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Although It Has Broad Discretion in
Pursuing Its Statutory Purposes, It Could
Improve Certain Pricing Practices and
Develop Performance Measures

R
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California State Auditor

Prison Industry
Authority:

December 2004
2004-101

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December 20, 2004

2004-101

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit
report concerning the pricing practices and impact of the Prison Industry Authority (PIA).
This report concludes that PIA has discretion with regard to how it fulfills its statutory purpose to be selfsupporting. For instance, PIA uses profits from some enterprises to offset losses in others. In addition,
although state law does not require PIA to offer competitive prices and its prices can differ from those
of other vendors, PIA could improve certain pricing practices, such as product costs of questionable
reliability, inadequate documentation justifying its prices, and a lack of policies with regard to special
or discount pricing.
PIA has not established participation targets for the number of inmates it aims to employ among its
various enterprises, which would allow it to demonstrate its effectiveness in fulfilling its statutory
purpose to employ inmates. Also, PIA has not demonstrated adequately whether and in what manner it
fulfills its statutory purpose to reduce the operating costs of the California Department of Corrections.
Finally, although PIA has embarked upon various activities aimed at enhancing the employability of its
participants, it has not established targets or performance measures to track participants’ post-release
success and evaluate its own performance.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor

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CONTENTS
Summary

1

Introduction

5

Chapter 1
Although the Prison Industry Authority Has
Discretion in Setting Prices, It Could Improve
Certain Pricing Practices

13

Recommendations

26

Chapter 2
The Prison Industry Authority Has Not Established
Inmate Participation Targets or Related Enterprise
Evaluation Criteria

27

Recommendations

33

Chapter 3
The Prison Industry Authority Has Not Adequately
Demonstrated Its Financial Impact on the California
Department of Corrections

35

Recommendation

43

Chapter 4
Although It Has Established a Program to Develop
Inmates’ Work Habits and Occupational Skills,
the Prison Industry Authority Has Yet to Measure
the Program’s Effect Adequately

45

Recommendations

56

Appendix A
Fiscal Years 2002–03 and 2003–04 Prison Industry
Authority Revenue by Enterprise and Major Customer

57

Appendix B
Comparative Pricing Analysis of Prison Industry
Authority Products and Services

61

Response to the Audit
Youth and Adult Correctional Agency

63

SUMMARY
RESULTS IN BRIEF

Audit Highlights . . .
Our review of the Prison
Industry Authority (PIA)
revealed the following:

þ Although state law does
not require PIA to offer
competitive prices and
its prices can differ from
those of other vendors,
PIA could improve certain
pricing practices.

þ PIA has not established
participation targets for
the number of inmates it
aims to employ among its
various enterprises.

þ PIA has not demonstrated
adequately whether and
in what manner it fulfills
its statutory purpose to
reduce the operating
costs of the California
Department of Corrections.

þ Although PIA has embarked
upon various activities
aimed at enhancing
the employability of its
participants, it has not
established targets or
performance measures
to track participants’
post-release success
and evaluate its
own performance.

T

he Prison Industry Authority (PIA) operates under the
policy guidance of an 11-member Prison Industry Board
(board) and exists to employ inmates, to reduce the
operating costs of the California Department of Corrections
(Corrections), to offer inmates the opportunity to develop
effective work habits and occupational skills, and ultimately
to be self-supporting by generating sufficient revenue from
the sale of products and services to pay for its own expenses.
As of July 2004, PIA operated 25 manufacturing, service,
and agricultural enterprises within 60 factories and farms at
22 of Corrections’ 32 institutions. It recorded approximately
$144 million in revenue in fiscal year 2003–04, nearly all of it
resulting from purchases by state agencies.
Although one of PIA’s statutory purposes is to generate
sufficient revenue from the sale of its products and services to
ultimately be self-supporting, PIA has discretion with regard
to how it fulfills this purpose. Over time, it appears that PIA
has hovered around self-support; however, state law does not
require each enterprise to be self-supporting, and the profits
from some enterprises offset the losses in others. Specifically, of
the 28 enterprises that experienced financial activity in fiscal
year 2003–04, including three that PIA had closed recently,
eight profitable enterprises offset much of the losses from
20 other enterprises.
Further, although PIA strives to keep the prices of its products
and services competitive, state law does not require it to do so.
Nonetheless, our review of the prices for 19 PIA products and
services that in fiscal year 2002–03 generated approximately
24 percent of PIA’s revenue shows that the prices for 14 of the
items fall below the average price of the vendors we reviewed. The
prices for an additional two items were no more than 15 percent
greater than the average comparable price. Despite PIA’s discretion
with regard to pricing, we identified certain practices that could
be improved, such as product costs of questionable reliability,
inadequate documentation justifying its prices, and a lack of
policies with regard to special or discount pricing.

California State Auditor Report 2004-101

1

In addition, although another of PIA’s statutory purposes is to
employ inmates, it has not established participation targets for
the number of inmates it aims to employ among its various
enterprises. Because the Legislature intended in part that
PIA employ inmates in order to reduce inmate idleness and
prison violence, we would expect PIA to establish long-range
annual participation targets and report its progress in meeting
these targets to the Legislature. Moreover, although inmates
employed in PIA’s enterprises contribute toward its ability to
be self-supporting, this contribution varies depending on the
enterprise. Yet PIA has not established criteria for evaluating
each enterprise’s combined contribution to PIA’s statutory
purposes of being self-supporting and employing inmates.
Without establishing employment targets and routinely
assessing the contribution of each enterprise to profitability as
well as inmate employment against criteria, such as profitability
per inmate, PIA limits decision makers’ ability to assess its
overall performance.
Further, although another of PIA’s statutory purposes is to reduce
the operating costs of Corrections, PIA has not demonstrated
adequately whether and in what manner it fulfills this purpose.
PIA claims that it provided Corrections $14.1 million in cost
savings in fiscal year 2002–03 by offering a correctional work
or training program (correctional program) for inmates that
Corrections otherwise would have had to fund. However, in
PIA’s absence, Corrections is neither legally obligated nor was it
prepared to reassign all of PIA’s participants in fiscal year 2002–03
to programs other than PIA. Thus, PIA’s approach toward
claiming cost savings to Corrections for fiscal year 2002–03
is questionable. An alternative approach to demonstrate
PIA’s financial impact to Corrections would be to evaluate
sentence reduction credits that PIA or other correctional
program participants earn at a faster rate than nonparticipants.
Sentence reduction credits result in inmates spending less time
in institutions, decreasing Corrections’ costs of monitoring,
housing, and feeding them. However, a new program initiated
by Corrections in fiscal year 2003–04 as a result of a legislative
requirement will reduce significantly or eliminate the group
of inmates whose participation in PIA could result in a cost
avoidance to Corrections due to their earning sentence
reduction credits at a faster rate. Thus, PIA’s ability to claim any
cost avoidance in the future with regard to sentence reduction
credits is impaired significantly.

2

California State Auditor Report 2004-101

PIA’s diminishing ability to reduce Corrections’ costs in
this manner leaves performance measures with regard to
post-release success as the primary benchmarks to demonstrate
PIA’s value and distinguish itself from other correctional
programs. In 1999 PIA embarked upon various activities aimed
at enhancing the employability of PIA participants after their
release. Driving these activities are six goals that PIA developed
in 2001 to enhance the employability of inmates. Although
PIA’s development and pursuit of its inmate employability goals
represent an improvement from what we reported in previous
audits, PIA needs to ensure that activities designed to meet these
goals contribute to inmates’ post-release success.
In July 2003 PIA entered into a contract with the Employment
Development Department (EDD) that allows PIA to track the
employment status of its former participants. However, PIA could
do more to demonstrate its impact. Although PIA has begun to
measure its participants’ ability to obtain post-release employment
and to avoid returning to prison, it has not established targets or
performance measures to track participants’ post-release success
and evaluate its own performance. For instance, PIA does not
compare its participants’ post-release success to that of participants
in other correctional programs, to nonparticipants, or to its own
expectations. In addition, PIA lacks the necessary data to determine
whether the specific training or experience it provides inmates
affects the types of jobs they obtain after release. After we discussed
this matter with PIA, it contacted EDD to discuss obtaining
additional data of this type. Despite the challenges of establishing
a direct link between PIA’s activities and inmates’ level of success
after release from prison, without measuring and reporting on how
inmates who have participated in its enterprises fare after release,
PIA cannot provide an adequate perspective on the effectiveness of
its pursuit of its statutory purpose to offer inmates the opportunity
to develop effective work habits and occupational skills. Moreover,
without performance measures or targets, PIA cannot focus its
inmate employability efforts on areas that demonstrate success.

RECOMMENDATIONS
PIA should improve its method for identifying product costs,
ensure that it documents the analyses supporting each price, and
establish policies for entering into special pricing arrangements
or offering discounts to customers.

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3

PIA should establish long-range annual employment targets
overall, for each enterprise, and as a percentage of Corrections’
institution population. PIA should include these targets and
annual results in meeting them, as well as explanations when
they are not met, in its annual report to the Legislature.
To the degree PIA estimates cost savings that result from inmates
participating in PIA, it should ensure that its analysis considers
all the options and associated costs per inmate that Corrections
would have available for reassigning PIA’s participants into
another program in PIA’s absence.
PIA should establish targets against which to measure its
participants’ post-release success in obtaining employment and
not returning to prison. For instance, PIA should compare the
post-release success of its participants to that of participants in
other correctional programs, to nonparticipants, or to its own
expectations. Corrections should assist PIA in obtaining the
necessary data for comparison by providing comparable data on
other correctional programs.

AGENCY COMMENTS
The Youth and Adult Correctional Agency and PIA concur
with our recommendations and outline an approach for
implementing them. n

4

California State Auditor Report 2004-101

INTRODUCTION
BACKGROUND

T

he Legislature established the Prison Industry Authority
(PIA) to employ inmates, to reduce the operating
costs of the California Department of Corrections
(Corrections), to offer inmates the opportunity to develop
effective work habits and occupational skills, and ultimately
to be self-supporting by generating sufficient revenue from
the sale of products and services to pay for its own expenses.
A total of 662 full-time equivalent state employees work for
PIA. Its administrative offices are in Folsom, California. As
of July 2004, PIA operated 25 manufacturing, service, and
agricultural enterprises within 60 factories and farms located
at 22 of the State’s 32 correctional institutions. Figure 1 on the
following page shows the statewide locations of PIA’s enterprise
sites at their respective correctional institutions.
Inmates participating in PIA produce more than 1,800 products,
including license plates, furniture, optical products such as
eyeglass lenses, and agricultural products, and they provide
services including laundry and printing. Corrections reports that
as of June 30, 2004, PIA employed approximately 5,600 male
and female inmates statewide, or 3.6 percent of Corrections’
approximately 155,600 inmates in institutions. Inmates earn
30 cents to 95 cents an hour. During fiscal year 2003–04, more
than $550,000, or 30 percent of inmates’ PIA earnings, was
deposited into the Crime Victims Restitution Fund to pay for
court-ordered restitution and fines. During fiscal years 2002–03
and 2003–04, PIA recorded approximately $10.2 million and
$5.5 million in net losses.1
PIA operates under the policy guidance of an 11-member
Prison Industry Board (board), which consists of representatives
of industry, labor, state agencies, and the general public.
The director of Corrections serves as the board chair. Unlike
Corrections’ correctional work or training programs (correctional
programs), such as academic or vocational education, PIA is
not represented as a line item in Corrections’ budget and is not
subject to normal budgetary review. Rather, PIA relies on its

1

As of mid-November 2004, fiscal year 2003–04 financial information was unaudited.

California State Auditor Report 2004-101

5

FIGURE 1
Prison Industry Authority Enterprise Locations
July 2004
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Source: Prison Industry Authority.

6

California State Auditor Report 2004-101

own Prison Industries Revolving Fund to finance its operations.
Instead of submitting a budget to the Department of Finance, PIA
submits its annual budget to the board for review and approval.
The board’s authority over PIA also includes approving new
manufacturing, agricultural, and service enterprises. State law calls
for the board to meet at least four times during each fiscal year.

PIA SELLS PRIMARILY TO STATE AGENCIES
State agencies accounted for approximately 97 percent of PIA’s
revenue in fiscal year 2003–04. State law requires state agencies
to make maximum use of PIA products and to work with PIA to
develop additional products to meet their needs. Authority for
purchasing goods and services for state government generally
resides with the Department of General Services (General Services).
State law provides that the director of General Services or his or
her designee may procure goods from the private sector even
though goods may be available from PIA, when in his or her
discretion it is cost-beneficial to do so and if PIA continues to be
included in solicitations for quotations for goods. General Services
can delegate its purchasing authority to state agencies under
certain conditions. It instructs state agencies to first consider if
their needs can be met by PIA. However, state agencies can submit
waiver requests to PIA to purchase non-PIA products in certain
instances, such as if PIA does not make a requested product.
PIA also is authorized to sell its products and services to cities,
counties, special districts, and other political subdivisions, as
well as to federal agencies. Further, PIA may dispose of products
by selling to foreign governments and businesses for distribution
in other countries.
PIA recorded approximately $144 million in revenue in fiscal year
2003–04. Corrections, as PIA’s largest customer, provided 47 percent
of PIA revenues. As shown in Figure 2 on the following page, the
Department of Motor Vehicles and the Department of Health
Services, which purchase mainly license plates and optical products,
respectively, represented 14 percent and 12 percent of PIA revenues.
Refer to Appendix A for a listing of PIA revenues by enterprise from
its major customers for fiscal years 2002–03 and 2003–04.

PIA IS ONE OF SEVERAL CORRECTIONAL PROGRAMS
Corrections is responsible for the incarceration, training, and
care of felons and nonfelon narcotic addicts as well as for
the supervision of parolees released to the community. As we
California State Auditor Report 2004-101

7

FIGURE 2
Fiscal Year 2003–04 Prison Industry Authority
Revenue by Major Customer
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Source: Prison Industry Authority fiscal year 2003–04 revenue data.

discussed previously, the director of Corrections chairs the board
that oversees PIA. PIA is one of several correctional programs
available to Corrections’ inmates, but it is the only correctional
program not contained in Corrections’ budget. Table 1 shows
the distribution of Corrections’ institution population as of
June 30, 2004, by inmates assigned to various correctional programs
and those that are not assigned. Corrections assigned the most
inmates, about 43,100, in institutional support and work programs,
which include assignments such as maintenance and nursery crews.
In addition, as of June 30, 2004, Corrections provided academic
and vocational education programs for approximately 10,500 and
7,900 inmates, respectively. These correctional programs aim to
equip inmates with the relevant knowledge and skills to help them
find employment upon release. As of June 30, 2004, Corrections’
waiting list for an assignment had reached approximately
35,600 inmates, while the number of inmates participating in its
new bridging education program, which Corrections implemented
in fiscal year 2003–04, amounted to approximately 17,500. After
inmates arrive at their assigned institutions, those participating in
the bridging education program, which provides educational
instruction through an independent study approach, are considered
to be on the waiting list for another assignment.
8

California State Auditor Report 2004-101

TABLE 1
Correctional Program Assignments of Corrections’
Institution Population as of June 30, 2004*
Inmates assigned to a program
Prison Industry Authority

5,600

3.6%

Vocational education

7,900

5.1

Academic education

10,500

6.8

17,500

11.2

All other assignments

10,200

6.5

Institutional support and work programs

43,100

27.7

Total inmates assigned to a program

94,800

60.9

900

0.6

Ineligible for programming

10,600

6.8

New inmates and not yet assigned

13,700

8.8

On waiting list for program

35,600

22.9

Total inmates not assigned to a program

60,800

39.1

155,600

100.0%

Bridging education

†
‡

Inmates not assigned to a program
Unwilling to work
§

Total Corrections’ institution population
as of June 30, 2004

Source: Inmate counts as of June 30, 2004, provided by the Estimates and Statistical Analysis
Section in Corrections’ Offender Information Services Branch. Detail on the bridging
education program provided by Corrections’ Education and Inmate Programs Unit.
* Inmate counts do not include individuals in community correctional facilities as well as
nonfelon narcotic addicts.
†

Of the 17,500 inmates in the bridging education program, 13,000 are in reception
centers. These inmates become eligible for another assignment, and thus are considered
to be on the waiting list, upon transfer to their assigned institutions.

