TN Rehabilitative Initiative in Correction Board - Performance Audit, Comptroller of the Treasury, 2015

• Feb. 11, 2016 • Locations: United States of America -> Tennessee • Topics: Corrections Audits, Rehabilitation/Recidivism

Download original document:
Brief thumbnail

Document text

This text is machine-read, and may contain errors. Check the original document to verify accuracy.

STATE OF TENNESSEE
COMPTROLLER OF THE TREASURY

TENNESSEE REHABILITATIVE INITIATIVE
IN CORRECTION BOARD
Performance Audit Report
September 2015

Justin P. Wilson, Comptroller

Division of State Audit
Risk-Based Performance Section

DEBORAH V. LOVELESS, CPA, CGFM, CGMA
Director
KANDI B. THOMAS, CPA, CFE, CGFM, CGMA
Assistant Director
JENNIFER WHITSEL, CPA, CFE, CGMA
Audit Manager
Sharon Shaneyfelt, CFE
In-Charge Auditor
Allison Barnett, CPA
Jennifer Bounnara
Martin Brown, CPA
Staff Auditors

Cody Jennings
Jennifer Warren
Andrea Wilson

Amy Brack
Editor
Amanda Adams
Assistant Editor

Comptroller of the Treasury, Division of State Audit
Suite 1500, James K. Polk State Office Building
505 Deaderick Street
Nashville, TN 37243-1402
(615) 401-7897
Reports are available at
www.comptroller.tn.gov/sa/AuditReportCategories.asp.
Mission Statement
The mission of the Comptroller’s Office is to improve the quality of life
for all Tennesseans by making government work better.
Comptroller Website
www.comptroller.tn.gov

STATE OF TENNESSEE

COMPTROLLER OF THE TREASURY
DEPARTMENT OF AUDIT
DIVISION OF STATE AUDIT

PHONE (615) 401-7897
FAX (615) 532-2765

SUITE 1500, JAMES K. POLK STATE OFFICE BUILDING
505 DEADERICK STREET
NASHVILLE, TENNESSEE 37243-1402

September 25, 2015

The Honorable Ron Ramsey
Speaker of the Senate
The Honorable Beth Harwell
Speaker of the House of Representatives
The Honorable Mike Bell, Chair
Senate Committee on Government Operations
The Honorable Jeremy Faison, Chair
House Committee on Government Operations
and
Members of the General Assembly
State Capitol
Nashville, Tennessee 37243
and
The Honorable Patricia Weiland, Chief Executive Officer
Tennessee Rehabilitative Initiative in Correction Board
6185 Cockrill Bend Circle
Nashville, Tennessee 37209
Ladies and Gentlemen:
We have conducted a performance audit of selected programs and activities of the
Tennessee Rehabilitative Initiative in Correction board for the period July 1, 2013, through May
31, 2015. This audit was conducted pursuant to the requirements of the Tennessee
Governmental Entity Review Law, Section 4-29-111, Tennessee Code Annotated.
Our audit disclosed certain findings that are detailed in the Objectives, Methodologies,
and Conclusions section of this report. Management of the board has responded to the audit
findings; we have included the responses following each finding. We will follow up the audit to
examine the application of the procedures instituted because of the audit findings.
This report is intended to aid the Joint Government Operations Committee in its review to
determine whether the board should be continued, restructured, or terminated.
Sincerely,
Deborah V. Loveless, CPA, CGMA
Director
DVL/jw
15/040

State of Tennessee

Audit Highlights
Comptroller of the Treasury

Division of State Audit

Performance Audit
Tennessee Rehabilitative Initiative in Correction Board
September 2015
______

AUDIT SCOPE
We have audited the Tennessee Rehabilitative Initiative in Correction (TRICOR) board
for the period July 1, 2013, through May 31, 2015. Our audit scope included a review of internal
control and compliance with laws, regulations, and provisions of contracts in the areas of fiscal
operations and financial reporting, revenue contracts, the Tennessee Cook Chill program, followup of statewide contract concerns, professional service contracts, TRICOR’s annual risk
assessment, and the audit committee. The TRICOR board is responsible for establishing and
maintaining effective internal control and for complying with applicable laws, regulations, and
provisions of contracts.
We conducted our audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.

CONCLUSIONS
AUDIT FINDINGS
TRICOR’s executive director failed to ensure fiscal staff performed key fiscal and financial
reporting functions, which led to a pervasive breakdown of controls that resulted in
material financial misstatements and board decisions that were based on inaccurate
financial information
We performed a limited review of the accounts receivable and accounts payable balances
reported on TRICOR’s internally prepared financial reports. Based on the procedures
performed, we found pervasive weaknesses in management’s design and implementation of
internal controls over TRICOR’s fiscal operations and financial reporting process. These
weaknesses resulted in the unacceptable risk of material financial errors and misstatements,

including failure to record all accounts receivables; failure to follow up on past-due receivables;
failure to accurately report financial information; failure to update the accounting system; and
failure to adequately segregate duties, all of which inhibited the TRICOR board’s ability to make
sound business decisions regarding fiscal operations (page 12).
TRICOR management did not provide adequate internal controls in four specific areas
TRICOR did not design and monitor effective internal controls in four specific areas. Ineffective
implementation of internal controls increases the likelihood of errors, data loss, and the inability
to continue operations (page 28).
TRICOR and Department of Correction managements continue to operate the Tennessee
Cook Chill program without executed agreements, resulting in unmet expectations and a
program net loss of more than $4 million
TRICOR is currently operating the Tennessee Cook Chill program without an executed
agreement with any of its customers. Specifically, TRICOR is providing meals to the
Department of Correction through the Cook Chill program without a written interagency
agreement that delineates entities’ respective authority, responsibility, and fiscal relationship. As
a result, each entity’s expectations are unmet, and the Cook Chill program is in jeopardy (page
32).
Despite implementing corrective action since the prior audit, management’s controls over
monitoring professional service contracts require additional improvements*
Despite management’s corrective actions, we determined that management still had not
implemented sufficient controls, including detecting duplicate payments and monitoring contract
payments against a contract’s maximum liability, to ensure TRICOR’s financial stability (page
51).
Management failed to submit a Financial Integrity Act report package for two consecutive
years
While management did prepare the 2013 and 2014 annual risk assessments, they did not submit
the Financial Integrity Act report packages to the commissioner of the Department of Finance
and Administration and the Comptroller of the Treasury by December 31, 2013, and December
31, 2014, in accordance with state statute (page 55).

OBSERVATIONS
The following topics did not warrant findings but are included in this report because of their
effect on the operations of the TRICOR board, as well as on the citizens of Tennessee:
management’s risk assessment process needs improvement (page 56) and the TRICOR board’s
audit committee needs to exercise more oversight over TRICOR management (page 57).
*

This finding is repeated from the prior audit.

MATTERS FOR LEGISLATIVE CONSIDERATION
In this report, we recommend that TRICOR enter into a collaborative agreement with the
Department of Finance and Administration (F&A) whereby TRICOR and F&A work together to
develop a financial control environment within TRICOR that accomplishes the basic objectives
of effectiveness and efficiency of operations (including safeguarding of assets); reliability of
financial reporting; and compliance with laws and regulations. If the results of the collaborative
effort between the Department of Finance and Administration and TRICOR do not improve the
efficiency, effectiveness, and reliability of TRICOR’S fiscal operations, then the General
Assembly may wish to consider statutory changes to accomplish those objectives (page 28).
The General Assembly may wish to consider amending state statute to require TRICOR to
participate as a vendor on statewide contracts for items TRICOR sells to state entities or consider
amending state statute to allow the Department of Correction to purchase items from TRICOR
that are also available on statewide contract (page 48).

Performance Audit
Tennessee Rehabilitative Initiative in Correction Board
TABLE OF CONTENTS

Page
INTRODUCTION

Purpose and Authority for the Audit

Organization and Statutory Responsibilities

AUDIT SCOPE

PRIOR AUDIT FINDING

Repeated Audit Finding

OBJECTIVES, METHODOLOGIES, AND CONCLUSIONS

Fiscal Operations and Financial Reporting

Matter for Legislative Consideration

Finding 2 – TRICOR did not provide adequate internal controls in four
specific areas

Revenue Contracts

Tennessee Cook Chill Program

Exhibit 1 – Memorandum Regarding Standard Menu Program
Expectations With Department of Correction’s Comments

Results of Further Audit Work – Tennessee Cook Chill Program

TABLE OF CONTENTS (CONT.)

Page
Exhibit 2 – TRICOR’s Statement of Financial Position Presented at the
June 26, 2015, TRICOR Board of Directors Meeting
Follow-up of Statewide Contract Concerns
Matter for Legislative Consideration
Professional Service Contracts
Finding 4 – Despite implementing corrective action since the prior
audit, management’s controls over monitoring professional
service contracts require additional improvements
TRICOR’s Annual Risk Assessment

47
48
48
49

51
54

Finding 5 – Management failed to submit a Financial Integrity Act
report package for two consecutive years

Observation 1 – Management’s risk assessment process needs improvement

Audit Committee
Observation 2 – TRICOR board’s audit committee needs to exercise more
oversight over TRICOR management

57
57

APPENDICES

Appendix 1 – Original Memorandum from TRICOR’s CEO to the Department of
Correction’s Commissioner

Appendix 2 – Department of Correction’s Response to TRICOR’s CEO’s
Memorandum

Appendix 3 – TDOC/TRICOR Partnership Standard Menu Program Letter of
Agreement

Appendix 4 – Standard Menu Program Overview

Appendix 5 – Staff Positions by Gender and Ethnicity

Appendix 6 – Board Members by Gender and Ethnicity

Appendix 7 – Performance Measures Information

Performance Audit
Tennessee Rehabilitative Initiative in Correction Board
INTRODUCTION

PURPOSE AND AUTHORITY FOR THE AUDIT
This performance audit of the Tennessee Rehabilitative Initiative in Correction
(TRICOR) Board was conducted pursuant to the Tennessee Governmental Entity Review Law,
Title 4, Chapter 29, Tennessee Code Annotated. Under Section 4-29-237, TRICOR’s board is
scheduled to terminate June 30, 2016. The Comptroller of the Treasury is authorized under
Section 4-29-111 to conduct a limited program review audit of the agency and to report to the
Joint Government Operations Committee of the General Assembly. This audit is intended to aid
the committee in determining whether TRICOR’s board should be continued, restructured, or
terminated.

ORGANIZATION AND STATUTORY RESPONSIBILITIES
TRICOR was created in 1994 by the Tennessee General Assembly to provide
occupational and life skills training for Tennessee’s incarcerated population through job training,
program opportunities, and transitional services designed to assist offenders with a successful
reintegration into society. TRICOR’s philosophy is to effectively manage revenue-supported
industry, agriculture, and service operations for the purpose of employing and training offenders,
providing quality products and services, and assisting in transitional services, all of which reduce
the cost of government. Pursuant to Section 41-22-414, Tennessee Code Annotated, “It is the
intent of the general assembly . . . that TRICOR has as part of its mission to offset the costs of
incarceration by generating revenue through the sale of products in lieu of state-appropriated
funds.”1
TRICOR Board of Directors
TRICOR is governed by a nine-member board of directors appointed by the Governor.
The Governor is required by Section 41-22-405, Tennessee Code Annotated, to appoint


at least one person with eminence in the field of manufacturing;



at least one person with eminence in the field of labor;



at least one person with eminence in the field of agriculture;

Starting in fiscal year 2013, the state appropriated approximately $7,550,000 to TRICOR for capital improvement
projects to the facility housing its Cook Chill operations. During our audit fieldwork, we learned that TRICOR was
in the process of signing contracts with vendors to begin work on the Cook Chill facility.



at least one person with eminence in the field of fiscal management;



an attorney with a strong background in business or corporate law;



the executive director of the Tennessee State Employees Association;



the chief executive Officer of TRICOR; and



the remaining members to include persons with professional experience appropriate
for assisting in carrying out TRICOR’s mission, in disciplines such as sales,
marketing, and human resources and relations.

The commissioner of the Tennessee Department of Correction serves as an ex-officio nonvoting
member.
Pursuant to Section 41-22-406, Tennessee Code Annotated, “the board has such powers
as necessary to effectively carry out its mission. . . . It is the intent of the general assembly that
the board should be as free as is possible to operate its facilities and to pursue its mission with
the principles of free enterprise.” Furthermore, Section 41-22-408 states,
the board has the duty to monitor TRICOR’s operation and management and to
impose such limitations as are prudent and necessary to assure that freedoms and
powers are not abused. . . . The board shall assist TRICOR in maintaining the
quality of management processes and reporting, providing for the adequacy of
financial and accounting control systems and serving as a communications
channel between TRICOR managers and auditors.
According to Section 41-22-407, the TRICOR board may employ an executive director who
serves at the board’s pleasure. The board, through its executive director, may employ
professionals and staff to manage and operate TRICOR. TRICOR has 163 staff positions, with
110 of those positions filled as of May 1, 2015.
TRICOR’s Operations
TRICOR’s daily operations are overseen by a six-person executive team (see page 5 for
an organizational chart of TRICOR’s executive leadership team). This team consists of the
following:


The chief networking officer heads the human resources, communications, and
learning and development areas. The chief networking officer also serves as
TRICOR’s legislative liaison.



Under the direction of the director of Business Excellence, the Business Excellence
area is responsible for initiatives such as strategic business plans, key performance
indicators, and operational management systems to ensure continuing organizational
improvement.



The director of Sales and Marketing is responsible for customer support, program
managers, and TRICOR’s marketing. The director is also responsible for establishing
and attaining annual sales targets, establishing strategic business relations, and
2

providing ideas for all strategic sales plans and their implementation. The customer
support section is responsible for sales activities and customer relations. The director
also oversees the product managers, who are responsible for the entire cycle of their
respective product lines. In addition, the director oversees the marketing section,
which is responsible for organizational branding and other marketing activities.


The general counsel handles all of TRICOR’s legal matters, including, but not limited
to, human resource-related legal concerns; contracts; offender grievances and
lawsuits; and aid with drafting contracts with private sector partners. In addition, the
general counsel interprets laws and legislation affecting TRICOR and represents
TRICOR as needed.



Located under the chief financial officer, the Business Support Services area consists
of TRICOR’s purchasing, fiscal services, and information technology sections.
TRICOR’s business unit code in Edison is 31608. An organization chart of the
Business Support Services area is on page 6.



