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Louisiana Prison Enterprises

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Louisiana Prison Enterprises STATE OF LOUISIANA LEGISLATIVE AUDITOR Louisiana Prison Enterprises April 1997 Performance Audit Division Daniel G. Kyle, Ph.D., CPA, CFE Legislative Auditor LEGISLATIVE AUDIT ADVISORY COUNCIL MEMBERS Representative Francis C. Thompson, Chairman Senator Ronald C. Bean, Vice Chairman Senator Robert J. Barham Senator Wilson E. Fields Senator Thomas A. Greene Senator Craig F. Romero Representative F. Charles McMains Representative Edwin R. Murray Representative Warren J. Triche, Jr. Representative David Vitter LEGISLATIVE AUDITOR Daniel G. Kyle, Ph.D., CPA, CFE DIRECTOR OF PERFORMANCE AUDIT David K. Greer, CPA, CFE Louisiana Prison Enterprises April 1997 Performance Audit Office of Legislative Auditor State of Louisiana Daniel G. Kyle, Ph.D., CPA, CFE Legislative Auditor Table of Contents Legislative Auditor's Transmittal Letter vii Executive Summary ix Chapter One: Introduction Audit Initiation and Objectives 1 Report Conclusions 1 Program Background 3 Program Operations 6 Program Resources 12 Federally Certified Prison Industries Enhancement Program 12 Scope and Methodology 15 Report Organization 17 Chapter Two: Program Planning Efforts Chapter Conclusions 19 Processes Needed to Measure Achievement of Mission and Goals 19 Long-Range Planning and Performance Measures Needed 27 Chapter Three: Product Management Chapter Conclusions 29 Formal Methodology for Pricing Products Recently Developed 29 Competitiveness of Prison Enterprises' Products Not Determined 33 Marketing and Sales Plans Should Be Developed 34 Page iv Louisiana Prison Enterprises Chapter Four: Public/Private Partnerships Chapter Conclusions 37 Public/Private Partnerships Employ Inmates 38 PIE Program Offsets Incarceration Costs 38 One Partnership Offers Minimal Benefits 46 Exhibits Exhibit 1 -1: Prison Enterprises' Organization Chart 5 Exhibit 1-2: Locations of Facilities With Industries or Agriculture Operations 7 Exhibit 1-3: Industries Operations Net Income by Industry for Fiscal Year 1994-1995 9 Exhibit 1-4: Agriculture Operations Net Income by Operation for Fiscal Year 1994-1995 10 Exhibit 1-5: Food Distribution Center Net Income for Fiscal Year 1994-1995 11 Exhibit 1-6: Sales by Customer Category 11 Exhibit 1-7: Comparison of Financial Position for Fiscal Years 1993 to 1995 12 Exhibit 2-1: Prison Enterprises' Agriculture and Industries Operations Profits and Losses Fiscal Years 1994 and 1995 23 Exhibit 2-2: Comparison of Net Incomes for Industries and Agriculture Operations for Fiscal Years 1994 to 1996 24 Exhibit 3-1: Prison Enterprises' Method of Establishing Product Prices 30 Exhibit 3-2: Comparison of Calculated Sales Price to State Contract Price for Selected Prison Enterprises' Products 31 Exhibit 3-3: Comparison of Calculated Cost to Make to State Contract Price for Selected Prison Enterprises' Products 32 Table of Contents Page v Exhibits (Cont.) Exhibit 4-1: Financial Impact of Louisiana PIE Operations 39 Exhibit 4-2: Prison Industries Enhancement Programs in Other States: Gross Wages and Allowable Deductions for Federal Fiscal Year 1995 40 Exhibit 4-3: Results of Operations for the Chicken Processing Plant for Fiscal Years 1995 and 1996 47 Appendixes Appendix A: Prison Enterprises' Operations by Location for Fiscal Year 1994-1995 A.I Appendix B: Survey Instrument of States With PIE Programs B.I Appendix C: Results of Survey of States With PIE Programs C.I Appendix D: Louisiana Prison Enterprises' Response D.I Page vi Louisiana Prison Enterprises OFFICE OF LEGISLATIVE AUDITOR STATE OF LOUISIANA BATON ROUGE, LOUISIANA 70804-9397 1600 NORTH THIRD STREET POST OFFICE BOX 94397 DANIEL G. KYLE, PH.D., CPA, CFE TELEPHONE: (504) 339-3800 LEGISLATIVE AUDITOR April 30, 1997 FACSIMILE: (504)339-3870 The Honorable Randy L. Ewing, President of the Senate The Honorable H. B. "Hunt" Downer, Jr. Speaker of the House of Representatives and Members of the Legislative Audit Advisory Council Dear Legislators: This is our report of the performance audit of Louisiana Prison Enterprises. We conducted this audit under provisions of Title 24 of Louisiana Revised Statutes of 1950, as amended. All performance audits are conducted in accordance with generally accepted government auditing standards. This report presents our findings, conclusions, and recommendations. We have also identified several matters for legislative consideration. Appendix D is the response of Louisiana Prison Enterprises. I trust that this report will be of value to you in your decision-making process. Sincerely, Daniel G. Kyle, CPA, CFE Legislative Auditor DGK/jl PRISON ENTERPRISES! Office of Legislative Auditor Executive Summary Performance Audit Louisiana Prison Enterprises Louisiana Prison Enterprises is a division of the Department