‡

The “all other assignments” category includes base camps, work crews, community
crews, forestry training programs, substance abuse programs, and inmates whose
program assignments are unknown.

§

Inmates ineligible for programming are in administrative segregation or lockup units.

OUR PREVIOUS AUDIT REPORTS AND OTHER REPORTS
OFFER VARIOUS RECOMMENDATIONS REGARDING PIA
We have performed three previous audits of PIA, while
others, such as the California Performance Review and the
Corrections Independent Review Panel, recently provided
additional recommendations. In our 1996 audit report, we
offered recommendations to help PIA better manage the costs
and profitability of its products and factories. For example, we
California State Auditor Report 2004-101

9

recommended that PIA develop a method to allocate product
costs based on the activity that generates the costs and that it
increase its efforts to monitor competitors’ product prices. In
addition, we recommended that PIA measure and report its
programmatic benefits, particularly with regard to inmates’ postrelease success. In a follow-up audit in 1997, we found that PIA
had been slow to implement the recommendations of our 1996
report. Finally, in 1998 we reviewed PIA’s practice of purchasing
finished products and services from the private sector for resale,
and found that it was neither well-planned nor cost-effective.
The California Performance Review, which consisted of 14 teams
formed to analyze the State’s programs and processes, made
two recommendations regarding PIA in its August 2004 report.
Specifically, it recommended that state law be amended to allow
state agencies to purchase goods and services from a commercial
supplier if the value and price are superior to those offered by
PIA. It also recommended eliminating PIA’s authority to purchase
finished goods and services from the private sector to resell them
to state agencies with little or no value added by inmates. In
addition, the Corrections Independent Review Panel, which was
formed to review the State’s youth and adult correctional system,
recommended in June 2004 that the board be dissolved and that
Corrections absorb PIA’s administrative functions.

SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee (audit committee) asked the
Bureau of State Audits to identify to the extent possible the total
amount PIA has received from its customers for PIA products over
the past two fiscal years and to determine, for a sample of items,
whether the products are priced above the market. Also, the audit
committee requested that we determine to the extent possible PIA’s
financial impact on Corrections and examine PIA’s method for
measuring its impact on inmates, particularly with regard to their
obtaining employment upon release.
To identify the total amount PIA has received from its customers
for PIA products over the past two fiscal years, we interviewed
staff and reviewed PIA’s annual reports to the Legislature, which
contain audited financial information. At the time of our
fieldwork, PIA’s most recent annual report to the Legislature was
for fiscal year 2002–03, so we requested PIA’s supporting revenue
and cost data by customer and enterprise for that fiscal year.
We assessed the reliability of the data by performing electronic
testing of required data elements, by reviewing existing
10

California State Auditor Report 2004-101

information about the data and the system that produced them,
and by interviewing agency officials knowledgeable about the
data. We determined that these revenue and cost data were
sufficiently reliable for the purposes of our report. We further
obtained PIA’s unaudited fiscal year 2003–04 revenue and cost
information to include in various analyses. Finally, we evaluated
each enterprise’s proportion of revenue and contribution toward
PIA’s overall profitability in terms of net profit and a per-inmate
profit figure based on PIA’s allocation of costs among enterprises
and the number of inmates employed in each enterprise. After
comparing the number of inmates PIA reports it employed
as of June 30, 2004, to the number of inmates Corrections
reports PIA employed as of June 30, 2004, we determined that
the PIA-reported inmate figures were sufficiently reliable for the
purpose of our report. With regard to PIA’s overall ability to be
self-supporting, our scope was limited to ongoing operations as
presented in PIA’s annual financial statements. It excludes any
expenses PIA does not pay, such as the interest on contributions
paid by the State’s General Fund, which are described in our
1996 audit report.
To determine whether PIA products are priced above the
market and to understand PIA’s pricing policies, we interviewed
staff and reviewed and evaluated the relevant laws, policies,
procedures, and board minutes. Additionally, we evaluated the
manner in which PIA identifies product costs, justifies product
prices, and offers differing prices for the same product to
different customers. Further, we selected a diverse sample of
19 PIA products and services that represents multiple enterprises
and customer bases and makes up about 24 percent of PIA’s fiscal
year 2002–03 revenue. We selected 12 of our 19 sample items
from a comparable pricing report prepared by PIA and chose
the additional seven from the entire universe of PIA products
and services sold during fiscal year 2002–03. For the 12 sample
items appearing in PIA’s report, we verified PIA’s price and the
comparable prices provided by PIA. For the seven sample items
we selected, we compared each PIA price to the prices of three
similar products and services available from private vendors
or other states’ prison industries. To identify similar products
and services, we generally compared PIA’s description of the
product or service to another vendor’s description. Although
other vendor descriptions sometimes differed in certain respects
from PIA’s descriptions, we could not quantify the effect of
those differences on price. We did not identify other readily
measurable or comparable factors for additional analysis.

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11

To determine PIA’s financial impact on Corrections, we reviewed
the relevant laws, regulations, and policies and interviewed PIA’s
and Corrections’ staff members. We also reviewed PIA’s annual
reports to the Legislature. Further, we analyzed the various
types of credits that inmates can earn to reduce their sentences
and the resulting potential for PIA to provide cost avoidance
to Corrections when compared with other programs into which
Corrections can assign inmates. We also reviewed Corrections’
data of the inmate groups that can earn various types of
sentence reduction credits. To assess the reliability of data
provided by Corrections, we interviewed officials knowledgeable
about the data as well as obtained an understanding of how
Corrections compiled the data. We determined that the data
were sufficiently reliable for the purposes of our report. Finally,
we considered other areas where PIA could have a financial
impact on Corrections, such as utility and security personnel
costs Corrections incurs on PIA’s behalf.
To examine PIA’s method for measuring the impact of its
program on inmates, we interviewed staff and reviewed various
reports that study the relationship between correctional
programs and inmates’ post-release success. Additionally, we
reviewed PIA’s inmate employability efforts and the manner
in which PIA evaluates or monitors whether the skills inmates
obtain through job training at PIA contribute to their postrelease success. n

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California State Auditor Report 2004-101

CHAPTER 1
Although the Prison Industry
Authority Has Discretion in Setting
Prices, It Could Improve Certain
Pricing Practices
CHAPTER SUMMARY

A

lthough a statutory purpose of the Prison Industry
Authority (PIA) is ultimately to be self-supporting by
generating sufficient revenue from the sale of its products
and services to pay for its expenses, PIA has discretion regarding
how it fulfills this purpose. As a result, the profits from some
PIA enterprises offset the losses in others. PIA strives to keep
the prices of its products and services competitive, even though
state law does not require it to do so. Nevertheless, when
we compared PIA’s prices for 19 products and services with the
average price for a comparable product or service from three
other vendors, we found that 14 PIA items were priced below
the average comparable price, and an additional two prices
were no more than 15 percent greater. Despite PIA’s discretion
with regard to pricing, we identified certain practices that could
be improved, such as product costs of questionable reliability,
inadequate documentation justifying its prices, and a lack of
policies with regard to special or discount pricing.

AS PIA PURSUES ITS STATUTORY PURPOSE TO PAY FOR
ITSELF, IT USES PROFITS FROM SOME ENTERPRISES TO
OFFSET LOSSES FROM OTHERS
Statutorily, PIA is to remain self-supporting over time by
generating sufficient revenue from the sale of its products
and services to cover its expenses. Without sufficient revenue
to cover its costs, PIA cannot pursue its statutory purposes to
employ inmates, reduce the costs of the California Department
of Corrections (Corrections), and offer inmates the opportunity
to develop effective work habits and occupational skills. As
shown in Figure 3 on the following page, although it saw a
significant surge in net profits during fiscal year 1994–95 and
a significant net loss during fiscal year 2002–03, PIA appears,
over time, to have hovered around self-support. The jump in

California State Auditor Report 2004-101

13

profits in fiscal year 1994–95 occurred because PIA revenues
increased by approximately 12 percent over the prior year
while its expenses increased by only about 7 percent. According
to PIA’s assistant general manager for operations, the largest
revenue increase in that year took place in the fabric enterprise,
which he credits to an increase in demand by Corrections as a
result of the increasing inmate population. In contrast, PIA’s chief
of the budget bureau attributes the loss in fiscal year 2002–03
to the closure or expected closure of various enterprises and
certain facilities, which primarily accounted for approximately
$11 million in losses from the disposal or impairment of property.

FIGURE 3
Prison Industry Authority Net Profit (Loss)
for Fiscal Years 1992–93 Through 2003–04
(in Millions)
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Source: Financial data from Prison Industry Authority’s (PIA) fiscal year 2002–03 annual report
and PIA’s fiscal year 2003–04 draft audit report, which includes an adjustment of $2.4 million
to reduce the fiscal year 2002–03 ending balance.
* The net loss of $5.5 million for fiscal year 2003–04 was unaudited as of mid-November 2004.

14

California State Auditor Report 2004-101

State law stipulates only that PIA is to remain ultimately selfsupporting over time rather than annually or by enterprise, so
PIA has significant discretion in the manner by which it fulfills
this requirement. Thus, it is not surprising to see certain PIA
enterprises operating at a profit while others operate at a loss.
According to PIA’s assistant general manager for operations,
capitalizing on competitive strengths, such as the profitability
of certain enterprises, to support other losses of its operations is
a standard business practice. Moreover, as it pursues its various
statutory purposes, PIA may continue operating unprofitable
enterprises that nevertheless contribute to another statutory
purpose as long as it determines that the losses from the
enterprises do not substantially affect PIA’s ability to remain
self-supporting over time.

During fiscal year
2003–04, the net profits
from eight PIA enterprises
offset much of the losses
from the remaining 20.

During fiscal years 2002–03 and 2003–04, the net profits from
seven and eight PIA enterprises offset much of the losses from the
remaining 21 and 20 enterprises, respectively. Table 2 on
the following page shows each of PIA’s enterprises in fiscal
years 2002–03 and 2003–04 and the net profit or loss for each.
For example, during fiscal year 2002–03 the optical enterprise
had a net profit of about $6.3 million, while in fiscal year
2003–04 its net profit was approximately $6.1 million. PIA notes
in its fiscal year 2003–04 annual plan that optical orders have
historically been a mainstay of PIA revenue through good and bad
economic times. Conversely, the furniture enterprise had a net
loss of approximately $4.4 million and $7.4 million in fiscal
years 2002–03 and 2003–04, respectively.
Table 2 may not be indicative of the enterprises’ performance
in prior years. PIA reports that these two fiscal years reflect the
effect of ongoing budget pressure felt by state agencies that
has reduced customer demand for PIA products and services,
particularly for discretionary items such as furniture. A more
useful analysis of enterprise profitability would compare data
from more than two fiscal years. However, as we discuss later in
this chapter, prior to fiscal year 2002–03 PIA did not allocate all
its costs to individual enterprises. Thus, Table 2 represents the
extent of PIA’s available data by enterprise.

California State Auditor Report 2004-101

15

TABLE 2
Prison Industry Authority Net Profit (Loss) by Enterprise, Fiscal Years 2002–03 and 2003–04
Enterprise

2002–03 Net Profit (Loss)

2003–04 Net Profit (Loss)

Operating enterprises
Optical

$ 6,342,976

$ 6,059,897

License plates

6,234,250

6,818,668

Fabric products

2,959,608

2,327,285

Printing

1,855,227

2,310,067

Bakery

85,592

225,240

Bindery

72,399

(353,102)

Knitting mill

46,430

101,508

Mattress

(15,777)

(68,746)

Dental lab

(19,702)

(55,514)

Food packaging*

(32,400)

(648,802)

Coffee roasting

(43,856)

62,579

Silk-screening

(56,519)

(54,141)

Poultry

(233,154)

(1,370,538)

Metal signs

(252,654)

(88,498)

Egg production

(480,690)

(528,323)

Digital services

(481,738)

(312,864)

Cleaning products

(557,588)

(449,462)

Crops

(609,886)

(45,130)

Shoe factory

(796,477)

(1,023,219)

Meat cutting

(1,037,490)

(600,464)

Metal products

(1,163,383)

(2,022,427)

General fabrication

(2,222,711)

(3,407,657)

Laundry

(2,495,036)

(1,856,140)

Dairy

(3,392,475)

(1,569,896)

Furniture

(4,444,055)

(7,355,216)

Subtotals

(739,109)

(3,904,895)

Enterprises that closed during fiscal years 2002–03 or 2003–04†
Paper products

(430,317)

(12,442)

Correctional Resource Recovery Facility (CRRF)

(5,299,805)

(495,965)

Textile mill

(3,932,015)

229,184

Nonenterprise related
Inventory expense reserve‡

164,181

Unallocated adjustments§
Grand Totals

(348,835)
(1,013,252)

$(10,237,065)

$(5,546,205)

Source: Prison Industry Authority (PIA) allocations based on data from its fiscal year 2002–03 financial audit as well as its fiscal year 2003–04 draft
financial audit, which includes a $2.4 million adjustment to CRRF for additional impairment losses for fiscal year 2002–03.
* Food packaging is a new enterprise beginning in fiscal year 2003–04. The activity in fiscal year 2002–03 reflects administrative support costs for
staff time spent on activating the enterprise.
†

According to PIA, it closed the textile mill and paper products enterprises during fiscal year 2002–03 because continued losses outweighed the
benefits of inmate participation, which was limited. These enterprises reflected financial activity in fiscal year 2003–04 related to disposal of assets
and other closure activities. Further, PIA explained that on July 1, 2003, it ceased receiving refuse at its CRRF from the city of Folsom, which was
its only customer. However, it did not close the facility until January 2004. Because of this situation, PIA recognized a net loss of approximately
$5.3 million and $500,000 in fiscal years 2002–03 and 2003–04, respectively.

‡

“Inventory expense reserve” is not an enterprise. Rather, it represents the change in each fiscal year in the estimate of obsolete inventory amounts
for all institutions where PIA operates. We include it in this table to ensure that the total net loss in fiscal year 2002–03 ties to PIA’s financial
statements and the total net loss in fiscal year 2003–04 corresponds to PIA’s unaudited net loss.

§

At the time of our review, PIA had not yet allocated these costs, which primarily consisted of workers’ compensation costs, at the enterprise level.

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California State Auditor Report 2004-101

STATE LAW DOES NOT REQUIRE PIA TO OFFER
COMPETITIVE PRICES, AND ITS PRICES CAN DIFFER
FROM THOSE OF OTHER VENDORS

The Prison Industry
Board expects PIA to be
competitive in pricing as
long as PIA’s profitability
is ensured.

Although PIA no longer is statutorily required to establish
prices as near as possible to the prices of equivalent items that
are commercially available, the Prison Industry Board (board)
nevertheless expects PIA to be competitive. At the same time,
because of PIA’s statutory purposes to be self-supporting, to
employ inmates, to reduce Corrections’ costs, and to offer
inmates the opportunity to develop effective work habits and
occupational skills, PIA cannot focus exclusively on competitive
pricing. In 1983 the Legislature removed the only potentially
limiting statutory language, which had required that, with the
exception of products or services sold to Corrections, PIA’s prices
be as near as possible to those of items of equivalent quality
from commercial sources. The elimination of this language left
PIA and the board with greater discretion in establishing PIA’s
prices. Nonetheless, in 1985 the board established a pricing policy
that included an expectation that PIA’s pricing would ensure its
profitability while still being competitive in the open market, and
in October 2002 the board reaffirmed the expectation that PIA be
competitive in pricing as long as its profitability is ensured.
To determine how well PIA meets the board’s expectation that its
prices be competitive, we selected 19 PIA products and services
that in fiscal year 2002–03 made up approximately 24 percent
of its revenue. We compared the price of each product or service
with the prices of three products or services available from
other vendors that met a similar description. To identify similar
products and services, we generally compared PIA’s description
of the product or service to another vendor’s description.
Although at times other vendors’ descriptions differed in certain
respects from PIA’s descriptions, we could not quantify the effect
of those differences on price. Further, although PIA typically
collects sales tax from its nonstate customers, as a state entity
it cannot collect sales tax from other state entities. However,
if state customers were to purchase elsewhere, they generally
would be required to pay the sales or use tax applicable to the
county where they are located. Because state customers, many of
which are located in Sacramento County, provide approximately
97 percent of PIA’s revenues, we increased other vendor prices
by 7.75 percent to reflect Sacramento County’s sales and use
tax. Finally, because PIA generally does not charge its customers
additional freight costs, we increased other vendor prices to
reflect the amount a customer would pay for freight when other

California State Auditor Report 2004-101

17

vendor freight charges were not included in the price. Vendor
freight charges were not readily available for other items in our
sample, so we reduced PIA’s prices to make them comparable.
Although PIA’s prices can differ considerably from the prices of
other vendors, we found that the prices for 14 of the 19 items
in our sample fall below the average prices for comparable
items, and an additional two items are no more than 15 percent
greater. Table 3 provides a breakdown of the 19 items, showing
the range by which PIA’s price exceeds or is less than the
average price for comparable items. Of the 19 items, PIA’s most
competitive price is for a cleaning product—43 percent lower
than the average comparable product price. Its least competitive
price is for a shoe product—67 percent higher than the average
comparable product price. Appendix B provides the detailed
analysis behind Table 3.

