ALAN G. HEVESI
COMPTROLLER

110 STATE STREET
ALBANY, NEW YORK 12236

STATE OF NEW YORK
OFFICE OF THE STATE COMPTROLLER

March 23, 2005
Mr. Glenn S. Goord
Commissioner
NYS Department of Correctional Services
State Campus, Building 2
Albany, NY 12226
Re: Report 2004-F-35
Dear Mr. Goord:
Pursuant to the State Comptroller’s authority as set forth in Article V, Section 1 of the State
Constitution; and Article II, Section 8 of the State Finance Law, we have followed up on the actions
taken by officials of the Department of Correctional Services (Department) to implement the
recommendations contained in our audit report, Department of Correctional Services’
Administration of Contract X160575 with MCI Worldcom for the Inmate Call Home Program
(Report 2002-R-1).
Background, Scope and Objective
The Department operates 70 correctional facilities statewide. Each facility has a number of
specially installed telephones, which can be used by inmates in the Department’s Inmate Call Home
Program (Program) to make calls to family and friends. The only type of call that can be made on
these phones is a collect call. A call cannot be placed unless the inmate enters both a telephone
number that is on an approved list for that inmate, and a personal identification number identifying
the inmate that has been authorized by the Department to make calls. The charges for all the calls
are billed to the parties who accept the calls.
The purpose of the Program is to enable inmates to maintain essential ties with their
communities. The telephone system used in the Program is operated by a contractor, which is
responsible for billing for the calls and collecting call revenue. The Department receives a portion
of the call revenue from the contractor, and is authorized by the State Legislature to use this revenue
in various programs that benefit the inmate population.
The Program, which was initiated in 1985, has been operated by various contractors. In
1996, the MCI Telecommunication Corporation, now known as MCI WorldCom Communications
Inc. (MCI), was awarded contract X160575 to operate the Program. The initial contract was
awarded for the period April 1, 1996 through March 31, 1999. Two additional one-year extensions

-2were subsequently approved, bringing the end date of contract X160575 to March 31, 2001.
According to the terms of the contract, MCI was expected to:
•
•
•
•

provide service to the Department 24-hours a day, seven days a week,
provide the Department with billing data relating to the telephone numbers called through
the Program,
be capable of blocking phone calls placed by inmates when requested by the Department
and/or the general public, and
bill and collect revenue for all completed calls.

MCI was required by the contract to pay the Department a commission of 60 percent of the
revenue from each completed call. For the five-year contract period, the State’s commissions and
certain penalties assessed on MCI under the terms of the contract (e.g., for late payment) averaged
$21,827,796 per contract year.
Following this contract, the Department awarded a second contract (X160812) to MCI for
the period April 1, 2001 - March 31, 2006 with provisions for two one-year renewals with the same
procedures and controls as the first contract. However, the second contract had a revenue
commission of 57.5 percent. The contract was awarded with tiered rates for calls, with charges
based on type of call, mileage and time of day. The rate structure was amended, at the Department’s
request, and effective August 1, 2003, most calls are made at a blended rate of 16 cents per minute
with a $3.00 per call surcharge. For the period April 2001 - September 2004, the Department
received the following in commissions:
Contract
Year
April 2001-March 2002
April 2002-March 2003
April 2003-March 2004
April 2004-September 2004

Commission

Number
of Calls

$23,298,456
$18,463,968*
$19,069,457
$ 8,916,946

6,748,396
6,658,839
5,642,303
3,382,362**

Inmate
Population
69,299
67,758
66,347
65,557

* In fiscal year 2002-03, the contractor filed for bankruptcy protection, and some
commission payments were withheld. The contractor exited bankruptcy in April
2004, and a check totaling $2,469,631 was received in June 2004 as a bankruptcy
settlement. This would raise the 2002-03 commissions to $20,933,599.
** Represents the number of calls through November 2004.
Our initial audit report, which was issued on July 10, 2003, examined selected aspects of the
initial contract between the Department and MCI. The objectives of our financial related contractcompliance audit were to determine whether (1) the controls established by the Department and MCI
provided adequate assurance Program revenues were accurately accounted for and properly remitted
to the Department, and (2) Program revenue was deposited into the appropriate Department account
and expended for authorized purposes only.

-3Our report identified that improvements were needed in the practices used to verify the
accuracy and completeness of Program revenue. In particular, due to the fact that DOCS has not
performed an independent verification of the revenue generated by MCI equipment it has limited
assurance it is receiving all revenue. The objective of our follow-up, which was conducted in
accordance with Generally Accepted Government Auditing Standards, was to assess the extent of
implementation as of December 23, 2004 of the one recommendation included in our initial report.
Summary Conclusions and Status of Audit Recommendation
We found that Department officials have not implemented the one recommendation
contained in our initial report. Since the original audit, the Department continues to reconcile
revenue received based on the total minutes and the new blended rate. However, Department
officials maintain their position that they will provide for the recommended independent review in
the contract when it is renewed or rebid.
Follow-up Observations
Recommendation
Take steps to provide for independent controls that can be relied on for verifying the accuracy and
completeness of billing data provided by MCI for the Program.
Status - Not Implemented
Agency Action - Department officials indicate that it remains their intent to include a request that
the contractor obtain an independent audit during the negotiations for the contract renewals
or rebid which should occur prior to the expiration of the current agreement in April 2006.
They added that such an audit will increase administrative costs (or reduce Program revenue)
by up to $150,000 per year. The Department has not provided pricing estimates from the
contractor.
We noted in our initial report that contracting for an independent audit is not the only
strategy that would address our recommendation. We continue to believe that analytical
procedures and/or internal reviews or audits of the contract services can address the
recommendation, and likely at a lower cost than cited by the agency. Since it is likely that
the cost of any independent controls instituted by the Department will come at the expense of
program revenue, which is used to fund critical inmate programs, the agency should seek to
take steps to verify the accuracy and completeness of the billing data, at the lowest possible
cost.
At the closing conference, Department staff responsible for the Program added that they
prefer to employ outside consultants to develop a testing methodology that will be
considered statistically valid. We believe such assistance could be obtained from
educational institutions, such as the State University of New York, the City University of
New York, or the USDA Graduate School, potentially at a lower cost than from a
professional consulting or auditing firm. Further, undertaking an independent review of the

-4contractor’s controls would not require the Department to wait until 2006, when the current
contract is due to be renewed or rebid.
Major contributors to this report were Robert Mehrhoff and Marianne Boyer.
We would appreciate your response to this report within 30 days, indicating any actions
planned to address the unresolved issues discussed in this report. We also thank the management
and staff of the Department for the courtesies and cooperation extended to our auditors during this
process.
Very truly yours,

Carmen Maldonado
Audit Director
cc:

G. Ronald Courington, DOCS Director MIS
Deborah Coons, DOCS Director of Internal Control
Robert Barnes, Division of the Budget