2008 to the same destination within
seven days. BCI did not maintain documentation to support whether trucks
were appropriately loaded at the time of these deliveries to justify that trucks
were used efficiently.

The BCI distribution center did not track and monitor driver activity to
determine reasons for overtime.
The BCI distribution center incurred
employee overtime of $87,852 in fiscal year 2005-06 and $106,105 in fiscal
year 2006-07 or 32% and 39% of total BCI employee overtime during those
respective periods.
Tracking and monitoring driver activity could help eliminate unnecessary
overtime.

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While BCI distribution center drivers spend most of their hours on the road,
BCI did not monitor driver hours spent in unloading or loading product, normal
traffic delays in urban areas, or time spent waiting for entry and exit at DOC
facility sallyports* in order to design more efficient schedules. In addition, BCI
did not track special delivery requests, such as movement of DOC assets
between facilities, shipment of non-BCI products to other DOC program
activities, or the retrieval of materials for recycling.
c.

BCI did not perform an analysis to determine the proper size of its distribution
center fleet.
Continuous assessment of fleet utilization is essential to ensure that BCI
makes the most efficient use of resources, and provides a basis for procuring
equipment in the future.
BCI leases five trucks and nine tractor/trailer trucks through Vehicle and Travel
Services, Department of Management and Budget. The average monthly
lease rates for each truck and tractor/trailer combination were $1,370 and
$1,722, respectively.
We reviewed the daily load sheets for the 43 non-holiday weekdays during the
months of August 2007 and February 2008 and noted that the level of BCI
distribution activity frequently left trucks and tractor/trailer trucks unused. We
determined that the utilization rates for BCI's trucks and tractor/trailer trucks
were 53% and 47%, respectively, during this two-month period. We estimated
that the annual cost of the idle trucks for this period was $69,004.

RECOMMENDATION
We recommend that BCI improve its scheduling and utilization of trucks and drivers
for delivery of products and services.

AGENCY PRELIMINARY RESPONSE
BCI agrees with the recommendation and informed us that it has contracted with a
nationally recognized supply chain firm to conduct an evaluation of BCI's
scheduling and utilization of trucks and drivers.
* See glossary at end of report for definition.

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FINDING
4.

Price Setting
BCI had not established comprehensive policies and procedures for setting prices
and discounts for products and services.
Section 11(3)(b) of the Correctional Industries Act (Section 800.331(3)(b) of the
Michigan Compiled Laws) requires BCI to set its prices to at least recapture all
direct and indirect costs. Without policies and procedures that include pricing
considerations such as costs for materials, labor, and factory and administrative
overhead, prices and discounts were established without appropriate justification.
BCI informed us that it had developed a cost estimate procedure; however, the
procedure did not document factors including profit markup, competition pricing,
and what the market will bear.
We reviewed prices of 92 top dollar sale items from select BCI factories. These 92
items made up 35% of total BCI sales during the period October 1, 2005 through
April 14, 2008. Our review disclosed:
a.

BCI did not document its justification for product pricing.
As of April 14, 2008, 23 (25%) of 92 products and services were priced below
cost; however, BCI did not document justification for the prices. The prices for
these items ranged from 1% to 92% below cost with an average of 22% below
cost. Also, 16 of the 23 items priced below cost were from six factories that
reported losses in fiscal year 2005-06 and fiscal year 2006-07. In addition,
two of the six factories with losses sold 9 items that accounted for 27%
($215,664) and 35% ($37,313) of factory invoices, respectively. Prices below
cost could have contributed to the unprofitability of some factories. The prices
for 69 (75%) products and services exceeded costs from 1% to 225% with an
average of 48%, which could have contributed to the profitability of other
functions. Again, there was no documentation to justify the prices.
Documenting the justification can help ensure that BCI sets pricing in a
consistent manner and that all factors are considered. Also, it will help BCI to
ensure that prices are competitive and relevant to costs or other market
considerations.

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BCI management informed us that prices for products set during our audit
period were established using various methods, including prior year gross
margin rates, a straight markup for all items, and price changes for selected
products.
b.

