Office of the State Auditor

Special Review

Keys to Success

Improving Accountability, Contract Management &
Fiscal Oversight
at the Department of Corrections

Elizabeth M. Ready
Vermont State Auditor
Issue Date: May 26, 2004

Mission Statement
The mission of the State Auditor’s Office is to be a
catalyst for good government by promoting reliable and
accurate financial reporting as well as promoting
economy, efficiency and effectiveness in State government.

Cover Photo: Northwest State Correctional Facility in Swanton.
Courtesy of the Department of Corrections

Office of the State Auditor
Improving Accountability, Contract Management & Fiscal Oversight
at the Department of Corrections

Table of Contents
Message from the Auditor ................................................................ page 3
Section One: System-Wide Issues ................................................... page 7
A. Contract Bidding .................................................................. page 9
B. Contract Payments .................................................................. page 12
C. Contract Monitoring ................................................................. page 18
Section Two: Medical Services Contract ............................................. page 23
A. Ineffective Financial Oversight ........................................... page 25
B. Insufficient Quality Assurance ........................................... page 43
C. Questionable Procedures for Contract Bidding,
Amendment & Assignments ............................................... page 51
Section Three: Out-of-State Housing Contract ............................ page 61
A. Contract Bidding ................................................................ page 63
B. Fiscal Oversight ................................................................. page 66
Section Four: Inmate Programming Contracts ............................. page 69
A. Contract Bidding ................................................................ page 71
B. Contract Payments ............................................................ page 75
C. Contract Monitoring ........................................................... page 78
Purpose, Authority, Scope & Methodology ..................................... page 85
Sidebars
Elements of an Effective Contract Monitoring System ..................... page 11
How Other New England States Provide
Key Medical Services to Inmates ..................................................... page 37
Appendix A:

Department of Corrections’ Response to Draft Report

Appendix B:

Correspondence Regarding Out-of-State Housing

Appendix C:

Letter of Engagement

Northern State Correctional Facility in Newport

“Ideally, there should be continuous and thorough
dialogue between prisoners and prison officials regarding the
conditions of confinement. This would enable the managers
to be fully informed when they made their decisions on
facility operations. Unfortunately, too many prison
administrators think they are all-knowing, and they view
prisoner input negatively. In the past couple months
I have witnessed several incidents of retaliation against
concerned prisoners at this facility.”
- from a letter written by inmate James Quigley to the Office of the
State Auditor in September 2001. Mr. Quigley committed
suicide at Northwest State Correctional Facility in Swanton on
October 17, 2003, 118 days after being placed in solitary
confinement.

Message from the Auditor

T

his review of selected contracts at the Department of Corrections (DOC) was
requested by a number of legislators, State employees, and citizens. It demonstrates that since 2000, the DOC has neglected to properly manage key contracts, valued at nearly $50 million, with private companies and individuals.
The failure to monitor its contracts has resulted in significant financial impacts,
services that were paid for and not received, and, in some cases, serious reports of
poor living conditions, substandard medical and dental care, and inadequate programming for inmates.
We found several key findings with financial implications:
1. The DOC routinely allowed its health
services contractor, Correctional Medical
Services (CMS), of St. Louis, MO, to bill the
State for full health care staff coverage at all
correctional facilities without reducing bills or
assessing penalties. We estimate questioned
costs related to insufficient staffing by CMS
to be $144,547, based on testing selected
records for a six-month period. Further
review of other time periods could
identify additional questioned costs.
2. The DOC has failed to deduct from CMS
invoices the amount of money that the State
contributed to the Vermont Health
Assistance Plan as required by the contract.
Our Office estimates the amount
due the State from CMS is $166,540.

Contractors are getting a
new message from the
DOC since legislators
asked this Office to
undertake this review.
The health services
contractor CMS, for
example, has recently
credited the DOC more
than $100,000 for missed
staff hours.

3. The DOC allowed nearly 75 percent of
mental health pharmaceutical prescriptions to be more costly “off-formulary”
prescriptions. The CMS pharmacy receives a 12 percent “overhead” fee for
labor, packing and shipping of drugs. These two factors have contributed to
the State paying $239,643 in additional pharmacy charges in the three
fiscal years ending June 30, 2003.
4. The DOC did not require CMS to submit quarterly and annual financial
reports required by the contract, with accumulated potential penalties
of $279,000 since January 1, 2001.

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5. The DOC paid a total $46,809 in interest charges for late payments on five
different monthly invoices from the State of Virginia for out-of-state inmate
housing in 2002.
This report also demonstrates that the DOC’s failure to properly monitor its contracts may have a direct impact on quality assurance, and, in some cases, has resulted in the failure on the part of contractors to provide adequate living conditions, medical and dental care, and programming for inmates.
For example, our Office has received complaints regarding inadequate or longdelayed medical, dental and mental health care, as well as substandard programming
and housing conditions in the out-of-state prisons. In one of the Kentucky facilities
housing Vermont inmates, there was no kitchen or dining room and meals were delivered from another building and served in a hallway. In each of these instances,
Corrections Commissioner Steven Gold has promised to follow up quickly. (See
Appendix B.)
We found:
1. The DOC does not have an adequate, independent system to evaluate the
quality of medical services to inmates through its $23.9 million contract with
CMS, and cannot assure that all services are being provided.
2. The out-of-state housing contract with Corrections Corporation of America
does not specify minimum standards for inmate housing, kitchen and dining
areas, inmate programming or for hiring and training correctional officers, and
relies instead on national accreditation guidelines.
3. CMS has consistently failed to provide adequate dental services, and the
DOC has not assessed full penalties despite staff and inmate reports of
excessive delays and inadequate treatment.
In the past decade, the number of Vermonters in jail or prison has more than doubled, from roughly 900 in 1994 to nearly 1,900 in 2004. To achieve its mission and
meet the demands of this rising population, the DOC has increased reliance on private contractors for medical, dental and mental health, as well as special programs
such as drug abuse counseling and sex offender treatment.
But the failure to monitor these contracts is widespread and systemic.
Therefore, the DOC must immediately strengthen its process of reviewing and
approving invoices from its many contractors. For example, we found that:
• The DOC does not require contractors to provide enough detail with each bill
to allow the State to verify that it is paying for personnel hours actually worked
and services actually provided;

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• There is no system in place at prisons and jails for the DOC to verify
that contractors are providing the required hours and services or that the quality
of these services meets the terms of the contract; and,
• The DOC often issues multiple contracts to the same firm to provide
both direct services and evaluation services for the same activities.
This lack of accountability and oversight has led the DOC to pay for services that
were never delivered, and to pay for workers who never set foot inside a prison.
Since undertaking our special review in February, the DOC, under the leadership of
Commissioner Gold and Deputy Commissioner Janice Ryan, has taken strides to
improve accountability. Their Action Plan responds to issues raised in the MarksMcLaughlin Report, and in Who’s Keeping Watch? A Review of the Department of
Corrections’ Oversight and Management of Mental Health Services Contracts issued
by this Office.
Contractors are getting a new message from the DOC since legislators asked our
Office to undertake this review. The health services contractor CMS, for example, has
recently credited the DOC more than $100,000 for missed staff hours. The mental
health services contractor, Paul Cotton, M.D., P.C., has credited the DOC approximately $60,000.
Our Office’s recommendations aim to help the DOC ensure that its Action Plan is
more than just another report for the shelf. We believe that it can provide long-term
solutions to improve the DOC’s ability to manage and oversee contractors and ensure
that the State receives all the services agreed to in its contracts.
Among other suggestions, this Office has recommended that the DOC:
• Manage all service contracts to ensure contract performance and cost
containment;
• Develop a contract monitoring and administration oversight team to:
• Enforce current invoicing requirements in each service contract;
• Establish better controls to account for professional hours worked and
services provided in each facility or field site by contractors;
• Review all non-staffing responsibilities in the service contracts, assess
penalties where necessary and renegotiate and amend the current
contract to reflect realistic work goals; and,
• Require that all service contracts be fully executed before services are
delivered.

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• Review past invoices to assess possible overpayments due to insufficient
staffing;
• Establish written policies and procedures to provide contract monitors with
clear protocols to evaluate the performance of contractors;
• Amend the out-of-state housing contract as necessary to ensure that the
contractor meets appropriate standards for inmate housing, kitchen and dining
areas, programming and for the hiring and training of correctional officers; and,
• Conduct post-contract meetings with contractors.
These recommendations are just the beginning and will not serve the DOC in the
long term unless positive efforts within the department are nourished. This will take an
ongoing support from the Administration and the General Assembly.
As mentioned, the DOC does not have in place an independent system to evaluate
the quality of services delivered by medical and mental health contractors. Therefore,
our Office did not extensively examine the quality of care provided by these private
firms. Given the substantial complaints our Office has recieved from inmates, family
members and DOC staff, we believe this is an area that deserves further attention from
the General Assembly and the DOC. An independent review could answer some of
these lingering questions and re-occurring complaints.
In closing, I would like to thank Commissioner Gold and Deputy Commissioner Ryan
and the DOC’s staff for their cooperation and professional assistance during our
Office’s review.
Sincerely,

Elizabeth M. Ready
State Auditor
May 26, 2004

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Section I
System-Wide
Issues & Observations

An aerial photo of the Southern State Correctional Facility in Springfield.

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Background

O

ur Office’s review of selected contracts at the Department of Corrections
(DOC) to provide inmate services found a number of deficiencies that carried
across all contract areas. These deficiencies raise the need for a stronger system of oversight and contract management that ensures open lines of communication
between various private contractors and DOC personnel, and that guarantees services
are being provided according to contractually-agreed terms.
These system-wide issues can be grouped into three main categories:
A. Contract Bidding;
B. Contract Payments; and,
C. Contract Performance.
Our Office believes that addressing the issues raised in these three areas could
improve the way the DOC holds contractors, and DOC employees, accountable for
their work on behalf of State taxpayers.
In the subsequent sections of this report, our Office offers findings and recommendations specific to the contract areas of Medical Services, Out of State Housing and
Inmate Programs.
In many instances, there are issues that our Office found during its testing that are
best addressed within the program area, and do not rise to the level of being a systemwide issue - even though some areas raise similar concerns around bidding, fiscal
oversight and evaluating contractor performance.

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A. Contract Bidding
Finding 1
The DOC does not consistently comply with Agency of Administration Bulletin
No. 3.5 Contract Procedures when issuing, reviewing and approving proposals
to provide contracted services.

