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Ohio Ig Prison Investigation 2009

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Ohio Department of Rehabilitation and


IG Initiative


Inappropriate Influence Involving a Contract
or Business Agreement


March 25, 2009


July 29, 2009


File ID No. 2009105

On March 20, 2009, WBNS 10TV published an article on their website written by a
reporter who had investigated a business relationship between the Ohio Penal Industries
(“OPI”), a section of the Ohio Department of Rehabilitation and Correction (“ODRC”),
and KBK Enterprises. The article implied the business relationship evolved from a
personal friendship between Keith Key, President of KBK Enterprises, and ODRC
Assistant Director Michael Randle, and related that the two had been fraternity brothers
while attending The Ohio State University.

The article also claimed that KBK

Enterprises was able to purchase OPI products at OPI’s net cost for materials and labor, a
special pricing arrangement not available to state agencies.

Our investigation confirmed the relationship between Key and Randle. We did not find
that Randle had a significant role in the negotiations of the agreement between OPI and
KBK Enterprises. However, we did find that Randle had some minor involvement in the
negotiation process and the administration of the agreement following its execution. By
Randle’s own admission, we learned that he had never divulged his friendship with Key
to ODRC Director Terry Collins prior to OPI entering into the business agreement with
KBK Enterprises. We found an appearance of impropriety on the part of Randle for his
failure to make Director Collins aware of his personal relationship with Key.

During our investigation, we identified another business transaction between ODRC and
KBK Enterprises. In this instance, Randle’s involvement was more substantial. In 2004,
then Deputy Director Randle chaired the Corrections Technology Committee. Following
a presentation by Elmo-Tech, a company that manufactures electronic monitoring devices
and systems, it was decided to purchase a group monitoring unit, which is used to
monitor inmates’ movements while on a work detail outside of an institution. Randle
provided Keith Key’s name to the Elmo-Tech representative as a possible distributor for


Elmo-Tech products. Key was subsequently contacted by the representative and entered
into a distributorship agreement with the company. Key later submitted a proposal to
ODRC, addressed to Randle, for eight of the group monitoring unit packages at a total
cost of $120,000.00. As Elmo-Tech was the sole manufacturer for this unit, it was
necessary to obtain documentation confirming them as a sole source vendor and identify
KBK Enterprises as the only distributor for Elmo-Tech in the state of Ohio. After doing
that, ODRC then submitted a request for a “Waiver of Competitive Selection” to the Ohio
Controlling Board. In his interview, Randle stated he believes he may have personally
testified in front of the Ohio Controlling Board when requesting this waiver.


December 6, 2004, the waiver was granted and the eight packages were purchased from
KBK Enterprises. We learned that the cost of the eight packages from Elmo-Tech to
KBK Enterprises was $80,000.00.

As with later dealings between KBK Enterprises and OPI, Randle did not notify then
Director Wilkinson, or any of his other superiors, of his friendship with Key prior or
subsequent to the purchase of the group monitoring unit. ODRC could have purchased
the units directly from the company. It is unknown what the actual cost would have been,
as there were never any negotiations concerning a direct purchase. However, Elmo-Tech
felt certain it would have been at a lesser cost than the 50 percent markup ODRC paid to
KBK Enterprises. Randle’s lack of transparency about his friendship with Key, the fact
that he provided Key’s name to Elmo-Tech and the fact that ODRC could have saved a
significant amount of money by buying the group monitoring unit direct from Elmo-Tech
are the primary reasons we conclude that acts of wrongdoing occurred in this instance.

Finally, we found the agreement between OPI and KBK Enterprises to be more involved
than what was reported in the initial newspaper article.

A key component of the

agreement was a profit sharing arrangement between OPI and KBK Enterprises based on
the resale price of OPI products sold by KBK Enterprises’ subsidiary, Key Industries.
The terms for this arrangement were not clearly defined within the body of the
agreement. These terms were spelled out in a memorandum from KBK Enterprises to


OPI. Our opinion is that this key issue should have been included in the body of the
agreement in order to prevent any disputes between the two entities at a later date.