The chief operations officer is responsible for the Business and Offender Programs,
which encompasses the areas of business that directly support TRICOR’s mission to
utilize offender labor (see the organizational chart on page 7). TRICOR annually
provides 1.2 million hours of training to 1,435 offenders to prepare them for
employment upon their release. TRICOR also provides life skill education and
transition services to further contribute to each offender’s reintegration into the
community. Pursuant to Sections 41-22-116 and 41-22-119, Tennessee Code
Annotated, TRICOR may sell its products to governmental agencies (including state,
county, and municipal governments); Tennessee nonprofit corporations; and private
contractors in Tennessee who purchase goods for subsequent use by a public agency
or a nonprofit corporation.
From 14 locations across the state, the business lines include
o Administrative Support Services;
o Agriculture - Dairy Farm and Row Crops;
o Apparel and Textiles Manufacturing;
o the Building Trades Vocational Program;
o the Call Center;
o Data Entry Services;
o Document Imaging;
o Flooring (Private Sector Partnership);
o Food Manufacturing, Storage and Distribution Center, and Dairy Processing;
o Fulfillment Services;2
o Institutional Cleaning Products;
o Packaging Services (Private Sector Partnership);

A fulfillment service is the process of receiving, packaging, and shipping goods ordered.

o Printing;
o Uniform Distribution and Warehouse;
o Vehicle and Novelty Plate Manufacturing; and
o Warehouse and Transportation.
The locations and business lines are illustrated on the map on page 8. TRICOR generated
revenue totaling $60,681,209 from July 1, 2013, to December 31, 2014.
The Tennessee Cook Chill Program
According to TRICOR’s website, the Tennessee Cook Chill program is designed to
produce and distribute meals for Tennessee’s offender populations by using the offenders as the
workforce. This innovative approach provides opportunities for Tennessee’s offenders to
acquire training and work skills necessary for successful reintegration into society after
incarceration. TRICOR began managing the food processing facility in 2010. The Cook Chill is
a process that allows for large quantities of food to be produced and prepared then chilled to
preserve the quality. The Cook Chill program produces and distributes 22,000,000 servings
annually. The Cook Chill program is accredited through the National Restaurant Association; it
provides comprehensive food safety training and is recognized nationally.

Tennessee Rehabilitative Initiative In Correction
Board and Executive Team
Organizational Chart
December 2014
TRICOR Board
9 Members *

Chief Executive
Officer

Chief Networking
Officer

Chief Operations
Officer

Director of Business
Excellence

Executive Assistant
To CEO

Chief Financial
Officer

* Chief Executive Officer is also a voting member on TRICOR’s board.

Director of Sales &
Marketing

General Counsel

Tennessee Rehabilitative Initiative in Correction
Operating Locations

AUDIT SCOPE

We have audited the Tennessee Rehabilitative Initiative in Correction (TRICOR) board
for the period July 1, 2013, through May 31, 2015. Our audit scope included a review of internal
control and compliance with laws, regulations, and provisions of contracts in the areas of fiscal
operations and financial reporting, revenue contracts, the Tennessee Cook Chill program, followup of statewide contract concerns, professional service contracts, TRICOR’s annual risk
assessment, and the audit committee. The TRICOR board is responsible for establishing and
maintaining effective internal control and for complying with applicable laws, regulations, and
provisions of contracts.
We conducted our audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.

PRIOR AUDIT FINDING

Section 8-4-109, Tennessee Code Annotated, requires that each state department, agency,
or institution report to the Comptroller of the Treasury the action taken to implement the
recommendation in the prior audit report. TRICOR’s prior audit report, dated July 2013,
included one finding. TRICOR filed its report with the Comptroller of the Treasury on February
7, 2014. A follow-up of the prior audit finding was conducted as part of the current audit.

REPEATED AUDIT FINDING
The prior audit report contained one finding concerning lack of written procedures and
weaknesses identified in the administration and monitoring of professional service contracts.
This finding has not been fully resolved and is repeated in the applicable section of this report.

OBJECTIVES, METHODOLOGIES, AND CONCLUSIONS

FISCAL OPERATIONS AND FINANCIAL REPORTING
To fulfill its mission to reintegrate Tennessee’s offenders into society, TRICOR operates
in partnership with the Department of Correction and other entities to provide the training and
transitional opportunities to the offenders. As required by Section 41-22-408, Tennessee Code
Annotated, TRICOR’s board “shall assist TRICOR management in maintaining the quality of
management processes and reporting, providing for the adequacy of financial and accounting
control systems, and serving as a communication channel between TRICOR managers and
auditors.”
Even though TRICOR was created to operate as freely as possible to achieve its mission,
TRICOR is an internal service fund3 of Tennessee state government, and the fund’s financial
information is reported in the State of Tennessee’s Comprehensive Annual Financial Report
(CAFR) prepared by the Department of Finance and Administration.
Our overall objective was to evaluate TRICOR management’s fiscal operations and
financial reporting for effectiveness and accuracy. Our specific objectives are described in
further detail as follows.
Current Processes for Day-to-Day Operations and Financial Reporting
Day-to-Day Operations
TRICOR manages all aspects of its business using the TRICOR Information
Management System (TIMS). TRICOR uses TIMS as its main accounting system instead of
Edison, the state’s central accounting system, and therefore does not enter all accounting
information into Edison. The fiscal staff prepare and approve financial transactions in TIMS and
prepare monthly financial reports for management’s use and for consideration by TRICOR’s
board at its quarterly board meetings. TRICOR’s monthly financial reports include an income
statement and balance sheet.4 Fiscal staff do not prepare a cash flow or notes.
As part of the day-to-day operations, fiscal staff enter accounts payable information into
TIMS daily. Every night, this information is transferred into Edison in order to process
payments to vendors. Once the payments are processed in Edison, fiscal staff must manually
enter the Edison payment information into TIMS on a weekly basis in order to update the
accounts payable account balances, which are maintained in TIMS.

Internal service funds are used to account for the operations of state agencies that provide goods or services to
other state agencies on a cost-reimbursement basis.
4 A balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at a particular
point in time.

To record TRICOR’s accounts receivable information, fiscal staff use either sales orders
or other supporting documentation to create invoices in TIMS and bill customers for goods and
services provided. Unlike the accounts payable data, fiscal staff only report fiscal year-end
accounts receivable balances to the Department of Finance and Administration for inclusion in
the CAFR.
TRICOR fiscal staff are also responsible for collecting accounts receivable and
determining if accounts receivable are past due. To analyze the accounts for outstanding
uncollected balances, fiscal staff generate TIMS’ aging receivables report, which lists the
customer invoices that are past due and the length of time they are past due. For any past-due
accounts identified, fiscal staff email the customer in an effort to collect the outstanding balance.
According to the controller, fiscal staff only analyze (age) the customer accounts that
have been classified as “accounts receivable” accounts. Management and staff stated that they
do not perform collection procedures on overdue accounts that are classified as other receivables
such as interunit journal entries.5
Reporting of Financial Information
According to Section 311.d. of TRICOR’s Policies and Procedures Manual, either the
chief financial officer or his/her designee will prepare financial information for the purpose of
managing business operations, including monitoring budgetary compliance and reporting the
results of operations to upper management and to the board. Section 41-22-123, Tennessee Code
Annotated, also requires preparation of a quarterly profit and loss statement that is certified by
TRICOR’s fiscal officer and submitted to the Comptroller of the Treasury and the commissioner
of the Department of Finance and Administration.
As stated above, TRICOR staff also provided financial information to the Department of
Finance and Administration for inclusion in the state’s CAFR.
Results of Audit Work
The detailed objectives of our review were to



document the controls over the accounts receivable and accounts payable processes;



review the accounts receivable aging report and the estimated allowance for doubtful
accounts for reasonableness and determine TRICOR’s process for collecting past-due
receivables;



ensure the accuracy of the fiscal year 2014 account balances that were reported to the
board of directors, as well as the amounts reported in the state’s CAFR; and



with respect to TIMS, determine if TRICOR management followed information
systems’ industry best practices regarding system controls.

Within Edison, an interunit journal entry is a monetary transfer between state agencies.

To accomplish our objectives, we interviewed fiscal staff and performed walkthroughs of
the accounts receivable and accounts payable processes. We obtained and analyzed the accounts
receivable aging report as of April 30, 2015, by customer and by customer type. We reviewed
TRICOR’s collection policy. We obtained and reviewed the accounts receivable reconciliation
as of June 30, 2014, and March 31, 2015, including the estimated allowance for doubtful
accounts. To determine the accuracy of financial information reported to the board and in the
CAFR, we performed a limited review of TRICOR’s balance sheet for fiscal year 2014 and
compared those account balances to the amounts reported in the state’s CAFR for the same time
period.
We compared management’s internal control activities over TIMS to assess adherence to
information systems’ industry best practices.
Based on procedures performed, we determined that


management did not implement adequate controls over the accounts receivable and
accounts payable processes (see Finding 1);



fiscal staff did not follow the established collection policies and procedures for pastdue accounts, and management did not establish a collection policy for state customer
accounts, nor did they establish an appropriate allowance of doubtful accounts,
despite having the knowledge of clearly uncollectible accounts (see Finding 1);



fiscal management and staff did not ensure that amounts reported on TRICOR’s
internally prepared balance sheet for June 30, 2014, agreed to the financial
information provided to the Department of Finance and Administration for inclusion
in the state’s CAFR (see Finding 1);



fiscal management and staff did not record an accounts receivable entry related to
amounts that TRICOR management believed the Department of Correction owed
TRICOR for the March 2015 Cook Chill invoice and failed to include this
corresponding receivable on its March 31, 2015, balance sheet (see Finding 1); and



TRICOR did not follow information systems’ industry best practices (see Finding 2).

Finding 1 – TRICOR’s executive director failed to ensure fiscal staff performed key fiscal
and financial reporting functions, which led to a pervasive breakdown of controls that
resulted in material financial misstatements and board decisions that were based on
inaccurate financial information
Condition and Cause
We performed a limited review of the accounts receivable and accounts payable balances
reported on TRICOR’s internally prepared financial information. Based on the procedures
performed, we found pervasive weaknesses in management’s design and implementation of
internal controls over TRICOR’s fiscal operations and financial reporting process that resulted in
the unacceptable risk of material financial misstatements and the inability of TRICOR’s board to

make sound business decisions because of inaccurate financial reports. We determined that
management did not identify or implement controls to mitigate


the risk of fiscal staff’s failure to record and report all receivables due to TRICOR;



the risk of fiscal staff not pursuing collection and/or write-off of past-due receivables;



the risk of fiscal staff’s failure to ensure that financial information provided to the
Department of Finance and Administration for inclusion in the state’s CAFR is
accurate and agrees with TRICOR’s internally prepared financial information;



the risk of fiscal staff’s failure to update their accounting system for TRICOR’s
payments processed in TIMS or to review vendor payables; and



the risk of fiscal management’s failure to adequately segregate duties within the
accounts receivable process.

Specifically, we determined the following:
1. Management and staff did not record all accounts receivables
On the balance sheet for the month ending March 31, 2015, we noted that TRICOR did
not record a $3,160,311 accounts receivable that management believed the Department of
Correction owed TRICOR for Tennessee Cook Chill meals in March 2015. This invoice covered
costs for meal kits ordered by the department for the period of July 1, 2014, through February 28,
2015. Fiscal staff also did not include this receivable amount when they prepared the May 31,
2015, balance sheet; therefore, management and the board were not aware of this outstanding
balance.
2. Management and staff did not promptly follow up on past-due receivables
From our review of the April 30, 2015, TIMS accounts receivable aging report, we found
$346,761 in unpaid invoices from 10 customers that were at least 60 days past due. Four of these
customers were state entities that apparently owed TRICOR a total of $50,603. According to the
controller and fiscal staff, fiscal staff did not ensure timely collection of receivables due to a lack
of staffing resources available to perform collection procedures. Additionally, fiscal staff were
not familiar with the state’s write-off policy6 and did not have internal written collection policies
and procedures to address uncollectible accounts involving other state entities. Management
could not provide a reason why established collection policies did not include state customers
even though state entities had outstanding balances. We also determined that management had
not written off uncollectible receivables since 2012. See details in Table 1.

According to the Department of Finance and Administration’s Policy 23, “Accounts Receivable - Recording,
Collection and Write-Offs,” a write-off is the removal of an uncollectible receivable from an organization’s
accounting records. See the policy under the Criteria section on page 18.

Table 1
Aged Accounts Receivable Summary
as of April 30, 2015
(unaudited)
Length Past Due
Aged 60 days to 1 year
Aged 1 year to 2 years
Aged 2 years to 5 years
Aged 5+ years
Total

Amount Past Due
$ 30,088
25,215
20,725
270,733
$346,761

Source: TIMS query.

As noted above, fiscal staff classify certain accounts receivables as other receivables and
do not bill entities through the traditional invoicing process. In addition, the fiscal staff do not
age these other receivables or attempt to collect past-due amounts as they do the regular accounts
receivable account. As of March 31, 2015, fiscal staff had other receivables totaling
$752,325.57 that were more than 60 days past due. Based on our review, we found that
$637,799 of the total past-due amount related to the Department of Correction’s invoices in the
Tennessee Cook Chill program. The department disputes that it owes TRICOR this amount.
Based on interviews with the chief executive officer and selected board members, they
became aware of the past-due account during and subsequent to the March 2015 board meeting
(see Finding 3 on page 32).
We also found that even though total past-due receivables (those classified as both
regular and other) were over $1 million, fiscal management did not establish an allowance for
doubtful accounts based on a reasonable estimate of uncollectible accounts. The current balance
for the allowance for doubtful accounts was approximately $222,000, which fiscal staff
estimated based on the aging report process for the regular account alone.
3. Management and staff did not accurately report financial information
We compared TRICOR’s balance sheet as of June 30, 2014, to TRICOR’s financial
information presented in the state’s CAFR and found significant differences in the account
balances reported on the balance sheet and in the CAFR, including but not limited to cash and
cash equivalents, accounts receivable, buildings, equipment, and accounts payable. For example,
the TRICOR controller reported a $3,313,030 accounts receivable balance on the internally
prepared balance sheet but reported a $646,011 accounts receivable balance to the Department of
Finance and Administration for use in the CAFR.

4. Management and staff did not promptly update their accounting system (TIMS) for
the TRICOR payments processed in Edison and did not properly review vendor
payables
According to TRICOR’s payroll specialist, once the Department of Finance and
Administration staff process TRICOR vendor payments in Edison, then TRICOR fiscal staff
must manually enter the payment in TIMS to properly reduce the accounts payable balance. We
determined that prior to March 2015, TRICOR’s fiscal staff


did not track vendor payments initiated in Edison to ensure payment,



did not reconcile processed vendor payments to ensure fiscal staff promptly recorded
the payments in TIMS to update the accounts payable balances, and



did not review or age the accounts payable balances in TIMS to identify potential
overdue vendor payables.

As a result, TRICOR’s accounts payable balance in TIMS was overstated by $616,536,
an error that carried through to TRICOR’s balance sheet. This control deficiency was discovered
when a temporary employee performing the chief financial officer’s duties7 observed that a
significant number of vendor payables were more than 120 days past due on the TIMS aged
payables report (see Table 2).
Table 2
Edison Payments Issued and Recorded in TIMS
(unaudited)

Payments Issued in Edison
Checks Issued from October 1, 2014, to October 31,
2014
Electronic Funds Transfer Issued from October 1, 2014,
to October 31, 2014
Checks Issued from December 22, 2014, to December
26, 2014
Electronic Funds Transfer from December 22, 2014, to
December 26, 2014
Total Payments

Date Payment
Issued Posted in
TIMS

Payment Amount

4/27/2015

$212,853

4/27/2015

$78,580

4/23/2015

$168,505

4/23/2015

$156,598
$616,536

Source: TRICOR fiscal staff.

On a temporary basis, TRICOR acquired the services of a financial consultant with CFO-level qualifications to
assist with financial matters. This consultant did not supervise any TRICOR employees.

5. Management did not ensure adequate segregation of duties for sales invoices and
accounts receivables processes
Due to a lack of resources, management has not properly segregated duties or
implemented compensating controls within the accounts receivable process. Specifically, we
found that the accounts receivable technician is solely responsible for


authorizing, creating, and voiding sales invoices;



posting invoices to the accounting records;



processing checks received for customer accounts;



posting payments received to customer accounts; and



performing collection activities on customer accounts that are overdue.