BCI did not make timely adjustments to selling prices to reflect cost changes
for materials. As a result, BCI might not recoup its full product cost, which will
result in greater losses or less profit.
BCI informed us that it periodically reviews and adjusts selling prices to
account for changes in product cost. However, we determined that for
19 (83%) of the 23 items priced below cost, as noted in part a., BCI had
recalculated product costs but had not adjusted the selling prices. The newer
cost calculations were prepared from 4 months to 5 years after establishment
of the prices that were still being used for sales. For the remaining 4 items
priced below cost, BCI updated its product selling price after the most recent
cost calculation; however, the selling price was still below cost, and BCI had
not documented the reason.

RECOMMENDATION
We recommend that BCI establish comprehensive policies and procedures for
setting prices and discounts for products and services.

AGENCY PRELIMINARY RESPONSE
BCI agrees with the recommendation and informed us that it will work to comply by
establishing comprehensive policies and procedures for setting prices and
discounts for products and services, including documenting the justification for
product pricing and a process to make timely adjustments to pricing to reflect cost
changes for materials and overhead.

EFFECTIVENESS OF EFFORTS
TO PROVIDE MARKETABLE JOB SKILLS TO PRISONERS
COMMENT
Audit Objective: To assess the effectiveness of BCI's efforts to provide marketable job
skills to prisoners.
21
471-0130-08

Audit Conclusion: We concluded that BCI's efforts to provide marketable job
skills to prisoners were moderately effective. Our assessment disclosed one
reportable condition related to performing continuous quality improvement* (Finding 5).

FINDING
5.

Continuous Quality Improvement (CQI)
BCI had not established a comprehensive CQI process to evaluate and improve
the effectiveness of its operations.
Without a comprehensive CQI process, DOC could not evaluate program
performance critical to identifying and making needed program revisions to ensure
that BCI effectively used its funds.
BCI's mission is to produce products and provide services that meet or exceed
customer expectations while providing professional growth opportunities for staff
and marketable job skills to prisoners of DOC. BCI's mission states that, through
these accomplishments, it will remain economically sound and will make a
continuous, positive contribution to the State of Michigan. BCI believes that
sufficient work assignments will affect crime reduction, prison management, and
prisoner self-sufficiency. BCI employed an average of 1,881 prisoners annually
and 3,046 prisoners during our audit period of October 1, 2005 through April 30,
2008.
A comprehensive CQI process defines the mission, goals, and objectives of an
organization and focuses on the needs and expectations of internal and external
customers. Such a process should include performance indicators* for measuring
outputs* and outcomes*; performance standards* or goals that describe the
desired level of outputs and outcomes based on management expectations, peer
group performance, and/or historical performance; a management information
system to accurately gather relevant output and outcome data on a timely basis; a
comparison of the actual data to desired outputs and outcomes; a reporting of the
comparison results to management; and recommendations to improve
effectiveness and efficiency* or change the desired performance standards or
goals. Also, a comprehensive CQI process has an underlying philosophy that is
team oriented and open to making changes on a continuous basis to improve
organizational processes.

* See glossary at end of report for definition.

22
471-0130-08

Our analysis of BCI operations disclosed:
a.

BCI had not developed comprehensive performance indicators for measuring
outputs and outcomes of its operations.
Performance indicators are critical to providing a measurement focus and a
basis for evaluating operations. Some valid performance indicators of BCI's
operations would include:
(1) Percentage of BCI prisoner employees who obtain marketable job skills
resulting in gainful employment after prison (see Finding 2).
(2) Percentage of BCI prisoner employees who return to prison within
predetermined time frames, such as after 2 years or 5 years.
(3) Percentage of BCI factories that increase their percentage of sales to
DOC, other State departments, and non-State buyers.
(4) Percentage of prison population employed.
(5) Percentage of BCI profitable factories (see Finding 1).
(6) Percentage of customers satisfied with BCI products and services (see
Finding 7).

BCI had not established output and outcome standards or goals for its
operations. As a result, BCI did not have criteria in place to evaluate the
achieved level of performance.
For example, BCI developed a prisoner program and work assignment
evaluation form for prisoner employees. The form included basic job skills,
such as whether a prisoner employee is timely, works with others, and follows
instructions and rules. However, BCI did not summarize and evaluate this
information as a whole. Therefore, BCI could not determine whether prisoner
employee performance met or exceeded BCI's expectations and,
consequently, BCI could not accurately assess whether it had achieved its
overall mission.

23
471-0130-08

BCI had not developed methods to compare actual data with desired
performance.
Comparing actual performance with desired performance will help BCI to
analyze performance gaps and consider changes to improve its effectiveness.
For example, in Finding 1, we analyzed prisoner labor expense between
profitable and unprofitable factories.

