Internal Audit Report Number 2005-61

D M S

Department of Management Services

OFFICE OF INSPECTOR GENERAL

Evaluation Report

Contract Management
of Private
Correctional Facilities

June 30, 2005

EXECUTIVE SUMMARY
PURPOSE OF AUDIT
This review was requested by the
Secretary of the Department after
responsibility for contracting for and
managing
privately
operated
correctional facilities was transferred
from the now defunct Correctional
Privatization Commission (CPC) to
the Department of Management
Services (DMS). The objective of our
review was to evaluate the status of
the privately operated correctional
facilities at the time of their transfer
to DMS and to determine whether
existing contracts were adequate to
safeguard the State’s interest. Our
review was performed in accordance
with Section 20.055, Florida Statutes.

RESULTS IN BRIEF
The majority of issues discussed in
this report stem from a lack of
oversight by the State organization
formerly charged with reviewing,
directing and monitoring the
operations of privately operated
correctional facilities, the CPC.
Other issues involving the failure of
the State to annually develop current
per diem rates and the division of
responsibilites for oversight and
management of private corrrectional
facilities between DMS and the
Department of Corrections (DOC)
are also discussed.

DMS/OIG/IA 2005-61

CPC OVERSIGHT
Our review showed the CPC failed
to adequately safeguard the State’s
interest.
Available records and
contract documentation showed that
the
CPC
consistently
made
questionable contract concessions to
the vendors. Consequently, the State
incurred about $12.7 million in
additional costs.
Issues relating to oversight include:
The CPC failed to enforce
contract provisions relating to the
reporting of vacancies in staff
positions.
The CPC did not
require the vendors to report
vacancies during the major
portion of the time the contracts
were in effect and when vendors
did report vacancies, the CPC did
not reduce vendors’ monthly per
diem payments in accordance
with contract provisions. This
resulted in vendors at the five
facilities receiving payments of
about $4.5 million to which they
were not entitled.
The CPC allowed vendors to
waive required staffing patterns
for non-correctional positions
and did not reduce vendors’
monthly per diem payments. As
a result, the State overpaid
vendors about $290,000 for
vacant positions during the
Page i

period from July 1, 2001 through
December 31, 2004.
The vendor at the South Bay
Correctional Facility received
questionable payments of about
$3.4 million during the period of
January
1,
1999
through
December 31, 2004, for salary
additives
referred
to
as
Competitive Area Differential
(CAD) payments.
The $3.4
million in questionable payments
included
$1.86
million
in
overpayment
errors,
which,
when discovered, the CPC made
no effort to recover. Moreover,
although State Competitive Area
Differential rates were reduced
during the contract period, the
CPC arbitrarily increased the
vendor’s contracted per diem
rates to cover the difference
between the higher differential
pay and the reduced differential
pay. As a result, the vendor
received an additional $1.54
million in per diem payments in
lieu of direct CAD payments and
contract per diem rates were
artificially inflated.
The State was charged a
“burden” or overhead on the
Competitive Area Differential
payments the South Bay vendor
received during the contract
period. These burden payments
amounted to about $1.57 million.
We could find no justification or
authorization for a vendor to
receive
such
payments.
Moreover, our review showed
that not only were burden

DMS/OIG/IA 2005-61

payments not authorized but
were greatly overstated by the
vendor.
In a November 2001 special
session, the Legislature zerobudgeted CPC salaries and
expense funds. Subsequently, the
CPC authorized a per diem
increase to the vendors who in
turn remitted the per diem
increase back to the CPC’s Grants
and Donations Trust Fund.
These funds were then used to
pay CPC staff salaries and
expenses. This action caused per
diem rates to be artificially
inflated.
Also, because the
Department was unaware of this
transaction it could have resulted
in loss of salary dollars for
current Department employees
when new contracts were
negotiated.
We could not
determine whether legislative
leaders knew of and condoned
the actions by the CPC. This was
brought to the attention of
Department management during
the review.
Gadsden Correctional Facility
receives an additional per diem
rate of $2.30 per inmate (up to
768 inmates) or about $645,000
per year for routine and major
maintenance and repair of the
facility under the terms of its
contract. However, records show
that
Gadsden
Correctional
Facility expends an average of
only $170,000 annually for facility
maintenance and repair. As a
result, the State paid about $2.85

Page ii

million more for maintenance
and repair than the vendor
expended for calendar years 1999
through 2004.
The Inmate Welfare Trust Fund is
used to supplement the cost of
contractually required programs
and services. This understates
actual per diem rates and should
be considered when evaluating
compliance with statutory cost
savings requirements.
During
Fiscal Year (FY) 2003-04, vendors
expended about $988,000 from
the Trust Fund for contractually
required programs and services.

Department’s request, to discuss and
develop per diem rates.

DEVELOPMENT OF PER DIEM
RATES
Per diem rates have not been
determined on an annual basis as
required by law. The Prison PerDiem Workgroup is responsible for
annually developing per diem rates
to ensure that private correctional
facilities are being operated at less
cost
than
public
correctional
facilities. However, the Workgroup
has not met since 2002. Because
currrent per diem rates have not
been developed, the State cannot
answer the basic question of whether
private prisons are operating at less
cost than public prisons, as required
by law.
Consequently, the
Department is limited in its ability to
negotiate
new
contracts
or
renegotiate existing contracts that
ensure the State’s interests are
adequately safeguarded. During the
course
of
this
review,
the
Workgroup
convened,
at
the

DMS/OIG/IA 2005-61

Page iii

DIVISION OF RESPONSIBILITIES
Currently, the responsibilities for the
oversight,
management
and
operations of private prisons are
divided between DMS and the
Department of Corrections (DOC).
This is not only cumbersome but also
creates problems with internal
controls.
Transferring
the
management and supervision of
private prisons to the DOC could
potentially save the State about
$631,000 per year in salaries and
administrative expenses. Moreover,
the DOC has the background and
knowledge to better monitor and
administer the operations and
management services contracts.

OTHER CONSIDERATIONS
Originally,
our
review
was
scheduled to cover only Gadsden
Correctional Facility.
However,
during the course of the review, it
became apparent there were issues
impacting all privately operated
facilities and the service contracts in
general. As a result, the scope of our
review was expanded to include
South Bay Correctional Facility as
well as a review of records
pertaining to the other three
facilities. The on-site reviews at
Gadsden and South Bay ensured
audit coverage of the two vendors
who currently operate the State’s
five private prisons.

DMS/OIG/IA 2005-61

Also during the course of our
review, we noted problems with
contract monitoring procedures.
Due to the scope of review required
to fully develop contract monitoring
issues and the importance of timely
addressing the issues contained in
this review, a separate report on
contract monitoring procedures will
be issued during the first quarter of
FY 2005-06.

MAJOR
RECOMMENDATIONS
We recommend that the Department
provide contractors with written
instructions for reporting vacant
positions and require Contract
Monitors to verify the accuracy of
the contractors’ vacancy reports. We
also recommend that per diem
payments in lieu of CAD be
terminated at South Bay Correctional
Facility and that for all future
Request for Proposals (RFP) or
Invitations to Negotiate for private
prison operations, DMS instruct
bidders to make offers only on the
vendor’s best bid. In addition, we
recommend that during the next
legislative agenda, the Department
propose (1) the deletion of the
Inmate Welfare Trust Fund and (2)
the transfer of responsibility for
contracting and monitoring of
private prisons to the DOC.

Page iv

TABLE OF CONTENTS
EXECUTIVE SUMMARY ....................................................................................... i
INTRODUCTION AND BACKGROUND ....................................................1
DISCUSSION ISSUES AND RECOMMENDATIONS ..........................7
ISSUE 1:
Correctional Privatization Commission Failed To Adequately
Administer Privately Operated Prison Contracts ............................................7
ISSUE 2:
Consensus Per Diem Rates Not Determined ..................................................36
ISSUE 3:
Department of Corrections Should Administer Privately
Operated Prisons.................................................................................................41
EXHIBITS
A – SUMMARY OF MONETARY BENEFITS ................................................44
B – OBJECTIVES, SCOPE AND METHODOLOGY ......................................45
C – DIVISION RESPONSE ................................................................................48
D– DISTRIBUTION LIST ...................................................................................52

DMS/OIG/IA 2005-61

Page v

INTRODUCTION AND BACKGROUND
Early Privatization Efforts
In 1985, the Florida Legislature
authorized the Department of
Corrections (DOC) to contract with
private vendors for needed services,
if more cost efficient or timely than
those provided by the DOC.1
In 1989, the Florida Legislature
authorized the DOC to contract with
private vendors to design, construct
and operate correctional facilities if
substantial
savings
could
be
2
realized. The Legislature did not
define substantial savings.
In the 1990 General Appropriations
Act, the Legislature mandated that
the DOC enter into a contract with a
private vendor to construct and
operate a correctional facility in
Gadsden County. The Legislature
directed the DOC to achieve a
savings of 10 percent below the
combined cost of constructing and
operating a DOC facility. The DOC
issued a Request for Proposal (RFP)
which required that vendors achieve
a savings of 10 percent for
construction as well as a savings of
10 percent for operations. However,
prospective vendors were unable to
meet the required savings for both
construction and for operations.

In the 1991 General Appropriations
Act, the Legislature directed the
DOC to issue another RFP for the
construction and operation of
Gadsden Correctional Facility. The
Legislature directed DOC to achieve
a cost savings of 10 percent for
operations and substantial savings
for construction as determined by
the DOC.
U.S. Corrections
Corporation was awarded the
contract.
The vendor’s proposal
offered a savings on construction
costs of 5 percent less than DOC’s
costs and savings on operating costs
of 11.6 percent. The DOC and the
vendor entered into an operations
contract in 1994.
Gadsden
Correctional
Facility
became
operational in March 1995.

Creation Of Correctional
Privatization Commission
In 1993, the Legislature created the
Correctional
Privatization
Commission (CPC) for the purpose
of entering into contracts with
private vendors for the design,
financing,
acquiring,
leasing,
construction, and operation of
private correctional facilities. 3,4 The
Legislature also required a savings of
Chapter 93-406, Laws of Florida
Correctional facilities include major
institutions as well as other facilities
managed by private vendors on behalf of
DOC and the Department of Juvenile
Justice.
3
4

1
2

Chapter 85-340, Laws of Florida
Chapter 89-576, Laws of Florida

DMS/OIG/IA 2005-61

Page 1

7 percent over the costs of a similar
DOC facility. Again, the Legislature
did not define whether the 7 percent
savings applied to the total cost of
construction and operations, or to
the separate costs of construction
and of operations.
The CPC
subsequently entered into contracts
with private vendors for the
construction and operation of six
additional correctional facilities: two
for youthful offenders aged 14 to 18,
one for youthful offenders aged 19 to
24, and three for adult male
offenders.
The CPC awarded
contracts for each of the three adult
facilities based on a combined
savings of 7 percent for both
construction and operations.5 The
Legislature transferred the contracts
for juvenile offenders to the
Department of Juvenile Justice in
1996 and in 1999 the Legislature
transferred the Gadsden contract
from the DOC to the CPC.

