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Report 98102 Summary - September 1998

Prison Industry Authority:

Its Outside Purchase of Goods and Services Is Neither Well Planned nor Cost Effective

RESULTS IN BRIEF

The Prison Industry Authority (PIA) was established on January 1, 1983, as the successor to the California Correctional Industries Commission. The PIA is a penal program whose goals are to employ inmates, develop inmate work skills, and reduce the cost of operations of the California Department of Corrections (CDC). As such, the PIA employs inmates in the manufacturing, service, and agricultural industry programs it operates and manages statewide. Its products are sold principally to state agencies, which are required by law to purchase the PIA's manufactured goods. However, in instances when the PIA cannot produce enough products or render services to meet demand, it conducts a "buyout," which means it purchases comparable finished goods and services from the private sector. The PIA subsequently resells these items to its customers at its published prices.

Our review examined the extent to which the PIA buys and resells finished goods and services to its customers, and whether this activity is in accordance with state government rules, regulations, and policies. This examination covered July 1994 through December 1997 and revealed the following facts:

  • The PIA bought finished goods and services from the private sector 656 times with a resale value averaging 1.7 percent of total sales, and in conducting these buyouts lost $208,000.

  • The PIA profited on the sales of its other goods and services, indicating that some of its customers are subsidizing its losses on buyouts.

Also, when purchasing finished goods and services for resale, the PIA inappropriately uses emergency procurement procedures, which limits competition for the State's business, precludes its customers from choosing other vendors to supply their needs, and may not reflect the lowest cost available to the State. Moreover, we found that the PIA does not adequately plan ahead to meet the demand of its customers, especially in its poultry enterprise. Instead of establishing a statewide contract for chicken, the PIA uses emergency procurement procedures, rather than other alternatives, to purchase chicken when needed.

Further, according to our legal counsel, the PIA does not currently have the legal authority to buy and resell finished goods and services to its customers. This authority is vested in the Prison Industry Board and has not been delegated to the PIA.

Finally, the PIA purchases and resells processed eggs, primarily to the CDC. However, in these transactions the PIA functions strictly as a middleman because it does not produce processed eggs. Consequently, the PIA is not promoting inmate employment and is duplicating the efforts of the CDC's own procurement unit and that of the Department of General Services, which may result in additional administrative costs.

RECOMMENDATIONS

The Legislature should clarify its intention for the PIA to purchase and resell finished goods and services to its customers. If the PIA's current practice is as the Legislature intends, the Prison Industry Board should delegate authority in writing to the PIA to do so.

The PIA should establish appropriate statewide contracts for finished goods and services it frequently must purchase from the private sector to supplement its own production. The PIA should also abide by the State's procurement procedures when purchasing any items not covered by a statewide contract.

The PIA should discontinue acting as an agent for the California Department of Corrections or other state agencies to purchase items it does not produce.

AGENCY COMMENTS

The Prison Industry Authority agrees that it could improve its planning and use of contracts for purchases of finished goods and services. The PIA pledges to work with the Department of General Services to identify those contracts that would be in the best interest of the State. However, the PIA disagrees with the conclusion that it lacks the authority to purchase and resell finished goods and that its buyouts are not cost effective.















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