BCI needs to develop its management information system to provide more
useful reporting data to management.
Further development of its management information system would allow BCI
to generate data in a format useful for management's analysis and decision
making.
A management information system assists management in gathering accurate
performance data, comparing performance data with desired outcomes,
reporting the comparison results to management, and proposing changes for
improving the effectiveness of BCI operations.
BCI utilizes an Enterprise Resource Planning software system to account for
its sales, manufacturing and overhead costs, inventory, and delivery and
invoicing of products and services. BCI management informed us that this
system does not easily allow it to retrieve prior period information, sort or
summarize data to identify trends, or perform other analysis.

We attempted to identify measurable factors during our audit, including the number
of former prisoner employees who were on parole or discharged and the
percentage who were gainfully employed. This data was not available for our audit
period because DOC had not tracked this information. During our fieldwork, BCI
informed us that it was in the process of developing measurable performance
indicators and standards to assist in evaluating its overall operations, including
manufacturing and delivery of products and services.

RECOMMENDATION
We recommend that BCI establish a comprehensive CQI process to evaluate and
improve the effectiveness of its operations.

24
471-0130-08

AGENCY PRELIMINARY RESPONSE
BCI agrees with the recommendation and informed us that it has contracted with a
nationally recognized supply chain firm that specializes in CQI initiatives to assist
BCI in establishing a comprehensive CQI process.

EFFECTIVENESS OF EFFORTS
TO MARKET PRODUCTS AND SERVICES
COMMENT
Audit Objective: To assess the effectiveness of BCI's efforts to market products and
services.
Audit Conclusion: We concluded that BCI's efforts to market products and
services were moderately effective. Our assessment disclosed one reportable
condition related to developing a comprehensive marketing strategy (Finding 6).

FINDING
6.

Comprehensive Marketing Strategy
BCI had not developed a comprehensive marketing strategy. As a result, BCI
cannot ensure that it is effectively marketing its products and services.
A comprehensive marketing strategy that targets key potential user organizations,
disseminates written information to potential user organizations, and provides
opportunities for initial contacts could maximize purchasers and help ensure that
organizations receive accurate and timely information about BCI.
We noted:
a.

BCI had not developed a formal marketing plan.
Without a marketing plan, BCI could not ensure that it contacted all potential
customers.
A marketing plan targets key potential customers and provides the blueprint
for communicating the value of products and/or services to customers. Also, a
marketing plan could help BCI maximize customer participation and profits.
25
471-0130-08

BCI had not developed measurable and quantifiable goals for its sales division
and staff. As a result, BCI could not determine the effectiveness and
efficiency of its sales division and staff.
BCI generates reports of actual sales contacts and sales made; however, BCI
management did not document a formal review of these reports to evaluate
how well the sales division performed. Also, BCI management informed us
that sales projections for the sales division had not been developed.

BCI had not developed comprehensive sales staff training.
Training may help ensure that BCI sales staff are able to persuade potential
customers that BCI products and services meet their needs. Training may
also help to ensure that sales staff receive uniform instruction to perform
standardized duties.
Management informed us that sales staff receive a BCI procedures manual
and tour some factories during their first week; however, additional training is
very limited, with the majority of training obtained through monthly sales staff
meetings.

BCI had not fully monitored its sales staff's marketing efforts.
Improved monitoring would help ensure that sales staff's marketing job duties
were effectively performed.
BCI sales staff's marketing efforts consisted of performing periodic follow-up
with current customers, making presentations to potential new customers, and
disseminating information to current and potential customers. Sales staff
informed management of their contacts; however, management did not
systematically document a review of sales staff activity. Also, the monthly
contact reports did not specify the scope of contact and whether a sale was
made.

BCI had not fully utilized all available sources to identify potential customers.
When new customers are established, BCI verifies agency eligibility through
an Internet Web site service; however, BCI did not routinely attempt to locate
26

471-0130-08

potential customers through this service. For a $30 monthly fee, BCI could
upgrade its subscription service to allow it to search for and identify all eligible
agencies in a particular city.
f.