Creation Of Prison Per-Diem
Workgroup
Legislation, enacted in 20016,
established the Prison Per-Diem
Workgroup for the purpose of
developing consensus per diem rates
to be used in determining the per
diem rates of privately operated
prisons. The Workgroup consists of
personnel from the Office of the
Auditor General, Office of Program
5

The three Youthful Offender facilities were
exempt from the savings requirement of
Chapter 957, Florida Statutes.
6 Chapter 2001-379, Laws of Florida
DMS/OIG/IA 2005-61

Policy Analysis and Government
Accountability, and staff of the
House and Senate appropriations
committees.
The law specifies that it is the
Legislature’s
intent
that
the
consensus per diem rates be used to
determine the level of funding
provided to privately operated
prisons. In addition, funding levels
must reflect at least a 7 percent
savings when compared with DOC
costs. The Workgroup is required to
annually develop consensus per
diem rates which are to be used to
determine per diem rates of
privately operated facilities. Each
contract contains a clause permitting
adjustments to per diem rates,
annually.

DMS Assigned Responsibility
For Correctional Facilities
Effective July 1, 2004 the Legislature
transferred
the
duties
and
responsibilities for contracting for,
and managing privately operated
correctional
facilities
to
the
Department of Management Services
(DMS) and abolished the CPC
The
effective July 1, 2005.7
Legislature also authorized the
Department to enter into contracts
pursuant to Chapter 957, Florida
Statutes, and to acquire the
contractual rights and assume the
contractual obligations of the CPC
for existing contracts. DMS assigned
responsibility for the privately
operated prisons to the Division of
7

Chapter 2004-248, Laws of Florida
Page 2

Fleet Management, Federal Property
Assistance
and
Correctional
Privatization.
The Bureau of
Correctional Privatization (BCP) was
created within the Division to
administer the contracts. A Contract
Monitor is assigned to each facility to
monitor facility compliance with
contract provisions.

DMS is presently responsible for
administering contracts for five
privately
operated
correctional
facilities. These five facilities are
managed by two vendors: the
Corrections Corporation of America
(CCA) and GEO Group, formerly
Wackenhut Corrections Corporation.

Correctional Facilities For Which DMS Is Responsible
Correctional
Facility

Number
of Beds

Gadsden

Operational Date

Offenders

Custody
Level

1,036

Adult
Female

Minimum/
Medium

March 1995

Bay

750

Minimum

August 1995

Lake City

893

750

Minimum/
Medium
Minimum/
Medium

February 1997

Moore
Haven

Adult
Male
Male
Youthful
Offenders
Adult
Male

July 1995

GEO Group

South Bay

1,861

Close

February 1997

GEO Group

Total

5,290

Adult
Male

Private Contractor
Corrections
Corporation of
America
Corrections
Corporation of
America
Corrections
Corporation of
America

Table 1
A sixth private prison is scheduled
for construction in Jackson County,
near Graceville.
Currently, the
Department is negotiating with four
vendors for construction and
operation of the new facility. The
facility will house 1,500 adult male
offenders and is scheduled to begin
operations during Fiscal Year 2007.
During the 2005 session, the Florida
Legislature approved the addition of
385 beds at Gadsden, 235 beds at Bay

DMS/OIG/IA 2005-61

and 235 beds at Moore Haven by
July 2007.

Florida Is The Only State
Where Privately Operated
Correctional Facilities Are Not
Administered By State’s
Corrections Authority
As of 2004, Florida was one of 34
states which contracted for privately

Page 3

operated prisons.
With the
exception of Florida, privately
operated facilities are administered
and managed by the state’s

corrections authority. The following
map shows those states with
privately operated prisons.

STATES WITH PRIVATELY OPERATED PRISONS

Source: U.S. Department of Justice

Chart 1

Vendor Per Diem Rates
Vendors receive payment for
providing
operations
and
management services based on
specified daily per diem rates. All
DMS/OIG/IA 2005-61

contract per diem rates are based on
a two-tiered system8: a primary per
diem rate and a marginal per diem
When calculating the total per diem rates,
the combination of primary and marginal
rates is often referred to as the blended rate.
8

Page 4

rate. Contracts are structured so that
vendors are guaranteed a primary
per diem rate for each inmate up to
90 percent of capacity. The State is
obligated to pay this primary or
guaranteed rate even if the inmate
population falls below 90 percent of
capacity. In theory, this guaranteed
rate ensures that vendors will cover
their fixed costs. For each inmate in

excess of 90 percent of capacity,
vendors are paid the marginal per
diem rate which covers the variable
costs associated with each additional
inmate above 90 percent capacity.
The number of offenders housed in
private facilities may not exceed 100
percent of capacity. As of April
2005, per diem rates at the five
facilities were:

Per Diem Rates
Facility
Bay
South Bay
Moore Haven
Lake
Gadsden

Capacity
750
1,318
750
350
1,036

Primary Rate (90 %)
$58.26
$51.09
$57.57
$78.88
768 @
$59.56

32 @
$43.23

Marginal Rate (10 %)
$16.53
$ 7.76
$10.39
$74.78
96 @
140 @
$35.00
$39.57

Table 2

Contract Funding And Vendor
Payment Procedures
As provided in Section 957.15,
Florida Statutes, the Department
requests the appropriation of funds
for operations contracts and leasepurchase agreements in a request to
the DOC.
DOC is required to
include the request as a separately
identified item in its legislative
budget request and must forward
the Department’s request to the
Legislature without change. The
Legislature then appropriates the
funds for facility operations and
lease-purchase payments to the
DOC. Although DOC processes the
payments
to
vendors,
the
DMS/OIG/IA 2005-61

Department contracts directly with
the vendors, monitors vendor
operations and authorizes DOC to
make payment.
Vendors submit a monthly invoice to
DMS for each contracted facility.
The Department reviews the invoice
and per contract provisions, makes
deductions from the invoice when,
for example, the vendor’s staffing
vacancies exceed the contractually
allowed
timeframes.
The
Department
then
submits
a
transmittal letter to the DOC
authorizing
payment
of
the
approved invoice amount.

Page 5

During FY 2004-05, a total of $106.4
million was appropriated for the
operation and maintenance of
$104.3 million in General Revenue
and $2.1 million in Trust Funds.
General Revenue funding included
$14.6 million for lease purchase
payments and $1.1 million for
payments in lieu of taxes to local
governments.

Privately Operated
Institutions Inmate Welfare
Trust Fund

privately managed prison facilities.
The appropriation consisted of
Department forwards the vendors’
approved requests for trust fund
appropriations to the DOC along
with the request for facility
operations funding.
After the
Legislature appropriates General
Revenue and Inmate Welfare Trust
Funds for private prison operations,
DOC has no authority over the funds
other than to pay the vendor the
amount DMS certifies for payment.

In 1998, the Legislature established
the Privately Operated Institutions
Inmate Welfare Trust Fund (Inmate
Welfare Trust Fund) within the
DOC.9
The
trust
fund was
established for the benefit and
welfare of inmates incarcerated in
private correctional facilities under
contract with the CPC (now DMS)
and is funded primarily from sales to
inmates.
Each month, vendors deposit into
the trust fund the net proceeds from
inmate canteens, all telephone and
vending commissions, and revenue
from similar sources. As provided in
Section 945.215, Florida Statutes, the
trust funds may be expended only
pursuant
to
legislative
appropriation.
The contractors
submit a budget to DMS for salaries
and expenses for programs and
services paid for with Inmate
Welfare Trust Funds.
The

9

Chapter 98-386, Laws of Florida

DMS/OIG/IA 2005-61

Page 6

DISCUSSION ISSUES
AND RECOMMENDATIONS
ISSUE 1
CPC FAILED TO ADEQUATELY
ADMINISTER PRIVATELY OPERATED
PRISON CONTRACTS
The CPC consistently failed to
safeguard the State’s interests in its
role as the steward of privately
operated correctional facilities. Our
review showed numerous instances
where vendors’ interests were
considered over the State’s interests.
CPC staff failed to perform routine
reviews of contractually required
reports submitted by the vendors to
determine their accuracy or to
question
vendors’
calculations
involving monetary reimbursements,
particularly in regard to deductions
for staff vacancies.
Records of
contract negotiations and subsequent
contract modifications favorable to
vendors were not readily available to
explain why certain actions were or
were not taken by the CPC. In
particular,
we
questioned
the
propriety of the method the CPC
used to authorize Competitive Area
Differential pay to a private vendor.
The contracts issued by the CPC did
not adequately define how vendors
should use the Inmate Welfare Trust
Fund, nor did the CPC establish
internal policies and guidelines for

DMS/OIG/IA 2005-61

vendors’ use of the Trust Fund.
Consequently, the trust funds were
used
to
supplement
vendors’
operational
costs,
thereby
understating actual per diem costs.
The CPC also authorized an increase
in vendors’ per diem rates to pay for
CPC staff salaries and expenses after
its budget was eliminated by the
Legislature. The increased per diem
was deducted from the vendors’
invoices and the funds deposited
into the CPC’s Grants and Donations
Trust Fund for payment of salaries
and expenses. This action served to
artificially inflate contracted per
diem rates and to create potential
conflicts of interest between the CPC
and its vendors.
As a result of the CPC’s failure to
adequately perform its statutory
functions, the State incurred about
$12.7 million in questionable and
excessive costs.
Moreover, the
statutory mandated requirement that
private prisons operate at a 7 percent
savings over public prisons could not
be determined.

Page 7

- Finding 1 CPC Failure To Enforce Contract Provisions Regarding Vacant
Staff Positions Cost The State Over $4.4 Million
The State paid facility vendors over $4.4 million in payments for vacant staff
positions. This occurred because the CPC did not require vendors to report
vacant staff positions for a major portion of the contract terms. Moreover,
when vendors did report vacancies, the CPC did not correctly calculate the
number of vacant days by staff position and did not reduce vendors’ invoices
by the correct amount.

Contractual Requirements
Contractually, vendors are required
to supply sufficiently trained staff to
provide for and maintain the
security, control, custody, and
supervision of inmates of the
facilities. Positions are to be staffed
in accordance with the staffing
pattern approved in the contract for
each facility.
Staffing patterns
identify
critical
posts,
primary/flexible posts, total staff
required per position, and overall
total staff.
The vendor is required to fill any
vacant security position within thirty
(30) days and non-security positions
within forty-five (45) days after the
date of a vacancy.10 A vacancy occurs
when an employee resigns, is
terminated, or reassigned to another
position. Should a position remain
Prior to July 1, 2003, Gadsden Correctional
Facility contract allowed only a 14 day
vacancy period for both security and nonsecurity positions.