TABLE 3
Sample of Prison Industry Authority Prices
Compared With Prices Charged by Other Vendors
Percentage Above (Below) Other Vendors’ Average Price*

Number of Items

31% and above

3

16 to 30%

0

0 to 15%

2

(0 to 15%)

7

(16 to 30%)

5

(31%) and below

2

Total Number of Items

19

Source: Bureau of State Audits’ analysis based on Prison Industry Authority (PIA) prices
and other vendors’ prices for comparable items.
Note: Because 97 percent of PIA revenues result from state agency customer purchases
and state agencies are not required to pay sales and use tax on PIA purchases, the
PIA prices in our analysis do not reflect this tax. We generally increased other vendors’
prices by 7.75 percent (the tax rate for Sacramento County) as state agencies would be
required, for purchases from other vendors, to pay the sales and use tax rate charged
by the county within which the customer is located. Nonstate customers, such as local
governments, typically would be required to pay sales and use tax on PIA purchases. For a
price comparison from the perspective of a nonstate customer, PIA prices would need to
be increased by the applicable sales and use tax rate.
* For purposes of comparison, we selected three vendors for each sample item.

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California State Auditor Report 2004-101

Because PIA offers more
than 1,800 products
and services, at any
given time a stakeholder
is likely to be able to
identify individual
products and services
from other vendors that
are less expensive than
the comparable PIA
product or service.

PIA offers more than 1,800 products and services that cover a wide
spectrum of items, so at any given time a stakeholder is likely to
be able to identify individual products and services from other
vendors that are less expensive than the comparable PIA product
or service, particularly if the stakeholder compares PIA’s prices
to the prices of products or services that are of lesser quality. For
instance, PIA recently faced questions with regard to its shoe
prices. In November 2003 the secretary of the Youth and Adult
Correctional Agency—the executive agency that oversees the
State’s correctional system—asked PIA about a newspaper article
criticizing Corrections’ decision to purchase shoes for inmates
from PIA at a price of $7.30 per pair when a comparable item was
available from the private sector for $1.05 per pair.
PIA responded that it had conducted extensive meetings with
Corrections, during which Corrections’ medical, custody,
business services, and procurement staff approved the use of the
new PIA canvas slip-on shoe, at a price of $7.30 per pair, as a
replacement for the various slipper-type shoes used by reception
centers. Reception centers provide short-term housing to
process, classify, and evaluate incoming inmates. PIA indicated
that an inmate can use the PIA shoe both at the reception center
and at the institution where the inmate ultimately is placed,
making it unnecessary to provide a second pair of shoes at the
institution. The shoe also meets the podiatric specifications
identified by Corrections’ medical specialists. According to
PIA, the shoe available from the private vendor has a thin sole,
wears out quickly, and has created numerous podiatric medical
injuries, while the PIA shoe is a more durable and supportive
canvas style that reduces injuries and their associated costs.
The assistant deputy director of Corrections’ institutions
division confirmed PIA’s description, indicating that although
the $7.30 shoe is more expensive, it is more durable and has
improved the podiatric medical issues among the inmate
population. Thus, although both products meet the definition
of a shoe, the $1.05 shoe does not meet Corrections’ needs in
the same manner as PIA’s shoe. Figure 4 on the following page
provides a picture of PIA’s shoe and the shoe for sale from the
private vendor. When we compared PIA’s canvas shoe with
comparable products from other vendors, we found that its price
falls within the $6.41 to $8.62 price range for similar shoes.

California State Auditor Report 2004-101

19

FIGURE 4
Prison Industry Authority Shoe Compared to Other Vendor’s Shoe

PIA canvas shoe available
for $7.30 per pair

Other vendor’s shoe
available for $1.05 per pair

Source: Photograph taken by Bureau of State Audits’ staff. The PIA-manufactured shoe and the vendor-manufactured shoe were
provided by PIA.

The availability of products and services whose prices at any given
point in time are lower than PIA’s prices raises the question of
the extent to which state agencies should be required to purchase
from PIA. As discussed in the Introduction, state law requires state
agencies to make maximum use of PIA products. The California
Performance Review recommended that the governor work with the
Legislature to amend current law to allow state agencies to purchase
from a commercial supplier if the value and price are superior to
PIA’s. Our comparison of the prices for the 19 PIA products and
services in our sample found that seven PIA prices are lower than
the lowest price offered by the other vendors we identified. The
remaining 12 prices exceed the lowest of the comparable prices by
a range of 10 percent to 181 percent. Therefore, given that PIA does
not price its products and services at the lowest comparable price, in
some instances customers pay a premium in order to finance PIA’s
pursuit of its various statutory purposes.
From the perspective of customers interested in purchasing the
least expensive products and services that meet their needs,
the California Performance Review’s recommendation merits
20

California State Auditor Report 2004-101

consideration. Current state law does not require PIA to
price its products competitively or to offer the lowest price,
but it nevertheless expects state agencies to make maximum
use of PIA products. Yet in removing the statutory language
requiring PIA to set its prices as close as possible to the prices
of equivalent products available from the private sector, the
Legislature, in effect, acknowledged that PIA may not be able
to price all its products and services competitively because of
its various statutory purposes and the realities of operating in a
prison environment.

The Legislature has
established statutory
purposes unrelated to
pricing that PIA must
pursue and against which
PIA should be evaluated.

Although customers may evaluate PIA products relative to
prices they could find from other vendors, the Legislature has
established statutory purposes unrelated to pricing that PIA must
pursue and against which PIA should be evaluated. We discuss
in the following chapters how PIA pursues these other purposes
and how its performance can be evaluated. The extent to which
state agencies can purchase non-PIA products and services may
merit further consideration. If the Legislature decides to modify
state law, the discussions should take into account the context
described here.

PIA COULD IMPROVE CERTAIN PRICING PRACTICES
Although the board has established a pricing policy, we identified
certain pricing practices that could be improved. For instance,
because the reliability of its product costs is questionable, PIA
cannot demonstrate to the board or its customers that, consistent
with board policy, its prices are at a level sufficient to reflect the
actual cost of producing each product and service. Further, PIA
could not provide documentation of the analyses it conducts to
arrive at prices, and thus it could not demonstrate a consistent
pricing process under the board’s policy. Finally, some state
agencies have unique agreements with PIA to receive discounted
prices for certain products. However, PIA does not have any
policies defining the circumstances under which such agreements
can be made and thus risks the appearance that its pricing
practices are unfair.

PIA Continues to Lack Accurate Product Cost Figures
The board’s pricing policy calls for PIA to establish prices at
a level sufficient to ensure PIA’s profitability while still being
competitive in the open market. Although the board policy

California State Auditor Report 2004-101

21

To comply with the Prison
Industry Board’s general
expectation that PIA
prices recover the cost of
producing an item, PIA
must be able to identify
product costs accurately.

allows PIA the discretion to establish prices that do not recover
production costs, it generally expects PIA to price each item at a
level sufficient to recover the cost of producing the item. To
comply with this expectation, PIA must be able to identify
accurately the costs involved in producing each item. In our
1996 audit report, we identified certain weaknesses in PIA’s
accounting system and processes that rendered PIA’s product
costs less accurate than they could be, and we recommended
that PIA improve its system and processes to reflect product
costs more accurately.
Although PIA has taken some steps to address our prior
recommendations, the reliability of its product costs remains
questionable. PIA hired a consultant to help it develop a cost
accounting system that would address the major concerns we
raised in our 1996 audit report and develop a costing system
that would function adequately in an institutional environment.
According to PIA’s acting assistant general manager for financial
operations, PIA is performing analyses and evaluations on a
monthly and annual basis to improve its ability to distribute
factory overhead costs among its products. For example, he
explained that to monitor product costs, staff members review
reports on a monthly basis to ensure that certain costs such
as raw materials are reported correctly and that inventory
costs appear reasonable. Nonetheless, according to the same
acting assistant general manager, distributing costs to products
consistently and accurately is difficult because PIA’s cost allocation
methodology still relies primarily on the estimated hours an
inmate spends making a product and because these hours
can fluctuate significantly in a prison environment. Thus, PIA
cannot sufficiently rely on its own estimate of product costs.
Moreover, until recently PIA did not allocate certain costs,
such as distribution, transportation, and administrative
support, among its various enterprises, let alone among its
individual products. Beginning with fiscal year 2002–03, PIA
allocated these costs, totaling approximately $28 million, to
its enterprises, based in part on each enterprise’s proportion of
total revenue and on the staff time dedicated to each enterprise.
According to the chief of PIA’s budget bureau, PIA continues to
refine and identify methods to allocate these costs by enterprise
and believes that there may be more accurate methods for
distributing these costs.

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California State Auditor Report 2004-101

As PIA continues to refine this process, it must establish a
way to account for these costs, not only at the enterprise level
but also at the product level. As we reported in 1996, without
accurate product costs it is difficult to manage a business,
identify or manage product profitability, identify products that
are losing money, establish fair and adequate prices, or develop
plans to increase production, reduce production, or discontinue
products. Moreover, without accurate product costs, PIA cannot
demonstrate that it considers only applicable costs when pricing
a particular product in accordance with the board’s policy.

PIA Does Not Document Its Justification for Product Prices

PIA was unable to provide
supporting analyses
demonstrating how it
arrived at or reviewed
the prices for any of the
19 products we examined.

In its pricing policy, the board established that PIA must
base its prices on a profit margin, cost data, market data for
comparable products and prices, and marketing strategies
related to the product or service. Additionally, the policy requires
PIA to review and update prices periodically to reflect changes
in direct and indirect costs, profit needs, prevailing market
trends, and marketing strategies. Although not explicitly
required by the policy, we expected that PIA would document
the analyses it performed to establish and review its prices in
order to demonstrate how it applied the specific criteria in the
board’s pricing policy in practice. However, when we reviewed
19 products for which PIA had adjusted or established the price
in fiscal year 2002–03, PIA was unable to provide supporting
analyses demonstrating how it arrived at or reviewed the prices
for any of these products.
According to PIA’s chief of marketing services, PIA has been
preparing and documenting product price reviews for many
years. She showed us an example of an analysis for one product
that contained the relevant documentation, including the date
of the price change, three other vendor prices for a comparable
item, and PIA’s estimate of its costs to produce the product.
She also stated that since the board revised the pricing policy
in October 2002, PIA has made a great effort to standardize the
documentation and retain it so it will be available for future
reviews if necessary. Nonetheless, for the 19 fiscal year 2002–03
product prices we reviewed, PIA could not provide evidence that
it had performed an analysis to establish or change the products’
prices. For two of the 19 items, the supporting documentation
indicates that the price adjustment occurred in fiscal year 2002–03

California State Auditor Report 2004-101

23

and that PIA considered certain factors outlined in the board’s
pricing policy. However, PIA could not provide the actual
analyses to which the documentation refers.

Without documenting
the analysis that
supports each price, PIA
cannot demonstrate
the consistency of the
process it follows.

According to PIA’s chief of marketing services, most of the price
reviews are well documented but there have been some instances
in which they were not documented or the documentation has
been misplaced or for some reason is not available. However,
she also indicated that PIA does not maintain documentation
when it has reviewed a price and determined that a price change
is unnecessary. In July 2004 PIA added procedures intended
to standardize the gathering and documenting of information
according to the board’s pricing policy. Further, she stated that
in the future PIA will maintain documentation for all price
reviews, including those that result in no price change. Without
documenting the analysis that supports each price, PIA cannot
demonstrate to the board the consistency of the process it follows
when pricing or reviewing the prices of its products and services.

PIA Lacks Policies Regarding Special or Discount Pricing
Although PIA has discretion with regard to pricing, we expected it
to have established policies regarding special or discount pricing
arrangements through which different customers pay different
prices for like items. We identified certain products for which
PIA charged a different price to different customers in fiscal
year 2002–03 and asked PIA for an explanation. For example,
Corrections and, more recently, the California Department of the
Youth Authority have entered into memoranda of understanding
with PIA to purchase certain clothing items at a 10 percent
discount from PIA’s regular price. These agreements require these
two agencies to inform PIA of their projected annual need for
these clothing items so that PIA is assured of a certain annual
production volume. According to PIA’s chief of marketing services,
these agreements help PIA smooth out production and therefore
deliver the products on time.
Although such bulk discounts seem reasonable, we would
expect PIA to afford other agencies the opportunity to enter into
similar agreements. PIA’s chief of marketing services contends
that any agency is eligible to establish an agreement with
PIA if the circumstances are beneficial to both parties and the
State. Further, she believes that all of PIA’s sales representatives
discuss the possibility of entering into such an agreement with
any customer for whom it would be beneficial. However, there

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California State Auditor Report 2004-101

Without policies defining
the circumstances
under which PIA enters
into special pricing
arrangements or offers
discounts, PIA risks the
appearance that its pricing
practices are unfair.

is no written policy regarding such pricing arrangements. In
addition, according to PIA’s chief of marketing services, in some
cases if PIA is not able to meet what a customer describes as an
emergency need for a certain product, it will offer the customer
an alternative but similar product at a reduced price. However,
she stated that there is no policy or criterion governing this
issue; sales representatives and managers use their knowledge of
the relationship with the customer to make the determination
at their own discretion. Without policies defining the
circumstances under which PIA enters into special pricing
arrangements or offers discounts, PIA risks the appearance that
its pricing practices are unfair.
Further, PIA identified other situations in which some customers
may pay full price for a given product while others pay a lower
price for the same product, depending on when the item is
purchased. According to PIA’s assistant general manager for
marketing, similar to other businesses, PIA offers discounts to
liquidate overstocked or discontinued items. In addition, PIA
may adjust prices as a marketing strategy to increase sales or
introduce a new product. For instance, PIA’s assistant general
manager for marketing contends that as PIA pursues a strategy
to expand its local government customer base, it is acceptable as
a business practice and essential to PIA’s growth in the market
to offer prices to local governments that may differ from its
standard prices.
Finally, PIA’s prices for certain optical products sold to the
Department of Health Services (Health Services) are significantly
lower than the prices it charges other state agencies for the same
products. Because Health Services purchases optical products on
behalf of Medi-Cal—California’s version of the federal Medicaid
program—state regulations establish the rates that govern what
PIA can charge Medi-Cal customers for all types of lenses, such
as plastic and glass. For example, PIA cannot charge Health
Services more than $12.06 on average for five types of singlevision plastic lenses when Health Services purchases these lenses
on behalf of Medi-Cal. However, PIA’s price for the same type
of product is $27 when sold to another state agency. According
to PIA’s assistant general manager for operations, PIA recently
decided to reduce the prices it charges other state agencies for
plastic lens optical products to a level more equivalent to the
Medi-Cal rates by January 2005. He also indicated, however,
that PIA does not intend to reduce its prices for glass lenses to
the Medi-Cal rates. He stated that currently, only 7 percent of
all PIA optical orders are glass and, due to the decline of glass

California State Auditor Report 2004-101

25

lens material in the world market, which leads to shortages and
higher costs, PIA will be forced to eliminate this product from
its price schedules. The assistant general manager for operations
also indicated that PIA has recognized the importance of
customer satisfaction in standardizing the prices of optical
products so that non-Medi-Cal customers receive prices similar
to those available to the Medi-Cal program. In addition, he
stated that PIA intends to maintain comparative rates for all
optical products offered to all PIA customers.

