Performance Audit of
Pennsylvania
Correctional
Industries
of the Department of Corrections

September 2005
Pennsylvania Department of the Auditor General
Jack Wagner, Auditor General

September 13, 2005

The Honorable Edward G. Rendell
GOVERNOR
Commonwealth of Pennsylvania
225 Main Capitol Building
Harrisburg, Pennsylvania 17120
Dear Governor Rendell:
This report contains the results of the Department of the Auditor General’s special performance
audit of Pennsylvania Correctional Industries (PCI), part of the Department of Corrections, for
the period July 1, 2000, through February 18, 2005. The audit was conducted pursuant to Section
402 of the Fiscal Code and in accordance with Government Auditing Standards as issued by the
Comptroller General of the United States.
Our auditors found significant performance problems in this program. As you know, PCI teaches
inmates to work and employs them to produce goods and offer services for sale to government
agencies and other taxpayer-supported entities. Several significant findings in the report include
the following:
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PCI did not live up to its stated mission or its own strategic plans.
PCI stockpiled $32 million in cash and investments from profits accumulated from sales
made mostly to itself—that is, the Department of Corrections—and to other state
departments.
PCI did not maximize inmate employment. Even though inmate population grew, inmate
employment decreased.
PCI used its excessive profits and high prices to subsidize 14 unprofitable businesses.
PCI used a one-time irregular accounting method to account for a $2 million giveback to
the Department of Corrections.
PCI did not aggressively market its goods and services.

Please know that I have discussed the audit report with Secretary of Corrections Jeffrey Beard.
Both Secretary Beard and his staff have responded with professionalism and a pledge of
cooperation to work toward addressing our findings and recommendations. In Secretary Beard’s
response, which begins on page 56 of the report, he agrees with the majority of our findings and
notes that the audit “provides a fair assessment of PCI.” This type of collaboration not only will
improve the Pennsylvania Correctional Industries program but also will serve as an example of
how government agencies can work together constructively.

The Honorable Edward G. Rendell
September 13, 2005
Page 2

Several items in the report will require legislative changes. They include the following:
1. PCI has stockpiled $32 million in cash and temporary investments in the
Commonwealth’s Manufacturing Fund. In light of the Commonwealth’s severe budget
constraints, any Manufacturing Fund monies not needed to sustain the PCI program could
be put to excellent use for other purposes. Currently, state law does not permit transfers
from that fund to the Commonwealth’s General Fund, even for accumulated monies not
used within a certain period of time. We recommend legislation that would allow for
such transfers so that unused monies can be used to meet other essential needs of the
Commonwealth and its citizens.1 I ask that your Office of Legislative Affairs work
closely with the appropriations committees of the Pennsylvania Senate and the
Pennsylvania House of Representatives to enact legislation amending the Fiscal Code to
authorize the transfer of excess funds as described herein.
2. The current statutory provisions pertaining to inmate labor and PCI are outdated and
woefully inadequate to meet the current needs and demands of a modern, wellfunctioning state prison industry program and should, therefore, be replaced as soon as
possible. I ask that your Office of Legislative Affairs work closely with the judiciary
committees of the Pennsylvania Senate and the Pennsylvania House of Representatives to
enact legislation governing PCI’s operations and the scope of its customer base. PCI’s
operations are currently governed by Act 245 of 1984, which transferred to the
Department of Corrections all the powers and duties of the former Bureau of Corrections
contained in Section 915 of Act 408 of 1953.2
Auditors from this Department will follow up with the Department of Corrections within 24
months to determine the status of our findings and recommendations. In the meantime, we are
available to work with Department of Corrections’ officials to provide technical advice and
expertise as necessary to move forward.
Please contact me if we can answer any questions or be of further assistance.
Sincerely,

JACK WAGNER
Auditor General

1

An example of a statutory provision of a state agency’s restricted receipts account mandating the transfer
to the General Fund of any surplus that arises after two consecutive years can be found at 5 Pa.C.S. § 1512.
2
Section 915 of Act 408, which largely incorporated language from laws enacted in the 1920s, contains
outdated provisions that have little relevance for today’s PCI program. Please see the observation on page
46 of our report for a more detailed discussion of this issue.

Performance Audit of
Pennsylvania Correctional Industries

Page i
Contents

September 2005

Contents

Results in Brief

iv

Introduction and Background

1

Objectives and Methodology

3

Findings and Observation

4

Finding 1: PCI did not maximize inmate
employment, could not show that it improved postrelease job opportunities, gave coveted job spots to
inmates who would never be released, did not aid
reentry for inmates who were released, and could
not show if it reduced recidivism. Overall, it did not
live up to its stated mission or its strategic plans.

5

Recommendations

11

Finding 2: PCI went beyond self-sufficiency by
netting nearly $19 million in profits during our
audit period alone and stockpiling nearly $32
million in cash and investments overall. It didn’t
use those funds to make many improvements, and it
didn’t pursue legislation to return the surplus
money to the state treasury.
Recommendations

14

Finding 3: PCI charged higher prices for its
products than prison businesses charged for similar
products in other states. In addition, PCI appeared to
price some of its products well in excess of its actual
costs. This noncompetitive pricing cost taxpayers
money, made it difficult to evaluate the real costs of
the program, and ran counter to PCI’s mission.
Recommendations

16

20

23

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Performance Audit of
Pennsylvania Correctional Industries

Contents
September 2005
Pennsylvania Department of the Auditor General

Contents, continued

Finding 4: PCI used its excessive profits and high
prices to keep 14 unprofitable businesses operating,
even when those businesses lost more than $7.7
million over the audit period and PCI’s overall
profits kept declining. If PCI continues to operate
in this way, it will jeopardize its continued
profitability.

25

Recommendations

29

Finding 5: PCI misrepresented the true financial
performance of its operations when it improperly
accounted for more than $2 million in rebates it
gave to its own Department of Corrections to
reduce the department’s budget shortfall. No other
customers were offered these insider rebates, and
those customers therefore had to spend more
taxpayer dollars for their purchases.
Recommendations
Finding 6: PCI did not aggressively market its
goods and services, nor did it make sound new
product decisions. Based on the fact that most PCI
customers we surveyed expressed satisfaction with
the quality of purchased products and services,
PCI’s lack of aggressive marketing most likely
resulted in significant lost sales and inmate work
opportunities.
Recommendations
Finding 7: PCI did not use updated standards to
measure productivity or to control the quality of its
products and its business operations.
Recommendations

31

33
35

40
43

44

Performance Audit of
Pennsylvania Correctional Industries

Page iii
Contents

September 2005

Contents, continued

Observation: PCI’s ability to expand its share of
the market is limited by law.

46

Appendix A: Results of survey to potential PCI
customers

51

Appendix B: Results of survey to existing and
former PCI customers

54

Appendix C: Response from the Department of
Corrections

55

Appendix D: Distribution List

63

Page iv

Performance Audit of
Pennsylvania Correctional Industries

Results in Brief
September 2005
Pennsylvania Department of the Auditor General

Results in
Brief
While paying inmates
between 19 cents and
42 cents an hour, this
state-run prison
business let sales slide,
charged higher prices,
and used irregular
accounting to help its
own Department of
Corrections.

Pennsylvania Correctional Industries, or PCI, a part of the
Department of Corrections, experienced significant
performance problems during our audit period of July 1,
2000, through February 18, 2005. These problems included
deficiencies in planning and marketing and might have been
significantly lessened with stronger management.
As a bureau within the Department of Corrections, PCI has a
director who reports to a Department of Corrections’ deputy
secretary. Next in line is an executive deputy secretary
reporting directly to the Secretary of Corrections, who is
accountable to the governor.
PCI employs selected inmates at 18 state prison locations to
produce products (apparel, personal care, containers/bags,
food, furniture, household items, recreation and storage) and
perform services (e.g., printing, laundry, furniture
restoration). These goods and services are sold to state
agencies and other government entities that are funded by tax
dollars. The inmates are paid between 19 cents and 42 cents
an hour and can earn up to 70 cents an hour more with
production bonuses. PCI calculated the average hourly pay
for inmates in 2004 to be 59 cents.
During our audit period, PCI’s sales declined by nearly 25
percent, from $44.1 million in 2001 to $33.4 million in 2004.
At the same time, PCI netted nearly $19 million in profits,
bringing to more than $32 million the cash and investments it
amassed primarily since 1996, the time we last released an
audit report of PCI. But rather than spend its millions to
improve sales or train more inmates for post-release
employment, PCI kept the money to itself and—in fiscal year
2002-03—actually created an irregular one-time accounting
method to help its own Department of Corrections during a
budget crunch. Because no other PCI customer received the
same consideration, and because PCI’s customers are all
taxpayer supported, Pennsylvania taxpayers were the losers.
These issues and others are identified in seven findings and
one observation that are discussed in detail in our audit

Performance Audit of
Pennsylvania Correctional Industries

Page v
Results in Brief

September 2005
Pennsylvania Department of the Auditor General

report. We also present 21 recommendations. Within 24
months, we will follow up with PCI and the Department of
Corrections to determine what actions have been taken with
respect to our findings and recommendations.
The seven findings, which include deficiencies identified in
our earlier audit, are as follows:
ƒ

Finding 1: PCI did not maximize inmate employment,
could not show that it improved post-release job
opportunities, gave coveted job spots to inmates who
would never be released, did not aid reentry for inmates
who were released, and could not show if it reduced
recidivism. Overall, it did not live up to its stated mission
or its strategic plans.

ƒ

Finding 2: PCI went beyond self-sufficiency by netting
nearly $19 million in profits during our audit period alone
and stockpiling nearly $32 million in cash and
investments overall. It didn’t use those funds to make
many improvements, and it didn’t pursue legislation to
return the surplus money to the state treasury.

ƒ

Finding 3: PCI charged higher prices for its products
than prison businesses charged for similar products in
other states. In addition, PCI appeared to price some of
its products well in excess of its actual costs. This
noncompetitive pricing cost taxpayers money, made it
difficult to evaluate the real costs of the program, and ran
counter to PCI’s mission.

ƒ

Finding 4: PCI used its excessive profits and high
prices to keep 14 unprofitable businesses operating,
even when those businesses lost more than $7.7
million over the audit period and PCI’s overall profits
kept declining. If PCI continues to operate in this way,
it will jeopardize its continued profitability.

ƒ

Finding 5: PCI misrepresented the true financial
performance of its operations when it improperly

Page iv

Performance Audit of
Pennsylvania Correctional Industries

Results in Brief
September 2005
Pennsylvania Department of the Auditor General

accounted for more than $2 million in rebates it gave to
its own Department of Corrections to reduce the
department’s budget shortfall. No other customers were
offered these insider rebates, and those customers
therefore had to spend more taxpayer dollars for their
purchases.
ƒ

Finding 6: PCI did not aggressively market its goods
and services, nor did it make sound new product
decisions. Based on the fact that most PCI customers we
surveyed expressed satisfaction with the quality of
purchased products and services, PCI’s lack of aggressive
marketing most likely resulted in significant lost sales
and inmate work opportunities.

