Report 2004-101 Summary - December 2004

Prison Industry Authority:

Although It Has Broad Discretion in Pursuing Its Statutory Purposes, It Could Improve Certain Pricing Practices and Develop Performance Measures

HIGHLIGHTS

Our review of the Prison Industry Authority (PIA) revealed the following:

  • Although state law does not require PIA to offer competitive prices and its prices can differ from those of other vendors, PIA could improve certain pricing practices.
  • PIA has not established participation targets for the number of inmates it aims to employ among its various enterprises.
  • PIA has not demonstrated adequately whether and in what manner it fulfills its statutory purpose to reduce the operating costs of the California Department of Corrections.
  • Although PIA has embarked upon various activities aimed at enhancing the employability of its participants, it has not established targets or performance measures to track participants' post-release success and evaluate its own performance.

RESULTS IN BRIEF

The Prison Industry Authority (PIA) operates under the policy guidance of an 11-member Prison Industry Board (board) and exists to employ inmates, to reduce the operating costs of the California Department of Corrections (Corrections), to offer inmates the opportunity to develop effective work habits and occupational skills, and ultimately to be self-supporting by generating sufficient revenue from the sale of products and services to pay for its own expenses. As of July 2004, PIA operated 25 manufacturing, service, and agricultural enterprises within 60 factories and farms at 22 of Corrections' 32 institutions. It recorded approximately $144 million in revenue in fiscal year 2003-04, nearly all of it resulting from purchases by state agencies.

Although one of PIA's statutory purposes is to generate sufficient revenue from the sale of its products and services to ultimately be self-supporting, PIA has discretion with regard to how it fulfills this purpose. Over time, it appears that PIA has hovered around self-support; however, state law does not require each enterprise to be self-supporting, and the profits from some enterprises offset the losses in others. Specifically, of the 28 enterprises that experienced financial activity in fiscal year 2003-04, including three that PIA had closed recently, eight profitable enterprises offset much of the losses from 20 other enterprises.

Further, although PIA strives to keep the prices of its products and services competitive, state law does not require it to do so. Nonetheless, our review of the prices for 19 PIA products and services that in fiscal year 2002-03 generated approximately 24 percent of PIA's revenue shows that the prices for 14 of the items fall below the average price of the vendors we reviewed. The prices for an additional two items were no more than 15 percent greater than the average comparable price. Despite PIA's discretion with regard to pricing, we identified certain practices that could be improved, such as product costs of questionable reliability, inadequate documentation justifying its prices, and a lack of policies with regard to special or discount pricing.

In addition, although another of PIA's statutory purposes is to employ inmates, it has not established participation targets for the number of inmates it aims to employ among its various enterprises. Because the Legislature intended in part that PIA employ inmates in order to reduce inmate idleness and prison violence, we would expect PIA to establish long-range annual participation targets and report its progress in meeting these targets to the Legislature. Moreover, although inmates employed in PIA's enterprises contribute toward its ability to be self-supporting, this contribution varies depending on the enterprise. Yet PIA has not established criteria for evaluating each enterprise's combined contribution to PIA's statutory purposes of being self-supporting and employing inmates. Without establishing employment targets and routinely assessing the contribution of each enterprise to profitability as well as inmate employment against criteria, such as profitability per inmate, PIA limits decision makers' ability to assess its overall performance.

Further, although another of PIA's statutory purposes is to reduce the operating costs of Corrections, PIA has not demonstrated adequately whether and in what manner it fulfills this purpose. PIA claims that it provided Corrections $14.1 million in cost savings in fiscal year 2002-03 by offering a correctional work or training program (correctional program) for inmates that Corrections otherwise would have had to fund. However, in PIA's absence, Corrections is neither legally obligated nor was it prepared to reassign all of PIA's participants in fiscal year 2002-03 to programs other than PIA. Thus, PIA's approach toward claiming cost savings to Corrections for fiscal year 2002-03 is questionable. An alternative approach to demonstrate PIA's financial impact to Corrections would be to evaluate sentence reduction credits that PIA or other correctional program participants earn at a faster rate than nonparticipants. Sentence reduction credits result in inmates spending less time in institutions, decreasing Corrections' costs of monitoring, housing, and feeding them. However, a new program initiated by Corrections in fiscal year 2003-04 as a result of a legislative requirement will reduce significantly or eliminate the group of inmates whose participation in PIA could result in a cost avoidance to Corrections due to their earning sentence reduction credits at a faster rate. Thus, PIA's ability to claim any cost avoidance in the future with regard to sentence reduction credits is impaired significantly.

PIA's diminishing ability to reduce Corrections' costs in this manner leaves performance measures with regard to post-release success as the primary benchmarks to demonstrate PIA's value and distinguish itself from other correctional programs. In 1999 PIA embarked upon various activities aimed at enhancing the employability of PIA participants after their release. Driving these activities are six goals that PIA developed in 2001 to enhance the employability of inmates. Although PIA's development and pursuit of its inmate employability goals represent an improvement from what we reported in previous audits, PIA needs to ensure that activities designed to meet these goals contribute to inmates' post-release success.

In July 2003 PIA entered into a contract with the Employment Development Department (EDD) that allows PIA to track the employment status of its former participants. However, PIA could do more to demonstrate its impact. Although PIA has begun to measure its participants' ability to obtain post-release employment and to avoid returning to prison, it has not established targets or performance measures to track participants' post-release success and evaluate its own performance. For instance, PIA does not compare its participants' post-release success to that of participants in other correctional programs, to nonparticipants, or to its own expectations. In addition, PIA lacks the necessary data to determine whether the specific training or experience it provides inmates affects the types of jobs they obtain after release. After we discussed this matter with PIA, it contacted EDD to discuss obtaining additional data of this type. Despite the challenges of establishing a direct link between PIA's activities and inmates' level of success after release from prison, without measuring and reporting on how inmates who have participated in its enterprises fare after release, PIA cannot provide an adequate perspective on the effectiveness of its pursuit of its statutory purpose to offer inmates the opportunity to develop effective work habits and occupational skills. Moreover, without performance measures or targets, PIA cannot focus its inmate employability efforts on areas that demonstrate success.

RECOMMENDATIONS

PIA should improve its method for identifying product costs, ensure that it documents the analyses supporting each price, and establish policies for entering into special pricing arrangements or offering discounts to customers.

PIA should establish long-range annual employment targets overall, for each enterprise, and as a percentage of Corrections' institution population. PIA should include these targets and annual results in meeting them, as well as explanations when they are not met, in its annual report to the Legislature.

To the degree PIA estimates cost savings that result from inmates participating in PIA, it should ensure that its analysis considers all the options and associated costs per inmate that Corrections would have available for reassigning PIA's participants into another program in PIA's absence.

PIA should establish targets against which to measure its participants' post-release success in obtaining employment and not returning to prison. For instance, PIA should compare the post-release success of its participants to that of participants in other correctional programs, to nonparticipants, or to its own expectations. Corrections should assist PIA in obtaining the necessary data for comparison by providing comparable data on other correctional programs.

AGENCY COMMENTS

The Youth and Adult Correctional Agency and PIA concur with our recommendations and outline an approach for implementing them.


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