Furthermore, management has not performed supervisory reviews on the accounts receivable
technician’s work, nor has management established compensating controls to address the risks
concerning the lack of segregation of duties. To mitigate the risks of error, fraud, waste, and
abuse, management cannot allow a single employee complete responsibility for more than one of
these types of duties without compensating controls.
6. Allegations and concerns regarding TRICOR management
After our audit fieldwork ended on June 19, 2015, we received allegations from multiple
sources. These allegations and the results of our work are described as follows:


Allegation: Management misled the board of directors by not divulging that the
approved budget was based on inaccurate financial information.
Audit Results: Although we cannot speak to management’s intent, we found that
TRICOR management submitted to the board an operating budget based on a critical
financial commitment from the Department of Correction, even though the
department had not agreed to the financial commitment (see Results of Further Audit
Work on page 45 for additional detail).



Allegation: Management improperly influenced financial reporting by preventing
fiscal staff from adjusting asset accounts, such as initiating uncollectible account
write-off procedures for accounts deemed uncollectible or removing obsolete
inventory from inventory accounts, in order to hide the financial position at year-end
so that employee bonuses could be paid.
Audit Results: Although we cannot speak to management’s intent to avoid write-offs,
we found that based on our review of documentation submitted to the Office of the
Comptroller of the Treasury, TRICOR has not requested a write-off of uncollectible
accounts or obsolete inventory since 2012 (see item #2 in this finding).

As noted throughout this finding and the audit report, we have identified numerous errors
and misstatements in TRICOR’s fiscal operations and financial reporting process. Based on the
16

results of our work and in-part corroboration of the allegations, we have serious concerns about
whether TRICOR’s management has the ability to report accurate financial information.
Management and staff also lack knowledge of governmental accounting and state accounting
policies.
During and after audit fieldwork, the chief financial officer (CFO) and controller were
dismissed, and the accounting manager retired. TRICOR has not had a cost accountant8 on staff
since July 2014, and no internal auditor position exists. Management hired a new CFO in May
2015; most fiscal staff at TRICOR have been in their positions less than two years. Also, during
our audit fieldwork, we found that management had not informed us when they hired a
temporary CFO9 on April 6, 2015. The temporary CFO worked approximately one month,
through May 8, to review TRICOR’s processes and data for the collection of financial
information. In addition to not informing us of this temporary hire, management did not disclose
to us the issues the CFO found from his review of TRICOR’s processes (see item #4 in this
finding).
Criteria


Principle 10.3, “Accurate and Timely Recording of Transactions,” in the Government
Accountability Office’s Standards for Internal Control In the Federal Government (also
known as the Green Book), states,
Transactions are promptly recorded to maintain their relevance and value to
management in controlling operations and making decisions. This applies to
the entire process or life cycle of a transaction or event from its initiation and
authorization through its final classification in summary records. In addition,
management designs control activities so that all transactions are completely
and accurately recorded.



TRICOR Policy 301.01, “Collection of Accounts Receivable from Non-State Customers,”
Section D(2), states that designated accounting staff should perform the following procedures
for private-sector customers:
o run accounts receivable aging reports daily;
o contact customers by telephone when an account balance is overdue, and
follow up with a letter; and
o contact customers again by telephone and letter when an account balance is 15
and 30 days overdue.

8 A cost accountant collects and analyzes an organization’s data to help management determine the appropriate,
cost-effective options based on the organization’s capabilities. For example, in manufacturing, cost accountants
analyze costs, including those relating to raw materials, inventory, and labor, to calculate costs that affect the
organization’s bottom line.
9 On a temporary basis, TRICOR acquired the services of a financial consultant with CFO-level qualifications to
assist with financial matters. This consultant did not supervise any TRICOR employees.



Section B of TRICOR Policy 301.01 states,
Accounts receivable shall be identified, controlled, and tracked to ensure
proper reporting in TRICOR’s internal financial statements and subsequent
reflection in the State of Tennessee Consolidated Annual Financial Report
(CAFR).
The policy also states that management will adhere to state policies regarding writing off
uncollectible accounts.
Furthermore, the Department of Finance and Administration’s Policy 23, “Accounts
Receivable – Recording, Collection, and Write-Offs,” Section 9, states,
If a receivable proves to be uncollectible based on collection efforts, . . .
department heads are responsible for ensuring that these accounts are written
off [in accordance with] the Official Rule of the Department of Finance and
Administration, Chapter 0620-1-9 ‘Policy and Procedures Governing WriteOffs of Accounts Receivable.’ Write-off requests should be submitted with
supporting material to the Division of Accounts for review and approval.



Principle 10.3, “Segregations of Duties,” in the Government Accountability Office’s
Standards for Internal Control In the Federal Government, states,
Management divides or segregates key duties and responsibilities among
different people to reduce the risk of error, misuse, or fraud. This includes
separating the responsibilities for authorizing transactions, processing and
recording them, reviewing the transactions, and handling any related assets so
that no one individual controls all key aspects of a transaction or event.

Effect
Management’s failure to identify, assess, and mitigate risks by implementing proper
internal controls, including collection policies and procedures; accurate financial reporting and
reconciliations; and segregation of duties, increases the risk of material financial misstatements
due to error, fraud, waste, or abuse. Furthermore, failure to report TRICOR’s accurate financial
condition and potential insufficient cash flow available to meet its strategic operation renders
management, the board, and external users unable to make sound decisions relative to the future
viability of TRICOR’s programs or continued existence.
Recommendation
Based on the concerns documented here and throughout this report, we recommend that
TRICOR enter into a collaborative agreement with the Department of Finance and
Administration (F&A) whereby TRICOR and F&A work together to develop a financial control
environment within TRICOR that accomplishes the basic objectives of effectiveness and
efficiency of operations (including safeguarding of assets); reliability of financial reporting; and

compliance with laws and regulations. The financial control environment established through
this collaborative effort should at a minimum include appropriate risk control activities and help
ensure that


all financial information and accounts are properly and accurately recorded and
reported to reflect TRICOR’s financial position;



TRICOR’s internally prepared year-end financial information agrees to the financial
information provided to the Division of Accounts for preparation of the internal
service fund in the CAFR;



TRICOR’s Edison vendor payments are promptly reconciled to TIMS to update the
accounts payable transactions to substantiate the year-end accounts payable balance;
and



all past-due accounts receivable balances for all customers are collected, a reasonable
allowance for doubtful accounts is established, and past-due accounts deemed
uncollectible are written off.

Management’s Comments
Tennessee Rehabilitative Initiative in Correction
We concur in part as noted below.
The TRICOR Board of Directors and management recognize that financial and program
accountability is fundamental to operating an organization within business best practices. Critical
to this is the adherence to generally accepted accounting principles.
Historically the audit reports issued by the Division of State Audit for TRICOR have
identified few issues and those identified were corrected immediately. It has been of the utmost
priority of the TRICOR Board of Directors to operate with complete transparency to ensure the
continuing confidence in the organization. This transparency has been well documented by
management and the Board of Directors by taking the initiative to request routine financial audits
issuing an opinion on the organization’s financial statements as outlined below.
January 11, 2010 - Mr. Arthur A. Hayes, Director of State Audit issued a memorandum
noting that audit work will become less cyclical therefore management should not depend
solely on the work of State Audit to determine whether operations are running as
effectively and efficiently as possible, whether internal control systems are properly
designed and operating and whether financial information is reliable and accurate.
November 19, 2012 - At the TRICOR Board of Directors Audit Committee Meeting, as a
result of the changes noted above, TRICOR management recommended the audit
committee pursue its statutory authority, with the approval of the Comptroller of the
Treasury, to have a public accounting firm conduct routine financial audits. The
committee determined the organization should have a one year audit beginning in FY14
and then every three years thereafter unless State Audit has completed an audit. TRICOR
19

had a Performance Audit by State Audit for the period July 1, 2009 to June 30, 2012 with
a report issue date of July 2013.
October 22, 2014 - TRICOR’s General Counsel made contact with both the General
Counsel for the Comptroller of the Treasury and the Director of State Audit to request
approval to pursue a private accounting firm to conduct a financial audit of TRICOR for
FY14 in accordance with the Audit Committee’s directive. It was noted that the audit
would be required to issue an opinion on TRICOR’s financial statements. He provided
documentation of the TRICOR Board of Director’s Audit Committee request. TRICOR’s
General Counsel was notified that the Comptroller’s Office would not supply an opinion
on the financial statements and that State Audit would be conducting a Sunset Audit for
the period July 1, 2013 through December 31, 2014.
January 27, 2015 - At the TRICOR Board of Directors Audit Committee meeting, the
committee reaffirmed its decision to seek Comptroller of the Treasury approval to have a
public accounting firm provide a full financial audit issuing an opinion on the financial
statements on a routine basis.
August 28, 2015 - A meeting was held with the Comptroller and staff where this issue
was discussed. This issue is pending response.

Auditor Rebuttal:
To clarify, we conducted this audit pursuant to the Tennessee Governmental Entity Review
Law, Title 4, Chapter 29, Tennessee Code Annotated. Under section 4-29-237, TRICOR’s
board is scheduled to terminate June 30, 2016. Furthermore, although TRICOR’s
management and board have requested a financial audit of its basic financial statements,
management has yet to prepare the basic financial statements which could be subject to
audit.
We do not concur with the statement that the executive director failed to ensure fiscal
staff performed key reporting functions which led to a pervasive breakdown of controls that
resulted in material financial misstatement and board decisions that were based upon inaccurate
financial information. Detailed information is listed within this response.
We concur that the previous Chief Financial Officer (CFO) and Controller were not
performing their duties and overseeing their responsibilities to a satisfactory level. The CFO was
separated from state service March 18, 2015 and the Controller was separated from state service
July 15, 2015. Once management became aware that problems existed in their performance they
acted swiftly to correct the problem.
We hired a highly qualified CFO in May 2015 who has addressed all issues noted in the
audit report and corrected several of the issues immediately. She is ensuring fiscal staff are
performing key fiscal and financial reporting responsibilities. She is also consulting with staff
from the Department of Finance and Administration to hire a new Controller.

It is the role of leaderships to ensure an organization is operating ethically, efficiently, effectively
and within guidelines. In the event this is not occurring or is compromised, changes are made
swiftly. The necessary changes were made when leadership lost faith in these individuals ability
to do their jobs.
Management is addressing each of the following issues individually.
1.

Management and staff did not record all accounts receivables
We do not concur.
This comment directly relates to the second “true-up” calculated and not executed by
TRICOR. No invoice was created or billed in TIMS and sent to TDOC for this amount.
A cover letter was issued under the CEO’s electronic signature to an attached report
providing information to support the true-up that TRICOR was recommending to TDOC.
The cover letter inaccurately referred to the report as a true-up “bill” (see page 59) when
in fact the actual report (see page 39) noted in the first paragraph that one of the items
covered in the report was back-up information to support a true-up TRICOR was
recommending. This information was shared with the audit team.
As mentioned in this audit, page 39, the TDOC Commissioner stated:
“TDOC has paid what TRICOR set as the price for those items and will not
entertain further discussion on the matter.”

Auditor Rebuttal:
To understand the full context involving the above quote, see the red text box in exhibit 1
on page 39. TRICOR’s comment misrepresents TDOC’s full comment.
Creating an invoice that is known to be uncollectable would be in direct opposition of
ethical principles. This would intentionally overstate revenue by the said $3.1 million
which is why an invoice was not created in the system and sent to the customer.
Auditor Rebuttal:
Management’s comment that “Creating an invoice that is known to be uncollectable would
be in direct opposition of ethical principles” is baffling because management did request
payment from the Department of Correction and should have recorded the receivable.
We have TRICOR’s letter to the Commissioner of the Department of Correction dated
March 24, 2015, which states,
“TRICOR will…require a “true up” billing payment of $3,160,311 no later than April 1,
2015.”

See Appendix 3 on page 67. The Department of Correction interpreted TRICOR’s letter as
a demand for payment. TRICOR’s comment that an “invoice was not created in the system
and sent to the customer” (TDOC) is misleading and in contradiction to TRICOR’s letter
to TDOC seeking payment of the $3.1 million.
2.

Management and staff did not promptly follow up on past-due receivables.
We concur and action was taken immediately to correct this issue. The aged accounts
receivables were not promptly followed-up upon however there were many of these
receivables that were not at a point to be considered uncollectable and therefore writtenoff.
Collection efforts have resumed with very successful results. At the point of this
response, invoices totaling $79,899.78 have been collected. Collection efforts will
continue with the expectation of both continuing successful results and that all
government customers will pay. The remaining balance in the allowance for doubtful
accounts is expected to exceed any additional invoices that may need to be written-off.
The auditors note that while they cannot speak to management’s intent to avoid write-offs
no requests had been made to the Comptroller of the Treasury since 2012. It is important
to note that while write-offs did not occur, TRICOR did have an allowance for doubtful
accounts with a balance of $222,537.76. This was not sufficient to cover the total aged
receivables noted in the audit however after applying the proceeds from the allowance for
doubtful accounts, the remaining amount of receivables aged 60 days and beyond would
be approximately $124,000. In addition, when closing out June’s financial results,
TRICOR accounting staff recorded an additional $102,484.56, bringing the total in the
allowance for doubtful accounts to $325,022.32. This is sufficient to cover any aged
receivables determined to be uncollectable.
We have started the final process of the write-off procedures for some of the past-due
receivables. Multiple attempts have been made to collect these debts; however, we have
identified some as non-collectable. In addition, all fiscal employees have read, printed
and signed the Department of Finance and Administration Policy 23. This will ensure all
fiscal employees are familiar with this policy and strict adherence to the policy will be
monitored by supervisors.

3. Management and staff did not accurately report financial information
We concur and corrective action was taken immediately to resolve variances between the
CAFR and the internal financial statements created in the TIMS system. This will remain
an ongoing process.
4. Management and staff did not promptly update their accounting system (TIMS) for the
TRICOR payments processed in Edison and did not properly review vendor payables

We concur and the issue was immediately corrected. Vendor payables are currently
reconciled weekly. Accounts payable in Edison is now compared to accounts payable in
TIMS on a weekly basis to ensure the accounts are in balance and all payables are
recorded as paid in the TIMS system.
This process is manual and requires a double entry in TIMS and EDISON. When the
EDISON system was launched, TRICOR, the TIMS software consulting firm and the
State worked together on an interface for accounts payable to ensure no duplication of
effort was needed to avoid the problem noted above. After considerable time and money
were spent, the interface did not work successfully and the effort was abandoned. As a
result of this audit finding, we have resumed conversations with the Department of
Finance and Administration to develop an automated interface process. If this is
successful, the weakness noted in this finding will not happen again.
5. Management did not ensure adequate segregation of duties for sales invoices and
accounts receivables processes
We concur and this was corrected immediately. While approximately 90% of these
activities were properly segregated at the time of the audit, TRICOR changed the
remaining 10% immediately.
6. Allegations and concerns regarding TRICOR management
We do not concur as noted below:
A. The audit states that management misled the Board of Directors by not divulging that
the budget presented was based on inaccurate financial information.
Auditor Rebuttal:
Our audit results clearly state that we cannot speak to management’s intent of presenting
the budget based on a standard menu price which had not been agreed to by the
Department of Correction. Without full disclosure of financial information presented in
TRICOR’s budget, the board cannot make well-informed decisions.
There was no subterfuge by management with the intent to mislead the board. This
statement is unfounded and we believe these allegations have been made by former
TRICOR employees who were separated from state service.
The auditors reached this conclusion based upon the fact that the budget presented to
the Board of Directors reflected a $3.59 price per day per offender for the standard
menu in place at that time. At the time of the board meeting, the Commissioner had
agreed to a price of $3.15. This price difference however was discussed openly at the
Board meeting with the Board recognizing that there was an evaluation plan in place
to determine whether TRICOR will remain in this business after December 31, 2015.