BASIS FOR INVESTIGATION........................................................................1




DISCUSSION ....................................................................................................1
Allegation: A personal relationship between ODRC Assistant Director
Michael Randle and Keith Key influenced a business agreement between
ODRC/OPI and KBK Enterprises ...................................................................................3


OTHER MATTERS...........................................................................................6



OPI/KBK Enterprises Memorandum of Understanding………… ................ A
E-mail from Randle to Key............................................................................ B
KBK Enterprises Proposal ............................................................................ C
ODRC Request to Ohio Controlling Board ................................................... D
Elmo-Tech Invoice to KBK Enterprises ........................................................ E
Elmo-Tech Price List ..................................................................................... F
Itemized Product List from KBK Enterprises to ODRC ............................... G




A news article published on the WBNS 10TV website on March 20, 2009, reported that
the author of the article had investigated a business relationship between Ohio Penal
Industries (“OPI”), a section within the Ohio Department of Rehabilitation and
Correction (“ODRC”), and KBK Enterprises.1 The article implied that this business
relationship was at least partially formed between the two entities because ODRC
Assistant Director Michael Randle and Keith B. Key, President of KBK Enterprises, were
good friends and fraternity brothers. The article focused on the pricing of products
manufactured by OPI and sold to KBK Enterprises. It was alleged that KBK Enterprises
was purchasing the products at a substantially lower cost than that for which OPI would
have sold the same products to state agencies.



We interviewed ODRC employees, as well as employees of The Ohio State University
(“OSU”) and KBK Enterprises. We also reviewed records and documents provided by
ODRC, KBK Enterprises and OSU. Our office was assisted by the Ohio State Highway
Patrol Office of Investigative Services throughout the investigation.



History of Ohio Penal Industries
Following the opening of the first state-operated Ohio prison in 1815, prison workshops
were created. The work performed by the inmates was necessary for the upkeep of the
prison. The skills of the employed inmates were wide ranging. These inmates were also

KBK Enterprises is the parent company of several subsidiaries. One of these subsidiaries is Key
Industries, to which we refer throughout this report.


allowed to develop a “cottage industry” while incarcerated and permitted to sell their
products through the guards to the general public. These were the first pseudo-contracts
entered into by those from the prison and another party. It was also the beginning of
inmates conducting business with the “outside.” In 1912, this work program evolved into
what was known as the State Use Industries and, ultimately, in 1947, the program was
named the Ohio Penal Industries.

OPI currently operates 40 shops in 20 correctional facilities throughout the state, as well
as a product showroom at 1221 McKinley Avenue in Columbus, Ohio.


manufactured by OPI are generally sold to other state agencies and, in some instances, to
the private sector or private individuals. The types of products manufactured at these
shops vary greatly – ranging from toilet paper to office furnishings. OPI also provides
services to private companies by assembling kits and other items for the company and
installing the items at the end user’s location. For these products and services, OPI
receives payment from the purchaser or vendor. With regard to the services offered to
vendors, OPI generally enters into a contract with the vendor for the service. For the
fiscal year ending June 30, 2008, OPI’s sales totaled $32,365,106.00. OPI currently
operates as a self-sustaining operation within ODRC and draws little, if any, funding
from the state’s General Revenue Fund.

According to ODRC, the success of OPI is measured by the lower number of inmates
who return to incarceration after their release, rather than on the profit the program

Studies have shown that inmates who learn marketable skills while

incarcerated and are able to find employment after being released have a much lower
recidivism rate.

OPI/KBK Enterprises Background
Sometime in the summer of 2005, KBK Enterprises approached ODRC with a re-entry
plan to ease the transition of inmates back into society upon their release from
incarceration. The plan was quite involved, and included work programs, mentorships


and housing for former inmates. This plan proved to be too large and complicated for the
two parties to bring to fruition. Subsequently, the idea was tabled and other avenues for a
working relationship between ODRC and KBK Enterprises were explored. Ultimately,
KBK Enterprises was directed to former OPI Chief Robin Knab. Knab had been party to
some of the discussions and meetings involving the re-entry program and was familiar
with the ideas presented by KBK Enterprises.