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Finding 7: PCI did not use updated standards to
measure productivity or to control the quality of its
products and its business operations.

In addition to the findings, we made the following
observation:
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Observation: PCI’s ability to expand its share of the
market is limited by law.

This report was discussed with management officials of the
Department of Corrections, and their full response appears in
Appendix C. In addition, following each finding throughout
the audit report, we have also summarized the Department of
Corrections’ response and included our comments.

Performance Audit of
Pennsylvania Correctional Industries
September 2005

Page 1
Introduction and
Background

Pennsylvania Department of the Auditor General

Introduction
and
Background

According to information available in July 2005 on the state
Department of Corrections’ Web site, Pennsylvania
Correctional Industries, or PCI, employs 1,640 inmate
workers at 18 state prison locations. These workers are paid
between 19 cents and 42 cents an hour, plus bonuses of up to
70 cents an hour more, to produce products and provide
services for purchase by state agencies, schools and
universities, local governments, and other non-profit taxsupported groups throughout Pennsylvania.
The business also uses a trade name, Big House Products,
based on prison vernacular.
In 2004, according to the Web site, PCI produced nearly 1.7
million license plates, 46,000 pairs of inmate work boots, and
nearly 12,000 pairs of eyeglasses. In the provision of
services, PCI canned almost 114,000 cases of fruit and
vegetables, washed 13 million pounds of laundry, and
processed 4.1 million pounds of beef, pork, turkey, and fish.
Examples of other products and services offered for purchase
by PCI include uniforms, cleaning products and soaps,
modular office systems, metal and wood furniture, file
cabinets, office seating, mattresses, towels and linens, picnic
tables and park benches, storage facilities, vehicle
restoration, furniture reupholstering and refinishing, printing,
and mail distribution.
To be employed by PCI, inmates must be of good conduct
and be able to read at least at an eighth grade level. Up to 30
percent of inmate wages are used for victim restitution, child
support, court costs, and fines, notes the Web site, which says
that inmate wages for 2003-04 were $1.93 million.
The Web site also contains the following quote:
No tax dollars are used to support
Correctional Industries. PCI manufactures
products of high quality and sells them at a
competitive price, thereby helping many
state and local government agencies save

Page 2
Introduction and
Background

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

taxpayer dollars. Profits are used to
modernize shop facilities and expand work
opportunities for inmates.3
Our audit report will dispute the preceding assertions by
showing that tax dollars were used in one way or another to
support Correctional Industries, products were not sold at
competitive prices in many cases we sampled, tax dollars
were not saved when PCI charged prices higher than
necessary, and profits were stockpiled rather than used.
These problems occurred during our audit period of July 1,
2000, through February 18, 2005.
Please note that we found similar problems during a previous
audit of PCI for the fiscal year ended June 30, 1995. At that
time, our findings were as follows:
We also found
serious problems
when we audited
PCI nearly 10
years ago. Some
of those
problems were
never fixed and,
in fact, formed
the basis for the
issues we found
this time around.

3

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The program did not have a mission statement, a strategic
plan, or any other organized plan.

ƒ

The program’s organization was not conducive to
effective work activity.

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Communication often broke down or was misinterpreted
by parts of the organization.

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The program did not have a marketing concept, and the
sales force was not motivated.

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Product pricing policies were inconsistent and
disorganized, and the product list was out of date.

ƒ

Product quality was poor, and delivery was chronically
late.

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Adverse laws affected performance.

Pennsylvania Department of Corrections, Pennsylvania Correctional Industries, p. 2, March 2005,
<http://www.cor.state.pa.us/stats/lib/stats/ci.pdf>, accessed on June 20, 2005.

Performance Audit of
Pennsylvania Correctional Industries
September 2005

Page 3
Objectives and
Methodology

Pennsylvania Department of the Auditor General

Objectives
and
Methodology

We based our objectives for this audit primarily on the
findings from our previous PCI audit, which was released in
1996. Those findings are summarized on the preceding
page. By reviewing those findings and using both new and
previously collected information, we determined
preliminarily how PCI may or may not have addressed those
earlier issues. With that information, we constructed the
following three new objectives:
1. Assess the effectiveness of PCI’s planning efforts
following the previous audit. For example, did PCI
establish strategic plans and implement other efforts to
carry out its mission statement, particularly as it relates to
inmate employment and program self-sufficiency?
2. Assess how effectively PCI managed its operations. For
example, how well did PCI perform in marketing, sales,
manufacturing, and quality control?
3. Identify obstacles to fulfilling PCI’s mission statement
and to operating the program efficiently and effectively.
For example, were there impairments based on statutory
requirements or other issues?
Auditors addressed these objectives by reviewing applicable
laws, regulations, and policies; conducting interviews;
reviewing financial statements; and examining various
documents from PCI or other sources. We conducted our
work according to Government Auditing Standards as issued
by the Comptroller General of the United States.
Unless otherwise indicated, this audit covers the activities of
PCI from July 1, 2000, through June 30, 2004. We
completed most of our field work by February 18, 2005,
provided a draft report to the Department of Corrections on
August 3, 2005, and received written comments from that
department on August 23, 2005. The relevant comments are
presented in Appendix C.

Page 4
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

Findings
and
Observation

We made seven findings and one observation during our
review of PCI’s performance for the current audit period, and
we present 21 recommendations to address the issues we
identified.
Please note that we have included timeframes for the
implementation of our recommendations, and that we intend
to follow up within the next 24 months to determine the
status of the findings. In so doing, we will work
collaboratively with PCI and the Department of Corrections
to meet an important government auditing standard that
promotes government accountability:
Providing continuing attention to significant
findings and recommendations is important to
ensure that the benefits of audit work are
realized. Ultimately, the benefits of audit
work occur when officials of the audited entity
take meaningful and effective corrective
action in response to the auditors’ findings and
recommendations. Officials of the audited
entity are responsible for resolving audit
findings and recommendations directed to
them and for having a process to track their
status. If the audited entity does not have such
a process, auditors may wish to establish their
own process.4
At the time of our follow-up, we will determine a subsequent
course of action. For example, we may issue a status update
jointly with the audited entity, issue an update independently,
or conduct a new audit entirely.

4

Government Auditing Standards § 7.30 (2003).

Performance Audit of
Pennsylvania Correctional Industries
September 2005

Page 5
Findings and
Observation

Pennsylvania Department of the Auditor General

Finding 1

PCI did not
live up to
its stated
mission or
its strategic
plans.

PCI did not maximize inmate employment, could not
show that it improved post-release job opportunities, gave
coveted job spots to inmates who would never be released,
did not aid reentry for inmates who were released, and
could not show if it reduced recidivism. Overall, it did
not live up to its stated mission or its strategic plans.
Our earlier audit of PCI found that it had neither a strategic
plan nor a mission statement. This time around, PCI had
both, with the first strategic plan developed for 2002-03, five
years after our report was issued, and then updated for 2004
and 2005.
Regarding the mission statement, PCI has published several
variations. The ones in PCI’s strategic plans for 2004 and
2005 share the following elements:
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To reduce inmate idleness
To provide valuable vocational training and work
experience
To maximize inmate employment
To aid inmate reentry upon release into the community
To reduce recidivism after return to society
To remain self-sufficient
To produce and sell quality products and services

Through its very concept of teaching inmates to work, there
can be little question that PCI reduced inmate idleness and
provided vocational training and work experience. Also,
based on survey results that we report in Finding 6, many
PCI customers believed that PCI produced and sold quality
products and services. However, PCI was far less successful
with the other elements of its mission in the following ways:
ƒ

PCI employed fewer inmates and therefore did not
maximize inmate employment. Although the state
prison inmate population increased by nearly 3,000
during the audit period, PCI employed fewer inmates
over that same period. For example, as of December 31,
2004, PCI employed approximately 1,600 inmates of the

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Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

41,000 total, or 3.9 percent of the total state prison
population. That’s about 230 fewer inmates than PCI
employed as of December 31, 2001.
Compare that percentage to the one reported in our
previous audit as of June 30, 1995, when PCI employed
6.1 percent of the state prison population. At the time of
that audit, we expected that PCI could increase its efforts
to maximize inmate employment even more. We
recommended, for example, that PCI research product
and location profitability to determine where operations
could be added or eliminated. PCI management and
other Department of Corrections’ officials have told us
that they are working on these matters, but we found that
documentation of such planning and of the accompanying
rationale was weak.
Overall, PCI’s figures related to inmate hiring headed in
the wrong direction following our previous audit and
must still be addressed. Otherwise, PCI’s goal of
maximizing inmate employment will remain
compromised.
ƒ

PCI did not effectively aid inmate reentry into the
community.
Inmate employment with PCI is viewed positively by PCI
officials and by the inmates themselves, according to our
interviews with PCI staff who supervised employees on
the job. By all accounts, inmates selected for PCI
employment learn work habits that can aid in post-release
employment. PCI management and other Department of
Corrections’ officials echoed that sentiment, saying that
even though most inmates are employed at some wagemaking job within the state prison system, the jobs at PCI
are known for paying higher wages and bringing greater
job satisfaction.

Performance Audit of
Pennsylvania Correctional Industries
September 2005

Page 7
Findings and
Observation

Pennsylvania Department of the Auditor General

PCI could have aided successful inmate reentry by taking
the fundamental step of hiring only inmates who would
eventually be released. But it did not. For example, as of
June 30, 2003, a full third of inmates working in PCI’s
various businesses were serving life terms and would
likely never be released. When asked, PCI officials
justified this hiring practice by saying that inmates who
serve life sentences provide a stable workforce and also
function as workplace role models for new and younger
inmates. PCI management and other Department of
Corrections’ officials further pointed out that inmate
hiring decisions are handled not by PCI but by the
management at the state prisons themselves, and that PCI
and other bureaus within the Department of Corrections
would have to work together to change the balance in
hiring. Those same officials indicated a willingness to
work toward such a goal.
For inmates who were not serving life sentences, PCI
provided no formal job placement opportunities. Nor did
PCI monitor inmates’ post-release employment. Some of
the inmates’ supervisors and other PCI staff told us they
informally tried to help inmates find employment
prior to their release, but there was no documentation of
such efforts. Moreover, PCI staff members also said they
are prohibited from having post-release contact with
inmates.
Finally, although any job training and vocational
experience clearly have value, many of PCI’s job
opportunities did not appear to be optimally matched with
those available in private industry. For example, 55
percent of PCI’s jobs during our audit period were in
clothing shops, but post-release opportunities in clothing
manufacturing appear to be limited because relatively few
such manufacturers operate within the United States.
Again, PCI and other Department of Corrections’
officials told us they were working toward improving

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Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

post-release job opportunities, including developing
initiatives with the Bureau of Correction Education in the
Department of Corrections, but precise details and results
have yet to be documented.
ƒ

PCI could not show that it reduced recidivism.
In its 2004 strategic plan, PCI acknowledged that, while it
believed inmate-learned work skills assist in reducing a
return to prison, there were few studies to directly reflect
that belief. Accordingly, PCI noted it would “examine
several activities that will address how the PCI work
experience affects recidivism.”
In its 2005 strategic plan, PCI again addressed a
reduction in recidivism and its belief that the PCI work
experience makes reentry to society more successful. To
this end, PCI noted that it was “engaged in an exploratory
research effort with the Criminal Justice department at
the Indiana University of Pennsylvania to assess how best
to quantify these observations.” PCI provided no further
information to us by the end of our field work.