TDOC now pays TRICOR $3.84 per day per offender for a significantly higher
calorie content meal.
Auditor Rebuttal:
We attended the Board Meeting in question and there was no open discussion of the “price
difference” or that the budget was based on any specific price point during the formal
board meeting. To obtain the price information, we had to request this information
subsequent to the board meeting. We also confirmed with the Department of Correction
personnel present at the meeting that the price information was not openly discussed
during the formal board meeting.
TRICOR’s Board of Directors and management are comprised of a team of
individuals with considerable business acumen who understand how budgeting works
in a sales driven organization rather than a state appropriated agency. TRICOR’s
budget is based upon the best customer and market trending information we have at
the time it is prepared. We must project what will happen based upon this
information. This is similar to how the State of Tennessee prepares its budget which
relies to a great extent on sales tax revenue. Forecasting a budget on sales tax
revenue also requires looking at trends and making certain assumptions.
Planning and preparation, as with most businesses, is based upon the best customer
information available at that time, and the plan must remain flexible to meet the
customer’s needs and expectations.
We monitor our budget very closely and issue monthly financial statements to track
performance. The Sales Division completes a monthly forecast detailing whether they
are behind, on target or ahead of the forecast.
With all the variables to consider, TRICOR’s annual operating budget, with some
exceptions, is very accurate due in large part to a detailed strategic planning process.
B. We believe the allegations of improperly influencing financial reporting were made
by individuals separated from state service by TRICOR. Prior to the recent State
Audit, TRICOR asked all staff members to disclose in writing whether they were
aware of any fraudulent activity at TRICOR. Both of these individuals signed that
they were not aware of any fraudulent activity at TRICOR.
Management categorically refutes any asserted claim that anyone was asked or
expected to do anything improper as it relates to financial reporting. A former
Controller with TRICOR who worked for the former CFO in 2012-2013 and left in
good standing was contacted by TRICOR Human Resources and asked whether
anyone had asked him to do or not do something because it would impact the
TRICOR Incentive Plan. He did not recall being asked to do anything like this and
said if he were asked he would have reported this to a higher level. This individual is
a Certified Public Accountant, a Certified Fraud Examiner and is certified in

Financial Forensics. He worked for the Division of State Audit from 1993-1998 and
was also the Director of Internal Audit for the Department of Finance and
Administration. His credibility is without question.
Auditor Rebuttal:
The former employee was not employed during our audit field work and did not provide
evidence regarding the audit objectives.
Our review shows that if the Accounts Receivable invoices noted in the audit had
been written off, net income would have been sufficient to pay out in full the
TRICOR Incentive Plan. The chart below shows the net income after all incentive
payment accruals for the fiscal years ending 2013 and 2014. There is also a list of
invoices that will be written off and their invoice dates. The information shows that
after calculating the invoices to be written off, less the balance in the allowance for
doubtful accounts, the remaining write off for 2013 would have been $46,428. When
this number is applied against the net income for 2013, the adjusted net income would
have still been sufficient for incentive payments to be paid.
In 2014 there would have been one additional invoice to write off in the amount of
$25,215. Adding this amount to the 2013 totals, the total adjustment would have
been $71,643. When this number is applied against the net income for 2014, the
adjusted net income would have still been sufficient for incentive payments to be
paid.
See the chart on the following page:

TRICOR Table 1
TRICOR
Recorded Net Income Adjusted for Accounts Receivable Write Offs

Net Income after bonus accrual
Adjust for:
A/R Write Off's
Net Income if all adjustments had been made

A/R Invoices to write off:
Customer Number
9005
9005
9005
9011
9011
9011
9275
9275
9275
9275
9275
Total of invoices to write off
Less: Allowance for Doubtful Accounts
Balance remaining to write off 2013
Add 2014 Invoices to write off
9635
Total of invoices to write off 2014

Additional Net Income
Provided by Workforce Development Funds

2013
$ 59,173

2014
$ 89,523

46,428
$ 12,745

71,643
$ 17,880

Invoice Date
Aug‐07
Sep‐07
Oct‐07
Jul‐05
May‐06
Jun‐06
Jan‐09
Jul‐09
Aug‐09
Sep‐09
Oct‐09

Amount
$ 1,464.96
1,778.00
1,615.25
14,403.31
197.87
0.47
1,858.81
127,261.22
96,833.80
20,470.02
4,849.61
270,733.32
224,305.53
46,427.79

Sep‐13

25,215.22
$ 71,643.01

2013

2014

$ 455,999

$ 517,259

*Data obtained from TRICOR TIMS Accounting System

In reference to the allegation of not writing off obsolete inventory, in April 2013
TRICOR wrote of $430,284.50 due to the closure of the Metal Plant. TRICOR is very
conservative when writing off inventory of raw materials or finished goods as the vast
majority of these items have value in the market. In TRICOR’s environment, an item
may be obsolete because the intended customer has discontinued the item, but it has
value and can be sold in another market. We have improved the process in an effort to
move inventory that is no longer used by our customers. This responsibility has been
moved to Sales and Operations to determine what market to sell the items to generate
revenue. This recommendation will be approved by the Chief Financial Officer.
Making this transition will put the focus on the sales team to turn these inventory
items into revenue.
26

The audit report states that TRICOR hired a temporary Chief Financial Officer for 30
days, and they were not informed by management. Following the separation of the
CFO, management entered into an agreement with a staffing organization to obtain an
individual to assist TRICOR with the completion of verifying/validating recent
financial statements and reviewing the Cook Chill cost center for FY 14 and FY15 to
verify the accuracy of information. He was also to review time sensitive processes to
determine our performance against expectations.
This individual did not supervise or manage any person or division during his time at
TRICOR. He did not function in the capacity of the Chief Financial Officer during his
brief time at TRICOR. Due to the temporary status of the agreement and the fact the
individual was not supervising or making decisions on behalf of TRICOR,
management did not realize that they were expected to make the audit team aware of
this temporary hire.
Auditor Rebuttal:
TRICOR management states above that “It has been of the utmost priority of the TRICOR
Board of Directors to operate with complete transparency to ensure the continuing
confidence in the organization.” Since we clearly communicated that our audit objectives
involved our review of TRICOR’s financial information and the Cook Chill program, in
the interest of transparency, management should have informed us of the temporary
employee performing CFO duties and should have communicated any deficiencies he
identified in TRICOR’s financial operations.
The audit team did receive information from Human Resources when our new Chief
Financial Officer was hired.
The final recommendation in the report recommends that TRICOR enter into a
collaborative agreement with the Department of Finance and Administration where we work
together to ensure our systems and processes are sound.
TRICOR welcomes the opportunity to partner with the Department of Finance and
Administration and will pursue a Memorandum of Understanding to solidify objectives.
We would request the Office of Information Resources evaluate whether there can be
additional TIMS and Edison interfaces in an effort to make the sharing of information between
the systems automatic. This was discussed before Edison was launched, and we have only one
successful interface. Now that the system has matured, we would request an updated evaluation
of how this can be accomplished.

Department of Finance and Administration
We concur. The Department of Finance and Administration will, effective October 1,
2015, enter into a memorandum of understanding with the Tennessee Rehabilitative Initiative in
Correction providing for the formation of a collaborative partnership to improve TRICOR’s
financial management practices.
Matter for Legislative Consideration
If the results of the collaborative effort between the Department of Finance and
Administration and TRICOR do not improve the efficiency, effectiveness, and reliability of
TRICOR’S fiscal operations, then the General Assembly may wish to consider statutory changes
to accomplish those objectives.

Finding 2 – TRICOR did not provide adequate internal controls in four specific areas
TRICOR did not design and monitor internal system controls in four specific areas.
Ineffective implementation of internal controls increases the likelihood of errors, data loss, and
inability to continue operations. The details of this finding are confidential pursuant to Section
10-7-504(i), Tennessee Code Annotated. We provided the office with detailed information
regarding the specific conditions we identified, as well as the related criteria, causes, and our
specific recommendations for improvement.
Recommendation
Management should ensure that these conditions are remedied by the prompt
development and consistent implementation of internal controls in four areas. Management
should implement effective controls to ensure compliance with applicable requirements; assign
staff to be responsible for ongoing monitoring of the risks and mitigating controls; and take
action if deficiencies occur.
Management’s Comment
We concur. The issues addressed in this finding have been corrected.

REVENUE CONTRACTS
TRICOR has executed 10 contracts with state and non-state customers to secure revenue.
Through these revenue contracts, the offenders answer phones at call centers, manufacture
flooring, perform data entry services, and manufacture vehicle license plates and decals. From
these 10 revenue contracts, TRICOR secured revenue totaling $16,837,309, from July 1, 2013,
through December 31, 2014. This revenue consisted of $10,548,948 from non-state customers
(six revenue contracts) and $6,288,361 from state entities (four revenue contracts). Two of the

six non-state revenue contracts were Prison Industry Enhancement Certification Program10
contracts with floor manufacturers.
The objectives of our review were to


examine revenue transactions to determine if TRICOR had properly executed
contracts with customers, and



determine whether these revenue contracts were established in accordance with state
statute and TRICOR policies and procedures.

From TIMS, we extracted a list of 2,877 revenue receipts (totaling $60,681,209) from
375 TRICOR customers from July 1, 2013, through December 31, 2014, and compared the
revenue list to established contracts to verify that the reported revenue amounts were associated
with valid contracts. From a population of 10 revenue contracts established between July 1,
2013, and December 31, 2014, we obtained and reviewed all 10 contract files to verify the
existence of executed revenue contracts. We reviewed state statute and TRICOR policies and
procedures to determine whether the contracts were established appropriately.
Based on the procedures performed, we determined that


with the exception of the Tennessee Cook Chill program, management appropriately
entered into contractual relationships with its state and non-state customers; and



the revenue contracts were established in accordance with state statute and TRICOR
policies and procedures.

TENNESSEE COOK CHILL PROGRAM
Background
The Tennessee Comprehensive Food Service Program, also known as Tennessee Cook
Chill, was established in July 1995 under a third-party management fee contract whereby, under
the Department of General Services’ monitoring, a vendor managed the program from a state
facility and was responsible for procuring, preparing, packaging, storing, and delivering prepared
and pass-through food items to state entities in exchange for a management fee and
reimbursement of variable overhead and equipment maintenance expenses. After the vendor’s
contract expired on June 30, 2010, TRICOR took over the Cook Chill program. TRICOR’s
customers include the Department of Children’s Services, the Department of Intellectual and
Developmental Disabilities, the Department of Mental Health and Substance Abuse Services,

The Prison Industry Enhancement Certification Program is designed to place offenders in a realistic work
environment, pay them the prevailing local wage for similar work, and enable them to acquire marketable skills to
increase their potential for successful rehabilitation and meaningful employment upon release.

Prince Foods Systems,11 and the Department of Correction, which is TRICOR’s largest Cook
Chill customer.
Description of Current Process and Relationship with the Department of Correction
TRICOR’s Standard Menu Program
To operate the Cook Chill program from July 1, 2010, to December 31, 2013, TRICOR’s
executive management used a billing model similar to the one developed by the private vendor
who previously operated the program. Under this original model, TRICOR billed the customer
for all direct operating and raw material costs for the program, as well as its management fees.
Effective January 1, 2014, TRICOR implemented the Standard Menu Program for meals ordered
by the Department of Correction. With the Standard Menu Program, TRICOR provides the
department meals kits, which consist of an entrée, side items, condiments, and a beverage, for
offenders housed in its state-run correctional facilities based on orders submitted by the
department. TRICOR bills the department a standard price for each meal kit ordered per
offender per day, based on the number of offenders provided by the department. Under this new
Standard Menu Program, TRICOR does not charge a separate management fee. According to
TRICOR, the purpose of implementing the Standard Menu Program was to


develop, operate, and monitor a four-week standardized menu using the department’s
nutritional and caloric guidelines;



provide breakfast, lunch, and dinner meal kits for offenders;



evaluate vendor sources12 to reduce costs, while maximizing Cook Chill’s capacity;
and



begin other agriculture programs for the department’s consumption.

Cook Chill Ordering Process – Standard Menu Program
The department purchases meal kits from TRICOR’s Cook Chill program to feed the
offender population, as well as the correctional officers, at state-run correctional facilities. To
order meal kits, the department enters a purchase requisition in Edison and emails the completed
purchase requisition to TRICOR. Upon receipt of the department’s requisition, TRICOR staff
enter the corresponding sales order and associated work orders in TIMS. Copies of the sales
order and work orders are sent to the department so department staff can initiate a purchase order
in Edison. Once the purchase order has been entered in Edison, the department sends a copy of
the purchase order to TRICOR so TRICOR staff can process the order for shipment and billing.

Prince Food Systems is a private, for-profit company that operates the Comprehensive Food Programs for the
Department of Mental Health and Substance Abuse Services.
12 Sources for raw materials for food manufacturing and pass-through items ordered by TRICOR to be included in
the meals kits.

Results of Audit Work
Because the Department of Correction is TRICOR’s largest Cook Chill customer, and
based on an allegation we received, we focused our work involving the Cook Chill program on
TRICOR’s business relationship with the department.
At the beginning of our audit fieldwork, we attended the March 13, 2015, board meeting
to gain an understanding of the board’s oversight role and involvement in TRICOR’s operations.
During the meeting, TRICOR’s chief financial officer presented TRICOR’s financial
information to the board and indicated that in the first seven months of fiscal year 2015 (July 1,
2014, through January 1, 2015), TRICOR had lost approximately $2.4 million, primarily due to
the business arrangement with the Department of Correction for the Standard Menu Program. In
our preliminary planning testwork, we determined that TRICOR did not have a formal written
agreement with the department.
Subsequent to the board meeting, we received an allegation involving the Cook Chill
program that focused on concerns about


the business model used for the Cook Chill Standard Menu Program,



TRICOR’s billings to the Department of Correction,



the increasing net loss on Cook Chill operations, and



TRICOR’s executive leadership and potential mismanagement of the Cook Chill
program.

To follow up on the allegation, the objectives of our review were to


determine if TRICOR entered into formal agreements with its Cook Chill customers;



determine why TRICOR has not entered into a written agreement with the
Department of Correction and ascertain TRICOR’s progress toward securing a
written agreement with the department; and



assess the Cook Chill program’s financial position after implementation of the
Standard Menu Program.

To gain an understanding of the current state of the Cook Chill program and the Standard
Menu Program, we interviewed TRICOR board members, TRICOR management, and
Department of Correction management. We also obtained and reviewed several proposed Cook
Chill program agreements, as well as correspondence between TRICOR and the department that
related to these proposed agreements. We obtained and reviewed the program’s financial
reports, which were prepared by TRICOR staff, for the period July 1, 2013, through March 31,
2015.