BCI had not actively surveyed current and potential customers to identify
additional business opportunities.
A survey may provide BCI with information that would indicate whether current
and potential customers are adequately informed of BCI products and
services. As a result, BCI may have the opportunity to gain new business.
We surveyed 100 potential BCI customers and received 48 responses. Of the
48 respondents, 18 (38%) were not familiar with BCI products and services.
Also, 17 of the 18 were not aware that their organizations were eligible to
purchase BCI products and services.

RECOMMENDATION
We recommend that BCI develop a comprehensive marketing strategy to
effectively market its products and services.

AGENCY PRELIMINARY RESPONSE
BCI agrees with the recommendation and informed us that it has developed and
implemented a comprehensive marketing strategy to effectively market BCI
products and services. BCI also informed us that the marketing plan includes the
use of survey instruments to target key potential customers, contains measurable
and quantifiable goals for the sales division and staff, contains a comprehensive
sales staff training plan, and properly utilizes monitoring controls to evaluate sales
and marketing efforts.

27
471-0130-08

EFFECTIVENESS OF EFFORTS
TO PROVIDE PRODUCTS AND SERVICES OF A QUALITY THAT
MEETS OR EXCEEDS CUSTOMER EXPECTATIONS
COMMENT
Audit Objective: To assess the effectiveness of BCI's efforts to provide products and
services of a quality that meets or exceeds customer expectations.
Audit Conclusion: We concluded that BCI's efforts to provide products and
services of a quality that meets or exceeds customer expectations were
moderately effective. Our assessment disclosed one reportable condition related to
customer surveys of product quality (Finding 7).

FINDING
7.

Customer Surveys of Product Quality
BCI had not actively surveyed its customers to determine whether its products and
services met or exceeded customer expectations.
We surveyed 146 current customers and received 70 responses. Of the 70
respondents who rated various categories of products for individual quality,
220 (66%) of 332 ratings were excellent or good; 83 (25%) ratings were fair; and
29 (9%) ratings were poor. In addition, of the 70 respondents who rated various
categories of services for individual quality, 52 (61%) of 85 ratings were excellent
or good; 18 (21%) ratings were fair; and 15 (18%) ratings were poor.
We noted that BCI had established a process to address customer concerns.
However, a survey would help BCI to proactively evaluate and enhance current
products and services and identify potential new products based on customer
needs.

RECOMMENDATION
We recommend that BCI actively survey its customers to determine whether its
products and services meet or exceed customer expectations.

28
471-0130-08

AGENCY PRELIMINARY RESPONSE
BCI agrees with the recommendation and informed us that it will work to comply by
regularly surveying BCI customers to determine if it is meeting customer needs.

29
471-0130-08

SUPPLEMENTAL INFORMATION

30
471-0130-08

UNAUDITED
Exhibit 1
BUREAU OF CORRECTIONAL INDUSTRIES (BCI)
Department of Corrections
Summary of Net Profit (Loss) From Operations
Fiscal Years Ended September 30
Location
Bellamy Creek Correctional Facility
Parnall Correctional Facility
Ionia Maximum Correctional Facility
Marquette Branch Prison
Lakeland Correctional Facility
Parnall Correctional Facility
Camp Ottawa
Ionia Maximum Correctional Facility
Ryan Correctional Facility
Earnest C. Brooks Correctional Facility
Parnall Correctional Facility
Parnall Correctional Facility
Robert Scott Correctional Facility
Parnall Correctional Facility
Robert Scott Correctional Facility
Newberry Correctional Facility
Parr Highway Correctional Facility
Carson City Correctional Facility
Robert Scott Correctional Facility
Parnall Correctional Facility
G. Robert Cotton Correctional Facility
Kinross Correctional Facility
Parnall Correctional Facility
Chippewa Correctional Facility
Earnest C. Brooks Correctional Facility
G. Robert Cotton Correctional Facility
Marquette Branch Prison
Chippewa Correctional Facility
Thumb Correctional Facility
Gus Harrison Correctional Facility
Parnall Correctional Facility
Parnall Correctional Facility
Total for 32 factories

Factory
Wood Furniture
Metal Furniture
Furniture Refinishing
Dairy
Computer (1)
Jackson Laundry
Sawmill
Chair
Geographic Information System (1)
Vinyl Products
Sign
Dairy
Dental Lab
Meat Processing
Plastic Bag (1)
Potatoes (2)
License Plate
Garment
Janitorial Products
Shoe
Mattress
Garment
Textile
Garment
Laundry
Garment
Garment
Laundry
Laundry
Optical Lab
Carton
Print