T

he DOC has entered into more than 100 contracts in the past four years at a
cost of more than $50 million to provide a wide variety of services to inmates,
from substance abuse counseling and housing to medical and mental health
treatment.
The DOC issues requests for proposals (RFPs) for a variety of direct and consultation services related to these areas. To determine if the DOC is complying with the
State’s Agency of Administration Bulletin No. 3.5, Contracting Procedures our Office
reviewed contract files in selected areas. Bulletin No. 3.5 recommends that a contract
file contain:
1. The signed original contract, all amendments and associated AA-14 or AA-16
forms, a sole source authorization, if applicable; and,
2. For contracts of $10,000 or less, the written explanation for contractor
selection;
3. For contracts greater than $10,000 through $75,000, the scope of services,
price quotations, a list of vendors solicited, and any written determinations of the
supervisor;
4. For contracts greater than $75,000, the documents described in subsection 3
above, the bid documents, vendor bids, any adjustments to or written
interpretations of the bid documents, any staff analyses and/or
recommendations regarding the bid;
5. For contracts of more than two years in duration, a written explanation
detailing the reasons for the longer than normal contract length.
In general, the DOC does comply with guidelines related to issuing detailed RFPs
that outline specific scopes of service, and create a competitive environment in which
multiple proposals are reviewed. However, our Office observed missing documentation
from contract files during our test work. For example, we found:
• The DOC did not document how and why it awarded a 2003 contract to
Matrix Health Systems to provide mental health services, and then
subsequently failed to document the legal reasoning to re-assign the contract
to a company that was not part of the original bidding pool;

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• The DOC failed to document negotiations between the State and
Correctional Health Solutions (CHS) in 2000, when substantive changes were
made to the scope of services between the RFP and the final contract,
including penalty provisions and special medical treatment;
• The DOC allowed the medical services contract to be assigned to
Correctional Medical Services (CMS) in November 2000 when CMS
purchased CHS, without documenting how it addressed concerns about CMS
by a panel of six evaluators that rated CMS last among four proposals
reviewed in May 2000; and,
• The various inmate programs for Sex Offender Treatment, Intensive
Domestic Abuse Programs, Intensive Substance Abuse Programs and
Cognitive Self Change Programs generally complied when it came to the RFP
and selection, but were often missing documentation about why a vendor was
selected, and how they were selected, and how or if losing bidders were
notified.
General Recommendation
The DOC should comply with the spirit, intent, and requirements of Agency of
Administration Bulletin No. 3.5, Contracting Procedures, and establish a contract
administration oversight team that will help preserve the integrity of the competitive
bidding process by:
• Strictly adhering to all procedures for proposal, review and evaluation
outlined in DOC’s request for proposals;
• Seeking clarification and guidance from the Agency of Administration
on the legal and financial ramifications resulting from requests for
contract reassignments versus the benefits of a competitive bidding
process. This is particularly important in those instances when contracts
are being reassigned, when they are originally being executed and when
the scope and dollar value of contracts increase significantly; and,
• Ensuring all contracts and amendments are signed and fully executed
before the effective dates and actual delivery of services.
The DOC should also consider holding contract monitor meetings on a quarterly,
rather than an annual basis. The DOC should enhance training opportunities for key
personnel who monitor private contractors. This training could be coordinated with
Department of Finance & Management staff.

continued, page 12

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Components of an Effective Contract Monitoring System

E

ffective contract monitoring lowers the risks associated with contracting out
services. Our Office presents the following as essentials of a contract monitoring system:

Training in Contract Monitoring – to increase the likelihood that employees

√ will monitor contracts reliably.

Written Policies and Procedures – to serve as a formal guide to employees

√ in setting up a high-quality contract monitoring system.

Contingency Plans – to avoid interruption of services if a vendor defaults on

√ key services or obligations.

Communicating Clear Expectations – to develop detailed scope of services

√ statement, with clear performance goals for the vendor.

Contract Administration Plan – to detail the methods an agency will use to

√ monitor the vendor.

Organized Contract Files – to provide a clear understanding of all aspects of

√ the contract, to know what is expected in a contract, and if it was delivered.

Regular Reports from Vendors – to track how the vendor is doing in meeting

√ the goals and responsibilities set out in the contract.

On-Site Monitoring – to conduct random inspections of records and service

√ delivery, best done with checklist of items developed before the visit.

Incentives and Penalties – to foster high performance and accountability by

√ writing clear penalty or incentive clauses in the contract and putting them in
the monitoring program.

Access to Records – to allow the State or authorized agent to review payroll

√ and other records related to bills submitted by the vendor.

Measuring Customer Satisfaction – to help the vendor and the State under-

√ stand how the vendor is doing in meeting goals and responsibilities.

Dispute Resolution Procedures – to detail how problems will be identified,

√ addressed, and solved by the contractor and the State.

Closeout Procedures – to document all the information needed, and tasks to

√ be accomplished, before a contract has ended.

Post-Contract Review – to formally evaluate the vendor’s performance with

√ the contract to improve future contracts.

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B. Contract Payments
The Department of Corrections did not have sufficient controls in place to
assure that staff hours and services were provided according to signed
contracts. As a result, DOC may have paid for hours not worked
and services not provided.
Finding 2: The DOC does not require full details of expenditures (payroll, mileage or
office expenses) to be submitted by contractors. This limits the ability of the DOC to
assess contract deliverables, and has allowed payments to be made for services that
may, or may not, have been fully delivered.
Finding 3: The DOC accepts invoices from contractors well past the due date required
in most contracts, and fails to pay many invoices within 30 days, also a requirement of
most contracts.
Finding 4: The DOC does not use a standard payment routing form to ensure that all
signatures and dates for each invoice are properly recorded.
Finding 5: The DOC occasionally incurs costs for services before a contract is
officially signed and approved by department officials.
General Recommendation
The DOC should properly manage all service contracts to ensure contract performance
and cost containment. A contract monitoring and administration oversight team should
be created to:
• Enforce current invoicing requirements in each contract;
• Establish better controls to account for and assess professional hours worked
and services provided in each facility or field site by contractors;
• Review all non-staffing responsibilities in the service contracts, assess
penalties where necessary and renegotiate and amend the current contract to
reflect realistic work goals;
• Require that all service contracts be fully executed before services are
delivered; and,
• Develop appropriate contracts and amendments that better protect and serve
the interests of the State, the DOC and Vermont inmates.
The DOC should conduct a thorough review of all invoices paid under all service contracts to assess possible overpayments due to insufficient staffing. The DOC should
seek to recover funds from contractors for hours not worked in accordance with the
penalty provisions in the contract.

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Finding 2
The DOC does not require full details of expenditures (payroll, mileage or office
expenses) to be submitted by contractors. This limits the ability of the DOC to
assess contract deliverables, and has allowed payments to be made for services
that may, or may not, have been fully delivered.

I

n its standard payment provision language for contracts the DOC does not require
contractors to provide supporting documents that specify the work performed and
hours worked when submitting invoices for payment.

Some contractors provide this information without prompting from the DOC; however,
there is no consistency in how the data is reported. In some cases, hours and mileage
are provided in lump sums, (i.e. monthly hours worked x hourly rate = amount to be
paid and/or miles traveled during the billing period x mileage reimbursement rate =
amount to be paid). In other cases, contractors provide explicit service delivery dates
during a month, the number of hours worked on those days, the numbers of inmates
served and, when appropriate, the miles traveled on those days. However, this type of
reporting is the exception, not the rule.
The National Institute of Governmental Purchasing (NIGP) offers the following advice
to contract administration personnel when it comes to accounting for services provided:
“There must be a direct correlation between dollars paid the contractor and
contract progress. Before approving invoices for payment, contract
administration personnel must be assured performance has been completed as
promised in the contract. Some government organizations ‘hold-back’ a certain
percentage of the proceeds paid to a contractor, e.g., professional services
(10 percent hold-back is typical but progress payments have been made).
These ‘hold-back’ dollars then are not released until contract completion and
acceptance documented for the contracting officer.”
The DOC has, in the past, attempted to create a uniform invoice for all contractors to
provide in terms of service delivery contracts. Only one contractor - who provides
intensive domestic abuse services at the Newport CCSC - uses this form. According to
DOC officials, the form used by this contractor was a draft document and never
approved for official use.
This draft uniform invoice provides a wealth of information and requires the contractor to provide more than just the hours worked in a month, the hourly rate and an
amount to be paid. This form requires the contractor to fill in all service dates, number
of hours on those dates, number of individuals served and if any amount of the service
was charged to the offender or to an insurance company.
Additionally, Vermont law requires substantial documentation to be provided to the
State before bills can be paid.

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According to 32 V.S.A. §§ 463-464, the Commissioner of Finance & Management is
given broad authority to require all bills to be fully itemized and accompanied with
vouchers.
For example, 32 V.S.A. §463 reads: “The commissioner of finance and management
shall require all bills presented to him for allowance to be fully itemized and accompanied, as far as possible, with vouchers.”
The Commissioner is also given the authority to require that anyone who bills the
State for services, must swear, under the penalty of perjury, that those amounts are
accurate. This authority is granted in 32 V.S.A. § 464, which reads:
“When required by the commissioner of finance and management and before
payment therefore is made by the state, all claimants for compensation for
services rendered or expense incurred for the state shall furnish the
commissioner of finance and management itemized statements in such form as
the commissioner may from time to time prescribe and shall be verified by
written declarations that they are made under the pains and penalties of perjury,
and a person who willfully makes a false statement shall be guilty of perjury and
be punished accordingly. However, the commissioner of personnel shall
exercise such authority as necessary to carry out the payroll function.”
In a decentralized accounting environment, such as the State of Vermont, the
Department of Finance & Management could utilize these Statutory provisions to provide additional guidance to all business units in State government as it relates to
approving invoices for contractual services. This could better assure that each business unit is following identical, written procedures.
Finding 3
The DOC accepts invoices from contractors well past the due date required in
most contracts, and fails to pay many invoices within 30 days, also a
requirement of most contracts.

S

tandard payment provision language requires contractors to submit bills no later
than the 15th of the month proceeding the month in which services were provided. Therefore, services provided in the month of June should be billed by no
later than July 15. Contract language also states that the DOC is not liable for any
charges if they are not submitted by the due date.
Contract managers routinely allowed contractors to submit payments not only days
late, but in some instances several months past the date of service. There is no evidence that neither the contract managers, nor staff from the business office, made
attempts to bring contractors into compliance.

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Allowing contractors to submit invoices months after a service is provided can make
tracking services on a monthly basis difficult, and can allow for some services to be
billed for, and paid, twice.
For example, the DOC received an invoice (No. 10363 and dated November 12,
2003) from Correctional Medical Services (CMS) on November 24, 2003 for $8,463 for
additional inmates served by CMS in October 2003. The DOC’s contract with CMS
caps the number of inmates in Vermont facilities at a set number (at the time of the bill
it was 1,400). CMS is allowed, under the contract, to bill the DOC $3.50 a day for each
inmate over this cap. In this case, CMS stated the total statewide inmate census to be
1,478. The DOC amended the census amount to 1,463 and reduced the invoice to
$6,835.50 and the State cut a check to CMS on December 24, 2003 for that amount.
Then, the DOC received the identical invoice - same invoice number, same date,
same amount and for the same monthly additional inmates charge - from CMS on
March 8, 2004. The DOC amended the bill, however this time the bill was reduced by
a different census number, and the DOC paid CMS $6,944.00. The State cut a check
to CMS on March 20, 2004 for the reduced amount of $6,944.00. (The DOC reported
that it detected this overpayment in April and requested a credit.)
The DOC also approved and paid a late invoice from the State of Virginia related to
extraordinary medical services provided to a Vermont inmate. The invoiced amount of
$48,726.19 was billed to the DOC on February 6, 2002 for services that were provided
between September 1999 and June 2001. The DOC eventually paid this bill on July
23, 2003 as part of a larger bill that also dealt with penalties the State incurred for failing to pay invoices in a timely manner.
Another standard provision in several contracts holds the DOC accountable for making timely payments by charging 1.5 percent interest penalty on any amount not paid
within 30 days of receiving an invoice. The out-of-state housing contract with the State
of Virginia had a different stipulation, requiring the DOC to pay the invoice no later than
45 days after it was submitted to the State.
The DOC did not always meet these standards, and as a result has paid fines. For
example, the DOC was assessed interest charges of $114,079 by the State of Virginia
due to failing to pay bills in a timely fashion for five months in 2002. DOC negotiated a
lower penalty total and paid $46,809 in interest charges for failure to pay agreed-upon
costs in a timely manner.
In its contract with CMS, the DOC failed to make timely payments in 16 out of 90
invoices reviewed by our Office. Had CMS imposed the allowed penalty, the DOC
could have been charged roughly $55,000.