RECOMMENDATIONS
PIA should develop a method to allocate administrative support,
distribution, and transportation costs directly to its products and
services. Until it does so, PIA should ensure that its allocation of
these costs to the various enterprises is as accurate as possible.
PIA should ensure that it documents the analyses it conducts to
establish, change, or review its prices.
PIA should establish policies for entering into special pricing
arrangements or offering discounts and should ensure that its
customers are aware of such opportunities. n

26

California State Auditor Report 2004-101

CHAPTER 2
The Prison Industry Authority Has
Not Established Inmate Participation
Targets or Related Enterprise
Evaluation Criteria
CHAPTER SUMMARY

A

lthough a statutory purpose of the Prison Industry
Authority (PIA) is to employ inmates, it has not established
participation targets for the number of inmates it aims to
employ among its various enterprises. The Legislature intended
that PIA employ inmates in order to reduce inmate idleness and
prison violence, so we would expect PIA to establish long-range
annual targets and report to the Legislature its progress in meeting
the targets. Moreover, inmates employed in PIA enterprises
contribute toward PIA’s ability to be self-supporting, but this
contribution varies depending on the enterprise. Yet PIA has not
established criteria for evaluating each enterprise’s contribution to
PIA’s statutory purposes of being self-supporting and employing
inmates. Without establishing inmate employment targets
and routinely assessing the contribution of each enterprise to
profitability as well as inmate employment against related criteria,
PIA limits decision makers’ ability to assess its performance and
that of its enterprises.

PIA HAS NOT ESTABLISHED CRITERIA FOR EVALUATING
ITS SUCCESS IN FULFILLING ITS STATUTORY PURPOSE
TO EMPLOY INMATES
One of PIA’s statutory purposes is to employ inmates in
institutions under the jurisdiction of the California Department
of Corrections (Corrections). However, state law does not specify
how PIA, the Prison Industry Board (board), or the Legislature
should evaluate PIA’s performance relative to this purpose.
Part of the expressed legislative intent for PIA was to reduce
inmate idleness and prison violence. In fact, a 2001 Corrections
study reported the results of an earlier study, which found that
inmates participating in correctional work or training programs
(correctional programs) were less likely to be disciplined for

California State Auditor Report 2004-101

27

misconduct than unassigned inmates. Additionally, inmates
employed by PIA had slightly lower rates of misconduct than
those assigned to other correctional programs.
To identify PIA’s contribution toward the legislative intent of
reducing prison violence and idleness, state law requires PIA to
provide, in its annual report to the Legislature, the number of
inmates it employs in each of its enterprises. Figure 5 illustrates
the decrease in PIA participation as reported by PIA over the last
12 fiscal years relative to Corrections’ institution population. As
the figure indicates, PIA participation has declined from 6,295 in
fiscal year 1992–93 to 5,669 in fiscal year 2003–04. During the
same time period, Corrections’ institution population has increased
from about 106,000 inmates to approximately 156,000. According
to PIA’s assistant general manager for operations, PIA has not
done a thorough evaluation of the specific inmate employment
changes over time. However, he believes the main reasons for PIA’s
overall decline in participation relate to the demise of the prison
construction program for which PIA produced construction-related
products, the closure or consolidation of various enterprises, and the
more recent economic downturn.

In its most recent
strategic plan, PIA
indicated that it would
like to increase the
number of inmates it
employs, but it did not
specify a target it sought
to achieve.

28

Despite the overall decline in PIA’s inmate employment, in the
absence of statutory direction, neither PIA nor the board has
established participation targets for the number of inmates or
the percentage of Corrections’ institution population PIA aims
to employ, either overall or by enterprise. In its most recent
strategic plan, developed in late 1997, PIA indicated that it
would like to increase the number of inmates employed in its
program, but it did not specify a target it sought to achieve,
either overall or by individual enterprise. PIA’s assistant general
manager for operations explained that PIA decided to limit the
detail elements in the strategic plan to allow greater flexibility
in its further development. He stated that the intention was that
subsequent reviews would delineate more specificity, including
performance measures and targets, but that changing priorities
and turnover in senior staff have limited further review and
analysis of performance measures and targets.

California State Auditor Report 2004-101

FIGURE 5
Percentage of Corrections’ Institution Population
Employed in the Prison Industry Authority
for Fiscal Years 1992–93 Through 2003–04
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Source: Prison Industry Authority (PIA) inmate employment data and Corrections’ report of
institution population as of June 30 for fiscal years 1992–93 through 2003–04.
* This 5,669 count differs from the approximately 5,600 inmates Corrections reports that
participated in PIA as of June 30, 2004, and we report in the Introduction and Chapter 3.
Both Corrections and PIA indicate that the discrepancy results from differences in how and
when the information was gathered. We use PIA’s participation data in this figure because
Corrections’ data on PIA participation for the entire 12-year time period was unavailable.

PIA currently forecasts in its annual plan, which presents its
financial outlook for the coming year, the total number of
inmates it expects to employ to meet anticipated customer
demand, as well as planned enterprise closures, expansions,
or activations during the upcoming year. Although PIA’s
anticipated inmate needs provide a valuable tool for projecting
business activity during the upcoming year, these figures are
not prepared as targets against which decision makers can
evaluate PIA’s performance with regard to its statutory purpose
to employ inmates.

California State Auditor Report 2004-101

29

PIA could establish longrange targets for the
number of inmates it will
seek to employ overall, at
each enterprise, and as a
percentage of Corrections’
institution population.

Despite the lack of specificity in PIA’s enabling statute and in its
strategic plan, we would expect PIA, in order to demonstrate
its effectiveness in fulfilling its statutory purpose to employ
inmates, to establish long-range annual targets against which to
measure its performance. For instance, PIA could establish longrange targets for the number of inmates it will seek to employ
overall or at each enterprise. If PIA intends to expand its business
to increase the number of inmates it employs, it could describe
the markets it plans to penetrate and the enterprises most likely
to employ a greater number of inmates as a result. Similarly, if
PIA anticipates a decline in the number of inmates it employs,
for reasons such as an enterprise’s planned closure or a decrease
in customer demand, it could build these factors into its longrange targets and provide an explanation for the anticipated
cause, preparing decision makers for future events. PIA also could
establish an overall target for annual employment of a specific
percentage of Corrections’ institution population. Given PIA’s
experience with projecting customer demand and the number
of inmate employees it will need to meet that demand, it should
be able to establish reasonable long-range targets for inmate
employment against which to measure its performance.
PIA’s assistant general manager for operations stated that PIA
recognizes that the number of inmates employed by PIA has
decreased and it plans to increase employment by expanding
its business. Specifically, PIA anticipates the development of
a strategic business plan in early 2005 that will result in a
marketing plan focused on markets that it can penetrate or
expand, given its strengths and limitations. He explained that
with that information PIA can better target growth in total and
by enterprise. He stated that PIA recognizes the value of inmate
employment targets and indicated that PIA would develop such
targets during its strategic planning sessions.

ROUTINELY EVALUATING THE CONTRIBUTION OF PIA
ENTERPRISES TOWARD ITS STATUTORY PURPOSES TO
EMPLOY INMATES AND REMAIN SELF-SUPPORTING
WOULD AID DECISION MAKERS
One of PIA’s missions is to employ the maximum number of
inmates needed to provide the goods and services requested by
its customers. However, the number of inmates employed in
each enterprise varies, depending on the enterprise’s production
demands. For example, its smallest enterprise in terms of revenue
during fiscal year 2003–04, silk-screening, employed 21 inmates,
while its second-largest enterprise in terms of revenue, fabric
30

California State Auditor Report 2004-101

The number of inmates
employed in each PIA
enterprise varies, depending
on the enterprise’s
production demands.

products, employed 1,370 inmates as of June 30, 2004.2 Although
these participation figures provide one perspective on PIA’s success
in employing inmates, measuring the value of each inmate to PIA’s
statutory purpose to be self-supporting provides an additional
perspective. PIA could routinely analyze each enterprise based on
a per-inmate figure that combines an enterprise’s profitability and
the degree to which it employs inmates.
In Table 4 on the following page we combine these perspectives
and expand upon Table 2 from Chapter 1 to reflect the number
of inmates and the per-inmate profit or loss by enterprise. For
example, although the furniture enterprise in fiscal year 2003–04
operated at a net loss of about $7.4 million, it employed
739 inmates, resulting in a per-inmate loss of approximately
$10,000. This per-inmate figure compares more favorably
against other enterprises that have a smaller net loss but employ
fewer inmates. For instance, the cleaning products enterprise
operated at a net loss of about $449,500—lower than the net
loss of the furniture enterprise—yet its per-inmate loss in fiscal
year 2003–04 was about $18,700, the second-largest among the
active enterprises. Thus, when we evaluate the contribution
of each enterprise—not only to PIA’s statutory purpose to be
self-supporting, but also to PIA’s statutory purpose to employ
inmates—the benefit of the furniture enterprise increases.
In deciding to close certain enterprises during fiscal year
2002–03, PIA considered enterprise profitability and number
of inmates employed. Specifically, in fiscal year 2002–03, PIA
closed two enterprises3 that it reports had been operating at
a gross loss4 for at least eight years. According to the assistant
general manager for operations, PIA closed the paper products
enterprise primarily because of continuing losses. He explained
that this enterprise was very small and had consistent losses that
outweighed the benefits of inmate participation, which was
limited. The enterprise employed 26 inmates in fiscal year 2001–02.
He stated that PIA closed the textile mill because the market
demand was insufficient to reach a level of profitability and the
mill employed only 40 inmates during fiscal year 2002–03, which
was its last year of operation.

2

Refer to Table A.2 in Appendix A for fiscal year 2003–04 revenue by enterprise.

3

In addition to these two enterprises, PIA closed its Correctional Resource Recovery
Facility because the city of Folsom, which was that enterprise’s only customer, ceased
sending refuse to the facility for processing.

4

As we discuss in Chapter 1, PIA did not evaluate the net profit or loss by enterprise
until fiscal year 2002–03; therefore, for the years leading up to the closure of these two
enterprises, it could provide only the gross profit and loss.

California State Auditor Report 2004-101

31

TABLE 4
Prison Industry Authority Enterprise Profit (Loss) Per Inmate, Fiscal Years 2002–03 and 2003–04
Enterprise

2002–03 Net
Profit (Loss)

Inmates Employed in
PIA Enterprise

Profit (Loss) Per
Inmate Employed

2003–04 Net
Profit (Loss)

Inmates Employed in
PIA Enterprise

Profit (Loss) Per
Inmate Employed

Operating Enterprises
Optical

$ 6,342,976

380

$16,692

$ 6,059,897

342

$17,719

License plates

6,234,250

99

62,972

6,818,668

101

67,512

Fabric products

2,959,608

1,400

2,114

2,327,285

1,370

1,699

Printing

1,855,227

113

16,418

2,310,067

118

19,577

Bakery

85,592

58

1,476

225,240

76

2,964

Bindery

72,399

115

630

(353,102)

115

(3,070)
1,336

Knitting mill

46,430

74

627

101,508

76

Mattress

(15,777)

88

(179)

(68,746)

87

(790)

Dental lab

(19,702)

31

(636)

(55,514)

34

(1,633)

Food packaging*

(32,400)

0

—

(648,802)

20

(32,440)

Coffee roasting

(43,856)

20

(2,193)

62,579

20

3,129

Silk-screening

(56,519)

21

(2,691)

(54,141)

21

(2,578)

Poultry

(233,154)

100

(2,332)

(1,370,538)

106

(12,930)

Metal signs

(252,654)

27

(9,358)

(88,498)

27

(3,278)

Egg production

(480,690)

95

(5,060)

(528,323)

95

(5,561)

Digital services

(481,738)

18

(26,763)

(312,864)

21

(14,898)

Cleaning products

(557,588)

24

(23,233)

(449,462)

24

(18,728)

Crops

(609,886)

105

(5,808)

(45,130)

66

(684)

Shoe factory

(796,477)

154

(5,172)

(1,023,219)

176

(5,814)

Meat cutting

(1,037,490)

61

(17,008)

(600,464)

62

(9,685)

Metal products

(1,163,383)

256

(4,544)

(2,022,427)

256

(7,900)

General fabrication

(2,222,711)

294

(7,560)

(3,407,657)

291

(11,710)

Laundry

(2,495,036)

832

(2,999)

(1,856,140)

792

(2,344)

Dairy

(3,392,475)

234

(14,498)

(1,569,896)

238

(6,596)

Furniture

(4,444,055)

817

(5,439)

(7,355,216)

739

(9,953)

(739,109)

5,416

(136)

(3,904,895)

5,273

(741)

(430,317)

0

—

(12,442)

0

—

Subtotals
Enterprises that closed during
fiscal years 2002–03 or 2003–04†
Paper products
Correctional Resource Recovery
Facility (CRRF)

(5,299,805)

0

—

(495,965)

0

—

Textile mill

(3,932,015)

40

(98,300)

229,184

0

—

Nonenterprise related
Inventory expense reserve‡

164,181

—

—

(348,835)

—

—

Unallocated adjustments§

—

—

—

(1,013,252)

—

—

Support servicesll

—

367

—

—

396

—

$(5,546,205)

5,669#

$ (978)

Grand Totals

$(10,237,065)

5,823

$(1,758)

Source: Prison Industry Authority (PIA) allocations based on data from its fiscal year 2002–03 financial audit; fiscal year 2003–04 draft financial audit, which includes a
$2.4 million adjustment to CRRF for additional impairment losses for fiscal year 2002–03; and PIA report of inmates employed in each enterprise.
* Food packaging is a new enterprise beginning in fiscal year 2003–04. The activity in fiscal year 2002–03 reflects administrative support costs for staff time spent on activating the enterprise.
†

According to PIA, it closed the textile mill and paper products enterprises during fiscal year 2002–03 because continued losses outweighed the benefits of inmate participation, which
was limited. These enterprises reflected financial activity in fiscal year 2003–04 related to disposal of assets and other closure activities. Further, PIA explained that on July 1, 2003,
it ceased receiving refuse at its CRRF from the city of Folsom, which was its only customer. However, it did not close the facility until January 2004. Because of this situation, PIA
recognized a net loss of approximately $5.3 million and $500,000 in fiscal years 2002–03 and 2003–04, respectively.

‡

“Inventory expense reserve” is not an enterprise. Rather, it represents the change in each fiscal year in the estimate of obsolete inventory amounts for all institutions where PIA operates.
We include it in this table to ensure that the total net loss in fiscal year 2002–03 ties to PIA’s financial statements and the total net loss in fiscal year 2003–04 corresponds to PIA’s
unaudited net loss.

§

At the time of our review, PIA had not yet allocated these costs, which primarily consisted of workers’ compensation costs, at the enterprise level.

ll

PIA employs inmates to perform support services functions such as maintenance and repair, warehousing, and office administration.

#

This count differs from the approximately 5,600 inmates Corrections reports that participated in PIA as of June 30, 2004, and we report in the Introduction and Chapter 3. Both Corrections
and PIA indicate that the discrepancy results from differences in how and when the information was gathered. We use PIA’s participation data in this table because Corrections’ data on PIA
participation by enterprise was not readily available.

32

California State Auditor Report 2004-101

PIA could establish a perinmate profit threshold
for each enterprise to
offer decision makers a
tool for evaluating the
contribution of each
enterprise toward PIA’s
statutory purposes to
be self-supporting and
employ inmates.

