DEPARTMENT OF CORRECTIONS COLORADO CORRECTIONAL INDUSTRIES
DEPARTMENT OF CORRECTIONSCOLORADO CORRECTIONALINDUSTRIESJANUARY 2015PERFORMANCE AUDIT
THE MISSION OF THE OFFICE OF THE STATE AUDITORIS TO IMPROVE GOVERNMENTFOR THE PEOPLE OF COLORADOLEGISLATIVE AUDIT COMMITTEESenator Lucia Guzman – ChairRepresentative Dan Nordberg – Vice-ChairSenator Chris HolbertSenator Cheri JahnSenator Tim NevilleRepresentative Dianne PrimaveraRepresentative Su RydenRepresentative Lori SaineOFFICE OF THE STATE AUDITORDianne E. RayState AuditorMonica BowersDeputy State AuditorTrey StandleyChristopher HarlessHeidi WagnerAudit ManagerTeam LeaderStaff AuditorAN ELECTRONIC VERSION OF THIS REPORT IS AVAILABLE ATWWW.STATE.CO.US/AUDITORA BOUND REPORT MAY BE OBTAINED BY CALLING THEOFFICE OF THE STATE AUDITOR303.869.2800PLEASE REFER TO REPORT NUMBER 1350P WHEN REQUESTING THIS REPORT
OFFICEOF THE STATE AUDITORJanuary 7, 2015DIANNE E. RAY, CPA——STATE AUDITORMembers of the Legislative Audit Committee:This report contains the results of a performance audit of ColoradoCorrectional Industries within the Department of Corrections. The auditwas conducted pursuant to Section 2-3-103, C.R.S., which authorizes theState Auditor to conduct audits of all departments, institutions, andagencies of state government. The report presents our findings, conclusions,and recommendations, and the responses of the Department of Corrections.OFFICE OF THE STATE AUDITOR1525 SHERMAN STREET7TH FLOORDENVER, COLORADO80203303.869.2800
CONTENTSReport Highlights1Recommendation Locator3CHAPTER 1OVERVIEW OF COLORADO CORRECTIONAL INDUSTRIES7Administration and Business OperationsInmate EmploymentAudit Purpose, Scope, and Methodology81112CHAPTER 2BUSINESS OPERATIONS15CHAPTER 3INMATE PROGRAMS AND SERVICES73ProfitabilityFinancial IndependenceReporting to StakeholdersInmate PayCompetition with Private-Sector BusinessesTraining ProgramsInmate Phone Service PricingMaintenance, Laundry, and Food Services1833455461748494APPENDIX ACORRECTIONAL INDUSTRIES ACTIVITIES BY SHOPA-1APPENDIX BCCI SHOPS BY CORRECTIONAL FACILITYB-1APPENDIX CSUMMARY OF FINDINGSRELATED TO THE SMART GOVERNMENT ACTC-1
REPORTHIGHLIGHTSCOLORADO CORRECTIONAL INDUSTRIESDEPARTMENT OF CORRECTIONSPERFORMANCE AUDIT, JANUARY 2015CONCERNColorado Correctional Industries (CCI) has earned little or no profits from its industries operations in recent years, needs toimprove its controls to ensure that it is financially independent from the Department of Corrections (Department), and couldimprove the information it collects to monitor its operations and measure performance. KEY FACTS AND FINDINGSAlthough statute requires CCI to operate in a profit-oriented manner, CCI’s industriesoperations earned profit margins on average of less than 1 percent from Fiscal Years2009 through 2014 and do not reimburse the General Fund for the cost of inmates’incarceration. In addition, CCI lacks long-term profit goals and adequate processes toachieve and improve profitability.The Department and CCI need to improve controls to ensure that CCI is only fundedthrough its business revenue as required by statute. For Fiscal Years 2009 through2014 CCI received funding totaling about 12 million from the Department throughtraining agreements without clear evidence that CCI was providing a service to theDepartment. As a result, it is unclear that this funding is legitimate business revenuefor CCI.CCI did not report some information required by statute and its own policies tostakeholders. For example, written business proposals provided to the CorrectionalIndustries Advisory Committee did