ƒ

PCI went beyond self-sufficiency, and it charged too
much for its products and services.
These issues are addressed separately in Findings 2, 3,
and 4.

PCI appeared to recognize some of the preceding problems,
as evidenced by their mention in the 2004 and 2005 strategic
plans. Time will tell if PCI’s planning efforts will resolve the
problems. Unfortunately, however, we found that none of
the three plans—2002-03, 2004, or 2005—include adequate
information to show how PCI conducted its planning efforts
and on what its plans were based. We were disappointed by
the results of our assessment, especially because now, in

Performance Audit of
Pennsylvania Correctional Industries
September 2005

Page 9
Findings and
Observation

Pennsylvania Department of the Auditor General

2005 when this audit report is issued, more than eight years
have passed since we first reported PCI’s deficiencies in
strategic planning.
The exploratory research about recidivism, mentioned above,
appears to be a good start in PCI’s latest planning efforts,
but—as before—more information is needed.
Another worthy planning effort is PCI’s goal to increase
inmate employment, but there are problems with this effort as
well. For example, in the 2004 plan, PCI said a realistic goal
was to employ 10 percent of the state inmate population
within 5-7 years of adopting a federally approved program
that—in brief—permits partnership with private industries.
In the 2005 plan, PCI said much the same thing, but it offered
only a few more generalized details.5 Again, time will tell if
this effort materializes.
In the meantime, PCI’s 2004 and 2005 plans both established
a specific goal to employ 5 percent of the state inmate
population. But the establishment of that percentage was not
based on any particular research or reasoned thought,
according to PCI officials we interviewed, and instead was
arbitrarily chosen.6 Moreover, the timeframe appeared to
change arbitrarily, too: the 2004 plan said that the 5 percent
goal was achievable by 2007; the 2005 plan—without
explanation—said the goal was achievable by 2008.

5

The PCI 2004 strategic plan, page 6, names the Prison Industry Enhancement Certification Program, or
PIECP, and notes that it requires approvals by the Pennsylvania General Assembly before PCI can apply to
the federal government to participate. PCI said that its effort to obtain the certification would continue
through the year. Subsequently, in the 2005 strategic plan, pages 4 and 5, PCI reaffirmed that its efforts
would continue, including discussing the initiative at various top levels of government, drafting legislation,
and establishing a PIECP advisory committee.
6
Our concern is that PCI management did not follow any apparent process to establish the 5 percent goal,
not that the goal itself is necessarily faulty (although it does appear low in light of PCI’s mission). Based
on our review of publicly available data from a random sample of other states regarding the percentage of
inmate populations employed in state correctional industries programs, PCI’s goal of 5 percent may be
reasonable. For example, Virginia had approximately 3 percent of its state inmate population employed in
its correctional industries program; Oklahoma and Illinois, 4 percent; Arizona, 5 percent; Ohio, 9 percent;
Kansas, 10 percent; and Utah—with a very small state inmate population of about 4,000—19 percent.

Page 10
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

While they were obviously well-intentioned responses to the
previous audit, PCI’s strategic plans overall suffered from the
same apparent weaknesses reported in our first audit. In
addition to observing this problem directly through our
interviews, we came to this conclusion by comparing PCI’s
planning efforts to best-practice planning activities.7 In
summary, PCI’s planning efforts fell short in six ways:
1. Not included in the original 2002-03 plan was a
mission, although this deficiency was addressed in
the 2004 and 2005 updates.
2. The original plan developed for 2002-03 included
objectives only in part. Again, however, this
deficiency was addressed in the 2004 and 2005 plans.
3. Not included in any of the three plans was an
“environmental scan”—that is, detailed analyses of
PCI’s strengths, weaknesses, opportunities, and
threats; its suppliers, customers, substitute products,
and industry rivalries; and its applicable political,
economic, social, and technological issues. The
latter issues—political, economic, social, and
technological—were addressed at least in part in the
2004 and 2005 plans.
4. Not included in any of the three plans were strategy
formulations—that is, precisely how PCI should
match its strengths to opportunities, how it should
address its weaknesses and threats, and how it should
establish a competitive advantage.
5. For all three plans, included only in part was strategy
implementation—that is, programs, budgets, and
procedures.
6. Finally, not included in any of the years’ plans were
methods of evaluation and control—that is, how the
7

Steps in a Strategic Planning Process, no date, <http://www.des.calstate.edu/processmodel.html> ,
accessed on September 3, 2004.

Performance Audit of
Pennsylvania Correctional Industries
September 2005

Page 11
Findings and
Observation

Pennsylvania Department of the Auditor General

plans would be evaluated and what parameters should
be measured.
Recommendations8

8

ƒ

PCI should follow recommended best practices for
strategic planning as outlined in this finding. Target
date: Implement with the 2006 strategic plan.

ƒ

PCI should hire inmates according to a percentage
goal that is determined by a thoughtful, reasoned, and
documented process based on the mission of the
program, and in coordination with other bureaus
within the Department of Corrections. Target date:
Begin coordinating immediately with other bureaus;
improve percentages by June 30, 2006.

ƒ

PCI, in coordination with other bureaus within the
Department of Corrections, should establish, apply,
and document inmate selection criteria to ensure that
inmates with shorter-term release dates are given
hiring priority, in accordance with its mission to aid
inmate re-entry to the community. Target date:
Begin coordinating immediately with other bureaus;
improve percentages by June 30, 2006.

ƒ

PCI, in coordination with other bureaus within the
Department of Corrections, should develop a means
to provide and document job placement assistance
and post-release employment monitoring for PCI
inmate participants so that the outcome of PCI’s
program—including recidivism—can be measured.
Target date: Begin coordinating immediately with
other bureaus; report outcomes by June 30, 2006.

ƒ

PCI should use labor market studies to identify the
industries, jobs, and job skills that are in demand and

For any recommendations in this report requiring coordination with other bureaus and/or officials within
the Department of Corrections, PCI should take responsibility and maintain accountability for the lead role.

Page 12
Findings and
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Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

then factor this information into developing industries
and jobs that are responsive to this demand. Target date:
Show significant improvements by June 30, 2007.

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this finding. In summary, the response
makes several points: PCI has a limited ability to
participate in reentry efforts and, instead, complements
treatment and education programs run by other
Corrections’ offices; PCI over the past two years has
partnered with the Department of Corrections’ Bureau of
Corrections Education to improve reentry programs by
providing inmates with education, vocational experience,
and work experience; PCI has a limited ability to conduct
meaningful research on the effect of inmate work
experience on recidivism; PCI has a lower inmate
employment rate mainly because inmate jobs were lost
because of (1) the closure of PCI-run farms and (2) the
Pennsylvania Department of General Services’
procurement initiative, known as Strategic Sourcing; and
PCI employs “lifers” to reduce inmate idleness, to reduce
inmate misconduct, and to maintain a certain amount of
consistency in the workforce.
The Department of the Auditor General, while in
agreement with the points made by the Department of
Corrections, nevertheless maintains that PCI can do
better in all the areas discussed in this finding. Again,
PCI should take the lead to improve reentry efforts while
working with other Corrections’ offices and should
provide detailed documentation on how it and those other
offices will do so. Moreover, although PCI itself may be
limited in its ability to conduct research about work

Performance Audit of
Pennsylvania Correctional Industries
September 2005

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Findings and
Observation

Pennsylvania Department of the Auditor General

experience and recidivism, PCI/Corrections surely can
maintain records that show how many former inmates are
or are not returned to the state prison system.
We also understand the stated reasons for PCI’s lowered
inmate employment but, as we recommended in our
previous report and once again in this one, PCI must
work harder and show greater initiative to improve the
employment numbers. The Department of Corrections’
response does not address the implementation of a
process for setting a percentage goal for inmate hiring.
Regarding the hiring of “lifers,” the Department of
Corrections’ response is plausible and well-reasoned, but
PCI should adjust its public documents accordingly to
reflect its hiring philosophy and mission more accurately.
Finally, although much of this finding focuses in
improving PCI’s strategic planning efforts through the
adoption of best practice planning activities, the
Department of Corrections’ response is entirely silent
with regard to this major issue.

Page 14
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

Finding 2

PCI went beyond self-sufficiency by netting nearly $19
million in profits during our audit period alone and
stockpiling nearly $32 million in cash and investments
overall. It didn’t use those funds to make many
improvements, and it didn’t pursue legislation to return
the surplus money to the state treasury.

PCI should have
used its
stockpiled
monies to
improve its
program. If it
could not do so,
then it should
have sought a
legislative
mandate to
return the
excess $32
million to
Pennsylvania’s
treasury so the
money could be
used for other
government
programs.

One of PCI’s stated missions is to remain self-sufficient.
However, PCI went beyond self-sufficiency by stockpiling
excess unused funds both during and prior to our audit
period. Specifically, for the four fiscal years that ended on
June 30, 2004, PCI amassed $18.9 million in net profits,
bringing to $31.9 million a surplus it stockpiled primarily
since our last audit period ending June 30, 1995.

9

To put that $31.9 million in perspective, consider the fact that
it would have been more than enough to cover the entire
increase in the Department of Corrections’ general fund
budget request for the year 2005-06. Also consider that New
York state’s prison industry program had goals to break even
each year, and that any revenues in excess of costs were
returned to its state treasury.
In the case of PCI, it is prohibited from returning its profits to
the state treasury.9 Instead, the applicable statute mandates
that excess funds be used for program improvements, inmate
expenses, and inmate rehabilitation. However, the fact that
PCI accumulated nearly $32 million indicates clearly that it
had no pressing plans to make such improvements.
Furthermore, there is no indication that PCI attempted to
bring about a change in the statute so that the excess funds
could be returned to the state treasury.

The Commonwealth maintains a fund called the “Manufacturing Fund”—separate from the General
Fund—out of which PCI’s expenses are paid and into which its sales receipts are placed. The
Manufacturing Fund is a restricted fund that contains monies available to spend for specified purposes only
and may not be credited to the Commonwealth’s General Fund. As a note of historical interest, the
Manufacturing Fund in its original version was referenced in a 1915 statute, which was later repealed,
mandating an initial special appropriation of $75,000.