Although PIA took factors such as profitability and inmate
employment into account in its decision to close the two
enterprises, it could routinely assess each enterprise’s contribution
toward its statutory purposes to be self-supporting and employ
inmates by performing an analysis such as that shown in
Table 4, and it could evaluate the results against related criteria.
In order to reflect the balance it seeks to achieve between its
statutory purposes to employ inmates and be self-supporting,
PIA could establish a per-inmate profit threshold that it expects
each enterprise to meet consistently. An enterprise’s success or
failure in meeting such a threshold would offer decision makers
a tool to evaluate the need to expand, close, or take corrective
action at an enterprise and, in doing so, better ensure PIA’s
ability to pursue all its statutory purposes.
According to PIA’s assistant general manager for operations,
PIA already reviews data related to its enterprises’ gross profit,
inmate employment, work hours lost due to correctional
institution needs and other reasons, percentage of late orders,
quality control, and customer complaints. However, the
manager acknowledged that PIA has not established criteria,
such as profitability per inmate, against which it can evaluate
each enterprise’s contribution toward PIA’s statutory purposes.
The manager states that PIA expects to develop indicators
to measure PIA’s overall progress as well as the need to take
corrective action at an enterprise and anticipates that future
analyses will include a review of profitability per inmate.

RECOMMENDATIONS
PIA should establish long-range annual employment targets
overall, for each enterprise, and as a percentage of Corrections’
institution population. PIA should include these targets and
annual results in meeting them, as well as explanations when
they are not met, in its annual report to the Legislature.
The PIA should establish criteria, such as profitability per
inmate, and evaluate its enterprises’ contribution toward its
statutory purposes of being self-supporting and employing
inmates relative to such criteria. n

California State Auditor Report 2004-101

33

Blank page inserted for reproduction purposes only.

34

California State Auditor Report 2004-101

CHAPTER 3
The Prison Industry Authority Has
Not Adequately Demonstrated Its
Financial Impact on the California
Department of Corrections
CHAPTER SUMMARY

A

lthough one of the statutory purposes of the Prison Industry
Authority (PIA) is to reduce the operating costs of the
California Department of Corrections (Corrections), PIA
has not demonstrated adequately whether and in what manner
it fulfills this purpose. PIA claims that it provided significant
cost savings to Corrections in fiscal year 2002–03 by offering a
correctional work or training program (correctional program) for
inmates that Corrections otherwise would have to fund. However,
in PIA’s absence Corrections is neither legally obligated nor was it
prepared to reassign all of PIA’s participants in fiscal year 2002–03 to
programs other than PIA. Thus, PIA’s approach toward claiming cost
savings to Corrections for fiscal year 2002–03 is questionable.
An alternative approach to demonstrate PIA’s financial impact to
Corrections would be to evaluate sentence reduction credits that
PIA or other correctional program participants earn at a faster rate
than nonparticipants. Sentence reduction credits enable inmates
to spend less time in institutions than they would otherwise,
decreasing Corrections’ costs for monitoring, housing, and feeding
them. However, a new program initiated by Corrections in fiscal
year 2003–04 as a result of a legislative requirement will reduce
significantly or eliminate the group of inmates whose participation
in PIA could result in a cost avoidance to Corrections due to their
earning sentence reduction credits at a faster rate. Thus, PIA’s ability
to claim any cost avoidance in the future with regard to sentence
reduction credits its participants earn is impaired significantly.

ALTHOUGH PIA CLAIMS TO PROVIDE SIGNIFICANT
COST SAVINGS TO CORRECTIONS, ITS ANALYSIS OF
THESE SAVINGS IS QUESTIONABLE
One of PIA’s statutory purposes is to reduce Corrections’ cost of
operations. In its most recent annual report to the Legislature,
PIA claims that it saved Corrections $14.1 million during fiscal
California State Auditor Report 2004-101

35

year 2002–03. According to PIA’s former acting assistant general
manager for financial operations, this amount represents the
costs Corrections would have incurred if it had reassigned
the approximately 5,800 inmates participating in PIA as of
June 30, 2003, into correctional programs it funds. However,
PIA bases its calculation on the particular correctional program
components Corrections sought to expand in a fiscal year
1998–99 unapproved budget change proposal, namely certain
vocational education and institutional support and work
programs. Further, PIA did not demonstrate that the programs
Corrections sought to expand in fiscal year 1998–99 represented
the only available correctional program options and associated
costs for fiscal year 2002–03. Thus, relying on the information
from fiscal year 1998–99 renders an analysis of cost savings PIA
provided Corrections in fiscal year 2002–03 questionable.

In PIA’s absence,
Corrections is not legally
obligated to reassign
PIA’s participants into a
correctional program.

Further, in PIA’s absence Corrections is not legally obligated
to reassign PIA’s participants into a correctional program.
According to state law, an inmate’s opportunity to participate
in a correctional program is a privilege and not a right, and
although each inmate is to have a reasonable opportunity to
participate in such programs, these opportunities are offered
only to the extent that Corrections has available institutional
security and resources. In fact, according to Corrections’ chief
of the operational review unit in the institutions division, if
PIA were to cease its operations, participating inmates would
be placed on a waiting list of inmates to be assigned to a
correctional program. Given that Corrections reported that this
waiting list consisted of about 44,100 inmates in June 30, 2003,
the assumption upon which PIA claimed the $14.1 million in
fiscal year 2002–03 cost savings to Corrections appears unlikely.
Finally, a new program Corrections initiated in fiscal year 2003–04,
the bridging education program (bridging program), which we
discuss in more detail later, provides an additional option for
inmates who wish to participate in a correctional program and
are eligible to reduce their sentences by one year for each year
of participation. Corrections initiated this program, which uses
an independent study approach, as a lower-cost alternative to its
existing correctional programs, such as academic and vocational
education. For instance, the annual cost to Corrections of an
inmate in the academic education program was about $7,900
for fiscal year 2003–04, while the annual cost of an inmate in the
bridging program was approximately $2,000 for the same fiscal year.

36

California State Auditor Report 2004-101

The waiting list does not prevent an eligible inmate from
participating in the bridging program, and it is Corrections’
intent to place as many eligible inmates into the program as
possible. However, not all PIA participants are eligible for the
bridging program. As a result, PIA may be able to claim that
it provides Corrections a cost savings only for those inmates
that Corrections, in PIA’s absence, would reassign into the
bridging program. However, if Corrections decides to expand
its existing programs or initiate new ones, to the degree that
Corrections in PIA’s absence no longer would place certain PIA
participants on a waiting list and that it would incur additional
costs for assigning them to a correctional program, PIA may be
able to claim additional cost savings. If PIA intends to claim
such cost savings, it must ensure that it claim the savings
associated only with the group of inmates Corrections would
reassign in its absence and consider all the costs of the various
programs into which Corrections may reassign the inmates.

AN ALTERNATIVE APPROACH TO COST AVOIDANCE
WOULD BE TO EVALUATE SENTENCE REDUCTION CREDITS

Sentence reduction
credits result in inmates
spending less time in
institutions, decreasing
Corrections’ costs of
monitoring, housing, and
feeding them.

We considered an alternative approach to assess PIA’s financial
benefit to Corrections. We attempted to estimate the maximum
cost avoidance PIA provided Corrections in fiscal year 2003–04
by employing inmates who, had they not been assigned to PIA,
would have earned sentence reduction credits at a slower pace
than they did by participating in PIA. Certain inmates earn
sentence reduction credits at a faster pace while participating
in a correctional program, such as PIA, than they could while
not participating. Thus, these inmates spend less time in
institutions than they otherwise would, and Corrections’ costs
of monitoring, housing, and feeding them decrease.
State laws and regulations prescribe a variety of sentence reduction
credits. An inmate’s ability to earn credits depends, in part, on
the type of offense an inmate committed as well as the inmate’s
behavior while in prison. Table 5 on the following page provides
a summary of the various sentence reduction credits and cost
avoidance opportunities for inmates participating in a correctional
program during fiscal year 2003–04. For instance, only one group
of inmates—nonviolent offenders serving sentences fixed by statute
who have never participated in a correctional program or who were
removed from a correctional program as a result of their behavior
or through some other action of their own—offered an opportunity
for cost avoidance among the five inmate groups identified in the
table. Specifically, this inmate group earned up to one year off their

California State Auditor Report 2004-101

37

sentences by participating in a correctional program during fiscal
year 2003–04 and only up to six months off their sentences while
not participating in a correctional program.

TABLE 5
Opportunities to Provide a Cost Avoidance to Corrections
Through Correctional Program Participation During Fiscal Year 2003–04

Inmate Group

Sentence Reduction
Credits That Result
From 12 Months of
Participation in a
Correctional Program

Sentence Reduction
Credits That Result
From 12 Months of
Nonparticipation in a
Correctional Program

Potential Cost Avoidance That
Results From Correctional
Program Participation

Nonviolent offenders serving sentences
that are fixed by statute that have never
participated in a correctional program
or were removed from a correctional
program due to their behavior or
through some action of their own

Up to 12 months

Up to six months

The six-month difference between
the sentence reduction credits
that result from 12 months
of participation and those
that result from 12 months of
nonparticipation

Nonviolent offenders serving
sentences that are fixed by statute
that are temporarily removed from a
correctional program through no fault
of their own

Up to 12 months

Same as in a
correctional program

None

Violent offenders, or repeat offenders
as sentenced by the court with at
least one prior serious or violent
conviction, serving sentences that are
fixed by statute

Up to three months

Same as in a
correctional program

None

Offenders serving life sentences with
the possibility of parole

Zero to six months off
the time before being
considered for release
on parole. The Board
of Prison Terms decides
whether and when to
release these inmates.

Same as in a
correctional program

None

Offenders serving life sentences
without the possibility of parole

None

Same as in a
correctional program

None

Source: Penal Code, California Code of Regulations, and Corrections’ staff.
Note: Corrections’ staff indicate that there may be certain exceptions to this table. For instance, a small number of offenders
serving life sentences with the possibility of parole for 12 months of participation in a correctional program can earn up to
12 months of credit to reduce the time before being considered for release on parole. However, Corrections’ staff believe that the
impact of such exceptions on our analysis is insignificant.

Although the second group of inmates in Table 5 serves similar
sentences as the first group, the second group of nonviolent
offenders serving sentences fixed by statute was removed from
a correctional program through no fault of their own and, thus,
continued earning the full one year off their sentence for each
one year served regardless of correctional program participation.
38

California State Auditor Report 2004-101

Such inmates earn credit for what Corrections refers to as “S” time.
Other inmate groups, as indicated by Table 5, do not provide
potential cost avoidance to Corrections regardless of their
participation in a correctional program.
Figure 6 provides Corrections’ breakdown, as of June 30, 2004,
of PIA’s participants into various inmate groups. It shows that PIA
employed approximately 5,600 inmates, of which only 1,177, or
21 percent, were nonviolent offenders serving sentences fixed by
statute and, thus, offering a potential cost avoidance opportunity to
Corrections because a segment of this population by participating
in PIA could earn sentence reduction credits at a faster rate than
they would as nonparticipants. According to Corrections’ chief
of the offender information services branch, Corrections cannot
differentiate the 1,177 nonviolent offenders serving sentences
fixed by statute in PIA between those who were in the first and
second groups of Table 5 before being assigned to PIA. Thus, we
were unable to identify the proportion of the 1,177 who offered
cost avoidance potential because they were earning sentence
reduction credits at a slower pace before being assigned to PIA.

FIGURE 6
Sentences Prison Industry Authority Participants
Were Serving as of June 30, 2004

��������� �������
���� ��������� �������
��� ����������� ��
���������� ����

����������
�����������
����� �����

������� ���������� ��
������ ��������� ��
��������� �� ��� �����
���� �� ����� ��� �����
������� �� �������
����������� �������
��������� ���� ��� �����
�� ������������� �����

��������� �������
���� ��������� ����
��� ����������� ��
������������ �����

Source: Inmate counts as of June 30, 2004, provided by the Estimates and Statistical Analysis
Section in Corrections’ Offender Information Services Branch, as well as Penal Code, California
Code of Regulations, and Corrections’ staff.
* Corrections was unable to identify the portion of the nonviolent offenders who have never
participated in a correctional program or were removed from a correctional program due
to their behavior or through some action of their own, from the portion that before being
assigned to Prison Industry Authority had been temporarily removed from a correctional
program through no fault of their own.

California State Auditor Report 2004-101

39

Based on Corrections’ data as of June 30, 2004, and assuming that
PIA participants did not have another opportunity to earn sentence
reduction credits at the same rate, we estimate that PIA could have
generated as much as $9.9 million during fiscal year 2003–04 in
cost avoidance to Corrections as a result of sentence reduction
credits the 1,177 inmates earned. We estimated a maximum cost
avoidance of $9.9 million that could have been provided by PIA in
fiscal year 2003–04 by multiplying the 1,177 inmates participating
in PIA by the number of additional days by which these inmates
would have had their sentences reduced as a result of their
participation in PIA. We then multiplied the result by Corrections’
fiscal year 2003–04 marginal daily incarceration cost for each
inmate, which represents expenses such as security personnel,
medical staff, and utilities that Corrections reports it incurs for
incarcerating an additional inmate in one of its institutions.5 This
resulted in the estimated maximum costs Corrections could have
avoided as a result of 1,177 nonviolent offenders that were serving
sentences fixed by statute and participating in PIA during fiscal
year 2003–04. To the degree that any of these inmates, before their
participation in PIA, were other correctional program participants
removed from the program through no fault of their own and thus
were earning the same credits as they would earn by participating
in PIA, the fiscal year 2003–04 cost avoidance must be reduced
accordingly. However, as we indicate earlier, Corrections is
unable to identify the proportion of the 1,177 inmates in PIA
who already were earning full credit before being assigned to PIA.
Thus, we were unable to reduce the estimated maximum cost
avoidance PIA could have provided Corrections for fiscal year
2003–04 accordingly.

CORRECTIONS RECENTLY ESTABLISHED A PROGRAM
THAT IMPAIRS SIGNIFICANTLY PIA’S FUTURE ABILITY
TO CLAIM COST AVOIDANCE DUE TO SENTENCE
REDUCTION CREDITS
Corrections recently developed and began implementing a program
aimed at maximizing the potential cost avoidance provided by
inmates eligible to earn one year off their sentences through one

5

40

To calculate the daily incarceration cost for an additional inmate, we use the average
annual marginal cost of $16,763 for fiscal year 2003–04, rather than the average annual
total cost to incarcerate an inmate of $30,929, because Corrections’ institutions are
currently above capacity. Thus, fixed costs, such as noncustody salaries and wages,
workers’ compensation, and general expenses would not currently increase as a result
of an additional inmate. Similarly, because Corrections is above capacity, it does not
avoid any additional fixed costs if it releases an inmate.

California State Auditor Report 2004-101

year of correctional program participation. As a result, PIA’s future
ability to claim a cost avoidance that results from its participants’
sentence reduction credits will be impaired significantly.
In the fiscal year 2003–04 budget act, the Legislature required that
Corrections provide priority placement in correctional programs
to the inmates eligible to earn one year off their sentence for each
year in a correctional program. Further, the Legislature required
that Corrections submit a plan for offering education programs in
reception centers, where new inmates are processed.

In the bridging program,
teachers and artist
facilitators provide
educational instruction
to inmates through
an independent
study approach.