In April, 2007, a Memorandum of

Understanding (“MOU”) (Exhibit A) was executed by OPI and KBK Enterprises. This
MOU was an agreement between KBK Enterprises and OPI whereby KBK Enterprises
would purchase OPI products and then resell these products to the private sector. In turn,
KBK Enterprises was to share a portion of the profit with OPI. With this MOU, Key
Industries, a subsidiary of KBK Enterprises, was formed and articles of organization were
filed with the Secretary of State. The MOU was meant to be a precursor for a formal
contract between OPI and Key Industries. However, the two parties could not come to
terms and a contract was never executed.

With the release of the news article, the personal relationship between Randle and Key
became public. Questions arose as to whether or not this relationship influenced the
agreement between KBK Enterprises and OPI.

Allegation: A personal relationship between ODRC Assistant Director Michael Randle
and Keith Key influenced a business agreement between ODRC/OPI and KBK
Michael Randle began working for ODRC in 1990 when he was hired as a Case
Manager. Over the years he worked at various institutions and held several positions,
including Deputy Warden, Warden and Deputy Director. In April, 2006, Randle was
appointed the Assistant Director of ODRC.

As the Assistant Director, Randle was

second in charge and oversaw the administration and operation of the entire agency.
Within the agency, he reported only to ODRC Director Terry Collins.

Prior to his employment with ODRC, Randle attended The Ohio State University where
he obtained a bachelor’s degree in criminology. He continued his education and received


a master’s degree in business administration from Ashland University. In 1986, while
attending OSU, Randle joined the Omega Psi Phi fraternity where he met Keith Key.
Key had also pledged the Omega Psi Phi fraternity and the two lived in the same
fraternity house for approximately a year. In his interview, Randle told our office he
considers Key a friend, but their contact over the years had been sporadic. Randle stated
that some time around 2006, his contact with Key, along with other fraternity brothers,
became more frequent. They began socializing more often and vacationed together as a
group. Key’s recollection of the history of his friendship with Randle confirms much of
what Randle told us. Key believes, however, that their contact became more frequent
some time in 2004.

In 2005, Key said he was approached by an ODRC employee about speaking at a Black
History Month event at the Southeastern Correctional Facility in Lancaster, Ohio. Key
accepted the invitation and spoke at the event. According to Key, he became interested
in ODRC re-entry programs following this event. Key began conversations with ODRC,
during which he discussed his ideas and plans for a re-entry program. These discussions
continued, and Key said he was asked to speak at a re-entry program event held at the
Mansfield Correctional Facility in October, 2005. There, Key met Ed Rhine, Deputy
Director of Policy and Offender Re-Entry. Discussions and meetings between Key,
Rhine and others, over Key’s plan, continued throughout the remainder of 2005 and in
2006. According to those interviewed, Randle was only an occasional participant in
these discussions and meetings.

In late 2006, it became apparent the proposed re-entry program, which had become a
joint effort between KBK Enterprises and ODRC, was not possible. In light of this,
ODRC and KBK Enterprises began exploring other options where KBK Enterprises
could be involved in some type of re-entry program for former inmates. Ultimately,
KBK Enterprises was put in touch with OPI and entered into an agreement where KBK
Enterprises, now operating through its subsidiary, Key Industries, would purchase OPI
products at cost and then resell the items. A portion of the profit from the resale would
be shared with OPI.


In order to determine if Randle and Key’s personal relationship had any bearing on this
business arrangement, we interviewed OPI employees, as well as others at ODRC and
Key Industries. We also examined records and memos, as well as e-mails and invoices
sent between OPI and Key Industries.

We learned from our interviews with ODRC employees that Randle’s role in the
relationship between OPI and Key Industries was minimal.

He would occasionally

receive complaints from Key Industries and forward them to OPI to be resolved, but
otherwise, he had no part in the day-to-day operations. We found one e-mail (Exhibit B)
in which Randle provided suggestions for the business agreement, but no other
correspondence of this type from Randle was found. E-mails written and received by
others indicated that Randle was made aware of the ongoing negotiations and would
occasionally have input or questions. None of those interviewed felt any undue pressure
from Randle or the Director’s Office to accommodate Key Industries or any of its
employees. One person interviewed felt it was unusual that when Key Industries had an
issue, they would contact Randle or someone else at the Director’s Office seeking
resolution, while other vendors would usually contact OPI directly with their concerns.
Normally, these calls from Key Industries were followed by a phone call to OPI seeking
information about the problem.