Based on procedures performed, we determined that


TRICOR management has not executed revenue contracts with any of its state or nonstate customers for goods purchased from the Cook Chill program (see Finding 3);



as of June 19, 2015, TRICOR and department management have yet to establish a
written agreement concerning each entity’s responsibilities in the Cook Chill program
(see Finding 3), and are continuing to work toward refining the Cook Chill program
to increase its future viability (see Results of Further Audit Work on page 45); and



during the Standard Menu Program implementation period covering January 1, 2014,
through March 31, 2015, the Cook Chill program has experienced net operating
losses of $4,004,790 (see Finding 3).

Finding 3 – TRICOR and Department of Correction managements continue to operate the
Tennessee Cook Chill program without executed agreements, resulting in unmet
expectations and a program net loss of more than $4 million
Condition and Cause
TRICOR failed to properly execute a formal agreement with any of its Cook Chill
customers, including its largest customer, the Department of Correction. As illustrated in Table
3 below, TRICOR and the department have attempted to reach a mutually agreeable arrangement
delineating each entity’s responsibilities and expectations, but they have yet to formally execute
a written agreement.
Table 3
Timeline of Proposed Draft Agreements
Date
June 30, 2012

Action
TRICOR and the department’s original Cook Chill program memorandum
of understanding (MOU) expired.
December 6, 2012 According to department management, the department presented TRICOR
with a proposed MOU. This MOU’s term began on July 1, 2012, and
would have ended on June 30, 2013. This MOU was not executed.
July 1, 2013 –
TRICOR and the department began developing the Standard Menu
December 31, 2013 Program, with January 1, 2014, as the expected implementation date.
September 13, 2013 TRICOR presented to the department its own proposed MOU, which
described the new Standard Menu Program. This MOU was not executed.
January 1, 2014
TRICOR implemented the Standard Menu Program without a signed
agreement with the department.
January 26, 2014
According to department management, the department presented TRICOR
with a second proposed MOU relating to the Cook Chill program.
January 26, 2014 – The department did not receive any communication from TRICOR
August 2014
regarding the second proposed MOU.
December 2, 2014 TRICOR presented the department with another proposed interagency
agreement for the Cook Chill program. The department compiled
32

June 19, 2015

comments for the proposed agreement and provided its comments to
TRICOR.
On the last day of audit fieldwork, TRICOR and the department still had
not executed an agreement relating to the Cook Chill program.

Based on our audit work, we summarized below the areas of disagreement that have
prevented either party from securing a written agreement. (For specific details surrounding these
areas, see Exhibit 1 on page 39. Based on our review of the proposed agreements for the Cook
Chill program, none of the proposed agreements addressed the specific concerns raised in the
exhibit.)
1. Upon implementation of the Standard Menu Program, effective January 1, 2014, both
entities reported to us that they verbally agreed on a standard meal kit price of $2.9913
per offender per day. When we requested details to support the $2.99 price
determination, TRICOR management could not provide them; however, based on our
inquiry, TRICOR informed us that the $2.99 rate is below its cost to produce meals.
TRICOR management further stated that they expected the department to order meals
based on an average of 80% of its offender population, and then TRICOR planned to
recoup its meal production costs by billing the department for 100% of its offender
population. However, based on our conversations with department management, we
believe that the department expected to pay for actual meal kits ordered.


Based on our examination of documents obtained from the department, the
department’s commissioner informed TRICOR’s chief executive officer on March
31, 2015, that he did not know how TRICOR arrived at the $2.99 rate, and he was
not aware of TRICOR’s expectation of billing for more meal kits than were
ordered. In fact, the commissioner stated that these specifics had not been
previously discussed.

According to a letter written by TRICOR’s chief executive officer to the
commissioner (see Appendix 1, page 59), both entities agreed to a quarterly
reconciliation process called a “true-up.” The letter specifically states,
To use this rate [the standard menu program rate of $2.99] it was
agreed by you and I that there would be a “true-up” process that would
look at the costs versus billings and if necessary, reconciliation to
either partner would be made based on these numbers.
From our understanding and based on information provided by TRICOR’s chief
executive officer and our review of the fiscal year 2015 true-up sent to the
department, TRICOR has charged an additional cost above the standard menu price
for meals ordered over 100% of the offender population count. Furthermore, based
on our review of TRICOR’s records, TRICOR has never issued any refunds via the
true-up process, as illustrated in Table 4.
13

The DeBerry Special Needs Facility has a standard menu price of $3.10 per offender per day because it does not
have a complete kitchen to prepare meals; the meals for this facility cannot require additional kitchen preparation.

Table 4
Standard Menu Program
True-ups Billed by TRICOR and Paid by the Department of Correction

Billing Period
January 1, 2014 – June 30, 2014
July 1, 2014 – February 28, 2015
Total

TRICOR
Billed
$2,221,199
$3,160,311
$5,381,510

Department
Paid
$1,583,400
$0
$1,583,400

Amount
Outstanding
$637,799
$3,160,311
$3,798,110

Source: TRICOR fiscal staff.



According to the department management’s understanding of the true-up process,
it was designed to provide relief to the department if the department paid for meal
kits it did not receive. Department management stated that they have paid
TRICOR for the true-up charges that the department agreed to pay (e.g., the
department paid the difference to replace white bread with wheat bread).
Furthermore, the department does not agree that it owes TRICOR additional trueup payments to defray TRICOR’s production costs, as the remaining balance due
appears to represent. The department asserts that it has paid TRICOR for every
meal kit ordered, which includes the meal kits served to its correctional officers.14

2. Even though TRICOR considered the Standard Menu Program a pilot program, the
department considered it a permanent change and submitted to the Governor a
recurring budget reduction of $7.1 million beginning fiscal year 2015, based on the
Standard Menu Program’s projected cost savings; the department’s commissioner
discussed the pricing changes in budget hearings held in November 2013.
Conclusion
Since the January 1, 2014, implementation of the Standard Menu Program, the Cook
Chill program reported a net loss of $4,004,790; as a self-funded agency, TRICOR’s reserves
covered the loss as shown in Table 5. As noted in TRICOR’s reported balance sheet from May
31, 2014, through May 31, 2015 (see Exhibit 2 on page 47), the balance for cash and cash
equivalents has decreased over $7.3 million dollars. At this rate, TRICOR cannot continue to
absorb losses through its reserves indefinitely and creates a going concern issue for the agency.

14 TRICOR expected the department to report meals ordered for correctional officers separately from the offender
population because TRICOR based its billing practices only on the offender population. According to TRICOR, the
outstanding balance of $637,799 for January 1, 2014, through June 30, 2014, represents an additional charge for
correctional officers’ meals since the department did not separate correctional officer orders from the offender
population orders on its purchase requisitions.

Table 5
Net Income/(Loss) for the Cook Chill Program
January 1, 2014, through March 31, 2015
(unaudited)
Reporting Period
January 1, 2014, through June 30, 2014
July 1, 2014, through September 30, 2014
October 1, 2014, through December 31, 2014
January 1, 2015, through March 31, 2015
Net Loss from January 1, 2014, through March 31, 2015

Net Income/
(Loss)
$2,944
($695,584)
($1,243,467)
($2,068,683)
($4,004,790)

Source: TRICOR fiscal staff.

Expectations of TRICOR’s Board
During the March 2015 board of directors meeting, the TRICOR board requested
management draft a policy to ensure TRICOR did not enter or begin any business relationship
without a written agreement signed by TRICOR’s chief executive officer or a designee. This
policy is awaiting formal approval by the board.
Criteria and Effect
Section 41-22-403(2)(B), Tennessee Code Annotated, states, “TRICOR has a mission to
offset the costs of incarceration by generating revenue through the sale of products or business
services.”
According to the Amended Procurement Procedures Manual of the Central Procurement
Office, the purpose of an agreement is to formally describe each entity’s duties and
responsibilities, any applicable exchange of funds, and the term for the agreement.
TRICOR’s policies and procedures do not specifically address TRICOR’s responsibilities
in contractual relationships when its role is to provide the goods and/or services (vendor); the
policies and procedures only address instances when TRICOR is the procurer of goods or
services.
Failing to secure agreements with its Cook Chill program customers increases the risk
that TRICOR will not be able to protect its interests, serve its customers, and generate the
revenue necessary to carry out its mission.
Recommendation
The TRICOR board should ensure management establishes policies and procedures that
require written executed vendor agreements that clearly delineate all parties’ authorities,
responsibilities, and fiscal relationships before providing any good or service to customers.

The board should work with management and its customers, particularly the Department
of Correction, to assess the current business model of the Cook Chill program. The board should
develop a plan that will not only be profitable for TRICOR but will also ensure that the state,
through TRICOR’s contractors, gets the best products and services available to fulfill the
agencies’ responsibilities. This plan should also include an exit strategy for each party in case
the program is no longer viable. The exit strategy should provide both TRICOR and its
contractors with reasonable notice so that service disruptions are minimal.
Management’s Comments
Tennessee Rehabilitative Initiative in Correction
We concur with the audit report recommendations.
TRICOR agrees that it is a business best practice to have written agreements with all
procuring parties and as verified by the audit team in this report (page 28) it is TRICOR’s
standard practice. We have revenue contracts with all customers when appropriate except for the
Standard Menu Program with TDOC. The other two customers using product from the Cook
Chill facility comprise less than 1.5% of the total product purchases. These purchases are
appropriately managed with purchase orders in the Edison system.
TRICOR has managed the Cook Chill Operation for five years operating on two business
models. With the exception of year five, it was financially sustainable. For all five years we
saved the State of Tennessee in excess of $10M with few customer concerns related to TRICOR.
The first 3 ½ years was a reimbursement based business model for the customers with no
incentive for either party to be efficient or effective. The last 18 months the business model
proposed to TDOC and we believe accepted, relied on a reduction in food costs (TRICOR),
portion control (TDOC), meal ordering for only the number of those eating (TDOC) and billings
for the full population. While this was a significant shift in the previous operating methods, the
net cost savings for the state was significant; however, the full cost savings under this model was
not realized as noted below.

TRICOR Table 2

FY15 TDOC Meal Order Patterns

TRICOR Table 3

The average price per meal during this period was 99.7¢ for the standard menu. Using an
average order quantity of 80% as reported by TDOC Food Service staff plus an average 8%
spoilage rate, the department had the opportunity to save an additional $3.4M in food costs if
37

ordering quantities were restricted to the average number actually eating (Table 3) rather than the
20.3% over the offender population count (Table 2).
While TRICOR made numerous attempts to have the department sign an Interagency
Agreement, an Operational Agreement and then a Letter of Agreement we were unsuccessful in
fully executing an agreement that would articulate expectations for both partners. In the absence
of a written agreement, TRICOR elected to continue, without interruption or compromise in
service, the provision of all food products to TDOC. We are very familiar with prison
operations, as we operate programs for both the government and the private sector throughout
the state using 90% offender labor. We understand how food is directly tied to a safe and secure
prison system and made a conscious decision not to interrupt services, as the results would be
catastrophic to the system and those working and living in prison daily. TRICOR has and will
continue to focus on transforming lives through effective programs within a correctional system
that costs taxpayers close to one billion dollars each year, so that we can facilitate success after
release for offenders.
As noted in the audit as a recommendation, TRICOR has assessed the current business
model and TRICOR’s price is now calculated on making a margin with every meal ordered
regardless of order quantities.
Department of Correction
We concur. There is no written executed agreement with TRICOR governing the
Standardized Menu Program. As indicated in Table 3 of the Performance Audit Report, there
have been multiple and ongoing attempts by the Department to formalize a written agreement
with TRICOR. The reasons for not having an agreement in place are numerous, but, in the
simplest terms, the agencies have not been able to agree on a mutually acceptable and affordable
scope of work.
The Department concurs with the Comptroller’s summarized areas of disagreement found
on pages 33-34 of the report and stands by its stated positions in the memorandum to TRICOR
dated June 23, 2015 (Appendix 2). Each of the identified areas of disagreement would have a
significant financial impact on the Department. The Department cannot agree to changes in the
program that would exceed our budgetary constraints.

EXHIBIT 1
Memorandum Regarding Standard Menu Program Expectations With Department of
Correction’s Comments
[For Presentation Purposes Only]
The memorandum exhibited below, sent by TRICOR’s chief executive officer (CEO) to
the Department of Correction’s commissioner on March 23, 2015, illustrates both entities’ unmet
expectations for the Standard Menu Program. The text within the purple boxes indicates
department management’s internal comments. According to department management, they did
not send their comments to TRICOR management; they communicated their comments during
subsequent meetings with TRICOR management. The CEO’s original letter is exhibited in
Appendix 1 on page 59.

March 23, 2015
TDOC/TRICOR Partnership
Standard Menu Program
Commissioner Schofield,
Attached please find an analysis of the food ordering by TDOC for the period July 1, 2014 to
February 28, 2015 as well as a “true-up” recommendation from TRICOR. To understand how we
mutually agreed to a “true-up” process, it is necessary to revisit the history of both the Tennessee
Cook Chill (TCC) operation and its relationship with TDOC and the current Standardized Menu
pilot project.
The “true-up” or reconciliation process you mention was initially discussed on February 14th, 2014 and
considered only to protect TDOC from paying for items that were not received. In this specific case, it
was to provide relief for the Department if our actual Kit orders fell below the Population Count which
was to be the basis of the payment to TRICOR.
The “true up” was not conceived or intended to provide TRICOR a mechanism to retroactively increase
the previously agreed upon prices. Furthermore, when the requisition for food orders was amended to
include lines for “Overpopulation” kits in Edison, the need for a “true up” was relieved in its entirety
and, as a result, there has not been one attempted by either party. The “Overpopulation” lines that
TRICOR added to the requisition included prices that equated to $2.99 per day and TDOC did not set
that pricing. Your assertion today that those kits actually cost $6.75 per day is completely unreasonable
– TDOC has paid what TRICOR set as the price for those items and will not entertain further discussion
on the matter.

When TRICOR began management of TCC in July 1,
2010, it operated on a similar model as under the 20
years with the private sector. TRICOR received a
monthly management fee from the customers and all
operational and raw material costs were passed directly
onto the customers. Under private sector management, the contractor purchased all pass-through
items for the department and added a mark-up to each item. TRICOR elected not to assume the
responsibility of pass-through purchasing for the department. This responsibility went back to
the department in an effort to save the mark-up added on by the private sector.
This is inaccurate. The Department did
not order pass through items through
the Sodexo [sic] [contract]. All pass
through items were ordered off [sic] the
Statewide Staple Groceries Contract.