In response to the legislative requirements, Corrections initiated
the bridging program for inmates in the general population
institutions in November 2003 and, in February 2004, expanded
it to the reception centers. In the bridging program, teachers
and artist facilitators provide educational instruction to inmates
through an independent study approach. Unlike the more
traditional classroom approach, the bridging program relies on
various education delivery methods, such as study packets or
audio-visual presentations delivered to the inmates, as well as
one-on-one instruction or group presentations where possible.
The bridging program is designed to operate at an inmateinstructor ratio of 54 to 1, with the instructor expected to meet
with each inmate for at least 30 minutes each week.
The bridging program was developed as an alternative program
for inmates who are not in an existing correctional program but
would be eligible to earn one year off their sentence for each year
they are assigned to a correctional program. These correctional
programs have a waiting list and generally are not available to
inmates in reception centers. Corrections intends to have as many
eligible inmates as possible participate in the bridging program.
Thus, Corrections expects to generate significant cost avoidance
by assigning inmates earlier into a credit-qualifying program. The
bridging program also provides an option for inmates who were
removed from a correctional program through no fault of their
own. Thus, the bridging program focuses primarily on the first two
groups of inmates previously shown in Table 5. As of June 30, 2004,
approximately 17,500 inmates participated in the bridging program.
As the bridging program expands, the number of inmates in
the first group on Table 5 who can provide a cost avoidance by
participating in a correctional program likely will decrease or
be eliminated. In fact, based on Corrections’ data, we identified
that only about 3,000 of the approximately 35,600 inmates on
the waiting list for a correctional program as of June 30, 2004,

California State Auditor Report 2004-101

41

Performance measures
with regard to inmates’
post-release success are
the primary benchmarks
through which
PIA can distinguish
and differentiate
itself from other
correctional programs.

belong to the group potentially able to generate cost avoidance.6
As a result, PIA’s ability to provide cost avoidance to Corrections
by employing inmates that earned sentence reduction credits
at a faster pace than they would have by not participating in
a correctional program is impaired significantly. This impact,
combined with PIA’s questionable approach toward claiming
cost savings for fiscal year 2002–03, leaves the performance
measures with regard to post-release success, which we discuss
in Chapter 4, as the primary benchmarks through which PIA
can distinguish and differentiate itself from other correctional
programs, including the bridging program.

WE CONSIDERED OTHER AREAS WHERE PIA MAY HAVE
A FINANCIAL IMPACT ON CORRECTIONS
Both Corrections and PIA identified certain costs that
Corrections incurs on behalf of PIA. For instance, Corrections
pays for the security personnel assigned to monitor inmates
employed in PIA enterprises. However, Corrections’ security
personnel assignment schedules reflect security personnel
assignments for only one of PIA’s enterprises. According to
Corrections’ chief of the program support unit, PIA enterprises
typically are located in areas where another correctional
program, such as vocational education, may operate. Security
personnel rove amongst all programs in the area, monitoring the
inmates. As a result, the security personnel assignment schedules
cannot be used to identify specific security staff assigned to
monitor inmates in PIA. Nonetheless, security costs may differ
among various correctional programs, and there are no standard
staff ratios for each correctional program because staffing levels
can vary depending on the number and level of the inmates,
physical plant design, and type of program.
When we asked Corrections to provide us with an estimate
of these security costs, Corrections’ deputy director for the
institutions division advised us that Corrections does not have
an adequate methodology to fulfill this request and thus could
not survey the institutions in order to compute an estimate.
Nevertheless, Corrections accepts the responsibility of providing
and funding security for all correctional programs, including
PIA. Because Corrections was unable to isolate the security
costs it incurs on behalf of PIA, we were unable to identify the
financial impact on Corrections.

6

42

Inmates in the bridging program also are considered to be on the waiting list for
another assignment once in their assigned institutions.

California State Auditor Report 2004-101

In 2004 Corrections
conducted energy surveys
of its institutions and
began renegotiating
the amounts that
PIA reimburses it for
utility expenses.

Further, Corrections has incurred utility costs on PIA’s behalf.
In 2004 Corrections conducted energy surveys of its institutions
to identify potential cost savings and began renegotiating
the amounts that PIA reimburses it for utility expenses at
institutions where PIA operates. However, Corrections has not
completed its energy survey reports, identified the amount
by which it subsidized PIA’s utility costs, or entered into
negotiations with PIA to more accurately receive reimbursement
for the utility costs Corrections incurs on PIA’s behalf at all the
institutions where PIA operates. Corrections expects to complete
this process and adjust fiscal year 2004–05 billing by March 2005.
Thus, it appears that Corrections no longer will subsidize PIA’s
utility costs in the near future.
Finally, as we discussed in Chapter 1, PIA prices can exceed
prices for comparable items available from other vendors. When
this is the case, the expense of paying these higher prices may
result in a negative financial impact on Corrections. Conversely,
to the extent it receives discounts, as we discussed in Chapter 1,
and these discounts cause it to pay lower prices than it would
if purchasing from other vendors, the savings from the lower
prices may result in a positive financial impact on Corrections.

RECOMMENDATION
To the degree PIA estimates cost savings that result from inmates
participating in PIA, it should ensure that its analysis considers
all the options and associated costs per inmate that Corrections
would have available for reassigning PIA’s participants into
another program in PIA’s absence. n

California State Auditor Report 2004-101

43

Blank page inserted for reproduction purposes only.

44

California State Auditor Report 2004-101

CHAPTER 4
Although It Has Established a Program
to Develop Inmates’ Work Habits and
Occupational Skills, the Prison Industry
Authority Has Yet to Measure the
Program’s Effect Adequately
CHAPTER SUMMARY

T

he Prison Industry Authority (PIA) has taken steps to
increase the employability of its inmates after their
release. Moreover, as a result of obtaining data from
the California Department of Corrections (Corrections) and
entering into a contract with the Employment Development
Department (EDD), PIA now has the capability to report on two
of the common elements that decision makers use to assess a
correctional work or training program (correctional program)—
inmates’ ability to obtain post-release employment and to
avoid returning to prison. However, PIA needs to establish
performance measures to ensure that its inmate employability
activities contribute to inmates’ post-release success. Further,
PIA currently lacks the necessary data to determine whether
the specific training or experience it provides inmates affects
the type of job an inmate obtains after release. Despite the
challenges of establishing a direct link between PIA’s activities
and its participants’ post-release success, PIA cannot provide an
adequate perspective on the effectiveness of its efforts to fulfill
its statutory purpose of offering inmates the opportunity to
develop effective work habits and occupational skills without
measuring and reporting on how its participants fare after
release from prison. Moreover, without performance measures or
targets, PIA cannot focus its inmate employability activities on
areas that demonstrate success.

California State Auditor Report 2004-101

45

VARIOUS STUDIES INDICATE THAT INMATES WHO
PARTICIPATE IN CORRECTIONAL PROGRAMS APPEAR TO
HAVE A BETTER CHANCE OF OBTAINING POST-RELEASE
EMPLOYMENT AND OF NOT RETURNING TO PRISON

According to Corrections’
data, approximately
60 percent of its inmates
released for the first
time in 2000 returned to
prison within three years.

In establishing PIA’s statutory purpose to offer inmates the
opportunity to develop effective work habits and occupational
skills, the Legislature declared its intent that PIA serve the goal
of reintegrating inmates into the outside working population
by replicating as closely as possible the production and service
operations found in the outside world, in conjunction with
relevant education, training, and post-release job placement.
This statutory purpose relies on the premise that employment
decreases a person’s likelihood of committing crime. Thus,
inmates who obtain employment upon release should be less
likely to commit a crime that results in their return to prison.
According to Corrections’ data, approximately 60 percent of its
inmates released for the first time in 2000 returned to prison
within three years. In this climate, measuring how correctional
programs such as PIA affect inmates’ post-release success, in
terms of ability to obtain employment and to avoid returning to
prison, is particularly appropriate.
The literature we reviewed suggests that correctional programs
can increase a participant’s likelihood of obtaining post-release
employment and decrease the likelihood of returning to prison
when compared to inmates who do not participate in correctional
programs. As evidence of the benefits it can provide to inmates,
PIA points to a 1996 study of more than 7,000 federal inmates,
which concluded that correctional programs appear to affect
inmates’ post-release employment positively. The study found
that in each of the 12 months after release, former correctional
program participants were more likely to be employed than
former nonparticipants, and by the 12th month they were
14 percent more likely to be employed.
In recommending in June 2004 that PIA expand its inmate
employability activities, the Corrections Independent
Review Panel7 relied in part on a 2002 study by the Urban
Institute that drew extensively on four comprehensive reviews
of dozens of individual program evaluations. This study
concluded that in general correctional programs can increase

7

46

The Corrections Independent Review Panel included a former governor, an outside
executive director, two outside consultants, and staff from six different agencies and
was charged by the current governor with conducting an independent review of the
State’s correctional system and reporting its findings.

California State Auditor Report 2004-101

post-release employment and decrease returns to prison, provided
the programs are well-designed and implemented. Thus, the
activities conducted by correctional programs such as PIA must
demonstrate a track record that justifies their implementation.

External factors may
limit the opportunity
to link inmates’ postrelease employment
directly to any particular
correctional program.

Although the studies we reviewed suggest that activities
designed to increase an inmate’s likelihood of obtaining postrelease employment have merit, external factors may limit the
opportunity to link inmates’ post-release employment directly to
any particular correctional program. The Urban Institute study
identified a range of methodological limitations that preclude
any assessment of direct and unequivocal beneficial effects
resulting from inmate participation in correctional programs. For
instance, inmates who participate in correctional programs
may have a preexisting motivation that those who do not
participate in correctional programs lack. Because of this and other
limitations, it appears to be difficult to identify and measure with
sufficient certainty the unique benefit provided by an individual
correctional program such as PIA. Any measurement of inmates’
post-release success must be interpreted in this light.
PIA funded a 2001 Corrections study to determine whether the
time inmates spend in the State’s correctional programs leads
to a greater likelihood of obtaining post-release employment
and to a lower likelihood of returning to prison. Corrections
found that the study’s conclusions with regard to California
inmates are consistent with the general conclusions of prior
research nationwide that found a modest association between
inmate participation in some correctional programs and higher
post-release employment in addition to reduced returns to
prison. Based on these conclusions, it appears that PIA has an
opportunity to affect an inmate’s ability to obtain post-release
employment and avoid returning to prison.

IN 1999 PIA EMBARKED UPON VARIOUS ACTIVITIES
INTENDED TO INCREASE INMATES’ LIKELIHOOD OF
OBTAINING POST-RELEASE EMPLOYMENT
In our 1996 and 1997 audits, we reported on the inadequacy of
PIA’s efforts in fulfilling its statutory purpose to offer inmates the
opportunity to develop effective work habits and occupational
skills. Subsequently, in quarterly meetings with PIA, the Prison
Industry Board (board) considered the merits of preparing
inmates for post-release employment with the intention of
reducing returns to prison. In May 1999 a legislative workgroup
composed of executive representatives from selected state
California State Auditor Report 2004-101

47

agencies, including PIA, and the private sector met to discuss the
training of inmates, with an emphasis on preparing them for
post-release employment. As a result, PIA developed a conceptual
model for a program in which PIA would, for instance, develop
training plans for inmates based on each inmate’s aptitude
and offer various services including prerelease and placement
assistance in résumé writing and arranging job interviews.

Rather than determining
whether a work
experience evaluation
form actually contributed
to the post-release
employment chances
of participants, PIA
periodically measured
only the number of
evaluations issued.

As a result of both the legislative workgroup and proposed
legislation that would have required PIA to develop performance
measures to evaluate its success in increasing inmate employability,
in September 1999 the board established a committee to oversee
PIA’s proposal to develop a program to enhance the employability
of inmates after their release. Under the board’s guidance, PIA
proposed and in March 2000 implemented a work experience
evaluation form to be completed and provided to each inmate
participating in PIA annually and whenever an inmate with at
least six months of PIA job experience is paroled, dismissed,
or transferred. PIA asked its supervisors to complete the form
in order to document, among other things, the inmate’s job
title, enterprise, years of experience, skill rating, equipment skill
level, type of training or certificates received, and work rating
with regard to various performance factors. In gathering this
information, PIA intended to provide Corrections with pertinent
data to facilitate the job placement of inmates subject to release.
However, PIA had not developed an approach, as it would later,
to track actual employment data. Thus, rather than determining
whether the evaluation form actually contributed to the postrelease employment chances of PIA participants, PIA periodically
measured only the number of evaluations issued.
As PIA’s focus on inmate employability increased, the number
of certifications issued during 2000 and 2001 to inmates for
specific jobs at PIA enterprises, such as forklift operator and
certified optician, also increased. Again, in the early stages of
its inmate employability efforts, PIA measured and reported
only on the number of certifications issued for each specialty,
rather than assessing whether PIA participants with certifications
were more likely to obtain post-release employment than those
without. However, PIA funded a 2001 Corrections study, discussed
previously, examining the link between the time inmates spend in
the State’s correctional programs and the likelihood of obtaining
post-release employment or returning to prison. Thus, although
it did not assess the actual impact of its inmate employability
efforts, in 2000 and 2001 PIA nevertheless increased its focus on
developing inmate work habits and occupational skills.

48

California State Auditor Report 2004-101

SINCE 2002 PIA HAS DEVELOPED A PLAN FOR INMATE
EMPLOYABILITY AND PURSUED SIX GOALS
Although in 2000 and 2001 PIA engaged in various activities
designed to increase inmate employability, it had not
established a specific plan to guide these efforts or performance
measures to evaluate their impact. In fact, PIA has yet to
establish adequate performance measures to evaluate inmates’
post-release success. Nonetheless, it has made
some progress in its inmate employability efforts
since 2002.
Goals of the Inmate Employability Plan
1. Establish industry-accredited training and
certification programs statewide.
2. Develop a performance-based skill
standards system.
3. Develop standardized policies and
procedures for orientation, exit interviews,
and other programs.
4. Link PIA-trained and certified parolees with
related private sector jobs.
5. Work with Corrections to establish PIA
classification and participation criteria for
PIA work programs.
6. Develop a management review and
evaluation system that captures
programmatic data to track, measure,
and validate the success of the inmate
employability program.

In line with a board request in the fall of 2001, PIA
prepared a plan to address inmate employability to
become effective January 2002. PIA defined its inmate
employability mission as developing, implementing,
and evaluating training, certification, and other
programs that increase inmate employability
and coordinating job placement activities with
Corrections. To those ends, the inmate employability
plan establishes six goals, with objectives tied to
each goal. The goals reflect PIA’s initial inmate
employability efforts as well as concerns we raised in
our 1996 report regarding PIA’s pursuit of its statutory
purpose to offer inmates the opportunity to develop
effective work habits and occupational skills.

Since 2002 PIA has developed and implemented
various elements of each goal. For the first goal,
PIA continued to pursue and offer industryaccredited certifications to inmates. As of September 2004,
PIA reports that inmates have earned industry-accredited
certifications in 14 different occupational areas, such as
machining and laundry and linen management. To obtain an
occupational certification, an inmate must fulfill the criteria
required by external associations and pass an exam. Occupational
certifications provide impartial, third-party verification of a
person’s expertise and industry-driven, tangible evidence of the
individual’s achievement of necessary proficiency levels. Upon
release an inmate can present this credential to a prospective
employer. From July 2001 through June 2004, PIA participants
earned approximately 2,400 such certifications, although, as
we discuss later, PIA presently cannot identify whether the
certifications have led to post-release employment in the field in
which inmates obtained certification.

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49

As part of its second goal, PIA has entered into a contract with
a consultant to develop and provide training to implement a
performance-based skill standards system for one PIA enterprise.
The skill standards system documents a list of skills an inmate
must develop to demonstrate proficiency in a particular
specialty, such as sewing machine operation. Skill standards
provide a less formal means than occupational certifications for
a supervisor to identify and document an employee’s knowledge,
skills, and abilities relevant to performing a specific job. However,
employers also can rely on skill standards to identify the
extent of a prospective employee’s competency within an
occupational cluster or across an industry sector. In August 2004
the consultant presented the skill standards system for the one
enterprise to PIA staff at a pilot institution and trained staff in
its use. The inmate employability program chief states that, after
evaluating the use of the system for the one enterprise, PIA will
consider expanding it to all its enterprises.

Before parole, PIA provides
each participating inmate
with material to help the
inmate prepare a résumé
and develop interview skills.