10

DMS/OIG/IA 2005-61

vacant for more than the specified
time, a monetary deduction is made
using the base salary of the vacant
position. Vendors are required to
report vacancies monthly. Using the
vacancy listing, vacancies for staff
positions in excess of the specified
time are calculated and monetary
deductions are made from the
vendor’s monthly invoice.
The
monetary deductions made for
excessive vacancies are not penalties
to the vendors but are recoupment of
payments
to
vendors
for
contractually required staff positions.
Vendors Not Required To Report
Vacancies
Contrary to contract terms, the CPC
did not require vendors to report
staff position vacancies during the
majority of the time the contracts
were in force. Due to a lack of
documentation,
we
could
not
determine whether vendors were
simply not required to report position
vacancies or if reported, the CPC
chose not to enforce the contract
Page 8

terms by making the appropriate
monetary deductions. For example:
¾ At Bay Correctional Facility,
the CPC made no deductions
in per diem payments for
vacancies between August
1995, when the facility became
operational, and August 2001.
¾ At Lake City Correctional
Facility, no deductions were
taken between February 1997,
when the facility became
operational, and February
2000.
Although deductions
were made on the February
2000 invoice, no further
deductions were made until
September 2001.
¾ At Moore Haven Correctional
Facility, no deductions were
taken between July 1995, when
the
facility
became
operational, and December
2001.
¾ At South Bay Correctional
Facility, no deductions were
made between February 1997,
when the facility became
operational, and December
2001.
¾ At
Gadsden
Correctional
Facility, no deductions were
made between August 2000
and August 2001.
Former staff of the CPC stated that
they did not recall if vendors were
simply not required to report

DMS/OIG/IA 2005-61

vacancies or if the CPC established a
policy of not requiring deductions for
the vacancies.
Regardless of the
CPC’s rationale, deductions for
position vacancies were not made
although the vendors were paid a per
diem based on full staffing levels.
While the total amount of funds the
CPC failed to deduct cannot be
determined due to incomplete
vendor reporting, we estimate that
the CPC failed to make deductions of
over $3.7 million for vacant positions
at the five facilities.11
Incorrect Calculation of Vacancy
Deductions
When the CPC did begin making
deductions for position vacancies,
our review showed that the CPC
consistently
miscalculated
the
number of vacant days per position
as reported by the vendors. Further,
the CPC did not always deduct the
correct amount when it determined
the correct number of days vacant.
Based on available records, we
determined that an additional
$750,000 should have been deducted
from vendors’ payments during this
time. The following table shows the
difference in calculations between the
CPC and OIG.
The estimate of $3.7 million was determined
by (1) averaging the number of vacancy
deductions reported per month per facility for
the period of time when facilities reported
vacancies as required and (2) multiplying the
average vacancy deduction per month as
determined in (1) by the number of months
vacancies were not reported.

11

Page 9

Vendor Vacancy Deductions
Reporting
Period
August 2001Gadsden
December 2004
April 2002Bay
December 2004
August 2001Lake City
December 2004
May 2002South Bay
December 2004
Moore
May 2002Haven
December 2004
Facility

CPC
Deductions

OIG
Calculations

Difference

$631,606.80

$1,039,419.84

$407,813.04

$436,823.15

$496,913.39

$60,090.24

$232,315.12

$375,235.22

$142,920.10

$270,534.54

$368,506.87

$97,972.33

$212,415.79

$253,170.26

$40,754.47

$1,783,695.40 $2,533,245.58

$749,550.18

Table 3
Our review showed that errors made
by the CPC fell into three general
categories:
In
cases
where
vendors
submitted vacancy reports, the
CPC failed to accurately calculate
the number of days positions
were vacant. This was the result
of errors made by CPC staff
when counting vacant days by
position.
Vendor vacancy reports did not
contain detailed documentation
concerning vacant positions. The
CPC staff failed to consistently
verify the accuracy of the vacancy
reports. Consequently, CPC staff
did not detect errors contained in
the vendor reports.

DMS/OIG/IA 2005-61

When
CPC
staff
correctly
calculated the days vacant, staff
did not always deduct the correct
amount from vendors’ invoices.
Recommendations
1. We recommend that the BCP
provide contractors with written
instructions for reporting vacant
positions.
2. We recommend that the BCP
require its Contract Monitors to
review vendor records to verify the
accuracy of the vacancy reports prior
to the reports being forwarded to the
BCP.

Bureau Response

Page 10

1. We concur and prior to the
issuance of this report, had already
set up a method of comparing those
vacancies against program numbers
through the monthly reports. We
have also made the reporting
method consistent in all five
facilities. These changes went into
effect in November 2004. In January
2005, the process for calculating
deductions was also modified. In
July 2004, when DMS took over
oversight
responsibility,
DMS
required each facility to submit a
position control document monthly
in addition to a vacancy report. The

DMS/OIG/IA 2005-61

position
control
document
submission began with the August
2004 reporting period. An e-mail
was sent on 3/25/05 to BCP staff to
implement
a
report
monthly
reflecting vacancies in the program
areas beginning with the July 2004
reporting period.
2.
We concur.
The Contract
Monitors have been given more
explicit instructions on the reporting
and have been given a 48 hour turnaround on inconsistent numbers
once the central staff has notified
them of same.

Page 11

-Finding 2 CPC Waived Required Staffing Patterns
The CPC waived contractually required staffing patterns for certain staff
positions at all correctional facilities for the period of April 2003 through March
2005. The blanket waivers violated both contract requirements and Florida
Administrative Code. As a result of the blanket waivers, the CPC did not
require vendors to refund a portion of the per diem payments they continued to
receive for full staffing levels. Consequently, the waivers cost the State a
minimum of $290,000 in additional costs.

Contractual And Rule Requirements
The operations and management
services contracts require that
vendors provide designated services
for inmates in accordance with
American Correctional Association
(ACA) standards.
The contracts
further require that positions
providing these services will be
staffed with qualified employees in
accordance with the staffing pattern
provided in the vendor’s proposal.
The vendors are required to fill any
vacant non-security position within
forty-five (45) days after the date of a
vacancy. All contracts contain a
provision allowing vendors to
subcontract
for
any
of
its
responsibilities in order to meet
standards.
Chapter
60AA-1.008,
Florida
Administrative Code, allows for and
prescribes procedures for the
vendors to request waivers for ACA
staffing and other standards. Each
waiver request must be in writing

DMS/OIG/IA 2005-61

and is applicable only to the facility
for which it is granted.
CPC Approved Blanket Waivers For
Vacant Positions
In April 2003, the CPC granted a
blanket waiver to contract staffing
requirements for vacancies in staff
positions for Registered Nurses and
vocational and academic instructors
at all facilities. In August 2003, the
CPC granted another blanket waiver
to all facilities for vacancies in
Licensed Practical Nurse positions.
A review of the minutes of the CPC’s
quarterly meetings, during which
the waivers were granted, specified
that the Executive Director informed
the Commission that vendors were
encountering
difficulties
in
recruiting
for
the
positions.
However, there were no documents
or other evidence to verify that
vendors had requested the waivers.
It appears that the blanket waivers
were granted in order to allow
facilities
to
avoid
monetary
deductions for vacant non-security

Page 12

positions. We did, however, find
records that disclosed that Lake City
had properly requested a waiver for
these positions prior to the quarterly
meetings.
The waiver request
showed that Lake City had
contracted for the vacant positions
through a temporary employment
firm. Therefore, at Lake City, the
positions were fully covered and in
compliance with contract and ACA
standards.
We noted that this
waiver was correctly granted.
However, while Lake City continued
to pay a temporary employment firm
to fill their vacant positions, the
other four facilities were not
required to fill the positions and
continued to receive per diem
payments for vacant positions.
Facilities Provided No
Documentation Supporting Need For
Waivers
After granting the blanket waivers,
the CPC did not require facilities to
document that vacancies actually
existed for those positions which
were waived. Two of the facilities
(Gadsden and South Bay) submitted
vacancy reports which showed the
status of the vacant positions as
required; however, two other
facilities (Bay and Moore Haven) did
not submit any information on the
vacancy reports concerning the
status of the positions.
While Chapter 60AA-1.008, Florida
Administrative Code, allows waivers
to ACA staffing standards, it does
not preclude the State from

DMS/OIG/IA 2005-61

continuing to make monetary
deductions for vacant positions and
the CPC should have continued to
make monetary deductions from the
vendors’ monthly invoices. Failure
to do so cost the State a minimum of
$290,994 for the period of April 2003
through December 2004 for the
Gadsden and South Bay facilities.
We could not calculate the amount
of deductions the CPC should have
made for the Bay and Moore Haven
facilities as the vendors did not
report whether vacancies existed in
these positions.
Waivers Cancelled By Department
During the course of this audit, the
blanket waivers were brought to the
attention of the BCP.
The BCP
issued a memorandum dated
February 25, 2005 rescinding all
waivers effective March 1, 2005. The
memorandum included procedures
for facilities to follow to correctly
request waivers.
Recommendation
3. We recommend that the BCP
require vendors to subcontract for
non-security positions that remain
vacant beyond a specified time.
Bureau Response
3. We concur. The blanket waivers
were rescinded and the requirement
for subcontracting is in effect. This
process
was
initiated
by
memorandum dated February 25,
2005, effective March 1, 2005.

Page 13

Specific instructions for requesting
waivers to fill vacant positions with
contracted staff were also provided.

DMS/OIG/IA 2005-61

Page 14

-Finding 3 Vendor Received $3.4 Million in Excessive CAD Payments And
Per Diem In Lieu Of CAD
The vendor at the South Bay Correctional Facility received excessive CAD and
per diem in lieu of CAD totaling about $3.4 million during the period of
January 1999 through December 2004. The vendor invoiced the State for
excessive CAD payments in the amount of $1.86 million during the period of
January 1999 through June 2002. Although the State had significantly reduced
CAD rates for its Correctional Officers during this period, the vendor
continued to bill at the higher rate. Once the overpayments were brought to
the attention of the CPC, no action was taken to recoup the overpayments.
Instead, the CPC allowed the vendor to bill for and receive an increase in per
diem to offset the reduced CAD. The excess per diem paid in lieu of CAD
amounted to about $1.54 million for the period of July 2002 through December
2004.
Competitive Area Differential Pay
Competitive Area Differential pay is
a salary additive authorized by the
State for specific positions within a
State agency when the agency can
demonstrate that the additive is
based on geographical, localized
recruitment,
turnover,
or
12
The
competitive pay problems.
State has designated Palm Beach
County as part of CAD Region 1,
which entitles State employees
working in the county to receive a
salary additive.
South Bay
Correctional Facility is located in
Palm Beach County.
Under the
terms of the December 1995 contract,
the CPC authorized designated
Chapter 60L-32.0012, Florida
Administrative Code

12

DMS/OIG/IA 2005-61

facility employees to receive the
same CAD authorized for State
employees.13
Subsequent to South Bay becoming
operational,
CAD
rates
for
designated State positions have
remained
constant
with
the
exception of rates for Correctional
Officers which have decreased
significantly as shown in Table 4.