It was the mutual understanding of both TDOC and TRICOR that when the department was
ready to implement a standardized menu with both portion control and strict monitoring of
offender management for both the actual number eating and those individuals eating per meal,
our partnership would move in that direction.
During the 2013 legislative session the ongoing offender food costs became a subject of
conversation with select legislators who were told by private food service companies that the
cost could be as low as $1/day/offender. In an effort to keep the goals of our long-term
partnership on track, TRICOR made a proposal to TDOC to move forward with a pilot program
(See Attachment 1).
The proposal presented to you and then at your request to your leadership team in June 2013
presented an initial mutual goal of reducing offender food costs for TDOC while moving toward
full utilization of the TCC food manufacturing facility. The proposal recommended the following
pilot program for the Standardized Menu only as it represented the significant majority of food
consumed by offenders at that time and the nonstandard menus were in the full control of the
department:
Year 1 (FY 14) – Pilot Program






TRICOR will develop, operationalize and monitor a 4-week standardized menu for
TDOC using as a basis TDOC’s nutritional and caloric guidelines. This will be reviewed
and approved by the TDOC centralized food service team.
The average offender food cost for year one will be at or below $2.99/day. This is a
savings of approximately $4.6M during this first year.
The operational goal in Year 1 is to evaluate additional recipe items and vendor sources
to continue to (a) reduce the daily cost for offender food and (b) maximize TCC capacity.
Research and evaluate similar state’s average daily cost per offender for food and
develop a target to reach by end of Year 1, etc. Goal is long-term sustainability.
Evaluate and begin programs for growing crops which increase TDOC’s ability to move
toward self-sustaining agriculture programs for TDOC consumption.

Benefits:


Immediate impact in reducing food costs while maintaining a 4-week rotation of food.




Place the food management program on a “transition plan” to reach the goal of
sustainable cost reductions while mitigating the risk of prison unrest due to a drastic
change in the food service program.
Standardized menu items will have a centralized ordering system through TDOC and
inventory management at the central and local level will be evaluated and monitored by
TRICOR in conjunction with TDOC central office and site locations.

The pricing and billing model This is inaccurate – as previously discussed, this was not the
explained by TRICOR and used from purpose of the “true up” as agreed to. We never discussed
the beginning of the pilot program was with you or your team or agreed to review your “cost vs.
to offer a low offender cost per day for billings” and pay the difference. It is TDOC’s position that
the Standard Menu which would be the cost TRICOR submitted to Edison should have included
your cost to produce and deliver the items. If it is now your
billed at a rate of the total offender position that the agreed upon price was roughly 1/3rd of
population count. The sites were to your actual costs, while unfortunate, that is not something
order the actual number that would eat TDOC can assist you with. It is still the Department’s
based upon the food service managers’ position that it has paid in full for every item received and
historical information of those eating that the reconciliation bill is in error.
by meal. This model is one of the
standard models used by the private sector when managing food service programs. The food
provider (TRICOR) would offer a low daily rate and the margin would be gained by the
difference of the number of offender meals ordered and the total population count. To use this
rate it was agreed by you and I that there would be a quarterly “true-up” process that would look
at the costs vs. the billings and if necessary, reconciliation to either partner would be made based
upon these numbers.
During the period July 1, 2013 to December 31,
2013 the standardized menu was developed and
approved, processes were developed and
numerous meetings were held between both
departments to explain the new program in
preparation for a January 1, 2014 start date. The
Interagency Agreement was drafted by TRICOR
and provided to TDOC leadership however it was
not executed prior to the start date due to ongoing
questions and clarification needed by TDOC.
Absent the agreement, TRICOR began the new
billing model in good faith that the questions
could be answered and the agreement would be
signed which provided protection for both parties
to ensure that the benefits noted earlier could be
realized. After numerous changes, the agreement
remains unexecuted.

This is inaccurate.
TDOC drafted an
Interagency Agreement, working in concert
with your staff, and sent it to TRICOR in
January of 2014. TRICOR never provided any
feedback on that document until a completely
re-written version was sent to us in December
2014. All TDOC stakeholders were given the
opportunity to review and comment. Those
questions / revisions were returned to your
General Counsel on January 16th, 2015. It
should be noted that during this review,
TRICOR first indicated that a substantial
increase in pricing across the board was
imminent but not reflected in the MOU we
were reviewing, making that review a waste of
time.
No further communication from
TRICOR has been received.

During the period January 1, 2014 to June 30, 2014 two critical events took place that should
have directed changes in the ordering of meals. A meeting was held between you and me and
our leadership teams which outlined the order patterns during the first six month trial period. The

data showed that the department was continuing to order approximately 30% over its population
count and there was an agreement that this would change to reflect orders for those actually
eating and not full population count every day or over population count. (It was recognized that
there were meals such as hamburger or hot dog day that extra entrees were required. It was
agreed that extra entrees could be ordered rather than ordering a full kit.) As a result of these
practices there were two “true up” billings presented to the department for a total of $2.2M for
this time period.
Beginning July 1, 2014 through February 28, 2015 the order patterns did not change consistently
as reflected in Attachment 2 which has resulted in an additional “true-up” billing of $3,160,311.
It is the Department’s position that our ordering pattern is irrelevant to this discussion. TRICOR
established a price in Edison for the items we needed, sent us a bill for those items and was paid in full.
Your staff has commented a number of times this week that TDOC has ordered “2.5 million extra meals”
in FY15, presumably for the shock value. This is pure misdirection and completely irrelevant for two
reasons: 1) We do not base our orders, nor are invoiced, on the number of meals served. 2) TDOC has
ordered more than 22 million meals in to date FY15. Placed in that context, 2.5 million meals represents
8% of our need and an acceptable level of ordering to account for spillage, spoilage and contingencies.

If we evaluate the “why” of where we are today and you look at the benefits of where we wanted
to be by now according to the proposal, you can conclude the following:
Benefits:
Immediate impact in reducing food costs while maintaining a 4-week rotation of food.
The standardized menu has been implemented. The sites order kits by week and by breakfast,
lunch and dinner. The cost per day per offender is $2.99.
There is discussion to change the kit to a per meal ordering as it has been noted by TDOC that
the current kit construction may drive over ordering. TRICOR is willing to make these changes
but also recognizes that an agreed upon process was put in place early to allow the sites to order
extra entrees on days where the entrée drives a higher number of offenders eating.
TRICOR also recognizes that our mutual goal is
Standard menu orders + nonstandard menu orders
should not exceed 100% of the offender population
count. This is not the case. The order guide calls for
separate ordering for correctional officers which
TDOC does not do. This must happen if we are ever
going to truly make savings in food costs
sustainable. You must know where your food is
going.

It is the Department’s opinion that
accounting
for
staff
separately
is
unnecessary. The meals available to the
staff are the exact same as the meals being
fed to the offenders and therefore should be
the same price. To suggest that paying
separately for staff meals is the only way to
sustain savings in food cost is simply not
defendable.

Place the food management program on a “transition plan” to reach the goal of sustainable cost
reductions while mitigating the risk of prison unrest due to a drastic change in the food service
program.
While much progress has been made in this area we are still not to the point where every site
subscribes to portion control or knows how many offenders may be getting both a nonstandard
and standard meal. TRICOR has also noted during site visits where officers are being served
greater portions than the menu allows. This is an issue that must be addressed. It is not
TRICOR’s decision as to whether officers should be eating consistent with the offender
population but rather TDOC’s decision. Even though the order guide calls for ordering for both
offenders and correctional staff, sites do not separate their ordering in accordance with the guide.
Standardized menu items will have a centralized ordering system through TDOC and inventory
management at the central and local level will be evaluated and monitored by TRICOR in
conjunction with TDOC central office and site locations.
At TDOC’s request TRICOR agreed to change our system to allow the site inventory to appear
in Edison. This was to benefit the department and each site for inventory control and audit
reasons. TRICOR would have the capability then to look into Edison to see inventory levels at
each site to determine whether our bill of materials for menu items maybe over or under stated.
On the contrary, TRICOR’s kit ordering
system parameters make the keeping of
accurate inventories and effective control of
ordering in Edison impossible. We look
forward to TRICOR breaking the kit system
down in days instead of weeks and
ultimately abandoning the Kit entirely so
TDOC can order and pay for each
component, as this has long been requested
and ignored by TRICOR.

This information is not uniformly put into Edison
and therefore cannot be monitored to determine
inventory levels. This may be leading to excessive
inventory levels of food at the sites.

In the proposal it noted that after Year 1 we needed
to make a decision. The full Pilot Program was in
effect from January 1, 2014 to December 31, 2015
so the time is now here to decide whether there are course corrections that need to be made to go
forward.
This is simply not accurate. The Standardized Menu Project was never designed or intended to be a
“Pilot” of any kind. It was a permanent change in the way we provide food to the inmate population. The
permanence of this plan is evidenced in the fact that TDOC submitted a recurring budget reduction in
FY15. We did start the program 6 months early to test the process and delivery plans (in December
2014). However, on July 1st, 2015, the program went live and the budget reduction was in place.

TRICOR remains committed to our partnership with TDOC however moving forward will
require immediate changes to the processes and the program overall. TRICOR will be unable to
continue using the model that the program is built on today where we must rely on the
department’s willingness to pay “true up” reconciliation for us to break even. We will also need
an interagency agreement that clearly outlines the responsibilities of each party as we go
forward.

In the interim while decisions are being TRICOR’s inaccurate pricing model is fully
evaluated by the department, TRICOR responsible for any operating deficits being
will need to resume the model used during experienced, not the way the Department is ordering or
the first three years of operation as noted serving the food. Unfortunately, it is not possible to
earlier in this document. The department simply abandon the Standardized Menu Program and
revert to the previously used model – those funds were
will pay the direct cost of what it uses and taken as part of the reduction plan developed in
TRICOR will be paid a monthly partnership with TRICOR and no longer exist.
management fee for operating TCC and
food delivery. If the ordering is done
properly, your costs should not exceed $2.99 for the Standard Menu Program. These changes
will be reflected in an agreement crafted by both agencies general counsels and signed by April
1, 2015.
Sincerely,
Patricia Weiland

Results of Further Audit Work – Tennessee Cook Chill Program
Status of the Standard Menu Program as of July 19, 2015
We attended the June 26, 2015, board of directors meeting, where the chief financial
officer stated that, as of May 31, 2015, TRICOR reported a net operational loss of $5,232,919,
primarily related to the Tennessee Cook Chill program. TRICOR’s chief executive officer
(CEO) made a presentation about the past, present, and projected future of the Standard Menu
Program (see Appendix 3 on page 67). The CEO stated that TRICOR must increase the price of
meal kits to allow TRICOR to remain financially viable; however, the CEO did not specifically
quantify the price increase needed for TRICOR to continue the Cook Chill program.
During the board meeting and as a result of TRICOR’s current financial position, the
board approved a motion for the CEO and the commissioner to determine the future of the
Standard Menu Program by December 31, 2015— either TRICOR will continue to manage the
program or the department will seek another vendor to provide meals at its state-run facilities.
The financial information presented at the June 26, 2015, board meeting is presented in Exhibit 2
on page 47.
We reviewed, but did not audit, the balance sheet presented at the May 31, 2015, board
meeting. Based on our review, we have concerns that the balance sheet is not presented in
accordance with prescribed accounting standards. We noted, for example, that management
reported negative operating cash. We also noted other apparent errors on the balance sheet.
Standard Menu Program Price Increase
At the June 26, 2015, board meeting, the CEO presented the fiscal year 2016 operating
budget based on a standard menu price of $3.59 for Cook Chill meal kits (we were told and
provided evidence by the Department of Correction after the board meeting that TRICOR’s
budget was based on a standard menu price of $3.59). Based on our observation during the
board meeting, neither the board members nor department management discussed the increase of
the standard menu price in regard to the budget. On the day of the board meeting, June 26, the
CEO knew that the Department of Correction had not agreed to this price increase to $3.59, as
evidenced by the letter from the commissioner to the CEO dated June 23, 2015 (see Appendix 2
on page 64).
Subsequent to the board meeting, according to Department of Correction management,
the commissioner verbally agreed to increase the price for the meal kits from $2.99 to $3.15,
effective July 11, 2015. An email between TRICOR and the department, dated July 2, 2015,
confirmed the department’s commitment to the $3.15 rate.
In response to our learning of the price increase, we presented two follow-up questions
regarding the Standard Menu Program to the CEO and received her response (in blue) on July
19, 2015.

1. What new price did TRICOR and the Department of Correction agree to for
meals ordered for the Standard Menu Program? Will the new price allow
TRICOR to remain financially viable?
TRICOR notified the department on June 11, 2015, that the price for the
current standard menu would be increasing to $3.59, effective July 11,
2015. In a subsequent meeting with the department’s Commissioner, he
stated that they were willing to give a 5% increase only, which put the price at
$3.15. It was discussed at that time that there needed to be menu changes to
increase the plate coverage. TRICOR agreed to propose an alternate menu.
TRICOR will not be financially sustainable with the current menu at $3.15
[emphasis added].
2. Did TRICOR and the Department of Correction document the new agreed
upon price in a written agreement? If so, please provide documentation of the
agreement for the new agreed upon price.
A presentation of the new menu and price will occur within the next 10 days.
An agreement is being developed for both parties to sign prior to the effective
date. [This should have occurred by July 31, 2015, 10 business days after July
19, 2015.] The $3.15 price has been changed in Edison which serves as our
contractual arrangement in the interim.
Currently, we are not aware that TRICOR and the department have signed an agreement
for the Standard Menu Program or for the price increase.

EXHIBIT 2
TRICOR’s Statement of Financial Position
Presented at the June 26, 2015, TRICOR Board of Directors Meeting
Source: TRICOR Staff
(unaudited)
TRICOR
STATEMENT OF FINANCIAL POSITION
AT MAY 31
Assets
Current Assets:
Cash:
Operating Cash
Workforce Development Program Contribution
Capital Replacement
Cook Chill Equipment Replacement
Cash and Cash Equivalents

2015

2014

(4,914,811)
1,515,538
4,142,000
2,164,615
2,907,342

3,856,356
957,400
3,574,071
1,807,000
10,194,827

(8,771,167)
558,138
567,929
357,615
(7,287,485)

Accounts Receivable, net
Inventories
Prepaid Expenses
Total Current Assets

4,148,569
4,234,018
275,001
11,564,930

4,075,113
4,153,608
61,063
18,484,611

73,456
80,410
213,938
(6,919,681)

746,296
1,776,981
688,337
2,931,354
6,142,968

746,296
1,458,103
171,635
2,196,017
4,572,051

0
318,878
516,702
735,337
1,570,917

17,707,898

23,056,662

(5,348,764)

1,408,399
3,425,925
499,697
5,334,021

1,888,853
3,070,086
515,356
5,474,295

(480,454)
355,839
(15,659)
(140,274)

30,975
30,975

9,600
9,600

5,364,996

5,483,895

(118,899)

Net Assets
Net Assets, Unrestricted as of June 30, 2014
Add: Net Income (Loss)
Total Net Assets

17,575,821
(5,232,919)
12,342,902

16,969,218
603,549
17,572,767

606,603
(5,836,468)
(5,229,865)

Total Liabilities and Net Assets

17,707,898

23,056,662

(5,348,764)

Capital Assets:
Land
Buildings and Improvements, net of Accumulated Dep.
Leasehold Imp., net of Accumulated Depreciation
Equipment, net of Accumulated Depreciation
Total Capital Assets, net of Accumulated Depreciation
Total Assets
Liabilities
Current Liabilities:
Accounts Payable
Accrued Liabilities
Accrued Payroll and Related Liabilities
Total Current Liabilities
Noncurrent Liabilities:
Customer Deposits
Total Noncurrent Liabilities
Total Liabilities

Variance

21,375
21,375

FOLLOW-UP OF STATEWIDE CONTRACT CONCERNS
TRICOR was created by legislation to assist the Department of Correction with the
rehabilitation of its offender population by placing offenders in manufacturing, business services,
and agricultural jobs to reduce the cost of incarceration by generating revenue through the sale of
products and providing business services. TRICOR’s mission also includes helping offenders
develop marketable skills that they can use post-incarceration.
We received a complaint alleging that TRICOR would not cooperate as a vendor with the
state’s Central Procurement Office (CPO) regarding a statewide contract for staple foods. The
complaint also alleged that the Department of Correction had purchased staple foods to feed the
prison population from TRICOR instead of the statewide contract, spending 75% more per day.
To determine whether the TRICOR/department relationship allowed the department to
continue procuring goods and services at the best possible costs, we compared the item
descriptions from a population of 104 staple food and cleaning product pass-through15 items that
TRICOR sold to the department from July 1, 2013, through December 31, 2014, to items offered
on statewide contracts.16 From the population of 104 items, we found 12 comparable items that
were also available on statewide contracts. We reviewed the prices TRICOR paid for these
items, the prices TRICOR charged the department for the items, and the prices listed on the
statewide contracts, and we analyzed each item’s price per unit. We found that, overall,
TRICOR offered the department a price comparable to or lower than the price offered on the
statewide contract.
The department was bound by the Procurement Procedures of the Central Procurement
Office manual that was in effect when the purchases were made. According to the procurement
procedures, state agencies—and in this instance the Department of Correction—are required to
procure goods and services through statewide contracts that are under the authority of the CPO,
unless the department obtains prior approval to make purchases from another source from the
chief procurement officer or his or her designee. Statewide contracts provide state agencies a
method to procure goods and services at the lowest cost possible because, by negotiating
statewide contracts with vendors, the state can take advantage of the quality, quantity, and
pricing of goods and services, while securing discounts and rebates. In this situation, the
department did not utilize the statewide contract because it had a relationship with TRICOR
(created by legislation) for the purposes stated above.
Matter for Legislative Consideration
The General Assembly may wish to consider the following options:


amending Section 41-22-401 et seq., Tennessee Code Annotated, to require TRICOR
to participate as a vendor on statewide contracts for items TRICOR sells to enable the
state to save money; or

A pass-through item is a finished good purchased for resale.
The list of statewide contracts and items available is found on the Central Procurement Office’s website,
http://www.tn.gov/generalservices/section/central-procurement-office, under the “State Agencies” section.
16



amending state statute to grant the Department of Correction an exemption from
adhering to CPO statewide contract requirements to allow the department to purchase
staple foods from TRICOR instead of through the statewide contract.