not address the businesses’ potential impact on theprivate sector and annual reports and budget requests lacked required information,such as projections on the number of inmates employed and production and salesestimates.During Fiscal Year 2014 the Department sold about 283,000 in goods and servicesto the general public through inmate vocational training programs without statutoryauthority.Contrary to statute and Department regulations, CCI’s charges to inmates and theirfamilies for phone service were about 1.5 million higher than necessary to cover thecosts for providing the service during Fiscal Year 2014.Since Fiscal Year 1982, CCI has not provided the Department with laundry, food,facilities maintenance, and vehicle maintenance services as required by statute.BACKGROUND CCI’s statutory purpose is toprovideoffenderswithemployment and training, andoperateonafinanciallyprofitable basis to reimburse theGeneral Fund. CCI employs about 1,600inmates andoperates37industriesshopsatstatecorrectional facilities. During Fiscal Year 2014 CCIhad earned revenues of 47million from its industries shopsand about 17.4 million from itscanteen. State agencies are required topurchase certain goods andservices from CCI, such asfurniture, license plates, and roadsigns. CCI is authorized to sell goodsand services to the general publicand enter into partnerships withprivate entities, but must followstatutes intended to preventunfair competition with privatebusinesses.KEY RECOMMENDATIONSCCI and the Department should: Set long term profitability goals and strategies, develop metrics for evaluating the financial and non-financialbenefits provided by shops, and follow policies requiring corrective plans for unprofitable shops.Improve controls to ensure that CCI operates on a self-supporting basis.Report all required information to stakeholders and provide the Advisory Committee with regular updates onapproved businesses.Evaluate transferring responsibility for laundry, food, and maintenance from the Department to CCI and seekstatutory change as deemed necessary.CCI and the Department generally agreed with these recommendations.FOR FURTHER INFORMATION ABOUT THIS REPORT, CONTACT THE OFFICE OF THE STATE AUDITOR303.869.2800 - WWW.STATE.CO.US/AUDITOR
RECOMMENDATIONLOCATORAGENCY ADDRESSED: DEPARTMENT OF CORRECTIONSREC.NO.PAGENO.RECOMMENDATION SUMMARY130Improve the financial performance of CCIindustries by (a) establishing long-termprofitability targets and strategies andproceduresforregularlyevaluatingprofitability, (b) developing processes andmetrics for evaluating all benefits providedby shops and requiring unprofitable shopsto develop plans to improve performance,(c) adjusting accounting practices to trackthe finances of each shop and allocateoverhead costs to each shop in profit-andloss statements used by management, and(d) based on the process outlined in parts“a” through “c,” making changesnecessary to ensure that shops operate in acost-effective MENTATIONDATEA SEPTEMBER2015B DECEMBER2015C DECEMBER2015D DECEMBER2015
AGENCY ADDRESSED: DEPARTMENT OF CORRECTIONSREC.NO.PAGENO.RECOMMENDATION SUMMARYAGENCYRESPONSE242Ensure that CCI operates as a financiallyindependent entity by (a) developing awritten policy to define Department andCCI financial responsibilities, (b) amendingthe agreement between CCI and theDepartment for training programs toensure that all payments are for clearlydefined programs that CCI would nototherwise provide, (c) implementingcontract monitoring procedures for theagreementbetweenCCIandtheDepartment for training programs, (d)implementing procedures