For the third goal, PIA developed policies and procedures for inmate
orientation and exit interviews, offering inmates résumé-writing
and interview preparation material. Before parole, PIA provides each
participating inmate with material to help the inmate prepare a
résumé and develop interview skills. PIA offers additional assistance
to inmates who request it; however, an inmate must demonstrate
the desire to use these optional services. PIA reports that, since the
inception of these services in December 2002 through June 2004,
nearly 620 inmates who were released on parole directly from PIA
had résumé assistance in the form of materials available to them,
but PIA does not track the number of inmates who requested and
received additional assistance.
With respect to its fourth goal, the inmate employability program
chief indicated that since 2002 PIA generally has discussed
inmate job placement with 11 private sector employers to obtain
their perspective. According to the program chief, most of the
employers support the inmate employability program, with two
expressing a willingness to participate in mock job interviews
for PIA participants. One of those two has offered to explore the
possibility of a presentation on the inmate employability program
to further reach prospective employers in the area, while others
indicated that they were willing to consider PIA participants
for post-release employment. In addition, PIA is participating
in Corrections’ Offender Employment Continuum program—a
program aimed at providing basic life skills, employability
training, job retention, and placement into long-term gainful
employment—to offer a pre-parole counseling and post-release job

50

California State Auditor Report 2004-101

In July 2004 Corrections
entered into a contract
with a county department
of education to provide
employment services to
PIA participants at five
correctional institutions.

placement program for PIA participants. Specifically, in July 2004
Corrections entered into a contract with a county department of
education to provide employment services, such as training and
placement, to PIA participants at five correctional institutions.
The contractor is expected to track inmates after release, achieve
specific performance measures related to inmates’ post-release
success, and report the results to Corrections.
For the fifth goal, Corrections established, and PIA concurred with,
a new priority model for assigning inmates to PIA. In May 2004
PIA issued a memorandum to its administrators and managers
describing the model, which gives priority placement in PIA to
inmates serving sentences between two and five years. As a result,
PIA anticipates decreasing the number of participants who are
serving life sentences through attrition. As PIA implements this
directive, the proportion of participants who will be released into
society in the short-term with PIA experience should increase.
To implement the final goal, in October 2002 PIA obtained
access to data gathered by Corrections. According to PIA’s inmate
employability program chief, these data allowed PIA for the
first time to track the parole status of its former participants. In
addition, after more than seven months of pursuing an agreement,
PIA entered into a contract with EDD in July 2003 to obtain data
that, when matched with the Social Security numbers provided by
Corrections, allow PIA to track the employment status of its former
participants. According to the contract, PIA provides EDD with
approximately 2,000 Social Security numbers each quarter and in
return receives applicable wage and employer data, unemployment
insurance claim history, and current disability insurance claim
history. As a result, PIA now has the capability to measure the
overall employment rate of its former participants. We discuss the
results of this effort in the following section.

PIA NEEDS TO ESTABLISH SPECIFIC TARGETS TO
MEASURE INMATES’ POST-RELEASE SUCCESS
Although it has developed and implemented various inmate
employability activities and begun tracking post-release data,
PIA has yet to evaluate adequately its impact on inmates’ postrelease success. PIA acknowledges the value of measuring the
impact because, in requesting the EDD data, PIA expressed
that in order to carry forth its statutory purpose of offering
inmates the opportunity to develop effective work habits and
occupational skills, PIA must have the ability to follow up on

California State Auditor Report 2004-101

51

the success of inmates in finding and retaining employment
in the private sector with the training provided to them while
inside the prison.

PIA now has the capability
to report on two of the
common elements decision
makers use to assess a
correctional program—
inmates’ ability to obtain
post-release employment
and to avoid returning
to prison.

52

This falls in line with the recommendation in our 1996 audit
report that PIA periodically examine the relationship between
PIA participation and post-release employment. As a result
of obtaining access to Corrections’ data in October 2002 and
entering into a contract with EDD in July 2003, PIA now has the
capability to report on two of the common elements decision
makers use to assess a correctional program—inmates’ ability
to obtain post-release employment and to avoid returning to
prison. In fact, in its quarterly meetings with the board, PIA has
begun to report data relating to post-release employment and
returns to prison, even though it has not yet defined specific
targets against which to measure its performance. Performance
measures and targets allow decision makers the opportunity to
evaluate PIA’s ability to fulfill its statutory purpose.
In its September 2004 presentation to the board, PIA reported
that approximately 60 percent of inmates with at least six months
of participation in PIA who were paroled and have not
returned to prison since January 2000 are employed. Yet PIA
has not defined success, nor does it compare this figure to
other Corrections’ inmates, both program participants and
nonparticipants. In another presentation to the board, PIA
reported its recidivism rates. A recidivism rate measures the
percentage of felons released to parole during a particular period
who are returned to prison for any reason during a specific
follow-up period. PIA reported that approximately 50 percent
of inmates with at least six months of participation in PIA that
were released for the first time in 2000 returned to prison within
two years. In its presentation, PIA compared its recidivism rates
with Corrections’ overall rate, which, for this time period, was
about 55 percent. However, PIA acknowledges that inmates
in correctional programs could be predisposed toward a lower
likelihood to return to prison. Thus, simply comparing the
success of former PIA participants to that of Corrections’ inmates
may be insufficient. Rather, PIA not only should define success
in relation to Corrections as a whole but also should develop
additional targets and comparisons, such as other correctional
programs or its own expectations. For example, PIA should
define a certain recidivism rate that it seeks to achieve for its
participants. Further, the inmate employability program chief
stated that PIA is considering defining success with regard to
wages as parolees who earn at least the state minimum wage

California State Auditor Report 2004-101

of $6.75 per hour based on a full 40-hour workweek, or $3,240
per quarter. Although this may be appropriate for certain
enterprises, PIA could consider evaluating and establishing a
wage success rate for each enterprise.

In order to compare itself
to other correctional
programs, PIA will need
to be able to obtain
relevant data from
Corrections to allow for
such comparisons.

In order to compare itself to other correctional programs, PIA
will need to be able to obtain relevant data from Corrections to
allow for such comparisons. According to Corrections, it may
have difficulty assisting PIA in obtaining any necessary data
for comparison. Although Corrections recognizes the benefits
of performance measures and is willing to provide PIA with
any data it has available, Corrections does not keep track of
inmate employment history and performance during and after
incarceration. In addition, Corrections indicates that its current
information systems are limited to specific functions and lack
the necessary connectivity that would be essential in tracking
this information. Thus, Corrections states that it will need to
establish new tracking systems and incur additional workload
for which it is neither equipped nor funded. Given that PIA
has been able to obtain data regarding its participants’ ability
to obtain post-release employment and avoid returning to
prison, it seems reasonable that Corrections also could obtain
this information for its correctional programs, allowing each
program to distinguish and differentiate itself with regard to
the performance of its participants. With this information,
decision makers will be able to evaluate the merits of each
correctional program and the value that they provide in terms of
contributing to inmates obtaining post-release employment and
not returning to prison.
Overall, PIA agrees that establishing performance measures
and targets is a key to determining the success of its efforts to
improve inmate occupational skills and increase post-release
employment, reduce returns to prison, and increase wages.
According to its inmate employability program chief, PIA is
reviewing the data from Corrections and EDD to determine
what future performance measures to implement and expects to
include them in PIA’s strategic plan, scheduled for completion in
the first quarter of 2005.
As PIA considers how best to measure its participants’ post-release
success, it should consider going beyond what the current data
from Corrections and EDD allow. For instance, PIA currently lacks
the necessary data to measure and demonstrate whether the
type of post-release employment inmates obtain is related
to the specific training or experience they receive at PIA.

California State Auditor Report 2004-101

53

Thus, it presently cannot determine whether inmates who
earn occupational certifications or work in particular enterprises
actually obtain employment related to the area in which they
were trained.

Without being able to
validate that the job an
inmate obtained upon
release actually relates to
the training the inmate
received, PIA cannot
adequately focus its efforts
on areas where they can
be most effective.

54

Offering inmates the opportunity to develop effective work
habits, such as timeliness, professionalism, and the ability
to follow instructions, is one-half of PIA’s statutory purpose
for preparing inmates for employment. However, through
the establishment of the inmate employability program and
focusing on occupational skills, the other half of PIA’s statutory
purpose, PIA has acknowledged that specific skill sets may
enhance an inmate’s ability to obtain post-release employment.
In fact, in developing the strategy for its inmate employability
program, PIA relied in part on a 2002 study by the Workforce
Excellence Network—an initiative that seeks to foster a
workforce development system through training, technical
assistance, leadership tools, and forums. The study found
that occupational certifications and skill standards promote
certificate portability, skill transferability, worker mobility,
and training consistency, all of which are particularly helpful
attributes for job seekers, transitional workers, and dislocated
workers. However, without being able to validate that the job
an inmate obtained upon release actually relates to the training
the inmate received, PIA cannot adequately focus its inmate
employability efforts on areas where they can be most effective.
We have prepared an evaluation tool, shown in Table 6, that
allows PIA to demonstrate each enterprise’s contribution to its
statutory purpose to offer inmates the opportunity to develop
effective work habits and occupational skills by using various
measures related to inmates’ ability to obtain post-release
employment and avoid returning to prison. The headings in
Table 6 are based primarily on employment measures established
in the contract between Corrections and a county department
of education for the Offender Employment Continuum program
and on recidivism rates that Corrections already reports. PIA’s
inmate employability program chief initially said the PIA would
be able to provide the necessary information in Table 6 for
all but the column entitled Fiscal Year Average Employment in
Related Industry. After we discussed this matter with PIA, it
contacted EDD to pursue additional data to be able to report
this information as well. PIA also could consider reporting
the results of Table 6 independently for those inmates who
earn certifications.

California State Auditor Report 2004-101

TABLE 6
Proposed Tool for Prison Industry Authority to Report
the Results of Its Inmate Employability Efforts

Enterprise

Fiscal Year
Average Entered
Employment Rate*

Fiscal Year Average
Employment
Retention Rate
at Six Months†

Fiscal Year
Average
Earnings Change
in Six Months‡

Fiscal Year
Average
Employment in
Related Industry§

One-Year
Recidivism
Ratell

Two-Year
Recidivism
Ratell

Three-Year
Recidivism
Ratell

Bakery
Bindery
Cleaning products
Coffee roasting
Crops
Dairy
Dental lab
Digital services
Egg production
Fabric products
Food packaging
Furniture
General fabrication
Knitting mill
Laundry
License plates
Mattress
Meat cutting
Metal products
Metal signs
Optical
Poultry
Printing
Shoe factory
Silk-screening
Support services
Grand Totals

* Entered Employment Rate: The number of inmates who worked at least six months in Prison Industry Authority (PIA) and who
have entered employment by the end of the first quarter after release divided by the number of inmates who worked at least six
months in PIA and who were released during the quarter.
†

Employment Retention Rate at Six Months: Of those who are employed during the first quarter after release, the number who
are employed in the third quarter after release divided by the number who were employed in the first quarter.

‡

Earnings Change in Six Months: Of those who are employed during the first quarter after release, the earnings during the third
quarter minus the earnings during the first quarter divided by the earnings during the first quarter.

§

Employment in Related Industry: Of those who are employed during the first quarter after release, the number who are
employed in an industry related to the enterprise in which they obtained PIA work experience divided by the number who are
employed who obtained work experience in each enterprise.

ll

Recidivism Rate: Of those inmates with at least six months’ participation in PIA, the number who are returned to prison for any
reason during a specific follow-up period (one, two, or three years) divided by the number who are released during a particular
period (one year).

California State Auditor Report 2004-101

55

RECOMMENDATIONS
PIA should establish targets against which to measure its
participants’ post-release success in obtaining employment and
not returning to prison. For instance, PIA should compare the
post-release success of its participants to that of participants
in other correctional programs, to nonparticipants, or to its
own expectations. PIA also should measure each enterprise’s
contribution to its participants’ post-release success and report the
results in its annual report to the Legislature, using a tool such as
the one we present. In addition, PIA should assess whether certain
enterprises lead to higher-paying jobs and should establish a
wage success rate for each enterprise. Finally, PIA should identify
whether the specific training or experience inmates obtain leads
to employment in a related field. Corrections should assist PIA
in obtaining any necessary data for comparison by providing
comparable data on other correctional programs to PIA.
PIA should track the individuals participating in unique
components of the inmate employability program, such as
additional résumé assistance or specific occupational certifications,
to determine whether there is a link between the components and
inmates’ post-release employment, earnings, and returns to prison.
By tracking inmates who use specific components of its inmate
employability program, PIA can further refine and focus on those
activities with a demonstrated track record.

We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the Calilfornia Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of this report.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor
Date: December 20, 2004
Staff:

56

Karen L. McKenna, CPA, Audit Principal
Almis Udrys
Renee Davenport
Laura G. Kearney

California State Auditor Report 2004-101

APPENDIX A
Fiscal Years 2002–03 and 2003–04
Prison Industry Authority Revenue by
Enterprise and Major Customer

T

o identify the total amount the Prison Industry
Authority (PIA) has received from its customers for PIA
products and services over the past two fiscal years, we
reviewed PIA’s most recent annual report to the Legislature,
which provides audited revenue figures for fiscal year 2002–03.
We then obtained PIA’s revenue database and verified its
reliability, breaking out revenues earned by each of PIA’s
enterprises based on how much each of PIA’s major customers
purchased. Major customers are those who provided at
least $1 million in annual revenue to PIA. After determining
that the data were sufficiently reliable for our purposes, we
requested that PIA provide us with its fiscal year 2003–04
unaudited revenue figures. We present the results of our
analysis of PIA revenue for fiscal years 2002–03 and 2003–04
in Tables A.1 and A.2 on the following pages, respectively.
PIA’s major customers accounted for $151.9 million, or 94 percent,
of its revenues in fiscal year 2002–03 and $133.5 million, or
93 percent, of its revenues in fiscal year 2003–04. The remaining
customers are accounted for as other state customers or as
nonstate customers. For example, in fiscal year 2002–03,
the $6.5 million reported for all other state customers represents
revenue reported for about 100 customers. The $3.6 million reported
for all other nonstate customers represents revenue reported for
about 240 customers.

California State Auditor Report 2004-101

57

58

TABLE A.1
Prison Industry Authority Revenue by Major Customer and Enterprise, Fiscal Year 2002–03

Enterprise
Bakery
Bindery
Cleaning
products

California
Department
of
Corrections

Department
of Motor
Vehicles

Department
of Health
Services

Department
of General
Services

$ 2,908,417

0

0

0

310,410

$

708,726

$

3,023

$

827,916

Department
of
Transportation

California
State
University/
University
of California

0

0

0

45,089

$ 114,304

State
Hospitals

$

$

California
Department
of the
Youth
Authority
$

California
Department
of Forestry
and Fire
Protection

57,462

207

6,891

$

City of
Folsom

0

0

898

0

Employment
Development
Department

California
Highway
Patrol

All Other
State
Customers

All Other
Nonstate
Customers

0

0

0

$ (17,715)

69,286

43,660

2,251,215
1,773,758

$

86,741

$

34,064

$

Totals
$

2,948,164

1,678,984

0

285

0

27,341

0

792

57,828

720

0

0

0

4,681

3,127

Coffee roasting

819,873

0

0

0

87,268

0

0

275

0

0

0

0

1,777

25,735

934,928

Crops

451,468

0

0

0

14,928

0

0

0

0

0

0

0

0

673,997

1,140,393

Correctional
Resource
Recovery Facility

0

0

0

0

0

0

0

0

0

$2,134,079

0

0

0

0

2,134,079

9,094,656

0

0

0

1,241,791

0

0

769,487

0

0

0

0

116,887

1,629,821

12,852,642

342,462

0

0

0

0

0

0

3,477

0

0

0

0

0

0

345,939

0

0

0

0

0

0

0

0

0

0

0

0

62,000

0

62,000

Egg production

3,911,356

0

0

0

236,685

0

0

108,162

0

0

0

0

35,028

11,063

4,302,294

Fabric products

17,618,919

7,200

1,384

55,676

823,651

1,628,105

1,898

533,640

1,893,502

5,114

14,428

118,952

169,019

417,963

23,289,451

2,643,221

954,559

516,742

364,917

894,649

814,068

4,013,896

154,121

127,206

2,579

911,390

247,402

4,246,738

88,681

15,980,169
19,157,756

Dairy
Dental lab
Digital services

Furniture
General
fabrication

California State Auditor Report 2004-101

95,638

781,335

59,364

13,751,231

12,428

2,350,283

318,907

31,925

0

0

465,160

5,646

1,240,163

45,676

Knitting mill

1,144,630

0

0

0

47,100

0

0

95,076

0

0

0

0

2,606

2,840

1,292,252

Laundry

7,093,267

0

0

0

5,396,150

0

0

437,335

0

27,530

0

0

2,263

232,672

13,189,217

0

13,736,799

0

0

0

0

0

0

0

0

0

0

0

24,519

13,761,318

Mattress

1,312,721

0

0

0

171,076

0

262,928

77,710

4,974

0

0

52

45,372

146,159

2,020,992

Meat cutting

5,714,121

0

0

0

578,832

0

0

237,205

0

0

0

0

7,076

0

6,537,234

Metal products

1,192,239

9,752

14,862

21,056

195,507

479,554

27,954

9,524

9,526

0

42,298

715,064

227,469

135,655

3,080,460

4,872

498,245

0

586

0

2,061

0

762

0

0

0

48,427

138,602

29,449

723,004

566,711

47

18,448,931

1,506

92,521

412,303

2,950

47,777

1,049

0

0

7,432

37,058

0

19,618,285

License plates

Metal signs
Optical

2,718

0

0

313,186

0

8,664

0

61

0

537

0

0

608

534

326,308

Poultry

4,896,800

0

0

0

167,976

0

0

57,646

180

0

0

0

2,992

3,969

5,129,563

Printing

1,896,360

3,225,969

17,446

11,864

25,950

0

0

840

1,792

2,225

0

0

130,061

11,362

5,323,869

Shoe factory

3,579,815

0

0

0

3,006

72

0

71,629

0

0

0

0

971

55,220

3,710,713

71,690

0

0

0

0

8,075

0

0

0

0

0

269

4,113

2,698

86,845

$67,351,348

$19,922,632

$19,062,037

$15,347,938

$10,061,948

$5,817,489

$4,629,532

$2,758,833

$2,039,847

$2,172,064

$1,520,017

$1,177,308

$6,544,770

$3,567,085

$161,972,848

Paper products

Silk-screening
Totals

Source: Prison Industry Authority fiscal year 2002–03 revenue data.