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Finding 4
The DOC does not use a standard payment routing form to ensure that all
signatures and dates for each invoice are properly recorded.

T

he DOC’s eight-person Business Office maintains a standard contract cover
sheet that identifies when each invoice is paid, and how much has been drawn
down from the amount of the contract.

Each contract maintains standard language that names the DOC individual to
whom a contractor must submit bills and when those bills are to be submitted. The
DOC, in turn, agrees to pay invoices 30 days from invoice date consistent with State
guidelines.
Given the number of people who must review and sign off on an invoice before it
reaches the Business Office for final approval in VISION, it was difficult to determine
where delays in the system existed - especially when purchase orders were dated far
beyond the 30-day provision of the contract.
In some cases, our Office was able to determine that the amount may have been in
dispute, or service delivery was being questioned with handwritten notes on the
invoices. In other instances, it was impossible to determine where in the system a
delay occurred as there were no dates alongside signatures by key personnel. A
standard form would create a record of the approval and accounting steps that must
occur before a payment is made.
Finding 5
The DOC incurs costs for services before a contract is officially signed and
approved by department officials.

A

good system of internal controls requires that an agreed-upon and fully executed contract be in hand before services begin. This practice helps avoid potential liability issues.

Our Office observed that a number of contracts, and subsequent amendments,
were not fully executed on the date services began. In some cases, services were
also provided before DOC officials, the Attorney General’s Office and the Secretary of
Administration signed the AA-14 form that grants approval to enter into a contractual
arrangement. Examples include:
• CMS assumed the contract to provide medical services for inmates in
November 2000, but did not have a signed and fully executed contract until
January 24, 2001. During this time, CMS billed the State $407,156.84 a month
for services provided.

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“I have worked very hard to ensure that infrastructure
and programs are in place to provide offenders with
high quality mental health and medical services.
Although the infrastructure is now in place and the
framework of statutes and policies are in place, there
seems to be a problem with the implementation and
delivery of these contracted services.”
- from a letter written by Sen. Vincent Illuzzi requesting a review of
mental health and medical services contracts.
• The DOC signed a one-year extension of the CMS contract (to add the time
period of July 1, 2003 to June 30, 2004) on September 3, 2003. This meant
that no fully executed contract was in place from July 1, 2003 to
September 2, 2003. CMS billed the State more than $1 million during this time.
Additionally, the AA-14 was not signed by the Secretary of Administration
until July 14, 2003.
• The DOC amended the CMS contract to reflect the opening of the Southern
State Correctional Facility in Springfield. The effective date of the amendment is
October 1, 2003, but the contract was not signed by the DOC until
December 29, 2003. Additionally, the AA-14 was not signed until
October 30, 2003 by the DOC, November 19, 2003 by the Attorney General’s
Office, and December 3, 2003 by the Secretary of Administration.
• The DOC failed to have a signed and executed contract to house inmates in
Virginia before those inmates were placed, or their stays were extended;
• The DOC’s $2,840,640 contract with Matrix Health Systems scheduled to be in
effect from June 1, 2003 to May 31, 2006 was not signed by DOC until
June 27, 2003 and not signed by Matrix until August 22, 2003; and,
• The statewide ISAP contract with Phoenix Houses of New England to provide
services at the nine Community Correctional Service Centers was dated to
begin June 3, 2002, but was not signed until July 16, 2002. The contractor billed
the DOC $66,650 during this time. Additionally, the AA-14 was not signed until
June 5, 2002 by the DOC and the Attorney General’s Office, and on
June 28, 2002 by the Secretary of Administration.
These delays place the contractor, the inmates, and the State at risk in the event
that problems arise during the time a fully executed contract is not in place.

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C. Contract Monitoring
The Department of Corrections does not have an independent system
to evaluate the quality of medical services.
Finding 6: The DOC does not have written policies and procedures detailing how to
monitor contractors for fiscal and program performance.
Finding 7: The DOC has not required contractors to comply with service agreements
and the DOC has not issued penalties or held back payments for non-compliance as
allowed under these contracts.
Finding 8: The DOC does not conduct post-contract meetings with key State and
contracted personnel to evaluate the performance of the contract.
General Recommendation
The DOC should establish written policies and procedures to provide contract monitors
with clear protocols to evaluate the performance of contractors.
A contract monitoring team for each contract could be split up into at least three components: fiscal oversight, performance evaluation, and documentation. The first would
ensure that all financial provisions of the contract are being met and documented, the
second would ensure that all deliverables of the contract are being met and documented and the third would ensure that the contract file is complete and that all reports are
filed timely and consistently.
The DOC should conduct post-contract meetings with key State and contracted personnel to constantly evaluate the contracting system to ensure it is meeting the goals
of the DOC and the private contractors. Any problems should be addressed in future
contracts.

“It is my feeling that Vermont DOC has no control over how
we are abused or used by these people at Corrections
Corporation of America and their employees.”
- from an inmate letter to the State Auditor’s Office in March 2004.

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Finding 6
The DOC does not have written policies and procedures detailing how to
monitor contractors for fiscal and program performance.

O

ur Office found no evidence of written policies and procedures related to monitoring contractors for fiscal and program performance at the Central Office,
which handles the largest and most complex of all contracts. According to the
NIGP, the administration of service contracts consists of two primary functions:
• To ensure that required obligations, detailed in the contract, are fulfilled; and,
• To ensure that acceptable levels of service are provided.
These functions are cornerstones of a successful contracting process. The NIGP
also states: “Contract evaluation and monitoring can be extremely difficult, especially
when working with an unreliable or poorly performing contractor. It is important to commence the contract by designating a contract administration team. Contract administration may be the sole responsibility of the procurement manager or it could be crossfunctional depending on the size of the contract and the jurisdiction. There could be as
many as four primary participants on the jurisdiction’s contract administration team:
• Procurement manager;
• Project manager;
• Contract administrator; and,
• Field manager.”
In some of the contracts our Office reviewed, a single contract manager often holds
all four of these positions - even on large, multi-site contracts.

Standards issued by NIGP outline a number of monitoring measures that can be
detailed directly in the standard contract language to ensure that both the DOC and
the contractor know what to expect of each other. Those measures include direct monitoring, follow-up monitoring, monitoring by exception, scheduled monitoring and random monitoring. NIGP defines this as “outcome monitoring” that is defined as “the
analysis of the results of a service and is based on user-provided data on service quality. In a street maintenance contract, for example, the number of potholes repaired is a
measure of output, whereas an outcome analysis might focus on the smoothness of
the repair or on the reduction of hazards to pedestrians.”
The DOC’s Business Office does have a written fiscal review process that it follows
to ensure that a contract meets all criteria of Bulletin No. 3.5 and that payment provisions match the work specified in the scope of services. The DOC does not have a
similar written review process for performance review of a contract, and Business
Office staff interviewed acknowledged that such a document would be helpful.
More detailed, written policies that allow the Business Office to ensure compliance with
all reporting provisions could strengthen the DOC’s ability to hold contractors accountable
and create an auditable review trail to assess staff and contractor performance.

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Contract monitors currently have the multiple tasks of reviewing invoices for accuracy and evaluating the overall contractor performance and handling any disputes.
Having a contract team, rather than one individual, responsible for overseeing these
contracts may be more effective in the long run and allow for constant dialogue and
peer review of performance. In our interviews with contract monitors, they readily admit
that their strengths are not in accounting skills and reviewing “the numbers.” These
skills are, however, identified more strongly with the Business Office and could be
tapped more effectively in the contract monitoring process.
These written guidelines and policies could also give more support to field and facility sites managers, who are also often asked to review and approve payments for services and evaluate a contractor’s work. Similar facility- or field-based teams related to
contract management could be established.
Finding 7
The DOC has not required contractors to comply with service agreements and
the DOC has not issued penalties or held back payments for non-compliance as
allowed under these contracts.

T

he DOC currently has issued, since 2000, more than $50 million in contracts with
vendors to provide the contractual services that we examined as part of this
review. During our review, our Office found:
• The DOC did penalize CMS for some contract deficiencies regarding a lack
of dental services and LPNs, but other deficiencies were ignored by the DOC;
• The DOC, in some instances, did not properly penalize its mental health
contractors for services not provided, and these penalties were self-reported;
and,
• The DOC did not penalize Phoenix Houses of New England for not fully
providing required services or reports under the statewide intensive substance
abuse program (ISAP) contract, even though evidence exists that such
deliverables were not provided.

Our Office’s review of other inmate program contracts found adequate compliance
with service agreements, and with provisions calling on contractors to report their activities. Those areas include Sex Offender Treatment, Cognitive Self Change (CSC),
Residential Substance Abust Treatment (RSAT) and Intensive Domestic Abuse
Program (IDAP).
Our review of RSAT raised some concern regarding the level of detail reported back
to the Federal government in the annual reports. However, both the DOC and the
Department of Public Safety have approved this practice, and the Federal government
has repeatedly endorsed this program.

- 20 -

Finding 8
The DOC does not conduct post-contract meetings with key State and
contracted personnel to evaluate the performance of the contract.

D

uring our review it became clear that DOC does not conduct rigorous ongoing
review of contractor performance, nor does it conduct post-contract reviews to
identify areas of possible improvement. A post-contract review could also contain a fiscal analysis to ensure that contracting out the services remains financially
beneficial to the DOC.
The NIGP recommends that the final step in the contract management cycle is to
conduct an analysis of the contract process. This begins by reviewing the documentation compiled during the life of the contract to determine if changes would be beneficial
in any subsequent contract for similar services. The NIGP recommends questioning
two key areas:
Contract Development
a. Were the contract goals adequate?
b. Are there any changes that could be made in the contract document to better
handle the agency’s needs?
i. Additional contract clauses?
ii. Different contract language?
Contract Administration
a. Did the contract administration team require additional training?
b. Did any unanticipated problems occur?
c. What could be done differently or better?
The NIGP also developed a 15-point checklist to monitor contract performance
before formally accepting the final work. In many instances, accepting final work
includes making a performance payment previously withheld to ensure the contractor
delivers all work. These questions include:
• Have all contract deliverables been inspected and accepted by the
government (yes/no)?
• Have any lawsuits/legal actions relating to contract activity been
settled (yes/no)?
• Have all contract funds been reconciled with invoices or receivers? Have all
invoices been paid (yes/no)?
The NIGP says contract closure should not be completed if any of the questions it
lists have been answered “no.”