All of those interviewed said that Randle and the

Director’s Office would support OPI’s position in these matters.

We also learned from our interviews with both ODRC and Key Industries employees that
the business relationship between the two entities was difficult and frustrating. This
subsequently led to problems in negotiating the terms of a future contract. And these
difficulties led to the February 5, 2009 termination of the April, 2007 agreement prior to
its expiration.

We found, however, that Randle, by his own admission, did not notify Director Collins,
or anyone else at ODRC, of his personal relationship with Key prior to the release of the
newspaper article. Even though it was minimal, Randle had some involvement in the


business agreement between OPI and KBK Enterprises. As the Assistant Director of the
agency, Randle should have realized the necessity of fully disclosing his personal
relationship with Key to Director Collins prior to ODRC entering into any business
agreements with Key’s companies.

He should have recused himself from any

involvement in the business agreement between OPI and KBK Enterprises.

Accordingly, we found an appearance of impropriety on the part of Assistant Director
Randle in this instance.



Prior Dealings Between ODRC and KBK Enterprises
During our investigation, we learned of a prior business deal involving ODRC and KBK
Enterprises. In 2004, while serving as Deputy Director of Administration and as the
Chair for the Corrections Technology Committee, Randle attended a presentation by
Elmo-Tech. Elmo-Tech is, among other things, a manufacturer of electronic monitoring
devices and systems that can be used by correctional departments and facilities to track
the movements of inmates. At this particular presentation, a group monitoring unit2 was
marketed. At the end of the presentation, Randle said he expressed an interest in this unit
to the Elmo-Tech representative. Discussion ensued and, according to Randle, the ElmoTech representative indicated his company’s desire to work with an Ohio company to sell
their products.

Up to this point, Elmo-Tech, a company based in Israel, had no formal operations center
in the United States but did have representatives and distributors working throughout the
country. Randle said he provided the names of several Ohio companies, including KBK
Enterprises, to the Elmo-Tech representative. Randle asserted the company names he
provided were minority-owned businesses and that it was the desire of ODRC to conduct

This unit was marketed by Elmo-Tech under the proprietary name of “TRaCEr.”


more business with minority-owned companies. Randle also said he provided the ElmoTech representative with the Ohio Department of Administrative Services contact
information for a possible direct purchase from Elmo-Tech.

According to our

discussions with the Elmo-Tech representative, however, he only recalled being provided
the name of Keith Key, the owner of KBK Enterprises. He also expressed that his
company was indifferent to dealing with ODRC through another Ohio company.
However, he felt that since Key’s name was provided by Randle, this would be the way
for his company to do business with ODRC.

Subsequent to this presentation, Elmo-Tech contacted Key and entered into a
distributorship agreement with KBK Enterprises, thereby making KBK Enterprises the
sole distributor for the Elmo-Tech group monitoring unit in Ohio. As such, any future
purchases of the unit would have to be transacted through KBK Enterprises.

Some time after signing the distributor contract, Key sent a proposal (Exhibit C) for the
purchase of eight packages of the group monitoring unit to ODRC and addressed the
undated document to Randle. Key’s proposal included a breakdown of costs for the
components of the unit and reflected a “one time” overall discount of $15,120.00. After
this discount, the total for the eight complete packages included in the proposal was
reduced to $120,000.00.

After receiving a letter verifying the group monitoring unit to be a sole source product
manufactured by Elmo-Tech, the process for obtaining a “Waiver of Competitive
Selection” from the Ohio Controlling Board (“Controlling Board”)3 was begun. In the
request submitted to the Controlling Board (Exhibit D), KBK Enterprises was identified
as “the only authorized dealer for Elmo-Tech products in Ohio.” During an interview,
Randle stated he “may have even gone to the board on this” referring to testifying in front
of the Controlling Board. He said it was not unusual for him to appear in front of the

The Ohio Controlling Board is authorized and governed by Chapter 127 of the Ohio Revised Code. Its
primary duties are the transferring of appropriation authority between line items within an agency and
granting waivers of competitive selection.


