A REPORT BY THE NEW YORK STATE
OFFICE OF THE STATE COMPTROLLER
Alan G. Hevesi
COMPTROLLER

DEPARTMENT OF CORRECTIONAL
SERVICES
ADMINISTRATION OF CONTRACT X160575
WITH MCI WORLDCOM FOR THE INMATE
CALL HOME PROGRAM
2002-R-1

DIVISION OF STATE SERVICES

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Alan G. Hevesi
COMPTROLLER

Report 2002-R-1
Mr. Glenn S. Goord
Commissioner
Department of Correctional Services
Building #2, State Campus
1220 Washington Avenue
Albany, New York 12226
Dear Mr. Goord:
The following is our report addressing the Department of Correctional Services’
administration of Contract X160575 with MCI WorldCom for the Inmate Call Home
Program for the period April 1, 1996 through March 31, 2001.
This audit was performed 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. Major contributors to this report are listed in Appendix A.

Office of the State Comptroller
Division of State Services
July 10, 2003

Division of State Services
110 STATE STREET ♦ ALBANY, NEW YORK 12236
123 WILLIAM STREET ♦ NEW YORK, NEW YORK 10038

EXECUTIVE SUMMARY
DEPARTMENT OF CORRECTIONAL SERVICES
ADMINISTRATION OF CONTRACT X160575 WITH
MCI WORLDCOM FOR THE INMATE
CALL HOME PROGRAM
SCOPE OF AUDIT

T

he Department of Correctional Services (Department) operates 70
correctional facilities statewide. Each facility has special telephones, which
can be used by inmates in the Inmate Call Home Program (Program) to make
calls to family and friends, and thus maintain essential ties with their
communities. All calls are collect calls: they must be accepted by the party
being called and are billed to that party. The telephone system used in the
Program is operated by a contractor (MCI WorldCom), which is responsible for
billing for the calls and collecting call revenue. Each month, 60 percent of the
revenue from all completed calls is to be sent to the Department as a
commission. These funds may then be used by the Department in certain
programs that benefit inmates.
During the five years ended March 31, 2001, the period covered by the
Department’s first contract with MCI WorldCom (MCI), $109.1 million in Program
revenue was received by the Department and $108.8 million of Program revenue
was expended by the Department. At the conclusion of the first contract, MCI
was awarded another contract to continue operating the Program.
Our audit addressed the following questions about the five-year period covered
by the first contract:
•

Did the controls established by the Department and MCI provide
adequate assurance Program revenue was accurately accounted for
and properly remitted to the Department?

•

Was Program revenue deposited into the appropriate Department
account and expended for authorized purposes only?

AUDIT OBSERVATIONS AND CONCLUSIONS

W

e found that the Department did not establish independent controls for
verifying the accuracy and completeness of MCI billing data for the
Program. As a result, the Department lacked adequate assurance that it
received all the commissions it was due.
MCI was required to send commission payments to the Department monthly and
provide the Department with documentation supporting these payments. The
Department was supposed to review this documentation to ensure that the
payments were correct. We found that MCI complied with its requirements, and
the Department verified all of the payments against the supporting
documentation provided by MCI. We examined this documentation and
confirmed that it was consistent with the payments made to the Department
during the contract period. (See p. 5)
However, we also determined that the documentation provided by MCI did not
provide adequate assurance that all of the revenue from Program calls was fully
and accurately accounted for. While this documentation indicated how many calls
were made each month through the Program, how long each call lasted, and
what phone numbers were called, the documentation was provided by MCI and
therefore was not sufficiently independent. In addition, the controls over the
automated systems that processed the information were neither documented by
MCI nor verified periodically by an entity independent of MCI. We further
determined that the same documentation process continues to be used in the
new contract. We therefore recommend that the Department provide
independent controls to reasonably assure the completeness and accuracy of the
billing information provided to the Department by MCI in order to verify the
correctness of commission payments. (See pp. 5-6)
The Department was required to deposit all Program revenue in a designated
State account. We determined that all of the revenue received during the fiveyear contract period was deposited in this account. Further, all expenditures from
this account should relate to certain authorized purposes that are intended to
benefit the inmates at the correctional facilities (such as inmate health care and
family visiting programs). We examined a sample of $502,688 in expenditures
from a one-year period, and determined that all of these expenditures related to
authorized purposes. We also determined that the expenditures were properly
approved and adequately documented. (See pp. 5-8)

COMMENTS OF DEPARTMENT OFFICIALS

D

epartment officials responded that they will include a requirement for a
periodic independent audit of the call processing equipment in the next
contract.