PROFESSIONAL SERVICE CONTRACTS
Background
Statutory Authority
TRICOR statutes authorize its board of directors to purchase and contract for materials
and services to develop jobs to train the state’s offenders who are incarcerated within
Department of Correction facilities. Offenders are placed in industrial, business services, or
agricultural programs to help ensure post-incarceration success. TRICOR is also authorized to
procure products or services in order to generate revenue to offset the costs of incarceration.
Specifically, Section 41-22-408(a), Tennessee Code Annotated, authorizes the board to
contract for professional services, for which reimbursement may be established on
an incentive basis, and for the lease or purchase of property and equipment, to be
provided for TRICOR, that is necessary for the efficient discharge of its duties to
manage and operate.
Procurement and Payment Process
According to TRICOR’s internal guidelines, if a TRICOR employee identifies a need for
a professional service contract, the employee then requests that the contract administrator open a
service contract file. Once TRICOR completes its internal procurement process and develops a
contract, it obtains the required signatures from the contractor and TRICOR management.
According to our documented understanding of TRICOR’s internal processes, when a
contract is executed, the purchasing department creates the purchase order, which contains a list
of items or services procured as well as the contract’s costs and payment terms. The TRICOR
employee who initiated the contract receives and verifies the receipt of the contractor’s items or
services and then forwards the receipt to fiscal staff for payment. Once the fiscal staff receive
verification of the receipt of goods or services, they enter the vendor invoice information into the
TRICOR Integrated Management System (TIMS) 17 and perform a manual three-way match of



the vendor invoice (which contains the contract number, purchase order number, and
an itemized list of items or services procured by TRICOR);



the receiving receipt (which contains the purchase order number and the itemized list
of items or services procured); and



the purchase order (which contains items or services ordered by TRICOR).

TRICOR’s accounting system.

Once the match is complete, fiscal staff initiate the payment in TIMS. Every night, the TIMS
transactions are uploaded into Edison, the state’s accounting system, which ultimately issues the
payment to the vendor.
Results From the Prior Audit
In TRICOR’s July 2013 performance audit report, we reported a finding involving
weaknesses with TRICOR’s processing of professional service contracts. Specifically, we
reported the following:


management had not established written guidelines to create, administer, or monitor
professional service contracts;



management paid vendors for services provided before the contracts were legally
binding;



management paid vendors over the contract’s maximum liability amount; and



management approved and paid vendor invoices that contained errors.

We also recommended that TRICOR management improve their process to procure goods and
services through professional service contracts by documenting the vendor selection process and
by improving the contract review and approval processes.
In their response to the prior audit finding, management concurred and stated that
TRICOR has taken all steps necessary to strengthen procedures and controls over contracting.
Management’s corrective action stated that in order to address the weaknesses identified,
TRICOR changed its purchasing procedures, improved controls over processing invoices for
contracted services, and strengthened internal processes.
Results From Current Audit Work
The objectives of our review of the prior audit finding and management’s corrective
action were to determine whether management, since the prior audit report’s release,


procured goods and services through professional service contracts in accordance
with TRICOR’s revised policies and procedures;



implemented controls to ensure vendor payments were accurate and pursuant with
contract terms; and



monitored the contract payments to ensure the total payments did not exceed the
contract maximum liabilities.

To meet our objectives, we discussed the prior audit finding with management to
determine the status of corrective action. We conducted a walk-through with key personnel in
the Legal and Contract Services area and the Business Support Services area to document
management’s and staff’s processes for initiating requests for professional services, preparing the
contracts, and procuring and paying for these services.
50

For all 14 professional service contracts that management initiated between July 1, 2013,
and December 31, 2014, we obtained and reviewed all contracts and procurement
documentation, totaling $3,724,144. We tested these professional service contracts to determine
if TRICOR procured these services in accordance with TRICOR policies and procedures. We
then reviewed all of these contracts’ purchase orders and vendor payments in TIMS and traced
these transactions to Edison to ensure all payments recorded in TIMS were appropriately
processed in Edison. Finally, we tested the purchase orders and vendor payments to determine if
management appropriately issued the payments for the correct amounts.
We also obtained and analyzed all 26 professional service contracts, totaling $5,711,266,
in which the scope of service was effective any time during the period July 1, 2013, through
December 31, 2014. We extracted from TIMS all posted payments issued on each of these
contracts to determine if total payments for each contract exceeded the contract’s maximum
liability.
Based on procedures performed, we determined that management


followed its written policies and procedures and processes when procuring goods or
services except for two professional service contracts, for which TRICOR allowed a
vendor to perform services before a contract was executed and did not obtain
signatures on all required contract attachments;



did not improve contract controls sufficiently to
appropriate (see Finding 4); and



still did not monitor contract payments to ensure the contract maximum liability was
not exceeded (see Finding 4).

ensure vendor payments were

Finding 4 - Despite implementing corrective action since the prior audit, management’s
controls over monitoring professional service contracts require additional improvements
Based on the work performed, we determined that TRICOR took certain corrective
actions to


revise written procedures to address professional service contracts within its
purchasing procedures manual,



maintain documentation of the vendor selection process,



standardize the use of the contract routing sheet with each professional service
contract to document review and approval of all management involved in the
contracting process, and



execute TRICOR’s contracts before vendor payments were made.

Despite the corrective actions taken by management, however, we determined that
management still had not implemented sufficient controls to effectively monitor contract
payments to prevent improper payments.18
Condition and Cause
1. From our review of all 14 professional service contracts (and associated procurement
documents and payments) that management initiated between July 1, 2013, and
December 31, 2014, we found that TRICOR does not have a process to detect
duplicate contract payments. Specifically, TRICOR paid $413 to one contractor for
the same service on two separate invoices. The contractor identified the duplicate
payment and refunded TRICOR $413 on September 17, 2014.
2. From our review of all 26 professional service contracts with scope periods effective
anytime from July 1, 2013, through December 31, 2014 we found the following:


For one professional service contract, TRICOR’s total payments to the vendor
exceeded the contract’s established maximum liability.
o The contract’s maximum liability was established at $132,270. Even though
TRICOR properly established a purchase order, staff still paid the vendor a
total of $144,670, exceeding the maximum liability by $12,400. When
calculating the contract’s maximum liability, TRICOR staff did not include
the optional training described in the contract’s payment methodology; thus,
they incorrectly established the maximum liability for the contract.



We also identified additional control deficiencies involving TRICOR’s contract
payment review process. Specifically, we found that the Accounts Payable staff
within the Business Support Services area did not review contract files prior to
processing payments to ensure the payments were proper. Accounts Payable staff
rely solely on the contract’s initiator to monitor the vendor’s services and to
determine whether the vendors should be paid.



For five contracts, TRICOR staff issued more than one purchase order; however,
staff did not have a process in place to ensure contract payments against multiple
purchase orders did not exceed the contract’s maximum liability. For one
contract, staff did not establish a purchase order, a tool to ensure contract
payments do not exceed the contract’s maximum liability.

3. In TRICOR’s 2014 documented risk assessment, management identified the risk that
expenditures would not be recorded against the proper purchase order or contract.
Accordingly, management identified the control to mitigate this risk as TIMS
“requires a three-way matching of purchase orders, receipts, and invoices before
invoices can be paid.” The controls within TIMS, however, are designed to prevent
18

An improper payment occurs when TRICOR pays the wrong contractor, pays the contractor the incorrect amount
of funds, or pays the contractor for services outside the contract’s term or in excess of the maximum liability.

payments from exceeding the total value of one purchase order, not multiple purchase
orders. Management did not identify a control to mitigate the risk when payments
actually involve multiple purchase orders. Furthermore, during our audit work, we
learned that Accounts Payable staff manually match the purchase orders, receiving
receipts, and vendor invoices before invoices are paid; therefore, staff did not have a
systematic process as the risk assessment implies.
Criteria
Management is responsible for establishing internal controls and developing policies and
procedures. TRICOR does not have a policy that addresses preventing duplicate contract
payments or exceeding contract maximum liabilities.
Effect
By not developing policies and procedures and properly designing and implementing
adequate controls, management increases the risk of staff making improper contract payments
that could negatively impact TRICOR’s financial position.
Recommendation
Management should ensure that fiscal staff monitor professional service contract
payments to prevent duplicate payments and to ensure contract payments do not exceed the
maximum liability amount. If management determines additional policies and procedures are
required, management should submit the policies and procedures to the board of directors for
approval in accordance with Section 41-22-406(b), Tennessee Code Annotated.
Management should also continue to assess all risks in TRICOR’s documented risk
assessment, including the risks noted in this finding. In addition, TRICOR’s board of directors
should adequately document and approve the risk assessment and the mitigating controls. The
board should implement effective controls to ensure compliance with policies, procedures, and
other instructions; assign employees to be responsible for ongoing monitoring of the risks and
any mitigating controls; and take action if deficiencies occur.
Management’s Comment
We concur. TRICOR has improved our controls in the area of professional service
contracts through strengthening written processes, evaluating the TIMS system to ensure we are
using all automated controls and holding management accountable for adequate oversight.

TRICOR’S ANNUAL RISK ASSESSMENT
Background
Section 9-18-104, Tennessee Code Annotated, requires the head of each state agency and
higher education institution to conduct an assessment of the risks and systems of internal control
in accordance with the guidelines established by the Department of Finance and Administration,
in consultation with the Comptroller of the Treasury. According to Section 9-18-102, the
objectives of this risk assessment are to provide reasonable assurance of
(1) Accountability for meeting program objectives;
(2) Promoting operational efficiency and effectiveness;
(3) Improving reliability of financial statements;
(4) Strengthening compliance with laws, regulations, rules, and contracts and
grant agreements; and
(5) Reducing the risk of financial or other asset losses due to fraud, waste and
abuse.
Section 9-18-104 also requires the head of each state agency and higher education
institution to submit an annual Financial Integrity Act report to the commissioner of the
Department of Finance and Administration and the Comptroller of the Treasury by December 31
of each calendar year. In this report, management of the agency or institution (1) acknowledges
responsibility for establishing, implementing, and maintaining an adequate system of internal
control and (2) states whether an assessment of risk performed by the agency or institution
provides reasonable assurance of compliance with the objectives of the assessment as specified
in statute. In the event that an agency’s or institution’s assessment does not provide reasonable
assurance of compliance with the objectives of the assessment, as stated in the statute, the report
is to include a corrective action plan. In addition to the management report, the State of
Tennessee’s Management’s Guide to Risk Management and Internal Control, published by the
Department of Finance and Administration, states that the Financial Integrity Act report package
should include the completed checklist and documentation of the risk assessment.
Results of Audit Work
The objectives of our review of TRICOR management’s risk assessment process were to


determine whether management formally assessed the agency’s risks of errors, fraud,
waste, and abuse;



evaluate whether management included risks for each operation, as well as risks
related to the prior audit finding;



ascertain if management listed control activities to prevent or minimize risk for each
risk item identified; and



determine if TRICOR management submitted its risk assessment in accordance with
Section 9-18-104, Tennessee Code Annotated.

To gain an understanding of management’s risk assessment process, we interviewed
appropriate agency personnel and documented management’s process for preparing the risk
assessment. We reviewed and compared the 2014 risk assessment with both the 2013 and 2010
submitted risk assessments, as well as with the prior audit finding. We also reviewed the
Department of Finance and Administration’s and the Comptroller of the Treasury’s records to
determine when TRICOR submitted its risk assessment.
Based on our review, we determined that


management prepared a risk assessment annually but did not always formally submit
the Financial Integrity Act report package to the Department of Finance and
Administration and the Comptroller of the Treasury annually by the December 31
deadline (see Finding 5);



management included risks for each operation, as well as risks related to one prior
audit finding, but management’s process still needs improvement related to the
preparation and review of the risk assessment (see Observation 1); and



management listed control activities to prevent or minimize risk for each risk item
identified.

Finding 5 – Management failed to submit a Financial Integrity Act report package for two
consecutive years
Condition
While management did prepare the 2013 and 2014 annual risk assessments, they did not
submit the Financial Integrity Act report packages, which consist of a management report,
checklist, and risk assessment, to the commissioner of the Department of Finance and
Administration and the Comptroller of the Treasury by December 31, 2013, and December 31,
2014, in accordance with state statute.
Criteria
Pursuant to Section 9-18-104(a), Tennessee Code Annotated, the head of each state
agency and higher education institution is required to prepare and transmit to the commissioner
of the Department of Finance and Administration and the Comptroller of the Treasury a report of
management’s assessment of risk by December 31, 2008, initially, and then by December 31 of
every year thereafter. According to the State of Tennessee’s Management’s Guide to Risk
Assessment and Internal Control, management should submit the management report, the
checklist, and the risk assessment.