2005
$

(993,564)
(577,983)
(361,965)
(333,222)
(260,681)
(328,071)
(162,991)
(179,997)
(155,476)
(82,614)
30,093
(301,398)
(27,483)
(75,384)
(73,924)
617,158
1,952,933
893,311
858,746
573,595
439,858
420,415
409,453
177,205
143,829
177,142
32,543
85,480
216,336
97,925
(140,610)
3,070,659

2006
$

(944,143)
(824,040)
(421,808)
(454,756)
(278,951)
(152,689)
(199,077)
(216,408)
(178,713)
(100,540)
(54,240)
(117,031)
(29,171)
36,078

1,546,956
1,461,958
852,214
621,547
649,771
511,106
647,137
99,167
58,379
324,353
71,942
115,536
42,533
102,890
55,216
202,796
3,428,014

2007
$

(738,355)
(23,369)
(415,783)
(337,148)
(308,079)
(187,996)
(195,752)
(143,473)
(163,480)
(93,216)
(196,285)
278,001
(12,594)
(16,400)
(801)
3,171,789
1,590,142
785,185
651,080
650,552
806,253
506,783
115,606
255,056
(5,186)
158,867
256,633
204,113
3,173
(90,039)
(9,353)
6,495,925

2008
$

(644,202)
(723,526)
(313,312)
(314,197)
(105,746)
(211,193)
(161,832)
(201,669)
(57,308)
(78,291)
(93,790)
279,935
(1,840)
120,577
(43,112)
1,321,249
1,548,330
621,472
640,591
414,324
473,848
270,378
115,386
179,795
233,501
123,416
212,766
130,532
(111,075)

(103,381)
3,521,626

Selling, administrative, and miscellaneous expenses:
Selling expenses (3)
Administrative expenses
Miscellaneous expenses
Total selling, administrative, and miscellaneous expenses

$ (2,998,164)
(2,213,276)
(207,866)
$ (5,419,306)

$ (3,143,447)
(2,515,693)
(261,145)
$ (5,920,286)

$ (3,266,343)
(2,674,096)
(3,214)
$ (5,943,653)

$ (3,339,412)
(2,954,133)

Miscellaneous revenues (4)

Gain (Loss) from discontinued operations

Net income (loss) (per BCI)

$ (2,497,606)

Difference from the State of Michigan Comprehensive Annual
Financial Report (SOMCAFR) (5)

(148,959)

(428,394)

Net income (loss) (per SOMCAFR )

$ (2,926,000)

67,271

$ (2,425,001)

134,001
$ (2,291,000)

95,502

116,064

$
647,774

(295,774)
$

$ (6,293,545)

352,000

$ (2,655,856)

473,856
$ (2,182,000)

(1) Factory closed.
(2) No BCI prisoner labor.
(3) Selling expenses consist of costs related to the sales department, payroll, marketing, the BCI catalog, and the distribution center.
(4) Miscellaneous revenues include scrap/recycling revenue.
(5) Differences result from immaterial adjustments in receivables, inventory, revenues, and expenses.
Source: BCI financial statements.

31
471-0130-08

This Page Left Intentionally Blank

32
471-0130-08

UNAUDITED
Exhibit 2
BUREAU OF CORRECTIONAL INDUSTRIES (BCI)
Department of Corrections
BCI Sales Distribution Schedule by Customer Type
For Fiscal Years 2005-06 and 2006-07

Fiscal Year
2005-06
Inter Industries
State agencies
Sheriff/Road commission
Federal agencies
Cities/Counties/Villages
Schools
Nonprofit agencies
Out-of-State agencies
Scrap/Miscellaneous
Total
Total for non-State agencies
Non-State agencies' sales as a
percentage of total agencies' sales

Average for
Two-Year Period

2006-07

Percentage
of Total

1,124,229
38,332,497
75,806
278
244,444
240,825
1,326,949
431,042
262,570

1,069,810
43,465,391
63,178
11,721
142,422
147,456
1,134,350
470,630
218,817

1,097,020
40,898,944
69,492
5,999
193,433
194,140
1,230,649
450,836
240,694

2.47%
92.15%
0.16%
0.01%
0.44%
0.44%
2.77%
1.02%
0.54%

42,038,639

46,723,774

44,381,207

100.00%

2,581,913

2,188,573

2,385,243

6.14%

4.68%

5.37%

BCI Sales by Customer Type

Inter Industries
2.47%

Sheriff/Road commission
0.16%
Federal agencies
0.01%
Cities/Counties/Villages
0.44%