Performance Audit of
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Findings and
Observation

September 2005

Pennsylvania Department of the Auditor General

PCI's Buildup of Cash and Investments
40

35

Dollars in Millions

30

Cash and Investments
25

20

15

10

5

0
1996

1997

1998

1999

2000

2001

2002

2003

2004

Years

Rather than using its surplus for program improvements or seeking a
way to return the excess monies to the state treasury, Pennsylvania
Correctional Industries built up $31.9 million over nine years. The
buildup was generated in part by high prices that PCI charged to
state agencies, including the Department of Corrections, who used
tax dollars to pay for their purchases.

Page 16
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

How PCI could stockpile such a huge amount becomes
evident in the next finding, Finding 3. Specifically, PCI
priced some of its products higher than necessary, a pricing
policy that meant government agencies paid more taxpayer
dollars than they should have paid to buy PCI products.
Because taxpayer monies support entities that purchase PCI
products, these “overpayments” meant that, in effect,
taxpayers gave PCI a subsidy to operate. Furthermore, as we
discuss in Finding 4, taxpayers in this same way also gave
PCI a subsidy to rescue unprofitable product lines.
Causing further concern is this: At the same time PCI was
stockpiling profits, its sales were declining significantly. We
discuss this downward trend further in Finding 4 and point
out that, if such a trend continues over the coming years,
PCI’s continued operation would be jeopardized. However,
the relevancy to this present finding (Finding 2) is in the
following unanswered questions: Will PCI attempt to use its
millions in stockpiled funds to stay in operation if the decline
in sales and profits continues? Why wouldn’t PCI have used
its stockpiled funds to improve its dismal sales and marketing
efforts, to expand its markets where possible, and to focus on
better and more profitable product development?

Recommendations
ƒ

PCI—with oversight by the governor and the General
Assembly—should use its accumulated monies to
improve its program. Alternatively, if PCI lacks the
expertise to plan and carry out such improvements
effectively, it should seek a statutory change so that it can
return the unused funds to the state treasury. Target date:
Make determination by June 30, 2006.

ƒ

Going forward, PCI should be self-sufficient on a breakeven basis after paying for operational expenses and
justifiable capital needs. Target date: Move into a
break-even basis by June 30, 2007.

Performance Audit of
Pennsylvania Correctional Industries
September 2005

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Findings and
Observation

Pennsylvania Department of the Auditor General

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the Department of Corrections’ full
response to this finding. In summary, the Department of
Corrections believes that we have oversimplified the matter
by characterizing PCI’s nearly $32 million as a “surplus” or
“stockpile.” In the response, the Department of Corrections
says that PCI told our audit team how the money would be
used and goes on to list examples of seven expenditures—
totaling $22 million—that PCI has made or says it is
planning to make to modernize or add new businesses. The
Department of Corrections also lists other considerations—
including covering contractual and other obligations—in
determining how it might accumulate cash and investments,
states that the cash and investments available for other
purposes is lower than we have reported, says that it would
be “unwise” to operate on a break-even basis because
“profits are necessary for the long-term growth and financial
health of the business,” and says that its “profits on
operations as a whole are not excessive” with profit margins
that have averaged 11.54 percent, which the response says
represents a decrease of 5.03 percent a year since 2001.
Finally, the Department of Corrections takes exception to our
comparison of prices on specific products, saying that “it is
impossible to determine the actual difference between the
selling price and the actual cost” and that a better measure
would be PCI’s overall profits on all product lines as a
whole.
While it is true that PCI did list future expansion projects in
the strategic plans that we reviewed, the stated time periods
for those expansion projects passed by with no expansion and
no use of the surplus funds. Therefore, without evidence that
PCI conducted a thorough assessment of the potential
customer base and the costs necessary to make and sell the
latest products that the Department of Corrections lists in its
response, we do not have a level of comfort that the
expansion plans would fare any better than those on the
earlier lists.

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Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

The portion of the response stating “profits are necessary for
the long-term growth and financial health of the business”
ignores the fact that PCI continued to amass additional net
profits each fiscal year (including profits through June 30,
2005), thereby already ensuring that it could cover its
necessary expenses for long-term growth and health. More
important, however, is that the response does not address the
point that some of the accumulated funds not used within a
certain period of time—or a certain percentage of those
funds—could have been transferred to the Commonwealth’s
General Fund (had Corrections pursued appropriate
legislation) to be used for more pressing needs of the
Commonwealth without in any way undermining PCI’s
financial stability or program feasibility.
The analysis of sales versus profits in the Department of
Corrections’ response lends additional support to the need
for PCI to implement real expansion projects and replace
existing industries that are not profitable, as we explain more
fully in Finding 4 of this report. As noted, industries that
operated under a monopoly arrangement accounted for most
of PCI’s profits and, at the same time, operated at profit
margins well in excess of the 11.54 percent average that the
Department of Corrections uses in its response.
With respect to the need to cover additional contractual and
other obligations, the annual financial statements of the
Commonwealth show that additional assets in the form of
receivables from other state government agencies more than
exceeded PCI’s accounts payable. In addition, for the fiscal
year ended June 30, 2004, the final year of our audit period,
current assets exceeded liabilities by 437 percent. Clearly,
PCI’s working capital position is strong.
Finally, our recommendation that PCI should operate on a
break-even basis states that the break-even basis should be
achieved after PCI pays “for operational expenses and
justifiable capital needs.” (PCI’s operating expenses for the
fiscal year ended June 30, 2004, totaled $32.1 million.) We

Performance Audit of
Pennsylvania Correctional Industries
September 2005

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Findings and
Observation

Pennsylvania Department of the Auditor General

further recognize, as discussed in Finding 3, that break-even
pricing includes a reasonable mark-up to cover the costs of
program improvements, which naturally include real
expansion efforts.

Page 20
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

Finding 3

If PCI had charged
the average price
charged by other
states’ prison
businesses we
reviewed,
Pennsylvania could
have saved
$825,000 in
taxpayer dollars
over an 18-month
period for certain
products bought by
state prisons and
other state agencies.
Moreover, because
those savings are
based on just a
sample of PCI
products, the
savings on all
products would
likely have been
much higher.
In short, PCI earned
its profits at
taxpayers’ expense.

PCI charged higher prices for its products than prison
businesses charged for similar products in other states. In
addition, PCI appeared to price some of its products well in
excess of its actual costs. This noncompetitive pricing cost
taxpayers money, made it difficult to evaluate the real costs
of the program, and ran counter to PCI’s mission.
In our previous audit, we reported that PCI’s management
failed to set prices that accurately reflected the actual costs.
This time around, we found nearly the same thing: First, PCI
charged higher prices than other prison industries’ prices and
also higher than private suppliers’ prices. Second, as we
discuss further in the next finding, PCI appeared to price
some its products well in excess of actual costs.
Higher than other prison industries’ prices. By comparing
PCI’s prices for 18 products to the prices charged by prison
industries in Georgia, Missouri, New York, South Carolina,
Texas, and Virginia, auditors developed the table on the
following page. For every similar item, PCI charged higher
prices than all or most of the other six states:
ƒ

For 14 of the 18 products, PCI charged the highest price
among the other states that offered a similar product.

ƒ

For 3 of the 18 products, PCI charged the second-highest price.

ƒ

For the remaining product we reviewed, PCI charged the
third-highest price.

Higher than private suppliers’ prices. By comparing
prices for 27 PCI products with prices charged for similar
items by a large private supplier of correctional products, we
found that the private supplier had lower prices for 23 of the
27 items. In some cases, the PCI prices for items such as flat
sheets, shaving cream, and T-shirts were more than twice as
high as the private supplier’s price. The most significant
difference was for towels: PCI’s price for towels was four
times higher than that of the private vendor.

Performance Audit of
Pennsylvania Correctional Industries

Page 21
Findings and
Observation

September 2005

Pennsylvania Department of the Auditor General

High Prices:
Comparisons
for 18
Products Sold
by PCI

PCI’s price

Average price of
similar product
from prison
industries in
various other
States**

Percent (+ or -)
difference
between PCI’s
price and that of
the state that
charged the price
closest to PCI’s
for this product

Percent (+ or -)
difference
between PCI’s
price and that of
the state that
charged the
lowest price for
this product

Single dormitory bed

$ 997.18

$ 182.20

+ 76.3%

+ 87.9%

Dormitory dresser

$ 549.01

$ 351.70

+ 20.8%

+ 64.5%

Student dormitory desk

$ 516.00

$ 309.00

+ 13.8%

+ 66.1%

Leather boots

$ 28.00

$ 22.00

- 2.7%

+ 42.0%

Bed pillow

$ 9.98

$ 7.37

+ 14.8%

+ 34.1%

Bed sheet

$ 9.25

$ 4.53

+ 43.2%

+ 65.4%

Towel

$ 4.75

$ 2.10

+ 51.6%

+ 60.0%

T-shirt

$ 3.80

$ 2.63

+ 25.5%

+ 34.2%

Pillowcase

$ 2.75

$ 1.59

+ 9.1%

+ 66.9%

Men’s boxer shorts

$ 2.75

$ 2.22

+ 7.3%

+ 38.2%

Tube socks

$ 1.25

$ 1.00

+40.0%

n/a

Dishwashing detergent*

$ 1.08

$ .79

+12.0%

+47.2%

Washcloth

$ .90

$ .55

+33.3%

+44.4%

Shampoo*

$ .20

$ .12

- 5.0%

+ 80.0%

Bar soap*

$ .193

$ .08

+ 35.2%

+ 73.1%

All-purpose cleaner*

$ .045

$ .026

+ 24.4%

+ 60.0%

Hand soap*

$ .039

$ .042

- 58.7%

+ 27.5%

Glass/mirror cleaner*

$ .023

$ .022

- 21.7%

+43.5%

* For these items, auditors computed a unit price based on ounces or pounds.
** States were selected based on comparable inmate populations, similar products, and data availability.

Page 22
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

PCI’s pricing strategy may have generated profits for PCI
itself, but it resulted in adverse effects for others:
1. State prisons were adversely affected because they
purchased items at a premium. They had no choice to go
elsewhere because the Department of Corrections directs
its prisons to purchase items from PCI. Approximately
70 percent of PCI’s annual sales were made to state
prisons.
2. Taxpayers were adversely affected because they pay to
operate state prisons and other state or local agencies that
buy PCI products. For example, for the 18-month period
from January 2003 through June 2004, the Department of
Corrections and other agencies paid more than $2.2
million for just the 18 products we sampled. If PCI had
charged just the average price set by the states we
reviewed, the Department of Corrections and others
would have saved $825,000—equivalent to nearly a 40percent markdown!
3. Legislators, other government agencies, and
policymakers were adversely affected because the true
costs of inmate employment programs were, in effect,
hidden in the expenditures of other state agencies and
therefore unavailable for real review and debate.
4. PCI’s credibility was adversely affected because it was
not truly self-sufficient as it reported but instead was
subsidized largely by the excessive prices it charged the
Department of Corrections for goods and services used in
state prisons, and by the excessive prices it charged other
state agencies that also used tax dollars to make their
purchases.
PCI reports its financial operations in a special internal
Commonwealth fund (described in Footnote 6), which is used
only for PCI and which is separate from the
Commonwealth’s General Fund. Under generally accepted

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Pennsylvania Correctional Industries
September 2005

Page 23
Findings and
Observation

Pennsylvania Department of the Auditor General

accounting principles, an internal service fund should provide
a service or product to governmental units and non-profit
entities at a reasonable cost. Accordingly, while PCI should
establish prices to recover all direct and indirect costs
associated with manufacturing its products and providing its
services, the prices should not be excessive.