to ensure thatCCI pays or reimburses the Department forall CCI expenses, and (e) seeking guidancefrom the State Attorney General’s Officeregarding using inmate pay deductionsunder the federal Prison IndustriesEnhancement Program to fund CCIoperations.ABCDE352Improve CCI’s reporting practices by (a)reportingallstatutorilyrequiredinformation in its budget requests, annualreports, and financial reports or seekingstatutory change as needed, and (b)providing the Correctional IndustriesAdvisory Committee with informationnecessary to evaluate new CCI industries,notice of major changes to its operations,and updates on ongoing businesses.A AGREEB AGREEA JULY 2016B APRIL 2015460Ensure that CCI’s inmate pay plan isuniform and equitable by (a) working withthe Department to capture information onaverage daily or hourly wages paid toinmatesineachshop,and(b)implementing a policy and regular processfor monitoring average inmate pay.A AGREEB AGREEA APRIL 2015B JULY 2015AGREEAGREEAGREEAGREEAGREEIMPLEMENTATIONDATEA DECEMBER2015B MARCH 2015C JUNE 2015D JUNE 2015E MARCH 2015
AGENCY ADDRESSED: DEPARTMENT OF CORRECTIONSREC.NO.PAGENO.RECOMMENDATION SUMMARYAGENCYRESPONSE570Ensure that goods and services are onlysold to the private sector in accordancewith statute by (a) including informationon potential competition with the privatesector in CCI business proposals providedto the Correctional Industries AdvisoryCommittee, and (b) working with theGeneral Assembly to establish appropriatestatutory authority for selling goods ningprogramsnotcurrently administered by CCI.A AGREEB AGREEA APRIL 2015B MAY 2016682Improve the management of trainingprograms offered to CCI-employed inmatesby (a) developing and updating strategicobjectives,goals,andperformancemeasures for its training programs, (b)monitoring training programs offered inCCI shops, including centrally trackinginformation on the scope of training andinmate participation and completion data,and (c) reporting strategic objectives, goalsand measures, and data on its progresseach year.A AGREEB AGREEC AGREEA JULY 2015B JULY 2016C JULY 2015792Ensure that the rates charged for inmatephone services are reasonable and based oncosts by (a) renegotiating the contract withthe inmate phone service provider to lowerthe calling rates so they are only based onthe cost to provide phone services, and (b)implementing a regular process forreviewing the phone service contract toensure that rates continue to be reasonable,based on costs and in compliance withstate and federal laws.A PARTIALLYAGREEB PARTIALLYAGREEEnsure that facility maintenance, vehiclemaintenance, and food and laundryservices are operated in a cost-effectivemanner and in accordance with statute by(a) evaluating the cost-effectiveness ofreassigning these services to CCI, and (b)either transferring responsibility for theseservices to CCI or seeking legislativechange to allow for the division ofresponsibilities that the Departmentdetermines would be most beneficial to theState.A AGREEB AGREE898IMPLEMENTATIONDATEA FEBRUARY 2016B FEBRUARY 2015A JULY 2016B DECEMBER2016
CHAPTER 1OVERVIEW OF COLORADOCORRECTIONALINDUSTRIESColorado Correctional Industries (CCI) operates a number ofbusiness-like enterprises that provide work opportunities forinmates in state correctional institutions. Established as adivision within the Department of Corrections (Department),CCI’s purpose as defined in statute (Section 17-24-101 et seq.,C.R.S.) includes providing employment to as many inmates aspossible and training them in job skills that increase theiremployment prospects upon release.
