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Los Angeles Jail Canteen Audit: Contractor Rakes In $640,213 Excess Profits
by John E. Dannenberg
Compass Group USA, Inc. doing business at the Los Angeles County Jail as Canteen Services (Canteen), was booked by the county auditor for extracting $640,213 in excess profits from its gross prisoner canteen revenues of $78 million between 2000 and 2005 and spending this sum on expenses not related to the county contract. This included wining and dining unidentified Sheriff?s department officials to the tune of $169,465. The $640,213 in disallowed deductions should have instead been booked as ?profit sharing? paid to the county for prisoner-benefit programs. Compass Group responded to the audit by claiming that it, an $8.4 billion corporation, actually underbilled the county for its corporate overhead, and was thus owed money.
Canteen?s five-year contract with the county jail provides that it shall return 31%; of net commissary sales to the county, as well as 50% of any profits in excess of a 6% target. Thus, the county exacts a 31% ?commission? for the privilege of doing business with them, plus incentifies the vendor to make excess profits. All of this cost basis, of course, simply goes to artificially jacking up the cost of canteen purchases to the prisoners and the low-income families who support them.
One additional cost factor designed into the contract is that Canteen is required to prepare and distribute ?indigent packages? to provide minimal toiletries to incoming indigent prisoners. Thus, the cost of supporting indigents is borne by their non-indigent peers? purchases.
In operating its business, Canteen is allowed certain ?normal and ordinary? expenses, including such things as employee wages, benefits, uniforms, legal services and other direct costs. Not permitted, under audit review, were several ?donations? logged by Canteen that appeared as reductions to both the commission and profit portions of its reimbursement to the county.
Expressly disallowed were expenses for Compass employee meals and entertainment, including the $169,465 for ?client hospitality.? While Compass explained that this was spent on Sheriff?s department officials, no record of just who received the benefits was produced. The auditor complained that under California?s Political Reform Act, any public official who receives a gift of more than $50 must report it, and in any event, he may not receive more than $360 per year. Because inadequate records were kept by Canteen, violators could not be identified (not one county employee had ever reported receiving such a gift).
Other unauthorized deductions included $304,921 to the Sheriff?s Youth Foundation (a crime prevention program) and $147,233 to the Sheriff?s Department for retirement parties, golf tournaments and the Baker-to-Las Vegas relay, an annual long-distance race that Sheriff Lee Baca and other police participate in.
But more troubling was that profits from the canteen are supposed to be used by the Sheriff?s Department solely for prisoner benefits, including medical, mental health, education and re-integration programs. Indeed, a 2000 grand jury report chastised the Sheriff for instead using this ?slush fund? for his own ?pet projects? and other expenses. The bottom line is that Canteen improperly inflated their captive customers? canteen prices by $640,213 and then rubbed their noses in it by forcing the prisoners to fund Canteen?s largesse of wining and dining their captors.
Source: Audit of the Sheriff?s Department Commissary Service Contract, County of Los Angeles Department of Auditor-Controller (April 12, 2007); Inland Valley Daily Bulletin. The audit is on PLN?s website.
Compass Group USA, Inc. doing business at the Los Angeles County Jail as Canteen Services (Canteen), was booked by the county auditor for extracting $640,213 in excess profits from its gross prisoner canteen revenues of $78 million between 2000 and 2005 and spending this sum on expenses not related to the county contract. This included wining and dining unidentified Sheriff?s department officials to the tune of $169,465. The $640,213 in disallowed deductions should have instead been booked as ?profit sharing? paid to the county for prisoner-benefit programs. Compass Group responded to the audit by claiming that it, an $8.4 billion corporation, actually underbilled the county for its corporate overhead, and was thus owed money.
Canteen?s five-year contract with the county jail provides that it shall return 31%; of net commissary sales to the county, as well as 50% of any profits in excess of a 6% target. Thus, the county exacts a 31% ?commission? for the privilege of doing business with them, plus incentifies the vendor to make excess profits. All of this cost basis, of course, simply goes to artificially jacking up the cost of canteen purchases to the prisoners and the low-income families who support them.
One additional cost factor designed into the contract is that Canteen is required to prepare and distribute ?indigent packages? to provide minimal toiletries to incoming indigent prisoners. Thus, the cost of supporting indigents is borne by their non-indigent peers? purchases.
In operating its business, Canteen is allowed certain ?normal and ordinary? expenses, including such things as employee wages, benefits, uniforms, legal services and other direct costs. Not permitted, under audit review, were several ?donations? logged by Canteen that appeared as reductions to both the commission and profit portions of its reimbursement to the county.
Expressly disallowed were expenses for Compass employee meals and entertainment, including the $169,465 for ?client hospitality.? While Compass explained that this was spent on Sheriff?s department officials, no record of just who received the benefits was produced. The auditor complained that under California?s Political Reform Act, any public official who receives a gift of more than $50 must report it, and in any event, he may not receive more than $360 per year. Because inadequate records were kept by Canteen, violators could not be identified (not one county employee had ever reported receiving such a gift).
Other unauthorized deductions included $304,921 to the Sheriff?s Youth Foundation (a crime prevention program) and $147,233 to the Sheriff?s Department for retirement parties, golf tournaments and the Baker-to-Las Vegas relay, an annual long-distance race that Sheriff Lee Baca and other police participate in.
But more troubling was that profits from the canteen are supposed to be used by the Sheriff?s Department solely for prisoner benefits, including medical, mental health, education and re-integration programs. Indeed, a 2000 grand jury report chastised the Sheriff for instead using this ?slush fund? for his own ?pet projects? and other expenses. The bottom line is that Canteen improperly inflated their captive customers? canteen prices by $640,213 and then rubbed their noses in it by forcing the prisoners to fund Canteen?s largesse of wining and dining their captors.
Source: Audit of the Sheriff?s Department Commissary Service Contract, County of Los Angeles Department of Auditor-Controller (April 12, 2007); Inland Valley Daily Bulletin. The audit is on PLN?s website.
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