Recommendations
ƒ

PCI should price its goods and services according to
actual costs and should add a reasonable mark-up only if
the resulting profits will be used for program
improvements. Target date: Restructure pricing
immediately.

ƒ

PCI should develop, maintain, and routinely update a
database to track the prices of similar products made by
prison industries in other states, as well as by private
businesses. PCI should use this database to review and
compare its own prices. Target date: Establish database
by June 30, 2006.

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this finding. In summary, the Department of
Corrections states that PCI’s prices “have become much
more competitive over the past several years,” that “PCI has
won a significant number of competitive bids based on their
pricing and quality,” and that PCI “recently reduced pricing
on a number of prison-related items that saved [the
Department of Corrections] approximately $1.5M last fiscal
year.” The response also notes that PCI’s products are
“generally higher quality and longer lasting, which may also
make them somewhat more expensive than discount
suppliers.”

Page 24
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

The response does not address either of our two
recommendations. Although it does address the quality of
PCI’s products (“generally higher quality and longer
lasting”) when compared to those offered by some discount
suppliers, the response does not address the quality of
products made by state prison industries run by states other
than Pennsylvania. We acknowledge that quality is of the
utmost importance. Indeed, during our audit work, we
attempted to compare like products in terms of quality,
quantity, size, material, and workmanship. Even so, PCI’s
prices were almost always at the top.
As noted throughout the report, the operational expenses and
receipts of PCI are reported in the Commonwealth’s
Manufacturing Fund, an internal service fund. An internal
service fund accounts for the financing of goods or services
provided by one department or agency to other departments
or agencies of the Commonwealth, or to other governmental
units, on a cost-reimbursement basis. Charging prices that
are higher than actual costs and higher than market prices
runs counter to cost-reimbursement accounting and,
moreover, runs counter to PCI’s mission.
In its response, the Department of Correction does not
address the direct impact on other state agencies and the
indirect impact on taxpayers—who fund the operations of
those state agencies—when PCI charges prices well in excess
of costs. For example, the profit margins for the products
manufactured by the state prison businesses at Graterford,
Huntingdon, and Smithfield ranged from a low of 17.2
percent to a high of 41.3 percent—and these were products
sold via the monopolistic arrangement with the Department
of Corrections’ own prisons. Clearly, the Department of
Corrections, and by extension the taxpayers, paid excessive
prices for those products.

Performance Audit of
Pennsylvania Correctional Industries

Page 25
Findings and
Observation

September 2005

Pennsylvania Department of the Auditor General

PCI used its excessive profits and high prices to keep 14
unprofitable businesses operating, even when those
businesses lost more than $7.7 million over the audit
period and PCI’s overall profits kept declining. If PCI
continues to operate in this way, it will jeopardize its
continued profitability.

Finding 4

Nine
profitable
businesses of
PCI subsidized
the operation
of its 14
businesses that
lost more than
$7.7 million
over the audit
period.

During the four fiscal years ended June 30, 2004, PCI
operated 9 businesses/industries at a profit (i.e., sales in
excess of costs) and 14 businesses/industries at a loss. Profits
from the 9 businesses subsidized the 14 businesses that were
unprofitable. Auditors found the same problem during the
previous audit period, when profits at 5 businesses
compensated for losses at 12 others.
Even though PCI made profits overall during our audit
period, those profits declined at a steady pace—from $8.5
million in 2001 to $1.4 million in 2004.
Trend Analysis of PCI Net Income from Operations

Net Income in $

$10,000,000
$8,000,000
$6,000,000
Year

$4,000,000

Net Income

$2,000,000
$0
-$2,000,000

2001

2002

2003

2004

Fiscal Year

PCI’s continued profitability would have been seriously
compromised if not for the sale of license plates to
the Pennsylvania Department of Transportation and the sale
of various products sold to the Department of Corrections.
Sales in those areas alone—for which PCI has a monopolistic
built-in market—accounted for at least 70 percent of PCI’s
sales.
The fact that PCI made significant profits in the 9
businesses—nearly $27 million over the audit period—

Page 26
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

indicates that PCI priced its products well in excess of its
actual costs. Even more specifically, as illustrated in the
table on the next page, $13.8 million of those profits were
generated by the prison businesses in just three locations—
Huntingdon, Graterford, and Smithfield; another $8.5 million
in profits were generated by the prison business that
manufactured license plates. Accordingly, based on those
profits, it is reasonable to conclude that the actual prices
charged by PCI were well in excess of actual costs and that,
by extension, the prices paid by state agencies and others
were too high. This is an issue we introduced in the previous
finding and an issue that PCI should analyze, document, and
address going forward.
It must be noted that PCI’s decline in sales is in part
attributable to the closing of its license plate production at the
Pittsburgh state prison at the end of 2003. License plate
manufacturing was transferred to the state prison in Fayette
County, where production resumed in 2004. Therefore, the
decline in profits should reverse itself but, even so, PCI’s
management should not expect those sales to carry all of PCI.
The table that follows identifies PCI’s businesses and shows
profits or losses during the current audit period.
ƒ

Losses. The State Correctional Institution at Coal
Township in Northumberland County fared the worst
over the four years, incurring a total net loss of nearly
$1.8 million in the production of furniture and modular
systems.

Performance Audit of
Pennsylvania Correctional Industries

Page 27
Findings and
Observation

September 2005

Pennsylvania Department of the Auditor General

Pennsylvania Correctional Industries:
Summary of Net Profits/Losses from Operations
July 1, 2000, through June 30, 2004

Profitable

Not profitable

Location of
state
correctional
institution or
facility*
Coal Township
Camp Hill
Albion
Mercer
Cambridge Springs
Cresson
Houtzdale
Rockview
Frackville
Muncy
Greensburg
Greene
Fayette
Retreat
Huntingdon
Pittsburgh
Camp Hill
Graterford
Smithfield
Dallas
Mahanoy
Waymart
Somerset

Products made,
services provided,
or type of business/industry

(Net losses)
or
Net profits

Furniture, modulars
$ (1,763,546)
Freight services
(1,369,726)
Vehicle restoration services
(1,336,104)
Signs, engraving, stickers
(1,255,654)
Optical lab
(465,701)
Plastic bag production
(309,627)
Furniture
(271,778)
Cannery
(226,776)
Printing
(192,574)
Garments
(168,167)
Freight, modulars, textiles, shoes
(166,657)
Garments, toilet tissue
(120,014)
Metal products, license plates
(56,912)
Laundry
(4,965)
Total losses for 14 businesses/industries = $(7,708,201)
Garments, printing, soap, detergent
9,332,240
Metal products, license plates
8,548,044
Meat processing
3,395,220
Garments, textiles
2,891,962
Garments
1,663,680
Garments, mattresses
423,127
Precision metal, modulars
182,345
Garments, personal care kits
149,002
Laundry
68,289
Total profits for 9 businesses/industries = $26,653,909

Grand total for all 23 businesses/industries = $18,945,708
*Elsewhere in this report, we note that PCI operates businesses at 18 state prison locations.
That number represents the state prison locations operating businesses in 2005. The chart
above shows more than 18 locations because it lists additional sites that operated businesses
during our audit period.

Page 28
Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General
ƒ

Losses. Almost as bad were the state correctional
institutions at Camp Hill in Cumberland County, which
lost nearly $1.4 million in providing freight services;
Albion in Erie County, which lost more than $1.3 million
in its vehicle restoration services; and Mercer in Mercer
County, which lost more than $1.2 million in making
signs and stickers and providing engraving services.

ƒ

Profits. The State Correctional Institution at Pittsburgh
(Allegheny County) alone accounted for nearly a third of
the profits, or 32 percent, over the four-year period by
manufacturing license plates for the Pennsylvania
Department of Transportation.10

ƒ

Profits. Together, the state correctional institutions at
Huntingdon (Huntingdon County), Graterford
(Montgomery County), and Smithfield (Huntingdon
County) generated more than half of the profits, or 52
percent, over the four-year period. These three
institutions made and sold garments and other items
primarily to the Department of Corrections.

During the most recent fiscal year in the four-year period—
i.e., fiscal year ended June 30, 2004—PCI generated $3.8
million in profits for 9 businesses/industries and had
operating losses of $2.4 million for the other 14 businesses.
If PCI had a reasoned motivation and had shown benefits for
maintaining unprofitable businesses—such as providing
critical training that actually resulted in proven higher postrelease employment for inmates—the losses might have been
sufficiently justified. Indeed, PCI has noted that it is in
business to do exactly that. Unfortunately, as we discussed
earlier, PCI cannot show that it has done so. Therefore,
beyond reducing inmate idleness and providing basic work
experience, we saw no evidence that PCI had any other type
of plan or documented logic for continuing to subsidize its

10

The Pittsburgh facility has since closed (as of January 2005). The State Correctional Institution at
Fayette took over the manufacturing of the products.

Performance Audit of
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September 2005

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unprofitable businesses with the revenues from its profitable
ones.

Recommendations
ƒ

PCI should stop subsidizing unprofitable
businesses/industries with revenues from profitable ones
unless it can document valid justifications and actual
proven benefits for the unprofitable businesses. Target
date: Establish this recommended practice immediately.

ƒ

PCI should thoroughly review and analyze all its
businesses, products, and services to show which
businesses are truly self-sufficient and which should be
modified, eliminated, and/or replaced with others to strike
an effective balance in its operations. Target date:
Complete this review and analysis for inclusion in the
2006 strategic plan.

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this finding. In summary, the response
addresses the 14 unprofitable locations listed in our report
and provides information about each. Specifically, the
response states that 5 industries/businesses have been closed
or restructured, 2 have been temporarily closed but will
reopen next year as something different, 4 are now
profitable, and 3 locations, although still unprofitable,
“appear to be improving financially as a result of changes
put into place by PCI management.” The response further
states, “PCI closely monitors the financial performance of
each industry location” and notes that “[while] some
locations may be unprofitable for some years, they rarely
remain so indefinitely.”

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September 2005
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Because the response summarizes corrective actions that PCI
put into place to address the unprofitable operations that we
found during our audit period, we have no further comment
except to say that the Department of Corrections clearly
views the subsidization of unprofitable businesses—at least
“for some years”—as a necessary part of PCI’s program.

Performance Audit of
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September 2005

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Finding 5

PCI offered
one-time
rebates to its
own
Department of
Corrections
and then
accounted for
the rebates in
an irregular
way.