DIVISION OF CORRECTIONAL INDUSTRIES PERFORMANCE AUDIT – JANUARY 20158In addition, CCI is charged with operating in a “profit-oriented”manner to partially reimburse the General Fund for the costs ofinmates’ incarceration.As an entity with enterprise status under Article X, Section 20 of theState Constitution, CCI is required to be financially independent fromthe Department and to sustain its operations through cash fundrevenues it generates through the sale of goods and services.ADMINISTRATION AND BUSINESSOPERATIONSCCI’s director is appointed by the executive director of theDepartment and is responsible for administering CCI, which employsabout 183 full-time equivalent (FTE) staff and 1,600 inmates.Although it must operate on a financially independent basis, CCI isintegrated within the State’s prison facilities and works closely withDepartment staff to share facilities and land, coordinate inmateschedules, and ensure security when planning its business operations.In addition to working with the Department, CCI must report to theCorrectional Industries Advisory Committee (Advisory Committee)created by Section 17-24-104(2)(a), C.R.S. The Advisory Committee isresponsible for reviewing all new industries proposed by CCI andmaking recommendations to CCI’s director on the feasibility of newindustries, although its recommendations are not binding on CCI.Statute (Sections 17-24-113 and 126, C.R.S.) requires CCI toseparately administer two key operational areas, which we refer tothroughout the report as “industries” and “canteen” operations.Although both employ inmates, statute and Department regulationsprovide different requirements and expectations for their operations.INDUSTRIES OPERATIONS. Statute [Sections 17-24-102(1)(a) and 17-24113(3), C.R.S.] requires CCI industries to be “profit-oriented” andestablishes the Correctional Industries Account, which is funded bythe sale of CCI industries goods and services and surplus state
9CCI manages a diverse array of 37 businesses within its industriesoperations, known as “shops” at correctional facilities around thestate. CCI’s shops sell a wide variety of goods and services to theDepartment, state and local agencies, the federal government, and thegeneral public, and provide training opportunities to inmates. Theshops are divided into the following sectors, which employed about1,600 inmates from 16 of the 20 state-owned correctional facilitiesand centers during Fiscal Year 2014 (SEE APPENDIX B for a table offacilities and shops): MANUFACTURING. Shops in this sector produce a wide variety ofgoods including office and dorm furniture, license plates, state flags,fishing rods, metal products, canoes, and fiberglass products. AGRICULTURAL. CCI’s agricultural shops include cow, goat and waterbuffalo dairies; a fish farm; greenhouses; wild horse and burro careand training; and fruit and vegetable farming. SERVICES. Inmates working in service-sector shops provide auto repair,furniture delivery and installation, canine training, computer-aideddesign and geographic information system services, and landscaping.In addition to authorizing CCI to establish operations in a variety ofbusiness sectors, statute (Sections 17-24-106.6, 109, and 111, C.R.S.)requires CCI to provide several products and services to state agencies.For example, CCI is required to produce license plates and tags for theDepartment of Revenue and to provide for the sale or disposal ofsurplus property. Also, statute generally requires state agencies, exceptinstitutions of higher education, to purchase office furniture andsystems from CCI, and agencies that do not have their own printingoperations are required to purchase printing services from CCI.REPORT OF THE COLORADO STATE AUDITORproperty. CCI must pay for all of the expenses for its industriesoperations from the Correctional Industries Account, and if it earns aprofit (i.e., its revenues exceed expenses), it is expected to transfersome of this funding to the General Fund to offset the cost of inmates’incarceration.
DIVISION OF CORRECTIONAL INDUSTRIES PERFORMANCE AUDIT – JANUARY 201510Although CCI is authorized to make a profit from its sales to stateagencies, it must generally sell to state agencies at wholesale prices.CANTEEN OPERATIONS. In addition to its industries operations, statuterequires CCI to operate a canteen to sell items to inmates in, andvisitors to, the Department’s correctional facilities. Through thecanteen, inmates can purchase food, personal items, and phone timeusing personal accounts maintained by the Department. During FiscalYear 2014 about 85 inmates at a time were employed by the twocanteen warehouses. CCI must price items in the canteen to cover itscosts and allow for a reasonable profit. Statute [Section 17-24-126,C.R.S.] requires that CCI account for the canteen separately from itsindustries operations and establishes a separate Canteen, VendingMachine, and Library Account (Canteen Account) for depositing allrevenues generated through the canteen. Unlike profits in theCorrectional Industries Account, profits deposited into the CanteenAccount cannot be transferred to the General Fund and must be usedto pay for inmate benefits programs, such as recreation, education,and entertainment, or to supplement direct inmate needs. Thefollowing exhibit shows revenue and expenditures for CCI’s two mainaccounts for Fiscal Years 2010 through 2014.EXHIBIT 1.1.CORRECTIONAL INDUSTRIES & CANTEEN ACCOUNTREVENUE AND EXPENDITURESFISCAL YEARS 2010 THROUGH 2014 (MILLIONS)20102011201220132014CORRECTIONAL INDUSTRIES ACCOUNTRevenue 40.1 46.0 50.7 46.7 23.023.523.5Balance1CANTEEN, LIBRARY, AND VENDING MACHINE ACCOUNT2Revenue 16.9 17.4 16.8 16.7 84.25.0Balance1CHANGE17%20%6%6%-8%-36%SOURCE: Colorado Financial Reporting System (COFRS).1Includes cash and other assets, such as inventory, equipment and buildings.2Includes revenues and expenses for educational and recreational programs not administeredby CCI that operate from this account.