CONTENTS
Introduction
Background
Audit Scope, Objectives and Methodology
Internal Control and Compliance Summary
Response of Department and MCI Officials
Program Revenue
Recommendation

1
2
3
3
5
6

Program Expenditures
Appropriateness of Expenditures
Oversight of Expenditures
Appendix A
Major Contributors to This Report
Appendix B
Comments of Department Officials

7
8

INTRODUCTION
Background

T

he Department of Correctional Services (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, which
must be accepted by the party being called. In addition, a call
cannot be placed unless the inmate enters a personal
identification number that has been authorized by the
Department. 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 (MCI), was awarded
contract X-160575 to operate the Program. The initial contract
was awarded for the period April 1, 1996 through March 31,
1999. Two additional one-year extensions were subsequently
approved. 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) totaled $109,138,980, as
follows:
Contract Year
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
Total Revenue

Program Revenue
$22,931,192
$20,687,042
$20,489,274
$22,230,959
$22,800,513
$109,138,980

During this same five-year period, Department expenditures of
Program revenue totaled $108,821,287. At the conclusion of the
second contract extension, MCI was awarded a new contract to
continue operating the Program. The new contract covers the
period April 1, 2001 through March 31, 2004.

Audit Scope, Objectives and Methodology

W

e audited selected aspects of the initial contract between
the Department and MCI for the five-year period April 1,
1996 through March 31, 2001. The objectives of our financialrelated contract-compliance 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.
To achieve our objectives, we reviewed the contract and
associated documents, interviewed MCI officials and examined
selected records maintained by MCI. We also interviewed
Department officials and staff, and examined selected records
maintained by the Department.
In the course of our audit, we determined that the procedures
and controls that were in effect during the five-year period of the
initial contract with MCI continued to be in effect for the second

2

contract with MCI, and were still in effect as of April 30, 2003.
Accordingly, the recommendation contained in this report
relates to improvements that need to be made in the
administration of the current contract with MCI.
We conducted our audit in accordance with government auditing
standards generally accepted in the United States of America.
Such standards require that we plan and perform our audit to
adequately assess the operations that are included in our audit
scope. Further, these standards require that we understand the
Department’s and MCI’s internal control structures and their
compliance with those laws, rules and regulations that are
relevant to the operations which are included in our audit scope.
An audit includes examining, on a test basis, evidence
supporting transactions recorded in the accounting and
operating records and applying such other auditing procedures
as we consider necessary in the circumstances. An audit also
includes assessing the estimates, judgments and decisions
made by management. We believe that our audit provides a
reasonable basis for our findings, conclusions and
recommendations.

Internal Control and Compliance Summary

O

ur consideration of the Department’s and MCI’s internal
control structures found that improvements are needed in
the practices used to verify the accuracy and completeness of
Program revenue. This matter is discussed in more detail in the
section of this report entitled Program Revenue.

Response of Department and MCI Officials

A

draft copy of this report was provided to Department and
MCI officials for their review and comment. Their comments
were considered in preparing this report, and the comments of
Department officials are included as Appendix B.
Department officials responded that they will include a
requirement for a periodic independent audit of the call
processing equipment in the next contract.
Within 90 days after final release of this report, as required by
Section 170 of the Executive Law, the Commissioner of the
Department of Correctional Services shall report to the

3

Governor, the State Comptroller, and the leaders of the
Legislature and fiscal committees, advising what steps were
taken to implement the recommendations contained herein, and
where recommendations were not implemented, the reasons
therefor.

4

PROGRAM REVENUE

E

ach month, the Department receives a check from MCI for
its commissions on the calls inmates make through the
Program.
This check is accompanied by documentation
showing the number, duration, and destination of calls. In
addition, special computers connected to phone lines at the
correctional facilities record the inmates’ personal identification
number, the phone numbers called, the phone used by the
inmate, and the length of the call. This information, which is
known as the call detail record (CDR), is used by MCI to
generate the bills sent to the individuals who accept the inmate
collect calls. An MCI subcontractor maintains the computers
that generate the CDR data. MCI also provides the CDR to the
Department each day.
We found that the amount of commissions paid to the
Department during the five-year contract period was consistent
with the monthly documentation from MCI, and the Department
reconciles the MCI monthly documentation to the CDR. We also
found that Program revenue (both commissions and penalties)
received by the Department during the five-year contract period
was deposited into the appropriate account, known as the
Family Benefit Fund.
While the consistency of the remittance check with the
supporting documentation and the reconciliation of the CDR to
the supporting documentation are important factors in the
revenue control process, these do not afford adequate
assurances that the Department received all the revenue it is
entitled to under the contract for the Program. In fact, our audit
determined that the detailed call information from the special
computers cannot be relied on, because the controls over the
systems that process the information are neither documented by
MCI nor verified periodically by an entity independent of MCI.
We also determined that the Department regularly identifies
discrepancies between the monthly documentation and the
detailed call information, indicating that the monthly
documentation from MCI is not always complete and accurate.
In fact, the Department has recovered additional revenues and