“The CONTRACTOR may request, and
the COMMISSION shall not unreasonably
deny, a competitive-area differential (CAD).
Any
COMMISSION-approved
CAD
adjustment must be used exclusively for the
enhancement of relevant employee salaries.”

13

Page 15

Region 1 CAD Rates
CAD PAY FOR STATE CORRECTIONAL OFFICERS

February 1, 1997 –
December 31, 1998
$6,300

January 1, 1999December 31, 1999
$4,400

January 1, 2000Currrent
$2,500

Table 4
Vendor Invoiced CPC For Higher
CAD
When South Bay became operational
in February 1997, the State paid a
CAD of $6,300 per Correctional
Officer. On January 1, 1999, the State
reduced CAD for Correctional
Officers from $6,300 to $4,400.
Although the CAD was reduced, the
vendor continued to invoice the CPC
for CAD at the previous rate of
$6,300 per Correctional Officer, or a
difference of $1,900 per position.
In January 2000, State CAD rates
were further reduced to $2,500.
However, the vendor continued to
invoice the CPC at the $6,300 rate
through June 2002, or a difference of
$3,800 per position.
Based on
available documentation, the CPC
became aware of the overpayments
at that time. However, the CPC took
no action to recoup any of the
overpayments. Consequently, the
vendor received excessive CAD
payments of approximately $1.86
million from January 1999 through
June 2002.

DMS/OIG/IA 2005-61

Contract Renegotiated
The 1995 South Bay contract was
renegotiated in February 2000. One
substantive change in the contract
resulted from the addition of
language involving payment of
CAD. The following language was
added to the new contract:
“In the event the CAD is no
longer available to the facility
employees, the per diem shall
be adjusted to compensate
affected employees through
payments to CONTRACTOR in
the same amount as was
available through the CAD,
provided
the
legislature
appropriates such funds.”
Although the contract language
authorizes the vendor to receive
payment of per diem in lieu of CAD,
such an arrangement appears to
violate the purpose of the negotiated
per diem rates contained in the
contract. Also, there is no statutory
authority entitling vendors to
additional per diem in lieu of CAD.
Rather, this appears to have been an

Page 15

arrangement between the CPC and
the vendor.

entitled to per diem in lieu of CAD
and simultaneously receive CAD.

Per Diem Increased To Offset Lower
CAD Rates

Accordingly, the vendor was paid a
total of about $3.4 million in
excessive CAD and per diem in lieu
of CAD payments from January 1,
1999, through December 31, 2004.

In July 2002, the vendor reduced the
CAD billing from $6,300 per
Correctional Officer to the lower
State-approved CAD of $2,500.
However, at the same time, the CPC
permitted the vendor to increase its
per diem rate billing by an
additional $1.39 on the first 1,186
inmate days (90 percent of capacity).
The increase in per diem offset the
difference between the approved
CAD of $2,500 and the higher CAD
of $6,300 the vendor had been billing
through June 2002.
We could locate no documents,
contractual or otherwise, discussing
the negotiation of this issue between
the CPC and the vendor and noted
that the contract was not amended to
reflect the per diem increase.
However, the CPC approved
payments to the vendor at the
increased per diem rate.
This
resulted in overpayment of about
$3,800 per Correctional Officer
position. The vendor billed for and
received the higher per diem from
July 2002 through December 2004.
This resulted in excessive payments
of about $1.54 million. And, as noted
above, the vendor continued to
separately bill the CPC for the Stateapproved CAD rate of $2,500 per
Correctional Officer. Moreover, as
questionable
as
the
contract
language is, the vendor would not be
DMS/OIG/IA 2005-61

CAD Inflated Per Diem Rates
Based on our review of the original
1995 contract and the 2000
renegotiated contract, we have
concluded that the contract language
concerning CAD payments was
flawed and resulted in inflated per
diem rates. The language contained
in the 1995 RFP was misleading to
proposers.
Based on the RFP,
bidders were informed that payment
for CAD would be an additive to
their offered per diem rates. Since
the CAD payments were in addition
to negotiated per diem rates, the
CAD payments were not subject to
the 7 percent savings requirement.
This is contrary to Section 957.07,
Florida Statutes. Moreover, the issue
of CAD payments was compounded
by the 2000 contract which
authorized per diem payment in lieu
of CAD.
In conclusion, we cannot determine
why the CPC would issue RFP’s and
negotiate contracts containing such
flawed provisions.
Recommendations
4. We recommend that the BCP
immediately terminate per diem
Page 16

payments in lieu of CAD at South
Bay Correctional Facility.
5. We recommend that in all future
RFP’s or Invitations to Negotiate for
private prison operations, bidders
should be instructed to make offers
based only on the vendor’s best bid
price.
Bureau Response
4. We concur on this issue. If legal
review determines that this section
[of the contract] may not be
immediately terminated, we will
address through the re-bid/renewal
process that will be finalized prior to
July 2006.
5. We concur. In all future RFP’s or
ITN’s, bidders will be instructed to
make offers based only on their best
bid price.

DMS/OIG/IA 2005-61

Page 17

-Finding 4 Vendor Billed State For Additional Burden On CAD Payments
The South Bay vendor billed the State for additional overhead, or burden, on
CAD payments. The CPC authorized payment of about $1.57 million for these
costs during the period from February 1997 through December 2004.

Vendor Charged An Additional
Burden For CAD
The South Bay vendor charged an
additional “burden” to the State for
payment of CAD. We discussed this
additional charge with vendor
representatives who explained that
the burden covered the marginal
cost of paying an increased salary to
employees due to the CAD. The
vendor representatives explained
that the burden charge was “tied” to
the additional cost to the vendor of
paying Federal Unemployment Tax
Act (FUTA), State Unemployment
Tax Act (SUTA), and Federal
Insurance Contributions Act (FICA)
costs.
We determined that the
burden percentages varied by type
of position receiving CAD. We also
noted that the burden percentages
increased in July 2002. For example,
the amount charged by the vendor
for a Correctional Officer was 20.77
percent prior to July 2002 and 26.9
percent from July 2002 to the
present.
We could find no statutory authority
for the State to pay such a burden
DMS/OIG/IA 2005-61

and question why the CPC would
authorize the payment of any
portion of a vendor’s taxes.
Burden Charges Overstated
Notwithstanding the issue of
whether the vendor is entitled to
receive burden payments on CAD,
the burden percentages the vendor
charged the State were significantly
overstated.
¾ The current FUTA tax rate is
6.2 percent of an employee’s
first $7,000 paid in wages
during a calendar year.
Employers who pay the
employment tax on a timely
basis receive an offset credit
of up to 5.4 percent regardless
of the rate of tax they pay the
State.
Therefore, the net
Federal tax rate is generally
0.8 percent (6.2 % – 5.4 %).
This equates to a maximum of
$56 per employee per year in
federal tax.
¾ Florida SUTA is similar to
FUTA in that there is a taxable
Page 18

wage limit of $7,000 coupled
with a variable rate between
0.1 percent and 5.4 percent.
Regardless of the vendor’s
SUTA rate, the marginal cost
on
increased
wages
is
negligible given a wage limit
of $7,000.
¾ A review of the vendor’s
fringe benefits, such as
insurance and retirement,
indicates that there is likely
no, or minimal marginal cost
associated
with
paying
increased wages through
CAD. For example, medical
and dental coverage, paid
jointly by the vendor and
employee, would not change
based on wages.
The
vendor’s 401(K) contributions
could be impacted, but only
slightly due to participation
rates, matching percentages,
and vesting rights which are
outside the scope of this audit.

amount the CPC allowed the vendor
to charge appears to be well above
that which would be required to
cover the vendor’s marginal costs.
Moreover, the contract contains no
provisions for payment of burden
costs above the CAD payment and
therefore would not be the
responsibility of the State.
Recommendation
6. We recommend that the BCP
immediately
terminate
burden
payments on CAD.

Bureau Response
6. We concur. If legal review
determines that this section [of the
contract] may not be immediately
terminated, we will address through
the re-bid/renewal process that will
be finalized prior to July 2006.

The 7.65 percent FICA contribution
that the vendor is required to pay on
wages appears to be the only
reasonable marginal cost. However,
there appears to be no rationale for
the State to pay for a vendor’s FICA
on a salary additive that is intended
to enhance its employees’ pay and
ultimately benefit the vendor
through decreased turnover and
reduced recruiting costs.
It is unlikely that payments for
burden
costs
are
authorized.
However, even if appropriate, the

DMS/OIG/IA 2005-61

Page 19

-Finding 5 Vendor Received CAD Payments For Terminated Employees
The South Bay vendor submitted invoices in the amount of $104,000 for CAD
payments for employees who were no longer employed at the facility.

Vendor Charged State for CAD on
Individuals No Longer Employed
We obtained a Personnel Actions
History – Terminations Report from
the vendor detailing a list of all
employee terminations from July
1999 through December 31, 2004.
We compared the list of terminated
employees to the monthly CAD
invoices submitted by the vendor.
This comparison showed that the
vendor received CAD payments for
73 individuals well after their
termination. While the names of
some of the terminated employees
were shown on the CAD invoices
only a few weeks after their reported
termination dates, others were listed
on the CAD invoices for over a year
after their reported termination
dates. The average length of time for
all 73 employees shown as
terminated but reflected on CAD
invoices was about 19 weeks, or
about 4 monthly billing cycles.
Vendor Stated Billings An Oversight
We examined personnel files during
our on-site visit at South Bay. Our

DMS/OIG/IA 2005-61

sampling of the personnel records
verified that the employees had, in
fact, been terminated.
Facility
personnel stated that the CAD
billings for terminated employees
were an oversight.
Neither the
Contract Monitor nor the CPC staff
had reviewed the CAD invoices for
accuracy.
Based on CAD payments for the
contract period, overpayments of
about $104,000 were made for
employees no longer employed by
the vendor.
Recommendation
7. We recommend that the BCP
require Contract Monitors to verify
the accuracy of vendor invoices prior
to the BCP’s approval for payment.
Bureau Response
7. We concur. If legal does not
recommend termination of the CAD
payments, the BCP will ensure that
the Contract Monitor at South Bay
Correctional Facility is properly
trained to verify the vendor invoices

Page 20

for accuracy prior to approval for

payment.

-Finding 6 CAD Payments Not Used To Enhance Employee Salaries
Our review shows that the South Bay vendor used CAD payments to offset
salary costs rather than to enhance employees’ salaries.