Controlling Board given the position he held at that time. On December 6, 2004, the
Controlling Board approved the waiver which allowed ODRC to purchase the group
monitoring units from KBK Enterprises.

In our conversations with two Elmo-Tech representatives, we were assured that ODRC
could have purchased the group monitoring units directly from Elmo-Tech.


questioned, both believed KBK Enterprises purchased the eight packages of the unit from
their company for around $80,000.00. While neither Elmo-Tech representative could tell
us how much the savings would have been had the units been purchased directly from the
company, we were told it would have cost less for ODRC to purchase the units direct
rather than through a third party where the markup was $40,000.00. From documents we
later received from Elmo-Tech, we know that the cost of the equipment to KBK
Enterprises was $80,000.00 (Exhibit E). According to an itemized pricing sheet (Exhibit
F) we also received from the company, the cost of their product included two days of
training. When interviewed, both Key and Randle implied that the price of the group
monitoring unit charged to ODRC was due in part to the cost of training. However, this
cost was already incorporated into the cost of the product sold to KBK Enterprises. And,
in the itemized invoice from KBK Enterprises to ODRC (Exhibit G), there was no
notation of training as a separate cost or that training was included as part of the overall
price of the unit. Finally, the proposal memo from Key to Randle clearly states that two
days of training would be provided at no cost for the initial order.

Overall, ODRC purchased the eight packages of the group monitoring unit at a 50%
higher cost than it was sold to KBK Enterprises. Randle stated in his interview that had
he known the cost of the unit if acquired from Elmo-Tech through a direct purchase, then
ODRC would have dealt directly with the company.

In this instance, as with the other business arrangement between OPI and KBK
Enterprises, Randle did not notify his superiors of the personal friendship that existed
between him and Key. When questioned about whether or not he notified then Director
Reginald Wilkinson, Randle said he had not. He stated he “was functioning in the


capacity of a Deputy Director for the Department of Corrections” and that he did not feel
it was an issue.

Based on our investigation, it was clear that had Randle or ODRC explored the option of
purchasing the group monitoring units directly from Elmo-Tech, the agency would have
realized a substantial cost savings. Further, Randle’s actions were improper when he
provided the name of Keith Key to the Elmo-Tech representative and then subsequently
received a proposal from Key that was addressed to him alone. This proposal ultimately
resulted in the requesting and granting of a waiver of competitive selection from the
Controlling Board. Finally, Randle failed to divulge to his superiors the friendship that
existed between him and Key prior and subsequent to the business transaction between
ODRC and Key’s company, KBK Enterprises.

Accordingly, we found reasonable cause to believe that wrongful acts or omissions
occurred in this instance.

The ODRC/OPI and KBK Enterprises Agreement
The initial news article about the agreement between OPI and KBK Enterprises, dated
March 20, 2009, would have the reader believe that only KBK Enterprises was profiting
from the sale of the OPI products. This was simply not the case. Part of the agreement
between OPI and KBK Enterprises was the previously-mentioned profit sharing
arrangement. A follow-up article published in The Columbus Dispatch, a sister affiliate
of WBNS 10TV, dated March 31, 2009, written by the same reporter, addressed the issue
of the profit sharing arrangement, as well as the termination of the agreement between
OPI and KBK Enterprises.

We reviewed the MOU executed between OPI and KBK Enterprises.

We also

interviewed key players who negotiated the terms of the MOU and those who worked
within the parameters of the agreement following its execution. We found the MOU


document to be standard in form with all but one of the terms clearly spelled out. The
profit sharing agreement between OPI and KBK Enterprises, which was somewhat
unorthodox, was not addressed within the body of the MOU.

The terms for this

arrangement were later set out in a memo from Keith Key to former OPI Chief Robin
Knab, both of whom signed the MOU. We also found an e-mail where Key Industries
wanted to change the terms for this arrangement to their benefit. This was found to be
unacceptable by OPI, and the terms of original memo stayed in place.