5

penalties as a result of these reconciliations. Further, since we
were unable to apply other auditing procedures to satisfy
ourselves that the reported revenues were accurate, the scope
of our work was not sufficient to enable us to express, and we
do not express, an opinion thereon.
If the Department is to be reasonably assured that it receives all
revenue it is entitled to, it needs to establish its own
independent controls to verify the reliability of the monthly
documentation from MCI and the daily CDR. The State
Comptroller’s Procurement Disbursement Bulletin G-67,
Monitoring of Contracts, indicates that every State agency
should have a system in place to monitor and evaluate a
contractor’s performance in meeting the goals and requirements
of a contract. For example, such controls for the contract for the
Program might include obtaining independent reports certifying
the accuracy, completeness and reliability of MCI billing data for
inmate calls based on evaluation and testing of the computer
applications that track these calls and generate the CDR. Other
controls might include analytical procedures established by the
Department to determine that documentation provided by MCI
was consistent with routine studies and observations of inmate
calling patterns.
Unless the Department establishes or provides for independent
controls to verify the accuracy and completeness of MCI billing
data for inmate calls, the Department lacks assurance that it is
receiving for deposit all revenue that it is entitled to under the
contract.

Recommendation
1. Take steps to provide for independent controls that can
be relied on for verifying the accuracy and completeness
of billing date provided by MCI for the Program.
(Department officials agreed to arrange for an
independent audit in the next contract. They add that this
audit will increase administrative costs by at least
$150,000 per year.)
Auditor’s Comments: Incurring the cost of an audit is not
the only means to implement our recommendation. For
example, use of analytical procedures to assess the
reliability of billing data may be another option.

6

PROGRAM EXPENDITURES

T

he Program revenue received by the Department may be
expended by the Department for certain authorized
purposes. All of the authorized purposes are intended to benefit
the inmate population and include the Inmate Family Busing
Program, the Inmate Family Visiting Program, the Medical
Parole Program and other health services such as the purchase
of AIDS medications. Expenditures may be made by individual
correctional facilities or the Department’s Central Office. All
expenditures of Program revenue are to be made from the
Family Benefit Fund. During the five-year contract period, a
total of $108,821,287 in such expenditures were made by the
Department.
We examined a sample of these expenditures to determine
whether they were properly approved, adequately documented
and for authorized purposes only. Our sample consisted of 60
separate transactions totaling $502,688. We found that all of
these transactions were properly approved, adequately
documented, and for authorized purposes only.

Appropriateness of Expenditures

T

he Program revenue received by the Department may be
expended for authorized purposes only. All expenditures
must receive certain approvals and be supported by adequate
documentation. The Department distributes guidelines for
making expenditures to the individual correctional facilities.
According to these guidelines, expenditures relating to health
services must be approved by the Central Office, while
expenditures relating to specific inmate programs must be
approved by the appropriate manager at the individual
correctional facility making the expenditure. All expenditures are
reviewed by the Central Office to ensure that appropriation
amounts are not exceeded and expenditure totals agree with
the State Accounting System. The Central Office also monitors
certain types of expenditures to determine whether spending
patterns are consistent with the patterns in prior years.

7

To determine whether expenditures were properly approved,
adequately documented and for authorized purposes only, we
judgmentally selected for review 60 expenditure transactions
(from a total population of 442 transactions) totaling $502,688.
We selected all 60 transactions from the expenditures that were
made in the year ended March 31, 2001 (such expenditures
totaled about $21 million). In addition, we restricted our review
to two types of expenditures: expenditures for AIDS
pharmaceuticals and expenditures for civilian clothing used by
inmates on release.
We selected AIDS pharmaceutical
expenditures because they accounted for 56 percent of all
Program revenue expenditures during the year ended March 31,
2001, and we selected release clothing expenditures because
this was one of the most common types of inmate program
expenditures during that year. Our judgmental sample consisted
of 35 AIDS pharmaceutical expenditures totaling $435,619 and
25 release clothing expenditures totaling $67,069.
We
randomly selected the 35 and 25 transactions within each
category.
We determined that all 60 expenditures were properly approved,
adequately documented, and for authorized purposes only.

Oversight of Expenditures

A

ccording to the Comptroller’s Internal Control Standards,
transactions should be monitored to provide assurance that
operations are in compliance with requirements. We examined
the policies and procedures established by the Department for
monitoring expenditures of Program revenue. We determined
that a number of policies and procedures have been
established. For example, purchase orders must be approved
before the orders can be placed, and vouchers must be
approved by the appropriate personnel prior to payment. We
conclude that an appropriate degree of internal control is
provided by these policies and procedures.

8

MAJOR CONTRIBUTORS TO THIS REPORT
William Challice
Frank Patone
Brian Lotz
Betsy Guillmen
Mike Filippone
Krissy Kelleher

Appendix A

Appendix B

B-2