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“[My fiancé] was diagnosed with rectal cancer back in
August or September and thus far has received no
treatment other than prescriptions for laxatives and stool
softeners.
As a medical professional I am greatly concerned that the
frequent moves between facilities seriously compromises
the quality and consistency of his care.
There is such a stigma attached to having a loved one in
prison, as though we are somehow guilty by association,
or that we should just forget that they exist, but these are
important people in our lives that we hope to be
rehabilitated and returned as productive members
of society.”
- from a letter to the State Auditor’s Office dated February 16, 2004.

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Section II
Medical Services
Contracts

Chittenden Regional Correctional Facility in South Burlington.

- 23 -

Background

T

he State currently contracts with Correctional Medical Services (CMS) of St.
Louis, MO, for medical services for inmates housed in Vermont by the DOC, currently numbering approximately 1,500 individuals.

The contract costs approximately $575,000 per month at the present time, or $6.9
million per year, and includes comprehensive health and dental services, optical services, pharmacy, laboratory services, supplies, etc. Certain charges for HIV and Hepatitis
C treatments are not included and must be paid by the State.
Our review found three main areas of concern:
A. Ineffective Financial Oversight;
B. Insufficient Quality Assurance; and,
C. Questionable Procedures for Contract Bidding, Amendment & Assignments.
CMS assumed the contract in the fall of 2000 after acquiring then-contractor
Correctional Healthcare Solutions (CHS) of Pennsylvania.
The latest proposed amendment to the original contract would extend the agreement
with CMS until June 30, 2005. This would be the final amendment allowed under
Bulletin 3.5, and the DOC plans to issue a new RFP later in 2004/early 2005.

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A. Ineffective Financial Oversight
The Department of Corrections does not have an adequate system to
independently verify the invoiced amounts presented by Correctional Medical
Services. Therefore, the DOC may have paid for services that were
never delivered.
Finding 9: The DOC approved, and paid, $18,741,227 for base contractual
services with little, or no, detail provided by the contractor to verify that all contractual
hours were provided.
Finding 10: CMS failed to fulfill staffing requirements and billed the DOC for full
coverage of all sites, and the DOC allowed this to occur without reducing bills or
assessing penalties. Our Office estimates the total questioned cost related to
insufficient staffing to be $144,547 for the six months we reviewed.
Finding 11: The DOC paid $2,284,226 recently for four months of services, and
received $102,997 in credits from CMS without any detailed back-up showing how the
deductions were derived.
Finding 12: The DOC approved, and paid, $575,499 in additional charges with
little, or no, detail provided by the contractor to verify that these additional costs were
borne by the contractor.
Finding 13: The DOC routinely approves, and pays, invoices that have been
submitted past the due date outlined in the contract, even though the contract is clear
that the State is not liable for charges submitted past the due date.
Finding 14: The DOC has failed to deduct from CMS invoices the amount of money
that the State contributed to the Vermont Health Assistance Plan as required by the
contract. Our Office estimates the amount due the State from CMS is $166,540.
Finding 15: Mental health personnel are prescribing, with DOC approval, more than
75 percent of all medications outside of the approved pharmaceutical formulary. To
date, the DOC has paid more than $240,000 in additional charges above a contract
stop-loss provision for these drugs. Additionally, the parent company of CMS,
Spectrum Health, owns the pharmacy that provides medications to Vermont inmates,
and charges the DOC 12 percent overhead for all prescription orders.
Finding 16: The DOC does not always pay invoices within 30 days as required in the
contract, exposing the State to the assessment of penalties by the contractor.

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Finding 17: CMS failed to produce annual or quarterly financial reports on
State-furnished templates to the DOC. CMS was not penalized and the DOC never
provided the templates. The penalty for not providing these reports is $1,000 a month
for each month the report is late. Our Office estimates that the potential penalty owed
to the State is $279,000.
General Recommendation
The DOC should properly enforce financial performance and penalty provisions of the
medical services contract to ensure contract performance and cost containment. A
contract monitoring and administration oversight team should be created to:
• Enforce current invoicing requirements in the contract, and establish controls
to account for and assess professional hours worked and services provided in
each facility by the contractor;
• Review all invoices paid under the medical services contract with CMS to
assess possible overpayments due to insufficient staffing, and seek to recover
funds for hours not worked in accordance with the penalty provisions in the
contract, plus interest, from the contractor;
• Review all medical provider non-staffing responsibilities in the contracts,
assess penalties where necessary and renegotiate and amend the current
contract to reflect realistic work goals and the need for contract monitoring; and,
• Require contractors to submit a standard invoice to the DOC for payment, with
proper back-up detail including payroll reports, and consider requiring
contractors to submit invoiced amounts to the Business Office to be reviewed
for compliance with fiscal provisions of the contract.

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Findings & Discussion - Section A
Finding 9
The DOC approved, and paid, $18,741,227 for base contractual services with
little, or no, detail provided by the contractor to verify that all contractual hours
were provided.

W

hen CMS bills for its monthly base services, it submits a one-page invoice
that gives the monthly amount - currently more than $575,000. Our testing
found that up until December 2003, CMS provided no compensation summaries, payroll reports or other evidence with its monthly invoices that would allow the
DOC to verify that CMS was fulfilling its staffing obligations as required by the contract.
Language on each Standard State Invoice, that accompanied payments prior to the
installment of VISION on July 1, 2001, read:
“I hereby certify that the bills, hereto attached and set out in the foregoing
schedule, are just and true in all respects, and that the goods or materials
covered by this claim have been inspected and received or the services have
been performed in accordance with specification and are in proper form, kind,
amount and quality. Payment is hereby recommended.”
Of the 14 invoices submitted by the contractor prior to VISION, and approved by
DOC, only 4 had the signature of the “head of dept or authorized agent” as required by
the form. DOC staff told our Office that the form in the payment file is not the original,
which would have contained the signature, but rather an earlier copy of the form prior
to signature. The signed forms are likely at Public Records in Middlesex.
The above language, which specifically states that someone is watching over and
approving these payments, has not been carried over into VISION, or on any State
form that requires signature approval before a bill is paid.
Since the start of the contract, and through invoiced amounts dated December 11,
2003, the DOC paid $18,741,227 in base contractual services. CMS bills for these
services monthly, with invoices usually dated the first of the month, at a fixed price.
Of those invoices, only one had any detail explaining how the contractor arrived at
the billed amount. This was the last invoice - dated December 11, 2003 - for services
provided in November 2003. This invoice included the base monthly contract fee, plus
funds to pay for the phase-in staffing at Southern State Correctional Facility in
Springfield. The invoiced amount shows two groups of figures, including anticipated
expenses and actual expenses for personnel and fixed costs. The billed amount
includes a “credit” or amount not billed to the State by the contractor.
No other invoice prior to this bill presented any evidence that the contractor was, or
wasn’t, meeting anticipated personnel or fixed cost targets and that the State was

- 27 -

being billed for actual costs incurred. All other invoices simply billed for the maximum
monthly amount with no other evidence, and the DOC approved these invoices as
appropriate and made payment on each one.
Our testing only found one instance where a monthly invoice had reductions, approximately $75,000 in May 2002, for penalties dating back to the calendar year 2001.
All medical service contract invoices are submitted directly to Dr. Thomas Powell, the
DOC’s clinical programs director, by CMS via an overnight courier. According to Dr.
Powell, invoices are first reviewed by Chief Nursing Officer Diane Bogdan for accuracy
and then signed off, before returning to him for his signature. They are then forwarded
to the Business Office for payment where they are entered into the DOC’s payment
routing system.
A purchase order is created to make the payment, it is then set up in VISION and
budget checked by the Accountant C in the Office before it is sent to the Department
of Finance & Management for payment. This process usually takes a few days once it
arrives in the Business Office.
The paid amount is then handwritten on a tracking sheet in the contract payment file
that ashows how much remains against the approved maximum value of the contract.
Finding 10
CMS failed to fulfill staffing requirements and billed the DOC for full coverage of
all sites, and the DOC allowed this to occur without reducing bills or assessing
penalties. Our Office estimates the total questioned cost related to insufficient
staffing to be $144,547 for the six months we reviewed.

A

ccording to the performance guarantees of the contract, “(s)hould Contractor fail
to sustain a full staff complement as described in [the staffing matrix], penalties
shall be accrued against the monthly additional invoice payments as follows:
“Unacceptable vacancy period - If any position has been vacant more than 30
days, beginning on the 31st day of vacancy, Contractor shall rebate to the State
an amount 125 percent of the standardized base rate for the position until such
a time as the position is filled.
“The use of temporary staff that is not part of a pool of staff approved by the
DOC does not constitute filling a vacancy for the purposes of this contract.”

The DOC and CMS amended the medical services contract as of November 29,
2001 that added additional staffing to the contract at a cost of $254,000. The amendment included language that eliminated the need for site-by-site staffing matrix compliance and allowed CMS to simply meet the overall FTE hourly requirements for the
statewide matrix. The DOC also did not amend the penalty language above to reflect
this new standard for meeting staffing levels.

- 28 -

Eliminating the site-by-site staffing requirements is a concern. For example, many of
Vermont inmates with diabetes and mental health problems are now housed at the
new Springfield facility, where the full staffing of nurses has been problematic. The
contract amendment means that CMS could comply with overall FTE requirements
while falling short at the facility where inmates are most in need of care.
Based on testing, our Office calculated that CMS was understaffing DOC facilities
during a number of contract months.
• February 2004: A total FTE shortage of 3.75 - providing 11,280 work
hours out of a possible 11,880. (This number includes the staffing at the
Springfield facility, which was not fully operational and therefore not all staff
could be brought on board. CMS appears to have “credited,” or not billed, the
DOC for these positions.)
• January 2004: A total FTE shortage of 8.2 - providing 10,568 work hours
out of a possible 11,880. (This number includes the staffing at the Springfield
facility, which was not fully operational and therefore not all staff could be
brought on board. CMS appears to have “credited,” or not billed, the DOC for
these positions.)
• October 2003: A total FTE shortage of 3.15 - providing 8,352 work hours
out of 8,856 scheduled to be provided by 55.35 FTEs. (These numbers do not
include the additional 3.2 FTEs scheduled for Springfield because the infirmary
was not up and running.) At an average rate of $21.08 per hour, the missing
504 hours cost the State $10,624.
• September 2003: A total FTE shortage of 2.25 - providing 8,496 work
hours out of 8,856 scheduled to be provided by 55.35 FTEs. At an average rate
of $21.08 per hour, the 360 missing hours cost the state $7,588.
• December 2001: A total FTE shortage of 8.76 - providing 7,454 work
hours out of 8,856 scheduled to be provided by 55.35 FTEs. At an average rate
of $19 per hour, the missing hours cost the State $26,638.
• November 2001: A total FTE shortage of 9.47 - providing 7,340 work
hours out of 8,856 scheduled to be provided by 55.35 FTEs. At an average rate
of $19 per hour, the missing hours cost the State $28,804.
• December 2000: A total FTE shortage of 10.6 - providing 6,800 work
hours out of 8,496 scheduled to be provided by 53.1 FTEs. At an average rate
of $17.83 per hour, the missing 1,696 hours cost the State $30,239.
• November 2000: A total FTE shortage of 14.25 - providing 6,216 work
hours out of 8,496 scheduled to be provided by 53.1 FTEs. At an average rate
of $17.83 per hour, the missing 2,280 hours cost the State $40,652.