PCI misrepresented the true financial performance of its
operations when it improperly accounted for more than
$2 million in rebates it gave to its own Department of
Corrections to reduce the department’s budget shortfall.
No other customers were offered these insider rebates,
and those customers therefore had to spend more
taxpayer dollars for their purchases.
When the Department of Corrections was faced with a budget
shortfall during the 2002-03 fiscal year, PCI developed a
method to give state prisons—and no other customers except
state prisons—a one-time 10 percent rebate for goods and
services that the prisons had already purchased from PCI
during the year. The rebates allowed PCI to return the
equivalent of almost 40 percent of its annual earnings to its
own Department of Corrections in what was clearly an inside
deal.
PCI management and other Department of Corrections’
officials are adamant that the rebates were warranted and that
there was no intention to hide them. Still, while it appears
that PCI was not legally prohibited from making these
unprecedented rebates to its largest customer, the decision to
make them is suspect based on the following:
ƒ

Irregular accounting. Once the rebates were made, PCI
should have classified them as a reduction in sales
revenue. Instead, PCI buried the rebates within general
and administrative expenses by classifying them almost
anonymously as “Other Services and Supplies – Misc.”

ƒ

Overstated costs. This irregular method of recording the
rebates as a miscellaneous expense resulted in increased
general and administrative costs. These increased costs
were then allocated to the various other prison businesses
and resulted in overstated costs for those businesses.

ƒ

Wrongly motivated. The rebates were not part of a
strategic pricing plan. Indeed, they were not even part of
the Department of Corrections original budget but instead

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September 2005
Pennsylvania Department of the Auditor General

were included in a re-budget request. Auditors learned
during an August 2004 interview with PCI’s director that,
initially, the Department of Corrections sought to
supplement its tight budget and discussed with PCI the
idea of simply transferring some of its profits. However,
the concept of a direct transfer was apparently ruled out
on the advice of Department of Corrections’ legal staff.
ƒ

Unfair to other customers. After a direct transfer was
nixed, PCI and the Department of Corrections considered
offering a purchase discount to state prisons as a way to
save them money. That idea was abandoned in favor of
after-purchase rebates so that PCI would not have to
publish two different sets of prices and thereby alert its
other customers to the in-house deal.

PCI acknowledged to our auditors that it accounted for the
rebates incorrectly and also that it made the rebates only that
one time. And again, PCI and other Department of
Corrections’ officials insisted that the mistake was
unintentional.
Nevertheless, perhaps the most detrimental aspect of the
irregular accounting is that it hid PCI’s actual costs from
policymakers, thereby compromising their ability to evaluate
the program using true numbers. The relevancy, accuracy,
and completeness of PCI’s financial affairs are especially
important to legislators, who determine the Department of
Corrections’ funding. Without the availability and assurance
of accurate financial statements, it is impossible for
legislators to make informed decisions about the Department
of Corrections’ needs, or to have confidence that the
Department of Corrections will then make appropriate
decisions about its programs such as PCI.

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September 2005

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For the next fiscal year, 2003-04, PCI looked for another way
to help the Department of Corrections cut its costs.
However, the new solution—which was to review the actual
products purchased by the Department of Corrections and
then lower the prices—had its own set of problems:
ƒ

Preferential self-treatment. Again, PCI was looking
only at its most-favored customer—its own Department
of Corrections—rather than its external customer base.

ƒ

Bad customer relations. While it may be reasonable for
businesses to offer their biggest customers the largest
discounts, the fact that PCI was offering discounts only to
its own Department of Corrections is questionable,
particularly when its prices to other customers were so
out of line.

Recommendation
ƒ

PCI should evaluate its pricing structure and consider
ways to offer benefits to all customers, not just to its own
Department of Corrections. Target date: Evaluate
pricing structure immediately.

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this finding. In summary, PCI strongly rejects
our calling the rebate “suspect,” disagrees that PCI hid
actual costs from policymakers, and further disagrees that
irregular accounting associated with the rebate facilitated
the hiding of costs from policymakers. “The rebate was not
illegal and there is no prohibition against rewarding best
customers,” the response states. At the same time, the
response also notes the Department of Corrections’

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September 2005
Pennsylvania Department of the Auditor General

acknowledgement—after “exhaustive research on the
accounting treatment of rebates”—that our conclusion was
correct that the accounting of the rebates should have been
handled as we stated in the finding. Corrections also notes,
however, “The original accounting treatment and that
suggested by the [Department of the Auditor General] would
produce the same Manufacturing Fund net profit and would
not have changed the Cash Balances presented in the
Governor’s Executive Budget book nor in the
Commonwealth’s Comprehensive Annual Financial report.”
Finally, Corrections states, “As for [the Department of the
Auditor General’s] specific recommendation, there is no
industry standard requiring discounts be provided to ‘all’
customers.”
While it is true that PCI’s net profit as recorded in the
Commonwealth’s comprehensive annual financial report was
not impacted by the irregular accounting, net profit is only
one measurement of operations. Both sales and expenses
were overstated by more than $2 million for the fiscal year
ended June 30, 2003. Overstatements of this magnitude
impact the reliability of financial statement presentations and
may change the views of policymakers and others who rely
on those financial statements.
With regard to Corrections’ comment suggesting that we
recommended that discounts should be provided to all
customers, we did not. Rather, we recommended that PCI, in
addition to evaluating its pricing structure, “should consider
ways to offer benefits to all customers.” Such benefits could
include discounts but could also include other special
promotions to reward new or existing customers.

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September 2005

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Finding 6

PCI’s sales
declined at the
same time that
previous profits
were being
stockpiled.
Management
should have
taken far more
action to make
program
improvements—
especially in
sales and
marketing.

PCI did not aggressively market its goods and services,
nor did it make sound new product decisions. Based on
the fact that most PCI customers we surveyed expressed
satisfaction with the quality of purchased products and
services, PCI’s lack of aggressive marketing most likely
resulted in significant lost sales and inmate work
opportunities.
Although PCI continued to operate at a profit during our
audit period, we have already noted that its profits declined
steadily. PCI’s annual sales also dropped each year of the
audit period, sliding from $44.1 million in 2001 to $33.4
million in 2004. That’s nearly a 25 percent decline.
When PCI missed opportunities to develop better product
lines and more aggressively market its products and services,
it also missed out on opportunities to make more sales and to
provide greater work experience and training for its inmate
employees. In the previous audit, we found virtually these
same deficiencies.
During this current audit, we found that PCI sold to only a
fraction of the customers it can legally sell to, which include
federal, state, and local governments, including government
agencies in other states; state, municipal, and county
authorities created by Pennsylvania law; educational or
charitable institutions that receive funding from the
Commonwealth; and institutions that receive funding from
the federal government or from any other state.
Examples of PCI’s sales efforts between January 2002 and
June 2004 are illustrated by the meager numbers of actual
customers that were not state agencies:
ƒ

PCI sold to just 78 municipalities or townships out of a
potential of more than 2,500.

ƒ

PCI sold to just 35 schools, but there are 501 school
districts in Pennsylvania.

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September 2005
Pennsylvania Department of the Auditor General
ƒ

PCI sold to 18 colleges, 5 libraries, 24 fire departments,
84 non-profit organizations, 47 hospitals, 9 local police
departments, and 47 county offices.

ƒ

In total, PCI sold to fewer than 400 non-state agencies
during the period we reviewed.

Clearly, PCI could do exponentially better.
To make additional determinations about PCI’s marketing
efforts, we surveyed current PCI customers as well as
potential customers, something that PCI did not routinely
do.11
Regarding potential customers, we mailed surveys to 100
local government entities and non-profit organizations
chosen according to auditor judgment:
ƒ

Of the 60 respondents, 59 said they had never purchased
goods or services from PCI.

ƒ

36 respondents said they were unaware of PCI.

ƒ

52 respondents said they did not know that PCI had an
online catalog.

ƒ

45 respondents said they were interested in learning more
about PCI and/or accessing PCI’s online catalog.

Regarding existing PCI customers, we mailed surveys to 150
randomly selected organizations that had done business with
PCI. We received 104 responses:
ƒ

11

Of 94 respondents who rated the overall quality of
products they purchased, 83 rated the quality as excellent,
very good, or good; the remaining 11 respondents rated
the quality as fair, and none rated the products as poor.

Complete survey results appear in Appendix A to this report.

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September 2005

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ƒ

Of 48 respondents who rated the overall quality of
services they purchased, 43 rated the quality as excellent,
very good, or good. Only 5 rated the quality as fair, and
none rated the quality as poor.

ƒ

Of 98 customers who answered our question about the
frequency of contacts made by a sales representative from
PCI, 66—or about two-thirds—said they were contacted
less than once a year; 19 said they were contacted once a
year, and only 13 said they were contacted more than
once a year.

Overall, the survey results illustrate three major points about
PCI and its marketing potential:
1. Given that 45 of 60 potential customers said they would like
to hear more about PCI, clearly an untapped interest exists.
2. Given that most of PCI’s existing customers were satisfied
with the products and services they purchased, PCI can
project this image and use it to market those products and
services.
3. Given that more than half of PCI’s potential customers said
they had not heard of PCI, and that about two-thirds of PCI’s
existing customers said they had not heard from a PCI sales
representative in the course of a year, PCI has some major
weaknesses to address and some significant marketing efforts
to make.
PCI’s lack of aggressive marketing during our audit period
manifested itself in the same deficiencies that we identified in
our previous audit of PCI’s sales and marketing efforts.
Specifically, we found that PCI’s sales force suffered from
poor training, inadequate documentation of sales efforts,
ineffective communication, and poor planning. These
deficiencies—which PCI said it would address in the
previous audit and which were also identified in an
assessment by an outside organization, the Service Corps of
Retired Executives—continued to hinder PCI during the
current audit. Examples follow:

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September 2005
Pennsylvania Department of the Auditor General
ƒ

Poor training. When auditors asked PCI management
officials if they offered a training program for sales staff,
the officials noted that training was basically “on-the-job”
by way of riding with a more experienced sales
representative.

ƒ

Inefficient tracking of customer calls. PCI
management officials told auditors that sales
representatives maintained their own files rather than
keeping the files in a central location to be used for
follow-up and analysis. During interviews, we also
learned that the sales representatives did not routinely
keep itineraries or log books, did not track or account for
their time, and—most important—were not even asked to
do so.

The location and make-up of the sales representatives also
hindered their ability to aggressively market PCI:
ƒ

Sales staff not headquartered throughout the
Commonwealth. Even though PCI assigned each of its
sales representatives to be responsible for one of six
regions, the representatives were based solely out of
PCI’s central office in Harrisburg. Accordingly, the staff
was limited in its ability to make frequent and effective
contacts throughout the state. Such contacts would have
been necessary to maintain the most positive customerclient relationships.

ƒ

Vacancies on sales staff further compromised
effectiveness. At the end of our field work, one of the
sales positions was vacant, as was one of the clerical
positions. These vacancies further compounded the
deficiencies already noted.