Cause
Management did not ensure that the report package was submitted by the December 31
deadline for either 2013 or 2014.
Effect
By not submitting the Financial Integrity Act report package annually by December 31,
management cannot document TRICOR’s compliance with state statute by ensuring that they are
properly assessing risk and implementing mitigating internal controls.
Recommendation
The chief executive officer should ensure the complete Financial Integrity Act report
package is submitted by December 31 of each year as required by statute.
Management’s Comment
We concur. As the audit notes, the annual risk assessments were completed, presented
and approved by the TRICOR Board of Directors, but the Department of Finance and
Administration does not have a record of their receipt and TRICOR’s Chief Financial Officer
could not find evidence that she submitted the reports by email or hand delivered.
TRICOR’s process for overseeing all such reports is sound. TRICOR maintains a
“Timeline” of external reports due to all outside entities, which is monitored monthly. However,
our process did not require that reports be sent by courier, where a receipt would be obtained to
ensure both TRICOR management and the Department of Finance and Administration that the
assessment was submitted. This has now been added to the process and appropriate
documentation will be maintained in the future.

Observation 1: Management’s risk assessment process needs improvement
The State of Tennessee’s Management’s Guide to Risk Management and Internal
Control, published by the Department of Finance and Administration, holds the agency head
responsible for helping to design, implement, and maintain internal control systems. The risk
assessment is a tool that management utilizes to aid in the design, implementation, and
maintenance of its internal control systems.
We performed an in-depth review and comparison of the 2014 risk assessment to the
2013 and 2010 risk assessments. From our comparison, we found that management did not
adequately prepare and review its 2014 annual risk assessment. We identified the following
areas of the risk assessment that need improvement:


14 risks and control activities were duplicated in Part 1 of the risk assessment;



subheadings that separated the different operations of TRICOR were removed,
making it more difficult to ensure all operations were assessed and creating the
appearance of 27 duplicated risks; and



35 risks were removed but were still applicable to current operations, including risks
related to information system recovery, employee relations, financial statements, and
other financial matters.

The chief executive officer (CEO) should implement a documented and approved process
to ensure management adequately reviews its risk assessment. The process should include
removing risks that are no longer applicable. In addition, the CEO should consider adding
subheadings to the risk assessment to identify the areas of operations and their risks. When we
discussed this issue with the CEO, she agreed to institute procedures for removing risks that were
no longer applicable and to reintroduce the subheadings in future risk assessments.

AUDIT COMMITTEE
Observation 2 – TRICOR board’s audit committee needs to exercise more oversight over
TRICOR management
As a state governing board that is responsible for the preparation of financial statements,
whether included in the financial statements of other entities or free standing, the TRICOR board
is required to create an audit committee pursuant to the State of Tennessee Audit Committee Act
of 2005, Title 4, Chapter 35, Tennessee Code Annotated. In addition, the audit committee is
required to develop an audit committee charter, subject to approval by the Comptroller of the
Treasury.
As described in Section 4-35-105, TRICOR board’s audit committee’s responsibilities
include, but are not limited to,


overseeing the financial reporting and related disclosures, especially when financial
statements are issued;



evaluating management’s assessment of TRICOR’s system of internal controls; and



informing the Comptroller of the Treasury of the results of the assessment and
controls to reduce the risk of fraud.

In their audit committee charter, TRICOR’s audit committee further defined their
responsibilities, such as


reviewing significant accounting and reporting standards;



reviewing the financial statements and the Comprehensive Annual Financial Report;



reviewing TRICOR’s internal control structure, including the adequacy of internal
controls for compliance with policies, procedures, laws, and regulations;



reviewing management’s risk assessment, including processes in place to assess risk
such as fraud; and



reviewing management’s assertion that internal controls are effective and adequate.

This audit identified issues with TRICOR’s financial reporting process, including its
financial information and preparation (see Finding 1); TRICOR’s handling of the Tennessee
Cook Chill program and the Standard Menu Program (see Finding 3); TRICOR’s deficient
internal controls regarding professional service contract payments (see Finding 4); and
management’s risk assessment process (see Observation 1).
The audit committee is empowered by Section 4-35-106, Tennessee Code Annotated, to
do what it deems necessary to carry out its responsibilities. We recommend that the audit
committee directly oversee the corrective action process to address the deficiencies in this audit.
The audit committee should seek assistance directly from and have direct access to all TRICOR
management and staff, auditors, legal counsel, and others deemed necessary to ensure proper and
swift corrective action is taken.

APPENDICES

APPENDIX 1
Original Memorandum from TRICOR’s CEO to the
Department of Correction’s Commissioner
Dated March 23, 2015
[For Presentation Purposes Only]

APPENDIX 2
Department of Correction’s Response to TRICOR’s CEO’s Memorandum
Dated June 23, 2015

APPENDIX 3
TDOC/TRICOR Partnership Standard Menu Program Letter of Agreement
Dated March 24, 2015

APPENDIX 4
Standard Menu Program Overview
[For Presentation Purposes Only]
The following document was presented by TRICOR’s chief executive officer to the board
of directors during the board meeting on June 26, 2015. Members of the Department of
Correction’s executive team were also in attendance. This document provided the board an
overview of the past, present, and projected future of the Standard Menu Program.

Standard Menu Program

Phase I
● Transition of the Cook Chill facility from the private sector to TRICOR occurred five
years ago.
●TRICOR and the Department of Correction (DOC) maintained the Department of
General Services/Sodexho business model for three years. Direct billing for operational
and raw material costs plus a management fee.
●Model was stable for TRICOR based upon a standard management fee however
ordering was inconsistent and made it difficult to plan and gain economies of scale. Costs
were escalating for DOC. Customer wanted to move to a per day or per meal cost based
upon a standardized menu.
Lessons Learned
●Absent a standard menu, ordering at the facility level of additional products was driving
up food costs.
●Not all sites were ordering product from the Cook Chill Facility so the facility remained
underutilized.
●To maximize the use of the Cook Chill Facility and control costs at the institutions, a 28
day standardized menu should be developed with oversight of food ordering, portion
control, warehouse management and kitchen management.

Standard Menu Program

Phase II
● The development of a standardized menu – 28 day cycle- nutrient dense.
● After significant discussion TRICOR offered a low-cost $2.99 per day/offender price
for the standardized menu program (SMP) Specialty meals were priced according to each
individual menu. Margin for TRICOR was to be gained based upon the difference
between the number meals ordered vs the total offender population.
Lessons Learned
●The pricing model used by TRICOR was not financially viable for TRICOR to sustain
as the food service program was structured. While this is a pricing model often used by
the private sector, it is effective when used in concert with the management of a full
service food program.
● For this venture to achieve sustainable and reliable savings for the Department and be a
long-term financial viability program for TRICOR it will be necessary to move to a full
service food program model under the management of TRICOR.
Adopting a price structure that has a lower average cost per day for a Standard Menu, the
entity supplying the food must also have full control over ordering, serving, warehousing,
portion control, kitchen management, etc. To maintain the model as is will require a
higher average cost per day for the entity providing the food.
●Specialty menus should have a separate budget and should not affect the Standard Menu
budget. This is a constantly moving variable which depends entirely at this point on the
health care provider’s determination at each facility that an individual qualifies for a
special meal.
●When determining the menu, it should be clearly identified that the menu is based upon
XX or YY. The current menu is “nutrient dense” which affects the cost considerably.
TDOC inmates housed at Southcentral Correctional Complex which is operated by CCA
are provided a menu that contains more carbohydrates, sugar, etc. thus lowering the cost
to produce. You cannot maintain a low daily cost for a nutrient dense menu.
●The value of inmate programming is paramount in this equation to TRICOR.
Management of the full Food Service Program will impact TRICOR’s ability to serve
more offenders. TRICOR’s Parole Readiness Program, which is approved by TDOC,
supplants TDOC’s provision of these services to TRICOR programmed offenders. This
assists TRICOR to have an impact on a greater percent of the offender population and
results in a direct cost savings to TDOC.

Standard Menu Program
Phase III (Recommendations for going forward)
Phase III is the transition to a full service food management program managed by
TRICOR within the DOC facilities.
1. The cost of the current standard menu will be increasing effective July 11, 2015.
TRICOR must do this to remain financially viable.
2. An alternate menu is being developed by TRICOR to maximize plate coverage at the
request of TDOC. The current CCA menu is being evaluated as well as other less nutrient
dense menus in an effort to keep the per meal cost reasonable and provide sufficient food
for the offender population. The menu will be provided to TDOC for approval. An
aggressive implementation plan will be developed and executed.
The menu price of #1 above or #2 (if selected) will remain in effect until June 30, 2016 at
which time a predetermined price escalator will go into effect. TRICOR will work with
TDOC during the budget cycle to determine needed price adjustment based upon
inflation and/or ongoing/predicted fluctuating market conditions that cannot be corrected
by menu changes.
3. TRICOR will request Washington State Correctional Industries visit Tennessee to present
its program to both TDOC and TRICOR. They are in the third phase of the transition to
full service Food Management. We can learn from what they have experienced.
4. TRICOR is recommending a consultant be hired by TRICOR to evaluate TDOC’s food
service needs and develop a plan which will move the current program into Phase III.
Feedback will be gained to evaluate the current operational model, understand the
expectations of the new model and develop a plan with costs involved to achieve the
expected results.
The model will be based on a two component price structure,
 the cost of the menu per meal, and
 an administrative fee for kitchen management at each facility.
The results of the consultant’s evaluation will be restricted to both TDOC and TRICOR
as the information may be used by TRICOR to respond to an RFP in the event this
occurs.
5. TRICOR will evaluate the results and determine if it remains interested in pursuing Phase
III of the program plan.
6. TDOC will evaluate the results and determine if they meet the needs of the department
and may therefore pursue Phase III of the program plan with TRICOR as the provider or
another potential provider.

7. It will be understood that TDOC continues to reserve the right, after the study and plan is
released and evaluated, to issue an RFP for the services. TDOC also understands that
TRICOR may use the results of the study/plan to submit a response to the RFP therefore
any information gained through these consulting services will be confidential until after
an RFP has been released and an award made.
8. This process will be completed by December 31, 2015.

APPENDIX 5
Tennessee Rehabilitative Initiative in Correction
Staff Positions by Gender and Ethnicity
as of May 1, 2015
(Unaudited)
(Source: Tennessee Rehabilitative Initiative in Correction Human Resources Director)
Job Title

TRICOR ACCOUNT SPECIALIST
TRICOR ACCOUNTING
MANAGER
TRICOR ACCOUNTING
TECHNICIAN
TRICOR ACCOUNTING
TECHNICIAN 2
TRICOR ADMINISTRATIVE
ASSISTANT
TRICOR ASST CHIEF OPS
TRICOR BUILDING TRADES
MANAGER
TRICOR BUSINESS
DEVELOPMENT MANAGER
TRICOR BUYER PLANNER
TRICOR CHIEF OPS OFFICER
TRICOR CLIENT CONTRACT
SPECIALIST
TRICOR COMMERCIAL DRIVER
TRICOR CONTROLLER
TRICOR COOK CHILL
CUSTOMER RELATIONS
SPECIALIST
TRICOR COOK CHILL
DISTRIBUTION SUPERVISOR
TRICOR COOK CHILL ENV SVS
SUPERVISOR
TRICOR COOK CHILL LEAD
TRICOR COOK CHILL MANAGER
TRICOR COOK CHILL
PURCHASING MANAGER
TRICOR COOK CHILL
SUPERVISOR
TRICOR CUSTOMER RELATIONS
MGMT SPEC
TRICOR CUSTOMER SUPPORT
MANAGER
TRICOR DAIRY SUPERVISOR
TRICOR ENV HEALTH & SAFETY
SPECIALIST
TRICOR EXECUTIVE ASSISTANT

Gender
Male Female

White

Black

Other

1
1

1
1
1

1
4
1

5
1
1

1
1

American
Indian

1
1

Ethnicity
Hispanic
Asian

1
3

1
1

Job Title

TO THE CEO
TRICOR EXECUTIVE ASSISTANT
TRICOR EXECUTIVE DIRECTOR
TRICOR FACILITIES MANAGER
TRICOR FARM ASSISTANT
MANAGER
TRICOR FARM SUPERVISOR 1
TRICOR FARM SUPERVISOR 2
TRICOR FLOOR SUPV MFG
TRICOR FLOOR SUPV
PRODUCTION
TRICOR GENERAL MANAGER
OF INFORMATION SYSTEMS
TRICOR GOVT & COM
RELATIONS DIRECTOR
TRICOR HUMAN RESOURCES
MANAGER
TRICOR INDUSTRIAL PROD
SPECIALIST
TRICOR INDUSTRY HR MGR 1
TRICOR INFO SUPP SPECIALIST
TRICOR LEARN & DEV
GENERAL MANAGER
TRICOR LEGAL COUNSEL
TRICOR MANUFACTURING
SUPP-SP
TRICOR MANUFACTURING
SYSTEMS SPECIALIST
TRICOR MARKETING COM
MANAGER
TRICOR MFG PRODUCTION
SPECIALIST
TRICOR OFFENDER SERVICES
COORDINATOR
TRICOR OPERATIONS
MANAGER 1
TRICOR OPERATIONS
MANAGER 2
TRICOR OPERATIONS
MANAGER 3
TRICOR OPERATIONS
MANAGER OF CONSUMABLES
TRICOR PAYROLL SPECIALIST
TRICOR PIE COMPLIANCE
MANAGER
TRICOR PRODUCT MANAGER
TRICOR PRODUCT SPECIALIST
TRICOR PRODUCTION
MANAGER 1
TRICOR PRODUCTION

Gender
Male Female

White

Black

1
1
1

2
1

1
2
4
4

2
5
5
2

1
1
3

American
Indian

2
1

1
1

1
2

2
1
1

1
2
1

6
1

Other

1
1

Ethnicity
Hispanic
Asian

Job Title

MANAGER 2
TRICOR QUALITY CONTROL
SUPERVISOR
TRICOR QUALITY CONTROL
TECHNICIAN
TRICOR SALES & MARKETING
DIRECTOR
TRICOR SENIOR PROJECT
ADMINISTRATOR
TRICOR WAREHOUSE
MANAGER
Totals

Gender
Male Female

White

American
Indian

Other

1
1

1
60

Black

Ethnicity
Hispanic
Asian

1
1

1
85

APPENDIX 6
Tennessee Rehabilitative Initiative in Correction
Board Members by Gender and Ethnicity
as of May 1, 2015
(Unaudited)
(Source: Tennessee Rehabilitative Initiative in Correction Human Resources Director)

BOARD MEMBER

Gender
Male
Female
7
3*

White
8*

Ethnicity
Black
Hispanic
1
1

*The board is made up of nine voting members (including the chief executive officer of TRICOR) and the
commissioner of the Department of Correction.

APPENDIX 7
Performance Measures Information
As stated in the Tennessee Governmental Accountability Act of 2013, “accountability in
program performance is vital to effective and efficient delivery of government services, and to
maintain public confidence and trust in government.” In accordance with this Act, all executivebranch state agencies are required to submit annually to the Department of Finance and
Administration a strategic plan and program performance measures. One of the Department of
Correction’s priority goals, reported in April 2015 on the Governor’s Customer Focused
Government Monthly Results website, relates to TRICOR as follows.
Performance Standards and Measures
Performance Standard 1: Provide comprehensive services to address barriers to offender success
in the community.
Purpose of the Goal: Ensuring that available resources are delivered to offenders on the basis of
assessments to increase successful reintegration into the community.
Measuring the Goal:
Number of offenders receiving
programming in the community
Number of offenders receiving
programming in prisons
Percent of offenders who are recipients of
resources on the basis of assessment

Baseline
3,073

Current
3,022

Target
3,010

6,950

7,166

7,300

98%