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Our Office estimates the total questioned costs related to insufficient staffing in the
months we reviewed to be $144,547.
The FTE shortages outlined above were calculated by evaluating CMS payroll
records requested by our Office. Our Office totaled the number of direct service hours
worked across all positions and then subtracted that from the amount of hours that
should have been provided that month given the approved staffing matrix. The total
hours include all overtime, but did not include sick time, paid leave or other non-site
related pay.
Fully determining the penalties for failing to meet these staffing levels could be difficult. That’s because when the DOC amended the contract in November 2001 to only
hold CMS accountable for meeting the statewide staffing matrix, it failed to amend the
penalty provisions of the contract to reflect this new approach. The existing penalty
language still reflects the stipulation that CMS maintain certain positions, and only be
penalized for having distinct positions remain vacant more than 31 days. Our Office
believes the DOC should re-examine this penalty provision and require CMS to provide
all FTEs called for in the contract or face a penalty.
However, assessing penalties for failure to provide staff has not been a practice of
DOC contract monitors. Our Office found that the DOC, without documentation or
approval by the Commissioner or any other State official, chose not to assess penalties against CMS for failing to provide adequate staffing levels at each facility. The
DOC knew that CMS was not providing adequate coverage, however the DOC did not
penalize CMS or restructure the contract because it believed all health care institutions
in the region were experiencing a severe nursing shortage.
According to interviews with our Office, CMS said it routinely uses “backfilling” to
cover vacancies - either hiring temporary employees or paying staff to work overtime.
CMS officials also said in interviews that they view the staffing matrix FTEs as service
delivery hours, and if someone is out sick, or on vacation, they backfill those position
hours as well.
DOC officials repeatedly stated in interviews that CMS was “doing all it could” to
recruit and train new nurses and that correctional health care was a difficult field.
Still, problems remain. In the January 13, 2004 minutes of the Executive Health
Committee - a committee that meets monthly to discuss interrelated issues regarding
medical and mental health service delivery - the regional administrator for CMS notes
that Springfield has five vacancies (it does not note what positions are vacant).
However, it is difficult to determine how chronic vacancies are at each facility. This is
because CMS stopped sending staffing vacancy reports in September 2002 and the
DOC accepted this change.

- 30 -

Our Office did review four statewide vacancy reports produced by CMS between
March 1 and May 31, 2001. The reports listed vacancies, by facility, including the date
at which the position became vacant. The reports show the following vacancies that
were beyond the 30-day allowance under the contract:
March 1, 2001 Report
• Marble Valley Regional Correctional Facility in Rutland: One part-time RN or
LPN position, totaling .2 FTEs, and vacant since January 1, 2001.
• Northern State Correctional Facility in Newport: Four LPN positions, totaling
2.4 FTEs and four part-time RN positions, totaling 1.4 FTEs, and all vacant
since January 1, 2001.
• Northeast Regional Correctional Facility in St. Johnsbury: Two part-time RN or
LPN positions, totaling .8 FTEs, and both vacant since January 1, 2001.
• Northwest State Correctional Facility in Swanton: One part-time RN or LPN
position, totaling .4 FTEs, and vacant since January 1, 2001.
April 2, 2001 Report
• Northern State Correctional Facility in Newport: Four LPN positions, totaling
2.2 FTEs and four part-time RN positions, totaling 1.2 FTEs, all of which were
vacant since January 1, 2001. An additional RN position had been vacant since
February 1, 2001.
• Northeast Regional Correctional Facility in St. Johnsbury: Two part-time RN or
LPN positions, totaling .8 FTEs, and both vacant since January 1, 2001.
• Northwest State Correctional Facility in Swanton: One part-time RN or LPN
position, totaling .4 FTEs, and vacant since January 1, 2001.
April 30, 2001 Report
• Northern State Correctional Facility in Newport: Four LPN positions, totaling
2.2 FTEs and three part-time RN positions, totaling 1.4 FTEs, all of which were
vacant since January 1, 2001.
• Northeast Regional Correctional Facility in St. Johnsbury: Two part-time RN or
LPN positions, totaling .8 FTEs, and both vacant since January 1, 2001.
• Northwest State Correctional Facility in Swanton: One part-time RN or LPN
position, totaling .4 FTEs, and vacant since January 1, 2001.

- 31 -

May 31, 2001 Report
• Northern State Correctional Facility in Newport: Four LPN positions, totaling
2.2 FTEs and three part-time RN positions, totaling 1.4 FTEs, all of which were
vacant since January 1, 2001.
• Northwest State Correctional Facility in Swanton: One part-time RN or LPN
position, totaling .4 FTEs, and vacant since January 1, 2001.
• Southeast State Correctional Facility in Windsor: One part-time LPN position,
totaling .2 FTEs, vacant since February 28, 2001.
CMS provided our Office with copies of additional vacancy reports, but these reports
did not include information stating the duration that a position had remained open.
For example, the June 2003 staffing vacancy report provided to us by CMS (and
which allegedly did not reach the DOC) shows a self-reported shortage of 7.2 FTEs.
CMS billed the DOC for $480,799 (the standard monthly charge) for June 2003 without
making any reductions.
Finding 11
The DOC paid $2,284,226 recently for four months of services, and received
$102,999 in credits from CMS without any detailed back-up showing how the
deductions were derived.

S

ince the start of the contract, and through invoiced amounts up to December 11,
2003, the DOC paid $18,741,227 in base contractual services. CMS bills for
these services monthly, with invoices usually dated the first of the month, at a
fixed price.
Of those invoices, only one had any detail explaining how the contractor arrived at
the billed amount. This was the last invoice - dated December 11, 2003 - for services
provided in November 2003.
This invoice included the base monthly contract fee, plus funds to pay for the phasein staffing at Southern State Correctional Facility in Springfield. The invoiced amount
shows two groups of figures, including anticipated expenses and actual expenses for
personnel and fixed costs. The billed amount includes a “credit” or amount not billed to
the State by the contractor.
For the months of November, December, January and February, CMS reduced from
its bills personnel services not delivered because of the delay in the opening of the
Springfield infirmary, as well as shortfalls in staffing across the state.
These credits total $102,999. From this credit, it is clear that CMS has the capability
to track estimated personnel service charges and actual personnel service charges

- 32 -

allowed under the contract, and could have been remitting to the State more accurate
bills since the inception of the contract.
Credited amounts:
November services December services January services February services -

$4,006
$20,013
$33,452
$45,526

Total: $102,999
Finding 12
The DOC approved, and paid, $575,499 in additional charges with little, or no,
detail provided by the contractor to verify that these additional costs were borne
by the contractor.

F

or the first three years of the contract, CMS was allowed to bill the DOC for additional services, according to a payment schedule in Attachment B, for a variety of
services. They were:

Intake/physical
2000-2001: $25 per encounter
2001-2002: $26 per encounter
2002-2003: $27 per encounter
Hepatitis B vaccines
2000-2001 $55 per encounter
2001-2002: $57 per encounter
2002-2003: $59 per encounter
Diphtheria/Tetanus vaccines
2000-2001: $5 per encounter
2001-2002: $5 per encounter
2002-2003: $5 per encounter
TB testing
2000-2001: $2 per encounter
2001-2002: $2 per encounter
2002-2003: $2 per encounter
Hepatitis C treatment
2000-2001: $1,667 per inmate/per month
2001-2002: $1,733 per inmate/per month
2002-2003: $1,803 per inmate/per month

- 33 -

When the contract was amended to add services to cover July 1, 2003 to June 30,
2004, the incidental service charges were amended to:
Intake/physical: $28 per encounter
Hepatitis B vaccines: $24.50 per encounter
Diphtheria/Tetanus vaccines: $0
TB testing: $2
Hepatitis C treatment: $130,000 annual cap.
CMS is also allowed to charge the DOC for all additional inmates being held above
the average daily population (ADP) allowed for under the contract. This ADP represents all inmates being housed in a facility in Vermont. For the first three years of the
contract, the monthly ADP was capped at 1,351. In the one-year contract amendment,
the ADP was increased to 1,400.
During testing, we found that the DOC contract monitors routinely accept invoices for
additional services with little, or no, detail that spells out what additional services are
being provided. (See Finding 9 for a detailed explanation of the DOC payment routing
process).
For example, out of 30 invoices our Office reviewed, 17 contained no detail regarding what additional services were being provided.
For additional inmate days, CMS usually provided an ADP summary for the month
across all facilities, but did not break these down by facility for the DOC to review. In
some cases, Diane Bogdan would find errors in the census reports and would subtract
from the CMS invoice.
Out of 32 invoices reviewed by our Office, six had no back-up detail. Of the remaining invoices, 12 had the billed amount reduced by the DOC for a total of $10,161.
Finding 13
The DOC routinely approves, and pays, invoices that have been submitted past
the due date outlined in the contract, even though the contract is clear that the
State is not liable for charges submitted past the contractual due date.

C

ontract language contained in Attachment B, Payment Provisions, is clear that
the State is not liable for charges that arrive later than the 15th of the month following the month during which the services were delivered.

Additionally, all monthly base contract service invoices are to be received on the first
of the month following the month in which services were provided. In other words, the
bill for standard services provided in October is due November 1.

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Our testing found numerous examples where invoices were accepted days, weeks
and even months past their due date, and often with no corroborating evidence to back
up the invoiced amount.
For example, our testing found:
• Eight out of 41 invoices for base monthly service were received late - several
by as much as three months.
• Eighteen out of 32 invoices for additional inmates were received late - some
by several days, others by as much as two months.
• Twenty four out of 30 invoices for additional monthly services were received
late, approved and paid - some by several days, others by as much as three
months.
When invoices are received late, they interrupt a workflow in the Business Office that
must process thousands of purchase orders annually and track more than 100 private
contract payment files. Holding contractors accountable to the terms of the contract
sets an overall tone and establishes a clear understanding between the DOC and any
contractor.
Allowing contractors to submit invoices months after a service is provided can make
tracking services on a monthly basis difficult, and can allow for some services to be
billed for, and paid, twice.
For example, the DOC received an invoice (No. 10363 and dated November 12,
2003) from CMS on November 24, 2003 for $8,463 for additional inmates served by
CMS in October 2003. The DOC’s contract with CMS caps the number of inmates in
Vermont facilities at a set number (at the time of the bill it was 1,400). CMS is allowed,
under the contract, to bill the DOC $3.50 a day for each inmate over this cap. In this
case, CMS stated the total statewide inmate census to be 1,478. The DOC amended
the census amount to 1,463 and reduced the invoice to $6,835 and the State cut a
check to CMS on December 24, 2003 for that amount.
Then, the DOC received the identical invoice - same invoice number, same date,
same amount and for the same monthly additional inmates charge - from CMS on
March 8, 2004. The DOC amended the bill, however this time the bill was reduced to
1,464 inmates and the DOC agreed to pay $6,944. The State cut a check to CMS on
March 20, 2004 for the reduced amount of $6,944.