In total, PCI had 50 positions available in its complement at
its Harrisburg headquarters to carry out management and
program operations, and 163 more positions assigned to run

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September 2005

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Pennsylvania Department of the Auditor General

the work operations at the state prisons. Surely PCI could
have carried out its operations much more effectively than it
did.
Finally, we also found that new product and production
decisions—an inherent part of any marketing effort—were
made very informally and often with little research and
documentation. We also found little evidence that PCI
explored ways to enter potential new markets while staying
within the limitations of law (these limitations are discussed
in the observation following the next finding) and while not
taking jobs away from the private sector.
One of the best illustrations to show the results of PCI’s
product and production decisions is the number of products
that PCI offered for purchase—more than 2,500—and the
fact that many of these products were not produced because
there were no orders for them.
Performance standards published by the American
Correctional Association say the following about the
development of new products and services:
There should be a distinct process in place to
develop new products and services, to
expand markets and to develop business
opportunities. Market research, as well as
compatible product analysis and pricing
studies, is essential.12
The standards go on to indicate that the product development
process should include business and marketing plans, written
policies and procedures, and research-supported
documentation. However, the process at PCI was only a
rudimentary look at (1) PCI’s ability to produce products
based on inherent restrictions in the prison environment, (2)

12

The American Correctional Association, Performance-Based Standards for Correctional Industries, 2d
ed., Graphic Communications, Maryland, 2002, Part VI, “Administration and Management,” Marketing 2CI-6A-10, p. 19.

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September 2005
Pennsylvania Department of the Auditor General

available employees and their skill levels, (3) the potential to
make a profit, and (4) the identified needs of a specific
customer.
During our discussions with PCI officials, they attributed the
marketing problems to high turnover of sales staff, which
resulted in an inexperienced staff, and also to low
compensation for sales positions and a related lack of
motivation. These problems, however, might all have been
lessened if PCI and its lead management officials had
engaged in better strategic planning, including plans for
better training and motivation as well as for new product
development.

Recommendations
ƒ

PCI should routinely conduct surveys of potential and
existing customers to determine their needs and—for
existing customers—to gauge their satisfaction, and then
should use these surveys to determine marketing efforts.
Target date: Begin the survey process immediately and
use survey results to adjust marketing efforts by June
2006.

ƒ

PCI should ensure that its sales representatives are
adequately trained and competently directed, sufficiently
staffed, based throughout the Commonwealth,
knowledgeable about PCI products, and skilled in
customer service. Target date: Begin this training
immediately for existing staff, offer it for new staff when
hired, and provide continuing training/education for all
staff.

ƒ

PCI should develop and implement detailed marketing
plans and establish appropriate policies and procedures
for the implementation of those plans. All information
should be analyzed and documented; at a minimum, the
plans should include research (e.g., competition and
trends), product development, pricing, sales history, sales

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September 2005

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initiatives, training activities, and communications
strategies. Target date: Develop and implement
marketing plans for start of fiscal year July 1, 2006.
ƒ

PCI’s management should dedicate itself to directing the
marketing and sales efforts successfully; to maintaining,
motivating, training, and evaluating the appropriate staff;
and to placing the staff geographically to serve the entire
Commonwealth. Target date: Establish recommended
practices immediately.

ƒ

PCI should take steps to expand its customer base
significantly for its existing product lines by developing
effective marketing and sales efforts that reach far more
county, local, and non-profit entities than it reaches now.
Target date: Begin implementing recommended
practices immediately.

ƒ

PCI should explore new product lines and businesses
while operating within the limitations prescribed by law
and while not taking jobs from the private sector. Target
date: Report product line expansion recommendations to
the Department of Corrections’ Deputy Secretary of
Administration for review and approval by June 30,
2006.

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this finding. In summary, the Department of
Corrections acknowledges that improvements are needed in
sales and marketing and discusses some of the challenges in
attracting and retaining a capable sales and marketing team.
Mentioned also in the response are two initiatives “that are
underway” with the Commonwealth’s Office of
Administration: (1) “a request for a pilot project that will

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September 2005
Pennsylvania Department of the Auditor General

allow for the payment of a sales incentive” and (2) “the
establishment of a Sales and Marketing Trainee and a Sales
and Marketing Supervisor Classification.”
The initiatives described, if approved, appear to hold good
potential to address the sales and marketing weaknesses.
However, the response by the Department of Corrections
does not address our recommendations for equally important
initiatives: that PCI’s customers should be routinely
surveyed and that detailed marketing plans and related
policies and procedures should be developed and
implemented.
We must reiterate the need for completing a thorough sales
and marketing analysis prior to introducing new product
lines. Although PCI’s response to Finding 2 lists planned
expenditures for new or expanded product lines, PCI
management has not supported its new product decisions
with a thorough assessment of the potential customer bases
and the costs necessary to make and sell the products at a
price competitive with the market.

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September 2005

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Finding 7

PCI has still
not updated its
written quality
control
procedures
as we
recommended
in our
previous audit.

PCI did not use updated standards to measure
productivity or to control the quality of its products and
its business operations.
In our earlier audit, we reported that PCI’s policy manual
provided for centralized quality control but that production
managers instead established programs independent of one
another. The result of this decentralized control was a lack of
uniformity and effectiveness in production. To ensure
operating efficiency, effectiveness, and consistency, we
recommended that PCI coordinate its quality control efforts
according to current operational standards and guidelines
published in a policy manual.
Our present audit found that PCI failed to update its written
policies and procedures not only for quality and product
control, but for other areas as well. In fact, we determined
that most of PCI’s operating polices were issued in 1990,
meaning that PCI conducted business for nearly 15 years
without updating those policies.
PCI said that, absent its own updated written policies, it
followed guidelines issued by the Department of Corrections
for general administrative and operational issues, and
guidelines issued by the Department of General Services for
procurement and inventory processes. For training in
machinery operation, PCI taught its inmates on the job. One
exception was PCI’s policy on safety training for inmates,
which consisted of a read-and-sign policy to ensure that
inmates were made aware of specific safety issues on each
production line.
When we requested copies of the Department of Corrections’
policies related to general administrative issues, as noted
above, PCI provided auditors with five one-paragraph
Department of Corrections policy statements—all dated June
1990 and therefore as old as PCI’s policy manual. PCI also
provided us with a fiscal administration policy from the
Department of Corrections, as well as several other policy
statements, but they were not specific to PCI.

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September 2005
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The American Correctional Association expects every entity
that it accredits to maintain and follow written policies and
procedures. While PCI is not accredited by the American
Correctional Association, having such written policies and
procedures is a best practice that PCI should attempt to
establish so the quality and delivery of its products and
services can measure up to its stated mission.

Recommendations
ƒ

PCI should develop, distribute, and follow
comprehensive written policies and operating procedures
designed to improve and control the quality of its
business and sales operations. Target date: PCI should
complete this recommendation by June 30, 2006.

ƒ

PCI should ensure that compliance with the above
policies and procedures is tracked and that they are
updated at least annually. Target date: Complete by June
30, 2007.

ƒ

PCI should pursue accreditation from the American
Correctional Association. Target date: Complete by
June 30, 2007.

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this finding. In summary, the response notes
that existing Department of Corrections’ policies cover many
of the PCI practices and operations and that other PCI
procedures are being developed. The response also states
that PCI is seeking accreditation from the American
Correctional Association in March 2006.

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Regarding the updating of procedures, such updating is
critical. This recommendation should be followed through
and not skipped as it was following the issuance of our
earlier report.

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Pennsylvania Department of the Auditor General

Observation
PCI might be
able to pursue
expansion of
its market
share. If it
pursues
expansion
opportunities,
however, it
must not
displace
private sector
jobs.

PCI’s ability to expand its share of the market is limited
by law.
Throughout this report, when we present negative findings
about PCI’s operation, it is clear that those findings were
caused primarily by deficiencies in planning, management,
and/or marketing. Those same findings, conversely, can be
resolved by effective planning, management, and marketing,
and our recommendations are made with that effect as the
goal.
There are some hindrances to PCI’s successful operation that
are not so readily resolvable, and we discussed such barriers
in our earlier audit. For example, we reported that
Commonwealth procurement procedures restricted PCI’s
purchasing abilities, but we can now report that a revised
Commonwealth procurement code (codified at 62 Pa.C.S.
§101 et seq. (2005)) has improved PCI’s purchasing
potential.
Unfortunately, there is another limitation that has not
improved, and it significantly limits PCI’s ability to increase
its market share. The significant limitation is not the result of
PCI’s management, however, and hence we report it solely as
an observation.
This limitation on expanding PCI’s market share is contained
in the 1984 state law that established the Department of
Corrections,13 granting the Department of Corrections all the
powers and duties of the former Bureau of Corrections. The
pre-existing powers and duties14 included selling prison

13

71 P.S. § 310-1 (1990).
The pre-existing powers and duties are pursuant to Act 408 of 1953, Section 915(c), P.L. 1428 (July 29,
1953). Note that this provision cannot be easily found “on the books” of Pennsylvania law. Section 915
was expressly repealed by Section 3 of Act 245 of 1984; however, all the powers and duties of the Bureau
of Corrections contained therein were transferred to the Department of Corrections by Section 4 of the
same 1984 law, which added Section 901-B to the Administrative Code of 1929. To further confuse the
matter, Section 21 of Act 425 of 1921, codified at 71 P.S. § 1481 (1990), is quite similar to Section 915 in
its limitation on the sale of PCI goods and services; although this provision was repealed in 1923, it may
appear to remain in effect. We encourage the Department of Corrections to work with the General
Assembly to draft and enact a modern law that clearly governs PCI and sets forth the authorized scope of
PCI’s sales.
14

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September 2005

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prison-produced goods that cannot be used in the correctional
institutions themselves. In other words, if for whatever
reason the prison-produced goods are not needed for use in
the correctional institution, they can be sold. However, the
applicable provision of law expressly limits such sales to the
following entities:
ƒ

government agencies at the federal, state, and
local level, including government agencies in
other states

ƒ

state, municipal, and county authorities created
pursuant to Pennsylvania law

ƒ

educational or charitable institutions receiving
funding from the Commonwealth

ƒ

institutions receiving funding from the federal
government or from any state

These limitations mean that, unlike correctional industries
operated by some other states, PCI cannot sell to the private
sector. If PCI were authorized to expand its customer base,
there might be a dramatic impact on PCI’s market share.
Several states, such as Kansas, Oregon, and Utah, allow the
private sector to establish and maintain operations inside or
in close proximity to correctional facilities, and to use inmate
labor as the employees of those businesses. The federal
Prison Industry Enhancement Certification Program, for
example, allows the private sector to establish joint ventures
with state and local correctional agencies to produce goods
using prison labor. In its 2004 and 2005 strategic plans, PCI
has listed the Prison Industry Enhancement Certification
Program as a future initiative but has provided few details, as
we note in Finding 1 of this report.
In addition to increasing market share, public-private
partnerships enable the inmates to learn “real-world” skills