CAD Improperly Used
According to Florida Administrative
Code, a CAD additive for State
employees is justified when it can be
demonstrated that the additive is
based on geographical, localized
recruitment,
turnover,
or

competitive pay problems.
The
contract between the South Bay
vendor and the CPC provides for a
CAD additive for the vendor’s
employees.
Currently authorized State CAD
rates are:

Region 1 CAD Rates
Correctional Officer
Classification Officer
Clerk Typist
Licensed Practical Nurse
Psychologist
Dental Technician

$2,500
$2,740
$1,269
$1,456
$ 957
$ 957

Table 5
Although the vendor at South Bay
has been receiving CAD payments to
enhance employees’ salaries since
February 1997, it appears that the
CAD is being used to supplement
below-market starting salaries paid
to South Bay employees. The CAD
additive, in turn, offsets the vendor’s
low starting salaries. In effect, the

DMS/OIG/IA 2005-61

State’s
CAD
payments
are
subsidizing the vendor’s payroll
rather than serving as an additive to
compensate
for
geographical,
localized recruitment, turnover, or
competitive pay problems.
CAD Used To Offset Low Salaries

Page 8

The current starting salary for a
certified
Correctional
Officer
employed at South Bay is $28,371,
which includes a CAD additive of
$6,300 (CAD of $2,500 plus per diem
in lieu of CAD of $3,800). At Moore
Haven
Correctional
Facility,
operated by the same vendor and
located approximately 25 miles north
of South Bay, the current starting
salary for the same position is
$27,000. The CPC’s Moore Haven
contract does not authorize payment
of a CAD. Given that the vendor
receives $6,300 CAD (plus burden
percentage) for each certified
Correctional Officer on its payroll at
South Bay, the compensation
difference of only $1,371 in salary
between South Bay and Moore
Haven indicates that the vendor is
not enhancing the salaries of South
Bay employees with the full CAD
additive.
It therefore appears that the vendor
is using CAD payments to
supplement low starting salaries for
certified Correctional Officers at
South Bay.
Net of the CAD
payments, starting salaries for
Correctional Officers at South Bay
would be $22,071 as compared to
starting salaries at Moore Haven of

DMS/OIG/IA 2005-61

$27,000. It is highly questionable
that the same vendor would pay a
difference in starting salaries of
about $5,000 for identical positions at
two facilities located in close
proximity. We therefore concluded
that the CAD payments were a
mechanism for supplementing the
lower starting salary.
It becomes apparent that the vendor
has created its own “competitive
pay” problem by paying artificially
lower starting salaries and using the
CAD to offset the difference in its
own payroll.
Recommendation
8. We recommend that in all future
RFP’s or Invitations to Negotiate for
private prison operations, bidders
should be instructed to make offers
based only on the vendor’s best bid
price.
Bureau Response
8. See response to Recommendation
Number 5.

Page 22

-Finding 7 Excessive Per Diem Paid For Maintenance And Repair At Gadsden
Correctional Facility
Gadsden Correctional Facility receives an additional per diem payment of $2.30
per inmate for the first 768 inmates or about $645,000 per year for the facility’s
routine and major maintenance and repair. However, records show that the
vendor’s expenditures averaged only $170,000 annually for calendar years 1999
through 2004. As a result, the State paid about $2.85 million more for
maintenance and repair than was expended. The separate per diem payment for
maintenance and repair gives the vendor the opportunity to earn greater profits
by limiting the level of maintenance and repair services provided.

Gadsden Correctional Facility
Receives Maintenance and Repair
Per Diem
Unlike the other four correctional
facilities,
Gadsden
Correctional
Facility receives a separate per diem
of $2.30 on it first 768 inmate days, or
$645,000 annually, to cover the costs
of routine and major maintenance
and repair. The per diem rates at the
other four facilities include funding
for
maintenance
and
repair;
however, these facilities remit a
monthly amount back to the BCP for
major maintenance and repair costs.
Vendors’ major maintenance and
repair contributions are deducted
from the monthly per diem
reimbursement and placed in the
BCP’s trust fund. The vendors are
required to pay for all maintenance
and repair costs up to $5,000.
Maintenance and repair costs over
$5,000 are paid from the fund as
approved by the BCP.
This

DMS/OIG/IA 2005-61

arrangement gives the State a certain
level of assurance that the facilities
will be in good working order at the
time the State takes possession.
Because the State is not directly
involved in the funding or in the cost
of maintenance and repair at the
Gadsden facility, the State has less
assurance that the facility is being
properly maintained and repaired.
We could not determine why
Gadsden Correctional Facility would
receive a separate per diem payment
for maintenance and repair costs.
However, we did find undated and
unsigned memorandums in the
contract files which indicated that
when the contract was executed, the
vendor and CPC agreed that the
additional $2.30 would be an
increase to per diem and that some
of the funds might be used for
maintenance.
However, such an
arrangement, if agreed to by the
vendor and the CPC, is at odds with

Page 23

the executed contract which specifies
that
the
payments
are
for
maintenance and repair only.
Maintenance And Repair Per Diem
Excessive
During calendar years 1999 through
2004, Gadsden Correctional Facility

received $3,868,416 in per diem
payments for maintenance and
repair. However, a review of the
vendor’s reported maintenance and
repair costs shows that the vendor
expended $1,020,021 during this
same period, as shown in the
following Table.

Per Diem Received vs
Maintenance And Repair Costs

Per
Diem
Paid
Maintenance
and Repair
Cost
Difference

CY 1999
$644,736

CY 2000
$644,736

CY 2001
$644,736

CY 2002
$644,736

CY 2003
$644,736

CY 2004
$644,736

Total
$3,868,416

$168,269

$112,016

$171,700

$174,623

$202,572

$190,841

$1,020,021

$476,467

$532,720

$473,036

$470,113

$442,164

$453,895

$2,848,395

Table 6
As shown in Table 6, Gadsden
Correctional
Facility
received
$2,848,395 more for maintenance and
repair than was expended over the 6
calendar years, or an extra $1.69 per
inmate day for the first 768 inmates,
annually.
Vendor Has Profit Motive To Avoid
Repair Expense
Contractual provisions such as the
one at Gadsden Correctional Facility
do not ensure that the State’s
interests are adequately protected.
During our review we examined
documentation showing the vendor
had requested funds from the CPC
in the amount of $150,000 to

DMS/OIG/IA 2005-61

construct new boiler rooms in the
housing units as the gas lines and air
conditioning units were in the same
room.
The vendor justified the
request based on safety concerns.
The CPC denied the request for
funds and suggested that the vendor
use its own funds from the
maintenance and repair per diem.
We noted that the repairs were not
made by the vendor. We asked why
the repairs had not been made and if
this constituted a safety concern.
The vendor’s explanation for not
making the repairs was that the
request for funds was only an
estimate and was obtained only in
the
event
that
the
existing
construction configuration did not
Page 24

pass State inspection. However, the
contract requires the vendor to
perform all maintenance, repair, and
renovations, routine or otherwise.
For this purpose, the vendor receives
$644,736, annually. While we found
nothing to indicate the vendor was
not
performing
adequate
maintenance and repair, based on
this example, it appears that the
State’s interest in this property may
not be optimally protected.
Recommendation
9. We recommend that the Gadsden
contract be revised to conform to
other facilities regarding routine and
major maintenance and repair costs.
Bureau Response
9. We concur. We will process this
request through legal to amend the
contract prior to the rebid/renewal
period that does not take effect until
the expansion is complete (per ’05
proviso).

DMS/OIG/IA 2005-61

Page 25

-Finding 8 Trust Fund Used To Supplement The Cost Of Contractually
Required Programs and Services
The Inmate Welfare Trust Fund is used to supplement the cost of contractually
required programs and services. The use of the Trust Fund to supplement
correctional facilities’ operational requirements understates actual per diem
costs and should be considered when evaluating compliance with statutory cost
savings requirements.

Establishment of Trust Fund

Contractual Requirements

Prior to 1998, vendors deposited net
receipts from commissary operations
and proceeds from telephone and
vending commissions and other
revenue sources generated at the
correctional facilities into an inmate
welfare
trust
fund
account
established by the vendors and
approved by the CPC. The service
contracts required the vendors to use
these funds exclusively for the
benefit, education, and general
welfare of facility inmates.

Contractually, vendors are required
to provide inmates a wide range of
programs and services, including
substance abuse, wellness programs,
academic and vocational training
programs, library, chaplaincy, and
visitation services. The contracts
further provide that the Inmate
Welfare Trust Fund is to be used for
the benefit and welfare of inmates
and may not include items included
in the contractors’ proposals. In
addition, Chapter 60AA-203.101,
Florida
Administrative
Code,
provides that Inmate Welfare Trust
Funds:

In 1998, the Legislature created the
Privately
Operated
Institutions
Inmate
Welfare
Trust
Fund
(POIIWTF)
within
the
DOC.
Establishment of the Trust Fund
effectively gave the State greater
control over the use of such
revenues.

DMS/OIG/IA 2005-61

May be used to provide unique
and innovative programs for
inmates’
reintegration
into
society
and
that
such
expenditures do not include any
program contemplated in the
contract.

Page 26

Trust Funds Used to Pay for
Contractual Requirements

Distributions from Trust Fund not
Equal Among Facilities

Based on our review, it appears that
the CPC allowed contractors to use
the Trust Fund to pay for
contractually required programs and
services.
While the contract
provisions themselves are clear that
the trust funds should not be used to
supplement programs and services
included
in
the
contractor’s
negotiated per diem rates, the CPC
allowed the vendors to designate
certain staff positions to be
reimbursed from the Trust Fund.
These designated positions were
identified in the vendors’ staffing
patterns which were included as an
attachment to the contracts.

We noted that there was an
inequitable distribution of trust
funds across the five correctional
facilities, with some facilities using
trust funds more extensively than
others for required programs and
services. We attributed this to the
fact that the CPC had not established
internal policies for the use of the
Trust Fund.

While some of the trust-funded
positions could reasonably be
approved for reimbursement from
the Trust Fund, others could not.
For example, at Gadsden, we noted
that salaries for the positions of
Chaplain,
Administrative
Clerk
(Chaplain), Librarian, Library Aide,
and Education Counselor are
reimbursed from the Trust Fund.
Clearly, these positions are part of
the contract requirements to provide
education, vocational, chaplaincy
and other specified programs and
services.

DMS/OIG/IA 2005-61

During Fiscal Year 2003-04, vendors
expended $987,617 from the Trust
Fund for the programs and services
shown in Table 7.
Trust Fund Expenditures
Fiscal Year 2003-04

Expenditure Category

Funds
Expended

Education Programs
Religious Services
Wellness Programs
Inmate Libraries
Visitation Programs and
Other Inmate Activities
Facility Enhancement
(Fixed Capital Outlay)

$607,944
$125,463
$101,598
$ 96,993

Total

$987,617

$ 54,961
$

658

Table 7

Page 27

Trust Fund expenditures by facility were:
Trust Fund Expenditures
Fiscal Year 2003-04
Correctional
Facility

Capacity

Trust Fund
Expenditures

% of Trust Fund
Expenditures

Gadsden
South Bay
Moore Haven
Bay
Lake City

1,036
1,318
750
750
350

$504,519
$223,692
$118,613
$110,111
$ 30,682

51 %
23 %
12 %
11 %
3%

Total

4204

$987,617

100 %

Table 8
While some Trust Fund expenditures
may have been justified, based on
the lack of policies or other
guidance, it is difficult to determine
which vendor costs should have
been reimbursed from the Trust
Fund. However, based on a review
of services and programs, the
position staffing for the majority of
the programs and services are
contractually required and should
not have been paid with Trust
Funds.

rate, vendor costs are not tracked by
category (e.g. operations, health
services or educational services).
Therefore, the Department cannot
determine whether contractors are
using
trust
funds
to
offset
expenditures for services and
programs in addition to those
contained in the contracts, or
whether the funds are used to
supplement programs and services
that are already contractually
required.