11In order to work for CCI, inmates must have graduated from highschool or obtained a GED. All inmates, regardless of securityclassification, are eligible for CCI jobs unless they are inadministrative segregation, have health issues preventing work, or arehoused at facilities that do not operate CCI shops, which includeColorado State Penitentiary, Centennial Correctional Facility, SanCarlos Correctional Facility, Denver Reception and Diagnostic Center,and the state’s four privately managed facilities. CCI cannot forceinmates to work; however, CCI management indicates that inmatesconsider working for CCI to be a privilege and CCI is able to staff itsshops with inmates who have requested work. During Fiscal Year2013, CCI estimated that about 11,800 inmates met the conditions fora work assignment.With some exceptions, federal courts have held that prison inmates arenot considered employees under the U.S. Fair Labor Standards Actand therefore do not have to be paid a minimum wage; however,according to CCI management, it is important to provide inmates withwages sufficient to encourage productivity. Thus, CCI pays inmates atrates that are calculated based on their skills and experience and theproductivity within each shop, which can vary from month to month.For example, during the month of May 2014, the average inmateemployed by CCI was paid about 3.95 per day. According to CCImanagement, jobs in its shops are desirable to inmates and can beused as an incentive by Department staff to encourage good behavior,since inmates can lose their CCI jobs for violating prison rules.Inmates working for CCI shops receive general job skills training, suchas following directions and working on a team, and can also receivespecialized training through apprenticeships, certification programs,and community college courses. According to a 2011 Departmentstudy, inmates who worked for CCI were more likely to find jobsupon release and had lower recidivism rates than other inmates whowere released.REPORT OF THE COLORADO STATE AUDITORINMATE EMPLOYMENT
12DIVISION OF CORRECTIONAL INDUSTRIES PERFORMANCE AUDIT – JANUARY 2015AUDIT PURPOSE, SCOPE ANDMETHODOLOGYThis report includes the results of our performance audit of theDivision of Correctional Industries within the Department ofCorrections. We conducted this audit pursuant to Section 2-3-103,C.R.S., which authorizes the State Auditor to conduct audits of alldepartments, institutions and agencies of state government. The auditwas prompted by a legislative request which expressed concernsregarding CCI’s profitability and its procedures to avoid unfaircompetition with private businesses. Audit work was performed fromJanuary 2014 through December 2014.We conducted this performance audit in accordance with generallyaccepted government auditing standards. Those standards require thatwe plan and perform the audit to obtain sufficient, appropriateevidence to provide a reasonable basis for our findings andconclusi
INMATE PROGRAMS AND SERVICES 73. Training Programs 74 . Inmate Phone Service Pricing 84 . Maintenance, Laundry, and Food Services 94 . APPENDIX A . CORRECTIONAL INDUSTRIES ACTIVITIES BY SHOP A-1 . APPENDIX B . CCI SHOPS BY CORRECTIONAL FACILITY B-1. APPENDIX C . SUMMARY OF FINDINGS . RELATED TO THE SMART GOVERNMENT ACT C-1
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Eastern Kentucky University Department of Correctional Services and American Correctional Association. A limited number of copies of the Correctional Monograph from the National Correctional Trainers Conference and the Correctional Symposium: Corrections in Transition are available to individuals, libraries and institutions. The
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