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Correspondence from the DOC Accounting Office shows that they did catch the payment, after the check was issued by the State:
“On April 4th, 2004 the DOC Accounting Office was in contact with CMS
regarding the duplicate payment being processed and requested a refund of the
March 30, 2004 payment. CMS provided a credit invoice in the amount of
$6,944.00 for the DOC to use against our account with them. That credit was
entered in Vision on 05/04/04 and reduce[s] two payments that will be made by
May 19, 2004.
“Going foreword the DOC Accounting Office will take the following steps on this
contract and the other contracts of similar complexity:
(1) Establish a list of the types of contract services that will be invoiced
for a given month from a vendor and use that a basis to ensure that only
one payment gets done for each type.
(2) Double check any payment for services against the processed
payments for the same month to ensure that an identical invoice isn’t
being presented for payment again.”
VISION is programmed to detect and avoid duplicate payments of identical invoices,
however, the DOC Accounting Office staff said, “Because the original payment was
reduced to $6,835.50 from the $8,463.00 and the second payment was reduced to
$6,944.00 it didn’t get caught by Vision as being a duplicate payment (same amount,
invoice number, invoice date).”

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How Other New England States Provide
Key Medical Services to Inmates

I

n three out of the six New England state prison systems, university medical
schools provide some or all of the medical services delivered to inmates serving far larger prisoner populations than are housed in Vermont facilities.

Connecticut: Connecticut contracts with the University of Connecticut’s
academic health center which established the University of Connecticut
Correctional Managed Health Care program. The program manages all medical,
dental, and mental services for inmates at 18 facilities.
Maine: Maine contracts with Correctional Medical Services (CMS) to provide
comprehensive medical and dental services. Some state employees fill nursing
and some clerical staff positions. Mental health services are divided between
CMS, state psychologists and mental health counselors and Liberty Health Care,
a national psychiatric services provider. Maine audits the contractors using
consultants from the National Commission on Correctional Health Care.
Massachusetts: The state signed a 4-year, $222-million contract with the
University of Massachusetts Medical School Correctional Health program in 2003
for all medical, dental and mental health services for the State’s approximately
10,000 state prison inmates.
New Hampshire: A contract with Dartmouth College Medical School provides
psychiatrists and nurse practitioners for mental health services. Other medical
services are handled by contracted physicians and dentists, and state employees.
Practitioners make referrals to outside providers, clinics and hospitals.
Rhode Island: State employees, in a Health Care Services division, provide
medical and mental health services to approximately 3,600 inmates. Health Care
Services personnel make referrals to outside contracted providers and medical
facilities as necessary.
Vermont: Vermont contracts with CMS for comprehensive medical and dental
services and with Paul Cotton, M.D. P.C., a private comprehensive mental health
services provider for mental health services. Pharmacy costs are paid by CMS as
part of its per capita fee, with drugs selected from a formulary it manages. CMS
also pays for mental health prescriptions up to $178,000 a year, after which point
the State picks up the costs.
Source: Vermont State Auditor’s Office.

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Finding 14
The DOC has failed to deduct from CMS invoices the amount of money that the
State contributed to the Vermont Health Assistance Plan as required by the
contract. Our Office estimates the amount due the State from CMS is $166,540.

S

ince June 1, 2000, the State’s Vermont Health Access Plan (VHAP) has paid for
$446,848 in emergency-related costs for incarcerated inmates. When an inmate
is lodged at a correctional facility, one of the actions taken by CMS staff is to fill
out a VHAP enrollment form that can be used if and when the inmate is taken to a
hospital during an emergency. According to Office of Vermont Health Access (OVHA)
staff, an inmate is enrolled into VHAP only for emergency care - not for routine checkups and pre-planned doctor’s visits.
When an inmate leaves a DOC facility, CMS immediately faxes the inmate’s enrollment form to OVHA. The inmate is enrolled in VHAP from the time that the enrollment
form is received (as faxes are sometimes received during weekends or at nights when
OVHA staff are not available). As long as it is for emergency care, the inmate is
enrolled into VHAP for 12 days. If the inmate needs care beyond that 12-day period,
CMS will call OVHA and request a 12-day extension.
Upon review of contract provisions and the amount of money paid for inmate services by VHAP, it appears the State may be owed by CMS the amount of money it contributed toward payment for eligible services under the VHAP program.
According to the contract with CMS (Section 2(b) of Attachment B) under VHAP
Adjustments:
“Some inmates are eligible to participate in the Vermont Health Access Plan
(VHAP) program. The State shall contribute toward payment for eligible services
under the VHAP program. This contribution shall be deducted from the
Contractor’s additional monthly charge invoice. If the State’s deduction is
larger than the Contractor’s invoice, the deduction will be incorporated into the
following month’s invoice. If the State’s deduction is larger than the combined
amount of two invoices, the State will deduct its payment from the Base
Payment invoice.” [Emphasis added.]
The contract also states: “All reductions will be fully documented and discussed with
Contractor prior to the issuance of an adjusted payment by the State.” During our testing, our Office could find no documentation of any VHAP reductions occurring on CMS
invoices.
DOC staff told our Office in interviews that there have been no adjustments, either
offered by CMS or requested by the DOC, regarding State VHAP payments since the
inception of the contract. DOC staff also said that they believed the contract language
was in place to protect the State from being charged for services that were already
being covered by VHAP, and was an incentive for CMS to enroll inmates in VHAP to
cover the costs of emergency care.

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During FY 2000-2003, the State paid an average of 37.27 percent of all VHAP
claims with the remaining amount covered by Federal dollars. At that ratio, the State
would have contributed $166,540 in State Medicaid funds toward the VHAP-related
charges from June 1, 2000 to February 1, 2004. The contract language does not specify that these payments must be made by the DOC, but by the State. This may be an
area for further legal examination to determine if the State is owed money to its
Medicaid budget due to payments it made for inmates enrolled in VHAP.
A review of information provided to our Office by OVHA shows that VHAP was billed
a total of $4,667,537 in medical charges incurred by inmates since June 1, 2000. Of
these charges, the State approved $854,272 as payable under VHAP guidelines, and
to date VHAP has paid $466,848.
According to a report provided to the Auditor’s Office by OVHA, two inmates who
died outside of a correctional facility had a portion of their medical care costs paid by
VHAP.
Inmate Neil Prentiss, who had a history of serious illness, including hepatitis B, hepatitis C, abdominal hernia, peripheral vascular disease and a traumatic brain injury,
died on November 25, 2002 at the Lahey Clinic in Burlington, MA after first being treated at Fletcher Allen Health Care in Burlington. Prentiss was, at the time of last incarceration, lodged at the Chittenden Regional Correctional Facility in South Burlington. In
Prentiss’ case, VHAP was billed $259,564 for emergency services, but the State only
approved $47,602 in charges. Of the approved amount, VHAP paid $24,938. Most of
these charges - $247,841 - occurred on one bill, according to the OVHA report.
Our Office noted two other instances in the OVHA report where bills for inmates far
exceeded the amount approved and paid for by VHAP. They were:
• A total of $334,391 in emergency service care charges were billed to VHAP for
an inmate; the State approved $102,063 in charges and VHAP paid $52,647;
• A total of $260,731 in emergency service care charges were billed to VHAP
for an inmate; the State approved $71,926 in charges and VHAP paid $36,411.
According to the OVHA report, bills are often denied for one of 998 different reasons,
some of which our Office found to be related to being billed twice for the same service,
or the provider not being eligible to bill for Medicaid payments.

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Finding 15
Mental health personnel are prescribing, with DOC approval, more than 75
percent of all medications outside of the approved pharmaceutical formulary.
To date, the DOC has paid nearly $240,000 in additional charges above a
contract stop-loss provision for these drugs. Additionally, the parent company of
CMS, Spectrum Health, owns the pharmacy that provides medications to
Vermont inmates, and charges the DOC 12 percent overhead for all prescription
orders.

A

ccording to the contract with CMS, the St. Louis-based company “shall provide a
total pharmaceutical system, including medications prescribed by mental health
care providers, which is sufficient to meet the needs of the DOC inmates.
Contractor shall be responsible for the costs of drugs administered under the contract,
consistent with the limitations described in Attachment B.”
The reference to Attachment B above is the “Stop-Loss Provision - Psychopharmacy
Costs” section. The section reads: “The State agrees to limit Contractor’s psycho-pharmacy drug costs to a maximum amount of $160,000 in Year One of the contract. Any
psycho-pharmacy drug expense beyond $160,000 will be paid by the State based
upon a report prepared by the Contractor after the completion of a contract year summarizing total psycho-pharmacy drug utilization and cost after the completion of a contract year. The limit for Year Two will not exceed $166,400. The limit for Year Three will
not exceed $173,056.”
On September 2, 2003, the DOC amended the CMS contract to add an additional
year of services. At the same time, it increased the stop-loss provision to $178,000 in
year four of the contract.
The DOC does review the annual psycho-pharmacy bill from CMS to ensure that all
mental health-related drug costs are included in the cap calculations. This analysis is
done to ensure that the DOC is paying for medications that have been prescribed by
the proper clinician. However, using higher-priced, non-formulary drugs means that the
cap will be reached sooner.
A formulary, as envisioned in the contract with CMS, is designed to promote cheaper, equally effective drugs, and ensure that consistency is being provided in the types
of medications being used in the facilities.
According to the contract with CMS:
“Contractor will maintain a formulary listing the available medications. The
formulary must be submitted to the DOC’s Medical Director or designee for
review and approval before being implemented.”

- 40 -

Additionally, the contract states:
“Compliance with the formulary will be strongly encouraged. However, if the
Psychiatric Director and/or the Medical Director determine, following a review of
all options, that the most effective treatment is a non-formulary medication, this
medication will be made available to the inmate. Non-formulary medications will
be obtained by completing a non-formulary request. Disputes arising over the
use of non-formulary medications will be referred to the DOC’s Medical Director
for resolution.”
According to a report provided to our Office by CMS, which covers from July to
October 2000, of the $77,576 in billed psycho-pharmaceuticals $57,215 was for medications that were not on the approved formulary. Our Office requested, but did not
receive, more recent formulary reports.
This report also documented that CMS’ pharmacy receives a 12 percent “overhead”
fee associated with labor, packing and shipping of these medications. This 12 percent
fee is applied toward the stop-loss amount. From November 2000 to June 2001, this
overhead fee cost the State $16,987.
In each year of the contract, CMS has billed the State for costs above the stop-loss
provision, for a current total of nearly $240,000.
For the period covering July 1, 2000 until June 30, 2001, the State paid an additional
$96,251 in psycho-pharmacy charges above the stop-loss provision of $160,000.
For the period covering July 1, 2001 until June 30, 2002, the State paid an additional
$84,834 in psycho-pharmacy charges above the stop-loss provision of $166,400.
For the period covering July 1, 2002 until June 30, 2003, the State paid an additional
$58,556 in psycho-pharmacy charges above the stop-loss provision of $173,056.
Additionally, the original contract draft included language that would have required
any discounts negotiated by the contractor with pharmacy vendors to be passed
through directly to the State. This language was not in the final contract.
Our Office has found, in other areas of State government, that these discounts can
provide a sizeable revenue stream for the State and, when combined with a well-crafted formulary, can save the State money on pharmaceutical purchases.