Other
7.85%

Schools
0.44%
Nonprofit agencies
2.77%
Out-of-State agencies
1.02%
Scrap/Miscellaneous
0.54%

State agencies
92.15%

Source: BCI

33
471-0130-08

BUREAU OF CORRECTIONAL INDUSTRIES
Department of Corrections
Correctional Industries Revolving Fund Statement of Revenues, Expenses, and Changes in Fund Net Assets
Fiscal Years Ended September 30
(In Thousands)

OPERATING REVENUES
Operating revenues
Total operating revenues
OPERATING EXPENSES
Salaries, wages, and other administrative expenses
Depreciation
Purchases for prison industries
Other operating expenses
Leased vehicles expense
Vehicle maintenance expense
Total other operating expenses

1998

1999

2000

2001

2002

2003

2004

$ 29,445
$ 29,445

$ 31,526
$ 31,526

$ 44,096
$ 44,096

$ 40,589
$ 40,589

$ 42,308
$ 42,308

$ 34,835
$ 34,835

$ 36,472
$ 36,472

$ 13,285
$ 1,323
$ 12,620

$ 14,341
$ 1,372
$ 12,236

$ 18,629
$ 1,451
$ 16,723

$ 22,430
$ 1,544
$ 15,528

$ 22,668
$ 1,601
$ 16,690

$ 22,000
$ 1,570
$ 15,454

$ 22,548
$ 1,691
$ 14,204

1
1

Total operating expenses

$ 27,229

$ 27,949

$ 36,804

$ 39,502

$ 40,960

$ 39,024

$ 38,443

Operating income (loss)

$ (1,972)

NONOPERATING REVENUES (EXPENSES)
Other nonoperating revenues
Interest expense
Other nonoperating expense
Total nonoperating revenues (expenses)
Income (loss) before transfers
TRANSFERS
Transfers from other funds
Transfers to other funds
Total transfers in (out)
Change in net assets
Total net assets - Beginning of fiscal year - restated
Total net assets - End of fiscal year

2,217

$
(388)
(412)
(800)

$
$

1,417

1,144

2,788

$
$

$
(279)
(84)
(363)
6,929

$
(212)
(212)
2,576

$
$

1,087

(219)
(74)
(293)

794

$
(257)
(257)
6,672

1,349

1
(299)
(229)
(526)

822

(186)
(186)

608

(4,189)

(265)
(106)
(371)

(292)
(744)
$ (1,036)

(4,560)

$ (3,008)

(204)
(204)

5,241
(219)
5,022

618

462

$
$

(205)
(205)

$ (3,212)

19,970

21,114

23,690

31,895

32,503

33,121

33,583

$ 21,114

$ 23,690

$ 30,362

$ 32,503

$ 33,121

$ 33,583

$ 30,371

Source: State of Michigan Comprehensive Annual Financial Report (SOMCAFR)

34
471-0130-08

7,292

$
(285)
(504)
(789)

$
(273)
(273)

$
$

3,577

Exhibit 3

2005

2006

2007

2008

$ 36,454
$ 36,454

$ 39,963
$ 39,963

$ 45,481
$ 45,481

$ 41,366
$ 41,366

$ 22,202
$ 1,512
$ 15,060

$ 23,905
$ 1,503
$ 16,286

$ 23,600
$ 1,480
$ 19,641

$ 24,036
$ 1,422
$ 17,826

$ 38,773

$ 41,694

$ 44,721

$ 43,284

$ (2,319)

$ (1,731)

$
(339)
(29)
(368)

$ (2,718)

(188)
(211)
(399)

(208)
(208)

$ (2,926)

760

(1,919)

(393)
(15)
(408)

(252)
(11)
(264)

$ (2,100)

352

(2,182)

(191)
(191)

$ (2,291)

352

0
(2,182)