We also noted that the contracts did
not require vendors to identify how
certain programs or services offered
inmates unique or innovative
opportunities beyond those available
at public facilities. Our review of
available CPC documentation did
not disclose any instances where a
facility justified use of trust funds for
an innovative program or service
above those required by contract.
Moreover,
because
contract
payments are based on a fixed daily

Use of Trust Funds Understates
Vendors’ Per Diem Rates

DMS/OIG/IA 2005-61

In comparison to the privately
operated facilities, the Department of
Corrections uses proceeds from
commissary operations, telephone
and vending commissions and other
sales to inmates to offset the
taxpayer’s contribution to General
Revenue funding for the State
correctional system. Income from
these sources is thus included in
Page 28

DOC’s reported per diem rates for its
correctional facilities. However,
Inmate Welfare Trust Funds are not
included in the contracted per diem
rates of privately operated prisons
and are used to subsidize the cost of
required programs and services. The

contracted per diem rates thus do
not
accurately
reflect
actual
operational costs.
The
effect
of
trust-funded
expenditures on each institution’s
per diem rates is shown in Table 9.

Effect on Per Diem Rates at
Privately Operated Institutions
Fiscal Year 2003-04

Correctional
Institution

Blended
Contract Per
Diem Rate

Trust Fund
Expenditures

Increased Cost
Per
Inmate-Day

Gadsden
South Bay
Moore Haven
Bay
Lake City

$54.08
$46.76
$52.85
$54.09
$78.47

$504,519
$223,692
$118,613
$110,111
$30,682

$1.33
$0.46
$0.43
$0.40
$0.24

Effective Per
Diem Rate

$55.41
$47.22
$53.28
$54.49
$78.71

Table 9
The use of trust funds to supplement
vendor programs and services
results in an effective per diem rate
that exceeds contracted rates.
Accordingly, when determining
compliance with statutory cost
savings requirements, the costs of
supplementing contractual services
and programs paid from trust funds
should
be
considered
when
determining actual per diem rates.
Recommendation
10. We recommend that, as part of its
next legislative agenda, the BCP, in
coordination with the DOC, propose
the deletion of the Privately
Operated
Institutions
Inmate
DMS/OIG/IA 2005-61

Welfare Trust Fund and that funds
generated from sales to inmates be
deposited into the General Revenue
fund to reduce General Revenue
funding for the State’s private
correctional facilities.
Bureau Response
10. We concur. We will propose
legislation eliminating the Inmate
Welfare Trust Fund, recommending
that these funds be placed in General
Revenue. In addition, the BCP will
ensure that funds generated from
sales to inmates will be solely for the
benefit of inmates and not to
supplement contractually required
services and programs.
Page 29

DMS/OIG/IA 2005-61

Page 30

-Finding 9 Welfare Trust Fund Incurred Loss
The CPC did not adequately monitor vendors’ trust fund reports.
Consequently, the CPC did not address a $200,000 decrease in commissary
revenues at Gadsden Correctional Facility or the facility’s use of other trust
fund income to cover net operating losses.

Contract Requirements
The operations and management
services contracts require vendors to
provide an inmate commissary.
Vendors are required to deposit their
net proceeds from commissary
operations as well as proceeds from
telephone and vending commissions
and other revenue sources into the
Trust Fund, monthly. Vendors are
required to submit to the CPC a
monthly report of Trust Fund
deposits and expenditures.
CPC Did Not Monitor Trust Fund
Our review of Gadsden Correctional
Facility’s commissary operations
showed that the CPC failed to
monitor
and
address
issues
concerning a significant decline in
revenue from commissary sales and
the use of other Trust Fund revenues
to offset the vendor’s net operating
losses.

DMS/OIG/IA 2005-61

On January 20, 2002, Gadsden
Correctional Facility changed its
commissary operations from bulk
distribution to bag distribution at the
request
of
CCA
corporate
management.
Under a bag
distribution system, instead of
maintaining
inventory
on-site,
inmates are required to submit a
weekly order for commissary goods.
CCA’s subcontractor for commissary
services then bags each order
individually and ships the bags to
Gadsden Correctional Facility for
distribution to inmates.
Commissary Sales History
While Gadsden’s commissary sales
remained relatively constant during
the period of our review (1999-2004),
the cost of goods sold (what
Gadsden reported paying for items
resold
to
inmates)
increased
significantly during Calendar Year
(CY) 2003.
The following table
shows Gadsden’s reported net
income from canteen operations for
the period reviewed.

Page 31

Income From Canteen Operations
CY1999

CY2000

CY2001

CY2002

CY2003

Sales

$ 830,324

$ 846,357

$ 864,327

$ 897,117

$796,158

$ 883,520

Less Cost of Goods
Sold

$(502,343)

$ (545,825)

$ (546,654)

$(559,459)

$ (777,694)

$ (882,068)

Gross Profit

$ 327,981

$ 300,532

$ 317,673

$ 337,658

$

$ 1,452

Gross Profit Margin

39.5 %

35.5 %

36.85 %

37.6 %

2.3 %

0.2 %

Operating Expenses

$ (140,203)

$ (100,251)

$ (118,970)

$ (111,371)

$ (58,960)

$ (67,382)

Net Income

$ 187,778

$ 200,281

$ 198,703

$ 226,287

$ (40,496)

$ (65,930)

18,464

CY2004

Table 10
As shown in Table 10, the cost of
goods sold went up significantly
beginning in CY 2003. The increase
in cost of goods sold consequently
resulted in a net loss from
commissary operations for CY 2003
and CY 2004. Net income from
commissary operations, which had
averaged about $203,000 annually
for the preceding four-year period,
now showed an average loss of
about $53,000 for the latest two-year
period. Our discussions with the
vendor and the vendor’s accountant
have not resulted in an explanation
of why commissary revenues
decreased so significantly.
Conversely, the CPC failed to notice
or question the resulting loss of
income from commissary operations.
Chapter
60AA-203.101,
Florida
Administrative Code, directs the
CPC Executive Director to appoint

DMS/OIG/IA 2005-61

Commission members to an Inmate
Welfare Fund Policy Committee to
annually review facilities’ Inmate
Welfare Fund budgets. BCP staff
reviewed CPC records and could
find no documentation indicating
that the CPC had established such a
policy committee.
The CPC thus allowed the vendor to
deduct the net loss from canteen
operations from other inmategenerated income (such as telephone
and vending commissions) rather
than requiring the vendor to
recognize the losses as a corporate
expense.
More
importantly,
deducting the losses from other
revenue
sources
reduced
the
facility’s contribution to the Inmate
Welfare Trust Fund.
Recommendation

Page 30

11. We recommend that the BCP
regularly review vendor Trust Fund
operations to include commissary or
other operations where revenues are
derived from inmate sales. Should
the operations not generate funds or
operate at a net loss, the BCP should
determine if vendors are profiting
from sales or if facility operations
should be revised.

DMS/OIG/IA 2005-61

Bureau Response
11. The BCP has established an
Inmate
Welfare
Fund
Policy
Committee to review the facility
Inmate Welfare Trust Fund budgets.

Page 32

-Finding 10 Vendors’ Per Diem Rates Increased To Pay For CPC Salaries
And Expenses
In a November 2001 special session, the Legislature zero-budgeted the
remaining $263,489 from the CPC’s $500,652 2001-02 General Revenue
appropriation for staff salaries and operating expenses. Subsequently, the
CPC increased each vendor’s contracted per diem rate by the amount needed
to cover CPC costs. The vendors then remitted the amount of the per diem
increase to the CPC’s Grants and Donations Trust Fund to pay for staff
salaries and operating expenses. The CPC’s action artificially inflated
contracted per diem rates. Also, because the reason for the increase in per
diem was not disclosed in the contract amendment authorizing the increase,
the Department was not aware that a portion of contracted rates were
designated for CPC operations. This action could have resulted in a loss of
salary and expense dollars for current Department employees when the
Department enters into negotiations to renew existing contracts, establish
rates for facility expansion, or execute contracts for operation of newly
constructed prisons.

Legislature Eliminated General
Revenue For CPC Salaries And
Operations

Legislative Intent Unknown

In the November 2001 special
session, the Legislature eliminated
funding for the CPC’s own
operations. To compensate for the
loss of its General Revenue funding,
the CPC increased the per diem rate
at each facility by $0.40 on the first
tier of inmate man days.
The
amount of the per diem increase was
then deducted from the vendors’
monthly invoices for services and
deposited into the CPC’s Grants and
Donations Trust Fund.

It is not known whether the
Legislature intended to eliminate the
CPC by zero-budgeting its General
Revenue funding, or intended for the
vendors to bear the cost of CPC
operations.
If it was the
Legislature’s intent that vendors
bear the cost of CPC operations
within existing contracted rates, the
CPC undermined Legislative intent
by amending the service contracts to
increase the contracted per diem at
each facility.
If, however, the
Legislature intended to permanently
eliminate General Revenue funding

DMS/OIG/IA 2005-61

Page 33

for CPC operations and not the CPC
itself, the CPC had no recourse but to
bill the vendors for its salaries and
expenses and use the increased per
diem rates to offset the loss of direct
General Revenue funding. As the
Legislature
transferred
CPC
spending authority to its Grants and
Donations Trust Fund, it would
appear that the Legislature expected
the CPC to use available trust funds
for this purpose. However, the Trust
Fund balance was only about
$150,000 at the time and was not
sufficient to fund all CPC costs.
Actions Artificially Increased Per
Diem Rates
Whatever the rationale for the
Legislature’s actions, for all intents
and purposes, the CPC continued to
operate with General Revenue
funds. Instead of direct funding
from General Revenue, funds for
CPC operations were deducted from
each vendor’s reimbursement for
services, which is paid from General
Revenue.
Because the CPC’s action only
resulted in a change in funding
source, the financial effects were
neutral; however, the policy effects
were not.
Foremost, this action
artificially inflated contracted per
diem rates.
The special session
legislation also prescribed specific
cost savings and created the Prison
Per-Diem
Workgroup
to
set
consensus per diem rates.
The
CPC’s actions thus undermined the
generally accepted practice of
DMS/OIG/IA 2005-61

negotiating contracts on the basis of
costs
attributable
to
services
rendered.
The CPC’s actions also created a
serious control deficiency in that the
Department’s Bureau of Correctional
Privatization is now fully funded by
the vendors whose contracts it
administers.
This
funding
mechanism places the Bureau in the
untenable position of enforcing
contractual provisions paid for by its
own funding sources. Should the
Bureau need to terminate a contract
for cause, it would face losing a
portion of its operating funds.
Moreover, when existing contracts
are renewed, or new contracts
awarded, the effect of the contract
amendments could result in loss of
Bureau funding.
Due
to
the
transition
of
responsibility for prison operations
from the CPC to the Department, the
Department was unaware of the
CPC’s funding practices. However,
during the course of this review, the
nature of the CPC funding was
brought
to
the
Department’s
attention.
The
Department
subsequently
requested
direct
General Revenue funding to cover
the BCP’s costs for the 2005-06 Fiscal
Year.
Recommendation
12.
We recommend that the
Department amend each service
contract to reduce vendors’ per diem
rates by the $0.40 increase and
discontinue
deducting
BCP
Page 34

operations
invoices.