We learned that the desire to enter into this agreement with KBK Enterprises was, in part,
due to the company’s ability to do business with OSU. At one point a letter, specifically
for the university, was drafted identifying Key Industries as being involved in a business
arrangement with OPI and that the purchase of OPI products should go through Key
Industries. We received a copy of this letter from the university. No one at OPI we
spoke with knew of this letter which caused us to initially question its veracity. We were
later able to verify the letter’s authenticity and determined that it was drafted by Key
Industries and forwarded by Keith Key to Randle for Director Collins’ signature. Prior to
this, OPI had little involvement with OSU, although they desired the business the
university could provide. In this instance, Key Industries, in effect, “opened the door” for
OPI to do business with OSU. This subsequently led to a large order to purchase OPI
furnishings for the university through Key Industries. The order is to be delivered in
2010. However, since the termination of the April, 2007 agreement, Key Industries will
not realize any pricing benefit other than a quantity discount which would be offered to
any other private party or state agency based on the number of items purchased.

From the onset of our investigation, it was clear the business relationship between OPI
and Key Industries was frustrating on both sides. We learned from OPI employees that
problems between the two entities began almost immediately. Much of the controversy
centered on claims that Key Industries did not understand how OPI operated. The same
concerns were voiced by Key Industries, which held the belief that OPI had difficulty
understanding private sector business operations. OPI claimed they never knew what the
end user, who purchased the OPI products sold by Key Industries, was actually paying


for the items. By contrast, we were informed by those employed by Key Industries that
their company was more than willing to divulge the sales price of the items but they were
never asked by anyone from OPI. In the end, Key Industries provided an accounting to
OPI of the final price of the items they sold. From this, OPI was able to calculate the
amount they felt they were owed from the profit sharing arrangement. The total business
transacted between OPI and Key Industries amounted to just over $11,000.00. It was
OPI’s belief that they were owed $3,234.86 in profit margin share.

After some

discussion between OPI and Key Industries, Keith Key paid the amount requested and so
ended the agreement between the two.

A memo dated October 24, 2007, and signed by Director Collins, encouraged private
vendors and non-state agencies to do business with Key Industries when purchasing OPI
products. It lauded the partnership between OPI and Key Industries as an example of a
private company and a component of state government working together and exhibiting
the ability to “think outside the box.” And, while we find no criticism with this thought
process, we do have concerns with the MOU not clearly defining the terms for the profit
sharing arrangement. While we believe this key issue should have found a place within
the wording of the actual MOU document, we do not feel this oversight rises to the level
of a wrongful act.

Accordingly, we did not find reasonable cause to believe a wrongful act occurred in this




One would believe, from the initial news article which spurred this investigation, that
KBK Enterprises was the sole beneficiary of an agreement with OPI, and that the
business relationship was the result of the personal friendship between ODRC Assistant
Director Randle and Keith Key. We determined that this friendship had a minimal role in
the OPI/KBK Enterprises business relationship. Nonetheless, Randle failed to disclose
the friendship to his superior. As the Assistant Director, he should have known the
necessity of notifying Director Collins of his friendship with Key, and he should have
had no involvement in any aspect of formulating the business agreement.

OPI suffered no loss as a result of this business relationship. OPI was paid its production
cost and, eventually, a portion of the profits from the resale of products sold to KBK
Enterprises’ subsidiary, Key Industries.

It appears this friendship between Randle and Key had a much more substantial role in
arranging a separate business deal between ODRC and KBK Enterprises.

In that

instance, Randle not only provided Key’s name to an Elmo-Tech representative, but also
assisted in obtaining a waiver from the Controlling Board so ODRC could purchase a
product through Key’s company.

While there are no laws expressly prohibiting a state employee from doing this, provided
the employee receives no personal benefit from the purchase, the referral and subsequent
purchase clearly give the appearance of impropriety. We found no evidence to indicate
Randle received any personal benefit from the purchase of the group monitoring units
from KBK Enterprises. However, Randle failed to notify his superiors of the friendship
that existed between him and Key. The appearance of impropriety in this instance is
enhanced by the fact that ODRC could have purchased the product directly from ElmoTech at a lesser cost, thereby saving the state money.


Finally, we believe any key component in a business agreement should be clearly spelled
out in the written documentation of the agreement. That was not the case in the MOU
between OPI and KBK Enterprises. The profit sharing arrangement was not included in
the actual document. In the long run, this led to problems with OPI collecting its share of
profits from Key Industries.