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Findings and
Observation

Performance Audit of
Pennsylvania Correctional Industries
September 2005
Pennsylvania Department of the Auditor General

that improve their prospects of finding meaningful
employment following their release. The inmates also earn
higher wages, which are used to defray the costs of their
incarceration, provide restitution to their victims, and support
their families.
For example, the Oregon Department of Corrections has a
successful joint venture with a private corporation to produce
a trademarked line of clothing that is sold throughout the
United States, Europe, and Japan. However, before
embarking on this endeavor, Oregon conducted a study that
determined manufacturers in that state would not be harmed
by a prison garment industry.
Similarly, the Pennsylvania Department of Corrections
should ensure that any expansion of the PCI program would
not result in the displacement of private sector jobs. An
example of such displacement was reported by the Pittsburgh
Tribune-Review in May 2005, whereby a flag manufacturer
in New Jersey said he could not compete with prison
factories in New Jersey and Pennsylvania that also made
flags, including those for veterans’ graves.15

Summary of Department of Corrections’ response
and
Comments by Department of the Auditor General
See Appendix C for the full response of the Department of
Corrections to this observation. In summary, Corrections
states, “We believe it is extremely unlikely that the
Legislature will authorize sales to the public or to private
enterprises in PCI’s present form as a traditional prison
industry.” The response also addresses the federal Prison
Industry Enhancement Certification Program that we discuss
in the observation.
15

Rich Cholodofsky, “Prison industry thriving,” Pittsburgh Tribune-Review, May 1, 2005,
<http://www.pittsburghlive.com/x/tribune-review/trib/regional/print_329746.html>, accessed on June 20,
2005.

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September 2005

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Findings and
Observation

Pennsylvania Department of the Auditor General

The Department of Corrections’ response fails to
acknowledge, however, the severely outdated condition of
PCI’s governing statutory provisions. Corrections also fails
to consider the possibility that our General Assembly, like the
legislatures of some other states, may be willing to consider
expanding PCI’s current customer base to include joint
public-private ventures if the proposal would be presented
with adequate evidence of the potential benefits of such an
initiative and with well-documented assurances that
Pennsylvania businesses and jobs would not be adversely
affected.

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Performance Audit of
Pennsylvania Correctional Industries

Appendices
September 2005
Pennsylvania Department of the Auditor General

Appendices

Appendix A: Summary of Survey Responses by PCI
Customers
Appendix B: Summary of Survey Responses by Potential
PCI Customers
Appendix C: Response from PCI/Department of Corrections
Appendix D: Audit Report Distribution List

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Appendix A

September 2005
Pennsylvania Department of the Auditor General

Appendix A
Summary of Survey Responses From PCI Customers
Auditors surveyed 150 current or former customers of PCI and received 104 responses,
for a response rate of 69 percent. The numbers following each question are the numbers
of responses, not percentages. NR = no response.
1. How frequently do you purchase PCI products?
Less than once a year:
Once a year:
More than once a year
NR:

33
21
42
8

2. How would you rate the overall quality of the products purchased?
Excellent: 20 Very Good: 32 Good: 31 Fair: 11

Poor: 0 NR: 10

3. How would you rate the overall quality of the services purchased?
Excellent: 8

Very Good: 18 Good: 17 Fair: 5

Poor: 0 NR: 56

4. Have goods and services been delivered in a timely manner?
Always: 25 Usually: 48 Sometimes: 13

Seldom: 6 Never: 1 NR: 11

5. Have you had to return any products purchased from PCI?
Yes: 18

No: 80

NR: 6

6. If you responded “yes,” how would you rate PCI’s handling of your return?
Excellent: 4 Very Good: 3 Good: 6

Fair: 5 Poor: 1 NR: 86

7. How would you compare prices of PCI products or services to other suppliers?
Excellent: 9 Very Good: 25 Good: 32 Fair: 18 Poor: 9 NR: 11

8. Overall, how would you rate PCI sales people in their contacts with you?
Excellent: 11 Very Good: 37 Good: 29 Fair: 10

Poor: 4 NR: 13

9. How frequently are you contacted by a PCI sales representative?
Less than once a year:
Once a year:
More than once a year:
NR:

66
19
13
6

10. Are you aware of PCI’s on-line catalog Web site, www.bighouse.state.pa.us/catalog?
Yes: 48

No: 34

NR: 2

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Performance Audit of
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Appendix A
September 2005
Pennsylvania Department of the Auditor General
(Summary of Survey Responses From PCI Customers, continued)
11. If you answered yes to question no. 11, have you used PCI’s Web site to purchase
products and/or services?
Less than once a year:
Once a year:
More than once a year:
NR:

35
13
21
35

12. Overall, how would you rate PCI’s efforts to serve and satisfy your needs?
Excellent: 10 Very Good: 32 Good: 35 Fair: 18

Poor: 3 NR: 6

13. Are there any areas in which you believe PCI could improve the quality of its
products or services?
Yes: 38

No: 17

Unclear: 19

NR: 30

14. Are there any products or services you would like PCI to offer that it does not
currently offer?
Yes: 9

No: 35

Unclear: 23

NR: 47

15. Have you purchased the following from PCI during the past three years?
a) Products
b) Services

Yes: 90
Yes: 27

No: 10
No: 48

NR: 4
NR: 29

16. Additional comments (summarized below by auditors):
“Faster service – sometimes takes a month to get basic needs.”
One respondent indicated that the PCI “representative stated delivery time of 4 to 6 weeks.
Product not delivered until 3 months after purchase date. Numerous phone calls to PCI . . . during
the period were either unanswered or clarification of shipment date went unanswered.”
“Clothing needs improved severely.”
“Fire rings – welds on grates do not hold up to repeated use – not sturdy enough for public use.
Also, in past . . . sweat shirts and pants – stitching came apart.”
“Apparel, uniforms, quality control needs improvement when alterations are requested for sizing
+ (hemming).”
“Provide better quality meat products.”
“Locks on desks are poor, file cabinets are not too great. They’re flimsy.”
“Pricing, delivery times could be improved. Food products availability is inconsistent.”

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Appendix A

September 2005
Pennsylvania Department of the Auditor General

(Summary of Survey Responses From PCI Customers, continued)
“More reasonable prices, quicker turnaround on standard items.”
“Wood chairs are so overpriced, we will not buy any more. Quality is great, but they’re about
$250 for each wood chair.”
“Greater attention to small details.”
“Customer service contact, hard to keep track of serving area, keeps changing.”
“There is room for improvement in every office at CI or otherwise. No operation is perfect.”
“We were using them more often, but it appears they have become short staffed.”
“Use of Visa – SAP is difficult to use for small purchases.”
“We wanted to purchase more signs and then (they) could not do them. The timing of getting the
order placed is the only problem area, not delivery.”
“ . . . photos of the merchandise (on the Web site) would be nice.”
“ . . . pictures of the products would increase the usage and value of this Web site.”
“Photos of the products would be helpful.”

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Performance Audit of
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Appendix B
September 2005
Pennsylvania Department of the Auditor General

Appendix B
Survey of Potential PCI Customers
Auditors surveyed 100 potential PCI customers and received 60 responses, for a
response rate of 60 percent. The numbers following each question represent the number
of responses, not percentages. NR = no response.
1. Have you purchased the following from PCI during the past three years?
a) Products
b) Services

Yes: 1
Yes: 1

No: 59
No: 59

NR: 0
NR: 0

2. If you responded “No” to question no. 1, what are the reasons why you have not
purchased from PCI?
36
13
19
0
7
0
0
14

I was unaware of PCI.
I was unaware that my organization could purchase from PCI.
I was unaware of products/services available from PCI.
PCI does not have competitive prices.
PCI does not have quality products.
PCI does not have quality products/services.
PCI delivery time for products was unacceptable.
Other reason.

3. Please identify which, if any, of the following products and services you did not know
were available from PCI.
Modular office systems
30
Precision metal
27
Vehicle restoration
31
Soap and detergent
29
Plastic bag production
32
Signs, engraving,
32
and stickers
Cannery (fruits and vegetables)29
Garments, hosiery, shoes,
25
textiles, underwear,
cardboard cartons

Silk screening and embroidery
Mattresses
Meat processing
Laundry services
Mail distribution services
Freight terminal services
Optical lab products and services
Fine wood furniture (tables, chairs,
shelving, wood flooring, etc.)

39
26
30
29
32
30
29
29

4. Are you aware of PCI’s on-line product catalog?
Yes: 7

No: 52

NR: 1

5. Are you interested in learning more about PCI and/or receiving a copy of PCI’s online products catalog (www.bighouse.state.pa.us/catalog)?
Yes: 45

No: 15

NR: 0

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Appendix C

September 2005
Pennsylvania Department of the Auditor General

Appendix C
Response from PCI/Department of Corrections
The full response from the Department of Corrections is reproduced beginning on the
next page.

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Appendix D

September 2005
Pennsylvania Department of the Auditor General

Appendix D

Audit Report Distribution List
The Honorable Edward G. Rendell
Governor
Commonwealth of Pennsylvania
The Honorable Robert J. Thompson
Majority Chair
Appropriations Committee
Senate of Pennsylvania
The Honorable Vincent J. Fumo
Minority Chair
Appropriations Committee
Senate of Pennsylvania
The Honorable Stewart J. Greenleaf
Majority Chair
Judiciary Committee
Senate of Pennsylvania
The Honorable Jay Costa, Jr.
Minority Chair
Judiciary Committee
Senate of Pennsylvania
The Honorable Brett Feese
Majority Chair
Appropriations Committee
Pennsylvania House of Representatives
The Honorable Dwight Evans
Minority Chair
Appropriations Committee
Pennsylvania House of Representatives

The Honorable Dennis M. O’Brien
Majority Chair
Judiciary Committee
Pennsylvania House of Representatives
The Honorable Thomas R. Caltagirone
Minority Chair
Judiciary Committee
Pennsylvania House of Representatives
The Honorable Robert P. Casey, Jr.
State Treasurer
Commonwealth of Pennsylvania
Mary K. DeLutis, Comptroller
Public Protection and Recreation
Office of the Budget
Pennsylvania Department of Corrections
The Honorable Jeffrey A. Beard
Secretary
John S. Shaffer
Executive Deputy Secretary
William D. Sprenkle, Acting Deputy
Secretary for Administration
Michael A. Farnan, Chief Counsel
Marc Goldberg, Director
Bureau of Correctional Industries
Timothy S. Ringler, Director
Bureau of Administration

This report is a matter of public record. Copies of this report may be obtained from the Pennsylvania
Department of the Auditor General, Office of Communications, 318 Finance Building, Harrisburg,
Pennsylvania 17120. If you have any questions regarding this report or any other matter, you may contact
the Department of the Auditor General by accessing our website at www.auditorgen.state.pa.us.