costs

from

vendors’

12. We concur. Adjustments have
been made through the 1 and 2 year
renewals that take effect July 1, 2005.

Bureau Response

END OF ISSUE 1

DMS/OIG/IA 2005-61

Page 35

ISSUE 2
CONSENSUS PER DIEM RATES
NOT DETERMINED

Legislation enacted in 200114 established a Prison Per-Diem Workgroup to
meet annually to develop consensus per diem rates for the CPC to use when
determining per diem rates of privately operated prisons. The Workgroup
consists of representatives from the Office of the Auditor General, the Office
of Program Policy Analysis and Government Accountability, and the staffs of
the appropriations committees of both the Senate and the House. The stated
intent of this legislation is to determine the level of funding provided to
privately operated prisons. Funding levels must reflect a 7 percent savings
when compared to the operation of DOC facilities. However, because the
Workgroup has not met since 2002, current consensus rates are not available to
the Department to facilitate development of Legislative Budget Requests for
privately operated prison operations and adjustments to current rates for an
increased number of inmates at expanded facilities. Moreover, we noted that
the CPC was not proactive in requesting or ensuring that the rates were
obtained from the Workgroup. In conjunction with other issues discussed in
this report, these actions have resulted in the Department being unable to
determine whether pricing structures meet statutory savings requirements at
the five privately operated correctional facilities.

14

Chapter 2001-379, Laws of Florida

DMS/OIG/IA 2005-61

Page 36

-Finding 1 Consensus Per Diem Rates Not Developed
Consensus per diem rates for the operation of private correctional facilities have
not been determined on an annual basis as required by State law. State
organizations responsible for determining annual per diem rates for operation of
private prisons have not met since 2002. Because reliable and consensus per
diem rates have not been developed, the State cannot answer the basic question
of whether private prisons are operating at less cost than public prisons as
required by law. Lacking baseline rates, the Department is limited in its ability
to determine whether the 7 percent savings requirement is being met or to
renegotiate existing contracts that ensure the State’s interests are adequately
safeguarded.
Prison Per-Diem Workgroup Has
Not Developed Current Per Diem
Rates
In 2002, the Legislature established
the Prison Per-Diem Workgroup to
develop consensus per diem rates for
privately operated prisons by
February 1, 2002, and each year
thereafter from data provided by the
Department of Corrections for the
most recent fiscal year. The statutes
require the Workgroup to calculate
average per diem rates for adult
male, youthful offender male, and
female populations and make
adjustments in the DOC rates to
account for variation in size and
location
of
DOC
correctional
facilities. However, the Workgroup
has not met since 2002.
The Workgroup published per diem
rates on June 7, 2002, using DOC’s
Fiscal Year 2000-01 data. However,
rather than providing baseline rates,

DMS/OIG/IA 2005-61

the Workgroup offered a range of
per diem rates ( low, average, and
high) based on facility size for two of
the three male facilities and the
youthful offender facility.
Because the Workgroup established
ranges for male and youthful
offender facilities rather than specific
consensus rates, the CPC had
flexibility in using the rates to justify
private prison pricing structures and
to show that savings could exist.
However, the CPC did not
determine if per diem rates met the
statutorily required savings of 7
percent over DOC costs. The CPC
did report that the female facility at
Gadsden had savings of only 1.38
percent, yet it made no adjustments
to the vendor’s contracted per diem
rates.
Although the contracts provide for
an adjustment in rates based on the
operating costs of the DOC, the CPC
increased per diem rates at all
Page 37

facilities by 3 percent for Fiscal Year
2002-03 and 2.1 percent for four of
the five facilities in Fiscal Year 200304, with South Bay receiving 3
percent. Because consensus rates
were not available, the CPC
continued to renew contracts
without reference to current DOC
rates
or
determining
the
appropriateness of such rates.

Private Vendor Rates Increasing
While DOC Rates Decreasing
As reported by the DOC, average per
diem rates have decreased from
Fiscal Years 2000-2001 through 200304. Conversely, per diem rates of the
private facilities increased over the
same period, as shown in Table 11.

Changes In Per Diem Rates
Facility Type
Youthful
Offender
Female
Male

Private
DOC
Private
DOC
Private
DOC

FY 2000-01

FY 2003-04

Percent Change

$72.10
$55.65
$52.13
$68.15
$46.40
$41.22

$78.47
$52.23
$54.08
$58.52
$50.33
$39.28

+ 8.8%
-6.1%
+3.7%
-14.1%
+8.5%
-4.7%

Table 11
Florida Statutes require that private
prisons operate at a cost savings to
the state of at least 7 percent when
compared to publicly operated
prisons. There are many factors
involved in determining comparable
per diem rates; therefore, the
Legislature
established
the
Workgroup to develop consensus
rates. Because the Workgroup failed
to
establish
consensus
rates,
annually, and because the CPC made
questionable contract concessions to
vendors, the Department cannot
determine
whether
current
contracted rates constitute a savings
over the cost of public prisons.

DMS/OIG/IA 2005-61

Accordingly,
the
ability
of
Department managers to renew
contracts at the required savings to
the state is, for all practical purposes,
impossible to accomplish given that
consensus per diem rates are not
available.
Consensus Rates Needed - One New
Prison Coming On Line And
Increasing Capacity At Existing
Facilities
The importance of timely consensus
per diem rates can be demonstrated
by examining the current situation
the Department has inherited. The
Department is currently negotiating
a contract for the construction and
Page 38

operation of a new 1,500 bed facility
near Graceville.
Moreover, Lake
City and South Bay are both in the
process of increasing capacity by 543
beds and will likely be at the new
capacity by July 1, 2005. Expanded
capacity is of less importance at
South Bay where economies of scale
already exist with a current capacity
of 1,318 beds. However, Lake City
has a current capacity of just 350. At
the expanded design capacity of 893
beds, the current blended rate of

$78.47 is not in line with comparable
DOC facilities. The following chart
shows DOC–reported per diem rates
by average daily population for
Youthful Offender facilities as
compared to per diem rates at Lake
City.

Comparison Of Lake City Per Diem Rates
To Similar Size DOC Facilitites
$90.00
Indian River
Population: 310
Rate:
$81.80

$80.00

Lake City Projected
Population: 893
Rate:
$78.47

Lake City Currently

Per Diem Rate

Population: 350
Rate:
$78.47

$70.00

Lancaster

$60.00

Population: 829
Rate:
$61.10

$50.00

$40.00

Brevard

Taylor Annex

Population: 1281
Rate:
$42.71

Population: 476
Rate:
$39.43

$30.00
200

400

600

800

1000

1200

1400

Average Daily Prison Population

Chart 2
As illustrated in Chart 2, operational
costs decrease as prison population
increases due to economies of scale.
Thus, a capacity increase from 350 to
893 inmates at Lake City should

DMS/OIG/IA 2005-61

result in a significant decrease from
the current $78.47 daily rate.
As a result of the FY 2005 Legislative
session, capacity at three other
facilities (Bay, Gadsden, and Moore
Page 39

Haven) is also being increased. In
conjunction with the increased
capacities at Lake City and South
Bay and the new construction at
Workgroup Currently Meeting To
Determine Rates
During the course of this audit and
at the urging of DMS management,
the Workgroup is currently meeting
to establish consensus per diem
rates. The updated rates will help
DMS
meet
statutory
savings
objectives.
Based on information provided by
the OIG, the Workgroup lowered the
benchmark per diem rate of $80.40
calculated for Lake City to $60.91 to
account for the increased capacity
and subsequent economies of scale.
It is expected that finalized
consensus per diem rates will be
available within the near future.14

Graceville, this further illustrates the
need for consensus per diem rates to
be determined both annually and
timely.
Recommendation
13. We recommend that the BCP
maintain direct communication with
the Workgroup to ensure that
consensus per diem rates are
available on an annual basis.
Bureau Response
13. We concur. We will maintain
communication with the Workgroup
through the Department’s executive
management staff. The BCP will
also engage in dialogue with the
members of the Workgroup during
the year to ensure that the
Workgroup is aware that consensus
per diem rates must be provided
annually.

END OF ISSUE 2

On June 17, 2005, the Workgroup completed its report on consensus rates. The final report was
forwarded to the President of the Florida Senate and Speaker of the House of Representatives.
As in the prior report, the Workgroup provided non-specific data rather than baseline data useful
to the Department in negotiating operations and management contracts for private prison
operations. The report provides various numbers that could be interpreted in differing ways by
state and vendor negotiators. The Workgroup’s efforts thus failed to meet the statutory

14

DMS/OIG/IA 2005-61

Page 39

requirement to derive consensus per diem rates for the Legislature to use in determining funding
levels for the privately operated prisons. Further, the Department will have to use the
Workgroup’s results to calculate its own benchmark data. This process leaves the Department
more susceptible to administrative challenges and delays in meeting contract timelines. As this
report recommends, placing privately operated prisons under DOC jurisdiction would eliminate
the need for the Workgroup.

DMS/OIG/IA 2005-61

Page 41

ISSUE 3
DOC SHOULD ADMINISTER
PRIVATELY OPERATED
PRISONS
Although the CPC was administratively housed within DMS, the Department
Secretary had no authority over Commission operations. And, as is apparent
throughout this report, the CPC functioned autonomously and with little
oversight or accountability. By dissolving the CPC and giving DMS the
responsibility to contract for private prison operations, the Legislature
imposed Executive Agency-level accountability and control over private prison
operations. However, the selection of DMS as the host agency does not
address concerns inherent in the current operational framework.

-Finding 1 Management and Supervision
Of Private Prisons
The responsibility for contract management and monitoring of private prisons is
currently divided between DMS and DOC. Transferring these responsibilities to
the DOC would consolidate responsibilities, increase efficiencies and potentially
save the State about $631,000 annually in administrative costs.