- 41 -

Finding 16
The DOC does not always pay invoices within 30 days as required in the
contract, exposing the State to the assessment of penalties by the contractor.

T

est work conducted by our Office found that the DOC did not pay some invoices
within 30 days as required by the contract. The contract states that the DOC
must pay the invoices within 30 days of receipt or be assessed a 1.5 percent
penalty on the overdue amount. Out of 90 invoices our Office reviewed, 16 were paid
beyond 30 days.
These invoices totaled $3,673,429. At 1.5 percent interest charge, the DOC could
have been charged a penalty of $55,101 by CMS.
Finding 17
CMS failed to produce annual or quarterly financial reports on State-furnished
templates to the DOC. CMS was not penalized and the DOC never provided the
templates. Our Office estimates that the potential penalty owed to the State is
$279,000.

S

ection K of the contract - Performance Guarantees - outlines the penalties that
DOC can assess the contractor for not providing key deliverables. Item 5 is:
“Operational and Financial Reports.” Under this item, the contract states:
“Failure by the Contractor to provide required operational and financial reports within
prescribed time periods will result in a penalty of $1,000 per month for each month that
the report is not received.”
The financial reports are defined in Section I of the contract. It reads:
“Contractor will submit quarterly and annual financial statements, using Statefurnished templates, which specifically report the Contractor’s performance
under the contract with the State. The statements will be prepared in
accordance with generally accepted accounting procedures. Quarterly reports
are due 45 days after quarter end close. Final annual financial statements are
due 90 days after the close of the contract period.”
The financial reports CMS are required to submit to the DOC have never been submitted, according to interviews with DOC staff. DOC officials stated clearly that the
State never furnished the templates and CMS never provided the reports.
Our Office calculated the potential penalties associated with the failure of CMS to
provide these reports, and estimate the amount owed to be $279,000.

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B. Insufficient Quality Assurance
The Department of Corrections does not have an adequate, independent
system to evaluate the quality of health services to inmates provided by this
$23.9 million contract, and cannot assure that all services are being provided.
Finding 18: The DOC relies solely on the contractor’s reports to verify that services
are being delivered and does not have an independent system to evaluate the
performance of the contractor and determine if contractual staff is delivering
appropriate care that meets applicable standards.
Finding 19: The DOC destroyed nearly one year’s worth of QA reports and other
monthly statistical data in error. This data is the cornerstone of the contractual QA
requirements, and allows the DOC to evaluate CMS’ service delivery and adherence to
State and national health policies.
Finding 20: The DOC penalized CMS for not providing dental services in Calendar
Year 2001, however problems persist and the DOC has not levied additional penalties.
Finding 21: CMS did not employ a contract monitor as required in the contract to
evaluate the Quality Improvement Program (QIP), file monthly QIP reports to the DOC,
and assess any penalties or address performance-related problems if found. The DOC
did not require CMS to provide the monitor and did not assess penalties.
Finding 22: The DOC had access to services of the Pacific Health Policy Group to
monitor CMS’ contract performance, but this monitoring never occurred.
Finding 23: The DOC has failed to require that CMS maintain sick call slips in
triplicate as required in the contract, and neither CMS, nor the DOC, consistently
responds to inmate grievances within 10 days, as required by the contract. Sick call
slips and grievance files are two key elements that can be used to verify the timely
provision of care and document contractor performance.
General Recommendation
The DOC should develop strategies to independently verify the quality of medical
services, to understand compliance or quality problems, and to quickly implement
changes.
These should include a manual of policies and procedures that ensure consistent,
independent evaluations of contract personnel. This monitoring should be conducted
either by members of the contract monitoring team, or by another division within the
DOC. All monitoring should be documented in the contract management file.

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Findings & Discussion - Section B
Finding 18
The DOC relies solely on the contractor’s reports to verify that services are
being delivered and does not have an independent system to evaluate the
performance of the contractor and determine if contractual staff is delivering
appropriate care that meets applicable standards.

C

MS provides the DOC with monthly QI reports from each facility, and during this
annual process does review elements of the mental health delivery system.
Despite finding deficiencies in mental health records, the DOC took no action.

On-site evaluations in 2001 by the National Commission on Correctional Health Care
(NCCHC) found numerous deficiencies during its accreditation review at CMS-staffed
locations, including missing, outdated, or incorrect standards.
The August 13, 2002 Executive Health Committee (EHC) minutes reflect a discussion related to “QI Issues” the committee had discussed during the previous two years.
A representative of the contractor prepared the handout. A handout was provided to
attendees, but was not in the files of the minutes. The minutes reflect that other items
were to be added to the list: “Springfield start-up issues, Psychopharm costs, CCHP,
and staff support and training …”
CMS also does not appear to hold regular QI Committee meetings at each facility as
required in the contract. This leaves key State personnel - including the facility superintendent - “out of the loop” regarding clinical or performance issues among health care
staff.
The contract between the DOC and CMS requires that the mental health and medical teams meet weekly to discuss issues and record those meetings and then bring
any significant issues to the EHC, and to oversee the Quality Improvement Program
(QIP).
Specifically, the contract states:
“The QIP will be managed by a QI Committee which serves as its focal point.
Regularly scheduled meetings will be held monthly with the Contract Monitor,
nursing staff, representatives of the Mental Health Contractor, dental staff,
medical records staff and Contractor administration.
“The multi disciplinary QI committee is responsible for monitoring inmate health,
the control and prevention of communicable diseases, safety and sanitation of
the facility environment. The primary purpose of the committee is to identify
problems and opportunities for improvement, based upon the data collected in
the monitoring process. Contractor’s QI manual will be used to provide
in-service training.”

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According to interviews with DOC and CMS staff, our Office determined that neither
the CMS regional office nor the DOC Central Office reviews the monthly facility QI
meeting minutes to determine if they are being held.
In addition, the minutes of these meetings are only kept on file at the facility, and it is
generally the contractor who decides whether an issue is serious enough to be brought
to the attention of the EHC. The EHC has the charge, under the contract, to address
system-wide, or site-specific, issues related to all aspects of inmate care and treatment.
Finding 19
The DOC destroyed nearly one year’s worth of QA reports and other monthly
statistical data in error. This data is the cornerstone of the contractual QA
requirements, and allows the DOC to evaluate CMS’ service delivery and
adherence to State and national health policies.

D

uring our review, we sought to examine all monthly reports provided by CMS to
the DOC in calendar year 2003. At that time, we were informed by DOC personnel that all of the monthly QI and statistical reports that CMS is required to produce and submit to DOC for 2003 had been destroyed at DOC Central Office because
it was determined that since elements of what is sent is cumulative, it didn’t seem to
make sense to keep them on file and take up space.
We were informed that CMS maintained this information at its new regional office
inside the Southern State Correctional Facility in Springfield prison.
A good system of internal controls includes maintaining records of all contract activity
and reports provided by a contractor, or created by the contract monitor. Having constant access to evaluate this information allows the DOC to monitor and evaluate CMS’
service delivery and adherence to State and national health policies and procedures.
Finding 20
The DOC penalized CMS for not providing dental services in Calendar Year 2001,
however, problems persist and the DOC has not levied additional penalties.

A

key ancillary service to be provided to inmates is dental care, including preventative measures. Since the inception of the medical services contract in 2000,
dental services proved to be a difficult service to provide to inmates. Interviews
with DOC and CMS staff identified a problem with finding community dentists willing to
do the work.
When CMS assumed the contract from CHS, the DOC put CMS on notice that dental
services were a key provision of the contract that must be delivered.

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On December 27, 2000 Dr. Powell wrote to Bill Davidson, then CMS Regional
Administrator, that “as of January 1, 2001, we will start the meter running for dental
services that are not being provided as per the contract, page 26, section W. At this
time we will also be evaluating the staffing levels statewide from November 1. The
penalties assessed will be as defined on page 40, section K, No. 2, paragraph 2.”
The May 8, 2001 EHC meeting minutes noted a discussion related to addressing the
NCCHC draft reports. In part, some of the problems were related to dental care. One
notation in the minutes states: “Some inmates are refusing dental treatment for the following reasons: Dr. Hsu doesn’t use novocaine and fear of physical harm resulting
from tooth extractions … Dr. Hsu will be paying fines to state for non-compliance of his
contract … CMS needs to guide Dr. Hsu in his hiring practice.”
Letters back and forth between the DOC and CMS during the calendar year 2001
outline the general concerns by the State regarding a lack of dental services and other
staffing concerns - mainly a vacant LPN position.
During this time, Chief Nursing Office Diane Bogdan completed an audit of dental
files at all nine DOC facilities to substantiate the problems regarding dental services.
Bogdan’s audit found that dentists were not providing oral hygiene and dental health
education within 14 days of intake, were not making dental exams within three months
of intake, and were not following through on post-procedure visits.
CMS presented an invoice May 14, 2002 that included the following reductions from
their monthly service bill of $467,463: $53,271 for “Dental Pybks” and $21,200 for
“LPN Pybks” during the calendar year 2001. The total bill for that month, therefore,
equaled $392,991.
Still, problems persist, according to records reviewed by our Office.
In the June 2002 QI review for dental care at the Caledonia Community Work Camp,
the reviewing nurse noted that: “Dental prophylactics (cleaning) has not been compliant (0%) and nurse manager will enquire if more time can be allotted for this purpose.”
During that QI review, it was also discovered that the dentists’ current licenses, as well
as provisions for emergency care during off hours, were not on file.
In determining compliance with these standards, the nurse manager reviewed 10
dental visits. A key indictor is whether inmates are seen within 10 days of a sick call
slip. The dentist at the CCWC failed to meet this standard in a number of instances:
one inmate was seen three-and-a-half months after submitting a sick slip; another
inmate waited three months, and a third waited 80 days. Four other inmates were seen
40, 27, 22, and 4 days after submitting a sick slip.

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Finding 21
CMS did not employ a contract monitor as required in the contract to evaluate
the Quality Improvement Program (QIP), file monthly QIP reports to the DOC,
and assess any penalties or address performance-related problems if found. The
DOC did not require CMS to provide the monitor and did not assess penalties.