30,371

27,445

25,154

25,506

$ 27,445

$ 25,154

$ 25,506

$ 23,324

35
471-0130-08

Description of Surveys

We developed surveys requesting information from certain organizations regarding their
association with the Bureau of Correctional Industries (BCI), doing business as
Michigan State Industries.
We mailed surveys to 146 organizations that are customers of BCI and received 70
responses. A review of these responses indicated that most respondents were satisfied
with product quality and their contacts with BCI. However, some respondents indicated
that they were not aware of all products and services offered by BCI (see Finding 6).
We referred these concerns to BCI for follow-up and provided BCI with a summary of
the survey information.
We also mailed surveys to 100 organizations that are potential customers, including
government and nonprofit organizations within a reasonable geographic area of BCI
and received 48 responses. A review of these responses indicated that some
respondents were not familiar with BCI products and services (see Finding 6). Also,
potential customers indicated that BCI's prices were not competitive on various
products; however, they may be interested in purchasing from BCI. We provided BCI
with a summary of the survey information.

36
471-0130-08

Exhibit 4
BUREAU OF CORRECTIONAL INDUSTRIES (BCI)
Department of Corrections
Summary of Survey Responses From BCI Customers

Copies of Survey Delivered
Number of Responses
Response Rate

146
70
48%

1. How frequently do you purchase MSI products?
20
5
41

Less than once a year
Once a year
More than once a year

2. Please rate the quality of the following products and services you have purchased from MSI.

Excellent
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.

Office desks and chairs
Metal files and storage cabinets
Conference and miscellaneous tables
Partitioning office systems
Interior and exterior signs
Vinyl ring binders and folders
Name plates and name tags
Corrugated cartons
Officers and law enforcement uniforms
General work clothing and footwear
Bed linens, towels, and blankets
Beds and mattresses
Janitorial cleaning chemicals
Laundry services
Furniture refinishing services
Print shop services
Prisoner clothing
Socks, T-shirts, and underwear
Recycling service
Total

Good

Fair

Poor

I have not
purchased

13
5
7
2
6
5
6
1
3
1
2
4
5
6
4
4
2
0
2

15
14
12
5
14
11
7
6
9
8
10
14
14
11
8
9
10
9
8

8
4
4
3
2
5
1
1
10
5
11
7
6
4
3
6
8
8
5

1
3
1
1
0
2
0
0
4
7
1
0
1
6
0
7
4
4
2

18
24
27
38
28
30
34
40
26
26
24
23
26
26
33
23
24
27
31

194

101

528

3. Have you in the last 3 years had to return any products purchased from MSI?
a.
b.

18
46

Yes
No

4. If you answered yes to question 3, please indicate the quantity purchased and returned.
a.
b.

15.9
13.8

Quantity purchased (average)
Quantity returned (average)

5. If you responded yes to question 3, what are the reasons you have returned products purchased from MSI? (Please check all the reasons that apply.)
a.
b.
c.
d.
e.
f.
g.

2
8
2
4
4
0
8

I ordered too much of the product.
I was not satisfied with the overall quality of the product.
The product was broken.
I was able to purchase the product elsewhere for a better price.
The delivery time was too long.
I changed my mind regarding the purchase.
Other reason (please explain below).

37
471-0130-08

6. Please identify which, if any, of the following products and services that you currently purchase from a company/business other than MSI that you may be
interested in purchasing from MSI. (Please check all that apply.)

I currently
purchase this
product or service
elsewhere.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.

I may be interested
in purchasing
this product or
service from MSI.

I currently
purchase
elsewhere but
may be interested
in purchasing
from MSI.

11
10
10
9
7
14
14
7
6
7
7
7
9
4
5
12
4
4
5

5
5
7
6
5
6
3
2
2
2
3
3
5
5
4
3
3
2
4

11
8
4
3
5
10
5
3
5
4
9
7
7
2
1
7
7
4
5

152

107

7. Of the items you indicated you purchase elsewhere in question 6, what are the reasons you have not purchased them from MSI? (Please check all that apply.)
I did not know this
product or service
was available
from MSI.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.

Price is not
competitive.

Quality is not
competitive.

MSI delivery time
is unacceptable.

MSI could not
provide the
quantity needed.

Other

5
5
5
7
6
9
10
5
5
5
10
8
8
3
3
7
8
5
7

4
4
4
3
1
3
1
2
1
2
3
2
1
1
1
1
1
1
2

3
3
1
1
0
1
1
0
0
0
1
0
0
0
0
0
0
0
0

2
1
0
0
0
2
0
1
1
0
0
0
0
0
0
2
0
1
0

1
1
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0

6
5
5
4
7
8
9
3
4
4
4
4
5
4
4
7
3
3
4

121

Good

Fair

Poor

8. How would you rate MSI sales people in their contacts with you in the following areas?

Excellent
a.
b.
c.
d.