of Public Safety and Corrections. For fiscal year 1995, the agency sold more than $21.1 million in goods and services. Our audit found that: # Louisiana Prison Enterprises should document its claims of saving the state millions of dollars annually. The agency has some examples of individual instances, but no cumulative figure. By developing a cumulative figure, Louisiana Prison Enterprises can illustrate how effective it is at saving the state money. # Louisiana Prison Enterprises achieved part of its mission of being self-supporting for fiscal year 1995. However, some individual operations were not self- supporting, particularly agriculture operations. # The agency's last long-range strategic business plan covered fiscal years 1989 to 1993. Since then, Louisiana Prison Enterprises has developed short-term plans. These short-term plans do not include formally developed performance measures. As a result, management does not measure and document whether goals and objectives are achieved. » Louisiana Prison Enterprises formalized its methodology to price products in November 1996. In our test of this methodology, we found that some products may be under-priced or over-priced. # Louisiana Prison Enterprises developed its last marketing plan in fiscal year 1990. It developed a sales plan in the middle of fiscal year 1996 in response to decreasing sales, but the plan only covered six months. # Louisiana Prison Enterprises has two public/private partnerships. One is a federal Prison Industries Enhancement program. Inmate workers in this program have contributed more than $180,000 in taxes, room and board, and victims' compensation. The other is a cooperative endeavor agreement. Inmates in this program can earn regular incentive wages or a reduction in their sentence at double the normal rate, also known as double goodtime. However, these inmates do not pay taxes, room and board, or victims' compensation. Daniel G. Kyle, Ph.D., CPA, CFE, Legislative Auditor Phone No. (504) 339-3800 Executive Summary Page xi We conducted this performance audit as part of the Audit National State Auditors Association joint audit on corrections Initiation industries. The National State Auditors Association joint audit and coordinating team developed the audit objectives. The 14 states, including Louisiana, participating in the joint audit had the Objectives discretion of pursuing other objectives or modifying the National State Auditors Association suggested objectives. We chose to pursue four objectives. The specific objectives of this audit were to; » Assess the adequacy and reasonableness of Louisiana Prison Enterprises' program planning efforts + Determine whether Louisiana Prison Enterprises is meeting its mission and goals » Determine whether Louisiana Prison Enterprises' goods and services are competitively priced and whether sales and marketing efforts are efficient and effective » Determine the extent to which public/private partnerships are being used to develop work programs For fiscal year 1995, Louisiana Prison Enterprises sold Achievement of over $21.1 million in goods and services that were manufactured Prison or provided through its various operations. Louisiana Prison Enterprises' mission is to reduce the overall cost of prison Enterprises' operations, state agencies, local government entities, and tax- Mission and supported institutions by operating self-supported industrial and Goals Should Be agricultural businesses. (Pages 3-11) Measured and Louisiana Prison Enterprises has not measured or Documented documented how much money it is saving the Department of Public Safety and Corrections and the state by providing goods and services at cost. The agency reported in its fiscal year 1994 annual report that it saved the state millions of dollars by providing goods and services to the Department of Public Safety and Corrections, state agencies, and other entities. The annual report provided some examples of savings, but did not give a cumulative figure. Page xii Louisiana Prison Enterprises Louisiana Prison Enterprises paid incentive wages averaging $442,000 annually for fiscal years 1993 through 1995. These incentive wages went to inmates who worked in other areas of the Department of Public Safety and Corrections and were not Louisiana Prison Enterprises' workers. As a result, the state General Fund appropriation to the Department of Public Safety and Corrections did not have to cover the cost of these incentive wages. The actual amount that Louisiana Prison Enterprises paid from its self-generated revenue for fiscal year 1995 was nearly $465,000. (Pages 21-22) Part of Louisiana Prison Enterprises' mission is to operate self-supporting programs. Louisiana Prison Enterprises was self-supporting as a whole for fiscal year 1995, but some individual operations were not, particularly
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