California State Auditor Report 2004-101

TABLE A.2
Prison Industry Authority Revenue by Major Customer and Enterprise, Fiscal Year 2003–04

Enterprise
Bakery
Bindery

California
Department
of Corrections

Department
of Motor
Vehicles

$ 2,822,331
646,859

Department
of Health
Services

0
$

164,367

State
Hospitals

0
$

13,094

California State
University/
University of
California
0

$

55,970

Department of
Transportation

0
$

106

0
$

California
Department
of the
Youth
Authority
$

Employment
Development
Department

52,521

252,580

5,297

California
Department
of Forestry
and Fire
Protection

0
$

(1,108)

$

Department
of General
Services

All Other
State
Customers

0

0

0

18,658

$ 147,411

$ 196,810

Nonstate
Customers
0
$

Totals
$

2,874,852

37,499

1,537,543

1,641,421

0

0

23,316

432

836

44,072

0

1,080

0

7,639

1,193

1,719,989

964,724

0

0

91,570

0

0

238

0

0

0

0

17,660

1,074,192

Crops

468,001

0

0

15,415

0

0

0

0

0

0

0

1,316,465

1,799,881

Dairy

9,061,959

0

0

1,202,125

0

0

604,796

0

0

0

109,268

2,047,871

13,026,019

330,677

0

0

0

0

0

2,612

0

0

0

0

975

334,264

Cleaning products
Coffee roasting

Dental lab

0

0

0

0

0

0

0

0

0

0

295,500

16,900

312,400

Egg production

4,497,943

0

0

307,471

0

0

93,013

0

0

0

30,366

9,789

4,938,582

Fabric products

14,077,914

5,293

29

714,489

1,918

1,131,978

805,623

3,199

1,428,588

16,705

222,720

275,847

18,684,303

Digital services

Food packaging
Furniture
General fabrication

171,070

0

0

0

0

0

0

0

0

0

0

0

171,070

1,546,076

539,071

163,209

1,857,134

4,895,541

192,365

97,476

865,170

37,982

131,260

2,579,153

63,187

12,967,624
5,848,724

207,781

1,445,947

31,842

24,291

268,843

1,052,306

17,381

772,854

48,328

1,018,554

946,035

14,562

Knitting mill

1,219,176

0

0

101,550

0

0

136,830

0

0

0

280

3,849

1,461,685

Laundry

7,104,372

0

0

5,452,229

0

0

348,033

0

0

0

319,557

208,980

13,433,171

0

14,459,892

0

0

0

0

0

0

0

0

0

57,746

14,517,638

Mattress

1,705,171

0

0

220,360

313,237

0

64,062

0

1,551

0

33,602

167,695

2,505,678

Meat cutting

8,535,054

0

0

707,255

0

0

287,308

0

0

0

6,668

(873)

9,535,412

Metal products

1,126,984

34,422

17,152

136,692

58,151

324,701

14,439

26,994

0

12,039

837,187

159,393

2,748,154

5,274

390,027

0

487

0

0

35

0

0

805

233,001

835

630,464

Optical

599,351

62

17,673,057

97,246

1,072

372,821

36,357

0

964

700

36,868

0

18,818,498

Poultry

5,175,652

0

0

162,864

0

0

61,815

0

116

0

2,890

1,942

5,405,279

Printing

2,129,531

3,013,178

0

16,865

0

0

182

0

124

4,518

78,988

9,607

5,252,993

Shoe factory

4,110,505

0

0

2,047

0

0

67,926

0

0

0

0

(4,453)

4,176,025

69,911

0

0

0

0

22,071

1,600

0

200

0

2,160

3,000

98,942

$68,217,737

$20,052,259

$17,898,383

$11,189,376

$5,539,300

$3,349,658

$2,741,616

$1,667,109

$1,537,591

$1,331,992

$5,938,692

$4,409,669

$143,873,382

License plates

Metal signs

Silk-screening
Totals

59

Source: Prison Industry Authority fiscal year 2003–04 revenue data.

Blank page inserted for reproduction purposes only.

60

California State Auditor Report 2004-101

APPENDIX B
Comparative Pricing Analysis of
Prison Industry Authority Products
and Services

T

o evaluate the competitiveness of the prices charged by the
Prison Industry Authority (PIA), we obtained the prices of
19 PIA products and services whose revenues constitute
about 24 percent of PIA’s fiscal year 2002–03 revenue and
compared the prices with those of similar products and services
available from other vendors. We adjusted the other vendor prices
to reflect sales and use tax, which state customers generally would
be required to pay if they purchased from vendors other than PIA,
as well as freight costs, which PIA generally includes in its prices.
In certain instances, we adjusted the PIA price for freight because
other vendor freight information was not readily available.
Table B.1 on the following page reflects the detail behind
our analysis in Chapter 1. For instance, PIA’s $3.48 price for
a T-shirt—item 6 in the table—exceeds the average comparable
price of $2.24 by 55 percent. On the other hand, PIA charges
$12.11 for another type of shirt—item 16 in the table—which is
21 percent lower than the $15.42 average comparable price.

California State Auditor Report 2004-101

61

TABLE B.1
Comparative Pricing Analysis of Prison Industry Authority Products and Services

Item

PIA Price

Comparable
Price #1

Comparable
Price #2

Comparable
Price #3

Average
Comparable
Price

Percentage
by Which PIA
Exceeds (Is Lower
Than) Average
Comparable Price

Percentage
by Which PIA
Exceeds (Is Lower
Than) Lowest
Comparable Price

1

Furniture product (chair)

$ 399.00

$ 490.26

$ 484.86

$ 340.00

$ 438.37

2

Furniture product (chair)

272.00

280.00

361.05

397.22

346.09

(21)

(3)

3

License plate product

1.65

1.37

1.90

2.38

1.88

(12)

20

4

Binder product

4.48

3.05

4.02

2.40

3.16

42

87

5

Clothing product (socks)

0.99

1.06

1.43

1.26

1.25

(21)

(7)

6

Clothing product (T-shirt)

3.48

1.94

1.87

2.91

2.24

55

86

7

Clothing product
(fire-retardant trousers)

62.48

79.93

86.58

119.82

95.44

(35)

(22)

8

Shoe product (split leather)

29.94

15.62

17.24

21.01

17.96

67

92

9

Shoe product (canvas)

8.62

6.41

6.41

7.15

(1)

10

2,981.96

2,668.96

3,007.54

3,450.33

3,042.28

(2)

12

27.00

37.66

14.55

32.33

28.18

(4)

86

0.29

0.35

0.36

0.48

0.40

(27)

(17)

Furniture product
(bed/dresser)

690.00

635.67

677.75

487.03

600.15

15

42

14

Furniture product (bed)

324.00

429.92

419.15

386.82

411.96

(21)

(16)

15

Clothing product (slip-on
trousers with
silk-screening)

10.93

9.51

13.88

10.59

11.33

(4)

15

16

Clothing product (shirt)

12.11

4.31

18.24

23.69

15.42

(21)

181

17

Furniture product (desk)

415.00

484.86

438.07

484.86

469.27

(12)

(5)

18

Clothing product
(boxer shorts)

2.38

1.97

1.80

2.69

2.15

11

32

19

Cleaning product
(soap, per ounce)

0.04

0.07

0.06

0.08

0.07

(43)

(33)

10

Modular workstation
product

11

Optical product (lens)

12

Laundry service
(per pound)

13

7.05*

(9)%

17%

Source: Bureau of State Audits’ analysis based on Prison Industry Authority (PIA) prices and other vendors’ prices for comparable items.
Note: Because 97 percent of PIA revenues result from state agency customer purchases and state agencies are not required to pay sales and use tax on PIA
purchases, the PIA prices in our analysis do not reflect this tax. We generally increased other vendors’ prices by 7.75 percent (the tax rate for Sacramento
County) as state agencies would be required, for purchases from other vendors, to pay the sales and use tax rate charged by the county within which
the customer is located. Nonstate customers, such as local governments, typically would be required to pay sales and use tax on PIA purchases. For a
price comparison from the perspective of a nonstate customer, PIA prices would need to be increased by the applicable sales and use tax rate.
* This $7.05 price differs from the $7.30 price we discuss in Chapter 1 because it reflects a reduction in PIA’s price for freight costs. As we discuss in
Chapter 1, when other vendor freight charges were not readily available, we reduced PIA’s prices to make them comparable.

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Agency’s comments provided as text only.

Youth and Adult Correctional Agency
1515 K Street, Suite 520
Sacramento, CA 95814

December 1, 2004

Elaine M. Howle, State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, California 95814
Dear Ms. Howle:
The Youth and Adult Correctional Agency (YACA) has reviewed your draft audit report entitled
“Prison Industry Authority: Although It Has Broad Discretion in Pursuing Its Statutory Purposes,
It Could Improve Certain Pricing Practices and Develop Performance Measures.” We value the
recommendations made in the report and believe they will help us further improve the operations of
the Prison Industry Authority (PIA).
We appreciate the State Auditor’s recognition that PIA’s prices were below the average competitors’
prices in 75 percent of the test samples. Additionally, we thank the State Auditor for acknowledging
PIA’s Inmate Employability Program, which enhances the ability of inmates to obtain post-release
employment and plays an integral role in reducing recidivism.
Enclosed is our response to the report’s recommendations. If you have any questions concerning
our response, please contact me at 323-6001.
Continued Success,
(Signed by: Roderick Q. Hickman)
RODERICK Q. HICKMAN
Secretary
Youth and Adult Correctional Agency
Enclosures

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63

RESPONSE TO THE BUREAU OF STATE AUDIT’S REPORT

Chapter 1
Recommendation
PIA should develop a method to allocate administrative support, distribution, and
transportation costs directly to its products and services. Until it does so, PIA should ensure
that its allocation of these costs to the various enterprises is as accurate as possible.
PIA concurs with the Auditor’s recommendation. PIA recognizes the need to incorporate all
relevant costs, including administrative support and transportation costs, into its evaluation of
product costs. PIA developed a methodology to allocate distribution, transportation, and central
office costs among its enterprises consistent with industry standards. PIA used this methodology
to evaluate the overall performance of PIA’s industries for fiscal years (FY) 2002-03 and 2003-04.
PIA will refine this process annually with the objective of continually improving the accuracy of
costs that are allocated to PIA’s enterprises. This process will further consider the related costs of
implementing such changes to its cost accounting systems. The data from such analyses will serve
as a tool for refining product costing and pricing strategies as well.
Recommendation
PIA should ensure that it documents the analyses it conducts to establish, change, or review
its prices.
PIA concurs with the Auditor’s recommendation. The Marketing and Business Analysis unit has
been doing the necessary pricing analysis; however, until July 2004, the documentation had not
been standardized. In July 2004, a standardized methodology was developed for establishing,
changing, or reviewing pricing for standard products. A standardized form for documenting
competitive pricing research was also developed. These tools are presently in use.
Recommendation
PIA should establish policies for entering into special pricing arrangements or offering
discounts and should ensure that its customers are aware of such opportunities.
PIA concurs with the Auditor’s recommendation. To support the existing Prison Industry Board
pricing policy, the Marketing Division will formalize and document internal procedures that will
include guidelines for offering discounts and other non-standard pricing strategies to all customers.
The procedures will be completed by March 1, 2005.

–1–
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Chapter 2
Recommendation
PIA should establish long-range annual employment targets overall for each enterprise and
as a percentage of Corrections’ institution population. PIA should include these targets and
annual results in meeting them, as well as explanations when they are not met, in its annual
report to the Legislature.
PIA concurs with the Auditor’s recommendation. Beginning with FY 2005-06, PIA’s Annual Plan,
as well as its Strategic Business Plan, will include long-range inmate employment targets. PIA’s
Annual Report will address the success in meeting these targets.
Recommendation
The PIA should establish criteria such as profitability per inmate and evaluate its
enterprises’ contribution toward its statutory purposes of being self-supporting, and
employing inmates relative to such criteria.
PIA concurs with the Auditor’s recommendation. PIA has already adopted profitability per inmate
as an indicator of performance and is considering other appropriate criteria for evaluation purposes.
Chapter 3
Recommendation
To the degree PIA estimates cost savings that result from inmates participating in PIA,
PIA should ensure that its analysis considers all of the options and associated costs per
inmate that Corrections would have available for reassigning PIA’s participants into another
program in PIA’s absence.
PIA concurs and will implement the Auditor’s recommendation when performing future analyses
involving cost savings that result from inmates participating in PIA.
Chapter 4
Recommendation
PIA should establish targets against which to measure its participants’ post-release success
in obtaining employment and not returning to prison. For instance, PIA should compare the
post-release success of its participants to that of participants in other correctional programs,
to nonparticipants, or to its own expectations. PIA should also measure each enterprises’
contribution to its participants’ post-release success and report the results in its annual
report to the Legislature, using a tool such as the one we present. In addition, PIA should

–2–
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65

assess whether certain enterprises lead to higher-paying jobs and should establish a wage
success rate for each enterprise. Finally, PIA should identify whether specific training or
experience inmates obtain leads to employment in a related field. Corrections should assist
PIA in obtaining any necessary data for comparison by providing comparable data on other
correctional programs to PIA.
PIA concurs with the Auditor’s recommendation. PIA is finalizing a contract with an institution
of higher education to design and conduct a research study to measure the impact of PIA on
its participants’ post-release success. The research study would begin in 2005 and would be
conducted over a multi-year period. The study results will be used to determine appropriate
standards for establishing targets and metrics relative to post-release employment and recidivism.
PIA will develop a table similar to the Auditor’s recommendation for inclusion in its Annual Report.
PIA will work with the California Department of Corrections to compare its impact on post-release
employment and recidivism with other correctional programs and non-participants consistent with
the Auditor’s recommendation.
Recommendation
PIA should track the individuals participating in unique components of the inmate employability
program, such as additional resume assistance or specific occupational certifications,
to determine whether there is a link between the components and inmates’ post-release
employment, earnings, and returns to prison. By tracking inmates who use specific
components of its inmate employability program, PIA can further refine and focus on those
activities with a demonstrated track record.
PIA concurs with the Auditor’s recommendation. Within the next 90 days, PIA will expand current
tracking activities to better assess the impact of discrete elements of the Inmate Employability
Program upon post-release employment and recidivism consistent with the Auditor’s recommendation.

–3–
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cc:

Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press

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