Initial contact
Periodic contacts to review your needs
Returning your calls or e-mails
Follow-up after the sale
Total

Very Good

22
16
25
17

20
17
15
12

4
5
6
7

3
4
3
1

0
5
1
5

9
9
5
9

38
471-0130-08

I did not have
contact with MSI.

Exhibit 5
BUREAU OF CORRECTIONAL INDUSTRIES (BCI)
Department of Corrections
Summary of Survey Responses From Potential BCI Customers

Copies of Survey Delivered
Number of Responses
Response Rate

100
48
48%

1. Are you familiar with the products and services provided by MSI?
a.
b.

29
18

Yes
No

2. Are you aware that your organization is eligible to purchase products and services from MSI?
a.
b.

31
17

Yes
No

3. Please identify which, if any, of the following products and services you may be interested in purchasing from MSI. (Please check all that apply.)
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.

17
12
4
1
11
15
13
5
15
8
16
14
12
3
2
5
15
8
3

4. Please indicate the reasons that you have not purchased the following items from MSI. (Please check all that apply.)
I did not
know this product
or service
was available
from MSI.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.

I have not
recently needed
these items.

Price is not
competitive.

Quality is not
competitive.

MSI delivery
time is
unacceptable.

MSI could
not provide
the quantity
needed.

18
17
17
15
17
21
20
15
18
16
14
14
16
14
14
16
15
13
17

16
14
15
16
12
8
10
17
13
13
11
12
11
17
15
13
11
15
13

3
4
4
2
2
2
2
1
1
2
3
2
4
2
1
3
3
2
1

1
1
1
0
1
1
1
0
1
2
1
2
0
0
0
0
1
1
0

0
0
0
0
0
1
1
0
1
0
1
0
0
0
1
0
0
0
0

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

307

252

39
471-0130-08

GLOSSARY

40
471-0130-08

Glossary of Acronyms and Terms

BCI

Bureau of Correctional Industries.

continuous quality
improvement (CQI)

A process that aligns the vision and mission of an
organization with the needs and expectations of internal and
external customers. It normally includes a process to
improve program effectiveness and efficiency by assessing
performance indicators that measure outputs and outcomes
related to the program vision, mission, goals, and objectives.

DOC

Department of Corrections.

effectiveness

Program success in achieving mission and goals.

efficiency

Achieving the most outputs and outcomes practical with the
minimum amount of resources.

goal

The agency's intended outcome or impact for a program to
accomplish its mission.

material condition

A reportable condition that could impair the ability of
management to operate a program in an effective and
efficient manner and/or could adversely affect the judgment
of an interested person concerning the effectiveness and
efficiency of the program.

mission

The agency's main purpose or the reason that the agency
was established.

MSI

Michigan State Industries.

objectives

Specific outcomes that a program seeks to achieve its goals.

outcomes

The actual impacts of the program.

41
471-0130-08

outputs

The products or services produced by the program.

performance audit

An economy and efficiency audit or a program audit that is
designed to provide an independent assessment of the
performance of a governmental entity, program, activity, or
function to improve program operations, to facilitate decision
making by parties responsible for overseeing or initiating
corrective action, and to improve public accountability.

performance
indicators

Information of a quantitative or qualitative nature used to
assess achievement of goals and/or objectives.

performance
standards

A desired level of output or outcome.

reportable condition

A matter that, in the auditor's judgment, falls within any of the
following categories: an opportunity for improvement within
the context of the audit objectives; a deficiency in internal
control that is significant within the context of the objectives
of the audit; all instances of fraud; illegal acts unless they are
inconsequential within the context of the audit objectives;
significant violations of provisions of contracts or grant
agreements; and significant abuse that has occurred or is
likely to have occurred.

sallyport

A controlled, secure gate by which vehicles can enter the
facility grounds through the perimeter fencing.

SOMCAFR

State of Michigan Comprehensive Annual Financial Report.

471-0130-08

42
oag

This Page Left Intentionally Blank

MICHIGAN
OFFICE OF THE AUDITOR GENERAL

AUDIT REPORT

THOMAS H. MCTAVISH, C.P.A.
AUDITOR GENERAL