Use of Privately Operated Prisons
Creation
of
the
Correctional
Privatization Commission in 1993
served to jump-start the state’s use of
private vendors for construction and
operation of correctional facilities.
Although the primary mission of
both public and privately operated
prisons is to protect the public’s
safety, the CPC was also charged
with achieving cost savings in prison
operations and with reducing

DMS/OIG/IA 2005-61

recidivism.
An
underlying
assumption in outsourcing prison
operations was that private vendors
could achieve greater efficiencies
and improve performance outcomes
through innovation.
As discussed previously, Florida is
the only state with contracted prison
operations
wherein
privately
operated
facilities
are
not
administered by the state corrections
authority.
In most states, the

Page 42

decision
to
outsource
prison
operations was driven by the need to
bring additional beds on-line
quickly, and in these states, privately
operated prisons tend to model the
state’s public facilities.
Improvements in Financial
Accountability and Control
Mechanisms
Fiscal responsibility for the State’s
privately
operated
prisons
is
currently split between DMS and
DOC. Therefore, neither agency has
full accountability or control over
financial matters. The Legislature
appropriates funding for the private
facilities to DOC as part of the
overall appropriation for State
correctional facilities.
With one
exception, DOC has no authority
over appropriated funds except to
pay vendors the amounts certified
by DMS. DOC does verify and
certify the vendor’s billing for the
number of inmate days provided. In
the event that the vendor’s and
DOC’s
counts
differ,
DMS
reimburses the vendor based on
DOC’s count. DOC has no authority
over expenditures except to pay
vendors the amounts certified by
DMS. DOC is thus accountable for
expenditures which have not been
processed through DOC’s own
financial control system.
And,
because DMS does not pay the bills,
invoices
submitted
for
DOC
payment are not subject to DMS’
own internal controls.
Both
departments must thus rely on the
BCP to exercise a level of financial

DMS/OIG/IA 2005-61

accountability and control that, for
sound
business
practices,
is
generally not delegated to the
division or bureau level.
Determining Whether Contracted
Per Diem Rates Meet Required Cost
Savings Is Problematic
DMS negotiations with vendors for
per diem rates that meet required
cost savings are hampered by the
lack of a consistent methodology for
calculating
and
comparing
contracted rates with DOC’s costs to
operate public facilities. The 2001
Legislature created the Prison PerDiem Workgroup to develop
consensus per diem rates for use in
determining funding levels for
privately operated prisons.
The
Legislature also required that
funding levels reflect at least a 7
percent cost savings when compared
with DOC costs.
In 2002, the Workgroup established a
range of low, medium, and high per
diem rates for the CPC to use in
contract negotiations. Although the
CPC’s service contracts provide for
annual rate adjustments, the CPC
did not renegotiate or adjust
contracted rates subsequent to
publication of the Workgroup’s
baseline costs.
Because the
Workgroup did not calculate new
rates in the succeeding fiscal years,
DMS cannot determine if existing
contracts comply with the state’s cost
savings requirements.

Page 42

Placement of the privately operated
prisons within DOC would alleviate
the guesswork in developing
consensus rates.
DOC could
negotiate the cost of services based
on its own calculations for the cost of
operating public facilities.
Such
reorganization would eliminate the
need for the Prison Per-Diem
Workgroup, which has historically
not met statutory requirements to
annually calculate consensus rates.
Benefits Of Placing Privately
Operated Correctional Facilities
Under DOC Jurisdiction
We identified the following benefits
of
placing
responsibility
for
administering privately operated
prisons within the DOC:
•

•

•

Administration of privately
operated facilities is more in
line with DOC’s core mission
than with that of DMS. DMS
is responsible for providing
infrastructure support to state
agencies and historically has
not
provided
corrections
services.
The state could realize
potential
savings
of
approximately $631,000 by
eliminating the BCP and
incorporating responsibility
for private prison operations
within
DOC’s
existing
organizational structure.

of private prison academic,
vocational, substance abuse,
and other programs. These
costs add significantly to per
diem rates. To date, neither
the CPC nor external review
entities have compared the
costs and results of private
prison programs with those of
public facilities.
Recommendations
14. We recommend that, as part of
the Department’s next Legislative
agenda, the BCP propose the transfer
of responsibility for contracting and
monitoring of private prisons to the
DOC.
15. Alternatively, we recommend the
BCP propose the transfer of
responsibility for appropriations and
budgeting authority to DMS.
Bureau Response
14. We concur to amend statute with
one of two options. Department
management will propose legislation
directing the transfer of private
prison to the DOC. The proposal
will contain alternative language
that
should
the
Legislature
determine not to transfer private
prisons to DOC, that responsibility
for appropriations and budget
authority be transferred from DOC
to DMS.
15. We concur. Please see #14.

DOC is better positioned to
monitor and evaluate results

DMS/OIG/IA 2005-61

Page 43

END OF ISSUE 3

DMS/OIG/IA 2005-61

Page 39

Exhibit A – Summary of Monetary Benefits
Issue No.

Description

Amount

Category

ISSUE 1
CPC did not reduce
vendors’ per diem for
vacant staff positions

$3,700,000

CPC did not correctly
calculate vacancies.
CPC issued blanket
waivers for vacant
positions. Vendors’ per
diem payments not
reduced.

$750,000

Vendor received excessive
CAD payments.

$1,860,000

Vendor received per diem
in lieu of CAD which was
not authorized.

$1,540,000

Finding 4

Vendor billed State for
overhead on CAD.

$1,570,000

Finding 5

Vendor received CAD for
employees not employed.

$104,000

Finding 1

Finding 2

Finding 3

Finding 7

Vendor received excessive
per diem for maintenance
and repair

Management or
operating
improvements/savings

$290,000

Management or
operating
improvements/savings

Management or
operating
improvements/savings
Management or
operating
improvements/savings
Management or
operating
improvements/savings

$2,850,000

Management or
operating
improvements/savings

$631,000

Potential annual
recurring savings

ISSUE 3
Finding 1

Transfer of responsibility
for contracting and
monitoring of private
prisons to DOC.

DMS/OIG/IA 2005-61

Page 44

Exhibit B – Objective, Scope and Methodology
OBJECTIVE
The overall objective of this audit was to evaluate the status of the
privately operated correctional facilities at the time of their transfer to
DMS. Our specific objective was to determine whether existing contracts
adequately safeguard the State’s interests.
SCOPE
The audit, conducted in accordance with the Standards for the
Professional Practice of Internal Auditing, included a review of
Correctional Privatization Commission (CPC), Department of Corrections
(DOC) and Bureau of Correctional Privatization (BCP) documents and
records for the years from 1991-2005. These documents and records
pertained to the procurement of outsourced prison operations, including
compliance with statutory cost savings requirements; development of
contracted per diem rates and the effect of certain administrative actions
on the per diem rate structure; and the state’s administration and
management of outsourced operations, including accountability and
control mechanisms.
METHODOLOGY
To accomplish the audit objective, we performed the following steps:
¾ Reviewed applicable Laws of Florida, Florida Statutes and Florida
Administrative Code.
¾ Reviewed relevant reports published by the Florida Corrections
Commission, Department of Corrections, the Prison Per-Diem
Workgroup, Office of the Auditor General and the Office of
Program Policy and Government Accountability.
¾ Reviewed the literature on private prison operations in other states,
including contracting and monitoring of outsourced prison
operations; use of performance-based contracts and measurement
of performance outcomes of privately operated prisons; and
evaluations of whether privately operated correctional facilities are,
or are not, less costly to operate than public facilities.

DMS/OIG/IA 2005-61

Page 45

¾ Conducted on-site interviews with vendor staff at Gadsden and
South Bay correctional facilities; interviewed selected vendor staff
at all facilities by telephone and/or e-mail; and interviewed former
CPC staff and current BCP staff, including Contract Monitors.
Steps associated with specific areas included the following:
¾ Position Vacancies/Waivers
•

•
•

Analyzed vacancy reports submitted to the CPC, as available
from the five facilities for the period from August 2001
through December 2004
Compiled data on vacancy deductions from vendor invoices
for the period from February 1997 through December 2004
Compiled information on vacancy waivers from minutes of
the CPC’s 2001 quarterly meetings and BCP staff interviews

¾ Competitive Area Differential Payments
•
•

•

Compiled and compared vendor and State data on CAD
payments for the period February 1997 to December 2004
Compiled data from paid invoices to calculate State
overpayments for CAD rates, burden charges, and payments
in lieu of CAD
Compared vendor’s Personnel Action-History Reports with
the vendor’s CAD billings to identify CAD overpayments
for terminated employees

¾ Maintenance and Repair Per Diem, Gadsden Correctional Facility
•

Calculated cost of per diem payments to the vendor for
maintenance and repair for Calendar Years 1999 through
2004; compiled data from vendor’s records of expenditures
and calculated effect on vendor’s per diem rate

¾ Use of Inmate Welfare Trust Funds
•

DMS/OIG/IA 2005-61

Compiled and analyzed data and information on Inmate
Welfare Trust Fund revenues and expenditures from Fiscal
Years 1999-2000 through 2003-04 from the following sources:
ƒ CPC and BCP annual reports to the Legislature on
Trust Fund revenues and expenditures
ƒ Vendors’ budget requests for use of Trust Funds
Page 46

ƒ
ƒ

Vendors’ Trust Fund Profit and Loss Statements
DOC financial records

¾ Payment of CPC Salaries and Expenses
•

DMS/OIG/IA 2005-61

Analyzed changes in contracted per diem rates, invoice
deductions, and CPC records and documents from
November 2001 to December 2004 to identify CPC’s basis for
increasing per diem rates over time, including annual costof-living increases and increases related to payment of CPC
salaries and expenses

Page 47

Exhibit C – Division Response

DMS/OIG/IA 2005-61

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Page 51

Exhibit D – Distribution List
William O. Monroe, Auditor General
Gary VanLandingham, Director, Office of Program Policy Analysis
and Government Accountability
Terry Shoffstall, Director
Joint Legislative Auditing Committee
Derry Harper, Chief Inspector General
Executive Office of the Governor
Kim Mills, Audit Director
Executive Office of the Governor
James V. Crosby, Jr, Secretary
Department of Corrections
Robert Hosay, Chief of Staff
Department of Management Services
Cindy Marsiglio, Deputy Secretary
Department of Management Services
Lee Ann Korst, Deputy Secretary
Department of Management Services
Rosalyn Murphy, Director of Fleet Management, Federal Property Assistance and
Correctional Privatization, Department of Management Services
John Holley, Director of Legislative Affairs
Department of Management Services
Jennifer Fennell, Director of Communications
Department of Management Services

DMS/OIG/IA 2005-61

Page 52

To promote accountability, integrity, and efficiency, in government, the Office of the
Inspector General makes audits of the Department of Management Services programs,
activities, and functions. This audit was made in accordance with applicable standards
contained in The Professional Practices Framework, issued by the Institute of Internal
Auditors.
Other audit reports prepared by the Office of Inspector General of the Department of
Management
Services
can
be
obtained
on
our
Web
site
(http://dms.myflorida.com/administration/inspector_general); by telephone (850 4885285); or by mail (4040 Esplanade Way, Suite 135, Tallahassee, Florida 32399).