D

uring our review of the contract between the DOC and CMS, we observed that
specific language related to a QIP was included. As part of this QIP contract
section, it stated: “The Contractor shall employ a Contract Monitor, whose
responsibilities will be to perform quality assurance measurements, compile reports for
the QI Committees and monitor the compliance to developed plans and the contract
and to assess the need for fines in all areas of non-compliance. The format of such
reports generated by the QIP and Contract Monitor will be subject to approval by the
State Clinical Director.”
In an interview with the CMS Regional Administrator, our Office was told that no
such Contract Monitor was ever employed by CMS. However, facility nurse managers
provide monthly QIP reports to the DOC. There is no documentation on file that our
Office found during its review that indicated DOC approval for CMS to absolve itself of
this contract responsibility.
If, however, CMS had employed a contract monitor there is no guarantee that the
company would self-report deficiencies and assess itself penalties. Any contract monitoring should be done strictly by the entity paying for the services - either directly or
through a third party. As noted below, it appears as if the State had access to, but didnot request, such services from a third party to provide contract oversight.
Finding 22
The DOC had access to services of the Pacific Health Policy Group to monitor
CMS’ contract performance, but this monitoring never occurred.

T

he Pacific Health Policy Group (PHPG) is a contractor that provides a variety of
services to Departments, Divisions and Offices within the Agency of Human
Services. From July 1, 1998 to May 31, 2002, PHPG had a contract valued at up
to $2,295,431.
During this time, PHPG was contracted to provide technical assistance to the DOC
during two critical points of the medical services contract. According to the contract,
PHPG was to be paid up to $136,850 for this work. Its scope of services was amended
and updated five times during that four-year period. In September 1999, the following
tasks were added:
“Task 1: Provide Technical Assistance to the State with Assessing Financial and
Utilization for Current Contractor;” and, “Task 2: Provide Technical Assistance to
the State with the Development of a Request for Proposals for Prison Health
Services for SFY 2001.”

- 47 -

The activities of Task 1 include “consultation and assistance to the State in an
assessment of financial and utilization data from the current prison health contractor
(EMSA) …” The activities of Task 2 include “consultation and assistance to the State
with assessing the current prison health program and identifying opportunities for program modifications; assisting in the drafting of a Request for Proposals for prison
health services … negotiating a contract with the offeror; developing standard reporting
requirements, including detailed utilization and cost reports; and overseeing the implementation of the new contract.”
Amendment No. 4, signed on July 22, 2001 (eight months after CMS took over the
contract) added this service:
“Task 5: Provide Implementation Assistance to the Department of Corrections
for Inmate Health Services.” The activities called for PHPG to “assist the State
with the implementation and administration of the prison health benefits
program. Assistance may include contract monitoring and compliance;
evaluation of financial and utilization reports; and development of program
policies.” [Emphasis added.]
In each amendment, the following language is included under the heading General
Contractor Responsibility:
“The Contractor is expected to train staff to perform functions which must be
carried out on an ongoing basis, but which have been carried out by the
Contractor or primarily by the Contractor.”
The Agency of Human Services entered into a separate, two-year contract (June 15,
2002 - June 14, 2004) in July 2002 with PHPG. Task 5 of their scope of services is to
provide “implementation assistance to the Vermont Department of Corrections (DOC)
for inmate health services.” This task is defined as:
“The Contractor will assist the State with implementation/administration of the
prison health benefits program and to design programs that integrate DOC and
other State health assistance programs. Assistance may include contract
monitoring and compliance, program development, evaluation of financial and
utilization reports, and development or revision of program policies.” [Emphasis
added.]
In interviews DOC staff said PHPG was only paid for drafting the 2000 RFP for medical services, and assisted in the analysis and the wording of the final, approved contract. The DOC never utilized, or paid for, the additional service capacity granted to it
under the PHPG contract to assist with the oversight and evaluation of its medical
services contractors.

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Finding 23
The DOC has failed to require that CMS maintain sick call slips in triplicate as
required in the contract, and neither CMS, nor the DOC, consistently responds to
inmate grievances within 10 days, as required by the contract. Sick call slips and
grievance files are two key elements that can be used to verify the timely
provision of care and document contractor performance.

A

ccording to the Executive Health Committee minutes of November 2003, it was
“suggested that sick call slips be carbonized so the inmate can keep a copy for
their records.”

Under “Action/Follow-Up” the notation reads: “It was decided that the sick call slip
procedure at all facilities is going to be reviewed. The nurse managers will communicate with security that staff should not take slips, that the inmate should put them in
the box themselves.”
The contract with CMS is very clear regarding the standards to be used by the contractor to handle sick call slips:
“Contractor will implement a sick call system which provides inmates with
unimpeded access to health care services … Contractor shall utilize a three-part
sick call request form which allows the inmate’s request, triage and disposition
information, and the health care encounter to be documented all on one form.
The form is printed on no carbon required (NCR) paper to provide additional
copies. One copy is kept by the inmate at the time the request is submitted. The
second copy may be used for a variety of purposes. For example, if the inmate’s
request does not require a health care encounter, a written response will be
documented on the form and a copy will be returned to the inmate. The original
becomes a part of the inmate’s permanent record.”
Another key element in a health care delivery system is the grievance process that
inmates are afforded to lodge complaints about the quality, timeliness and effectiveness of health care delivery. While not all complaints may be medically valid, when
examined as a group patterns can often emerge that would allow the DOC and the
contractor to re-evaluate how services are provided and care meted out to inmates.
According to the Executive Health Committee minutes of November 18, 2003, the
CMS Regional Administrator asked, “who should be responding to grievance (sic), she
noted that the nurse managers are not properly trained legally, and the time and volume demand on medical and mental health staff should be considered.”
Under the “Action/Follow-Up” column, the minutes state: “DOC is going to take a
look at how grievance (sic) are handled. The question is where do they go - i.e. superintendent, some other central location.”

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“He understands he has a debt to society to pay.
Should his medical and mental health be the price he
pays for his wrongdoing? This is a system willing to risk
a man’s life while he pays his debt to society.”
- from a letter to the State Auditor’s Office in February 2004.

The contract states that regarding inmate grievances the “Contractor will recognize
the inmate as a consumer of the health care services. Grievances are reviewed to
identify potential areas of concern and to determine if problematic patterns exist.
Inmate grievances will be documented in a log to assist in monitoring compliance with
policy and procedure related to inmate grievances and to summarize those areas that
are frequently the topic of inmate dissatisfaction. All inmate grievances will be responded to within ten days of receipt and completed responses will be forwarded to State
Administrators on a monthly basis.”
At multiple points during the contract, as reflected in the Executive Health Committee
minutes, grievance response times often topped 30 days. This was also found to be
the case in the NCCHC surveys of 2001.
However, at no point was CMS penalized for not responding to grievances in a timely fashion, or forwarding completed responses to State Administrators on a monthly
basis.

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C. Questionable Procedures for Contract Bidding,
Amendment & Assignments
The Department of Corrections did not follow Bulletin No. 3.5 when approving,
amending and assigning its medical service contracts, and failed to properly
account and document changes made to contractual services.
Finding 24: The DOC amended the CMS contract to give greater flexibility to deploy
contractual staff among the facilities, but decisions were made informally and were
neither documented nor tracked by DOC staff. This makes it difficult to properly
analyze if CMS is providing adequate staffing levels when billing for services.
Finding 25: The DOC reduced clinical dental hours from 80 to 68 to allow for 12 paid
administrative hours to be reimbursed to dentists, despite specific contract language
stating that dental hours were for direct service. The DOC did not amend the contract
language to reflect this change.
Finding 26: DOC reassigned the contract to Correctional Medical Systems (CMS) on
October 31, 2000 after CMS’ purchase of CHS, without addressing the concerns of five
out of six DOC reviewers who, in May 2001, rated CMS last out of four proposals to
provide medical services.
Finding 27: The DOC did not have a signed and executed contract on file before
services were provided by CMS when the company first assumed the contract on
November 1, 2000, when the contract was extended by one year to cover FY 2004,
and when the contract was amended to add services being provided at the Springfield
prison.
Finding 28: The DOC allowed a deferred payment of $227,314 to be paid at the end
of years two and three of the contract with CHS, without reducing the corresponding
monthly payments due the contractor because of insufficient staffing and dental
services.
Finding 29: The DOC properly followed State bidding and contracting procedures
when it awarded the initial medical contract to Correctional Health Solutions (CHS) in
2000, but failed to properly document the negotiations that determined the final
contract, which was different from the request for proposals.

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General Recommendation
The DOC should comply with the spirit, intent, and requirements of Agency of
Administration Bulletin No. 3.5, Contracting Procedure when bidding, amending or
assigning contracts. To accomplish this the DOC should:
• Create a written manual that includes all policies and procedures that ensure
compliance with applicable State and Federal contract management and
monitoring;
• Create a contract monitoring tracking sheet for the term of each contract that
outlines when all key monitoring activities will occur, and then records any
findings, recommendations and/or penalties that result. This tracking sheet
should also record any contract amendments that affect program delivery or
personnel services;
• Hold contract monitor meetings on a quarterly, rather than annual basis, and
enhance training opportunities for key personnel to monitor private contractors
for fiscal and program performance;
• Require all changes to a contract to be made in writing via a signed document
between the contractual parties and that document be placed in a central
contract file. Those changes should also be part of a formal amendment
process to ensure that the State has an accurate record of all contract variations
in the event that a contract dispute arises; and,
• Ensure all contracts and amendments are signed and fully executed before the
effective dates and actual delivery of services.

Caledonia Community Work Camp in St. Johnsbury.

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Findings & Discussions - Section C
Finding 24
The DOC amended the CMS contract to give greater flexibility to deploy
contractual staff among the facilities, but decisions were made informally and
were neither documented nor tracked by DOC staff. This makes it difficult to
properly analyze if CMS is providing adequate staffing levels when billing for
services.

T

he DOC and CMS amended the medical services contract as of November 29,
2001 that added additional staffing to the contract at a cost of $254,000. The
amendment included language that added a section to Attachment A of the contract. That new section reads:
“STAFF ASSIGNMENT - The parties recognize that demand for nursing
coverage is variable and subject to change, as the mission, size and role of the
specific institutions change. It behooves the Parties to have flexibility in
responding to these demands. In order to insure that assignment of staff to
specific sites matches the clinical need, and that staff are optimally deployed
throughout the state, the Parties agree to permit minor changes in the Staffing
Matrix (Attachment D) according to mutually agreed-upon plans … contingent
upon the total statewide number of those particular positions in advance by the
Executive Health Committee, and an updated staffing matrix shall be maintained
at all times.”
Our Office found only one record that explicitly noted a change in staffing, although
from interviews with DOC and CMS personnel it is evident that other changes in staff
deployment happen on a routine basis as needed to backfill positions, or address
pressing health delivery needs.
In the April 23, 2002 EHC meeting minutes, a discussion occurred related to a
staffing matrix change offered by the contractor.
The changes moved an administrative assistant position of 12.5 hours from WRCF
to SESCF and an administrative assistant position of 7.5 hours from Dale to SESCF,
as well as nurse manager shift from WRCF to CCWC (to account for a previous
change it was a money shift of $6,520), and then two RNs from WRCF. One 8-hour
position was shifted to NERCF and one 28-hour position was shifted to SESCF.
The changes to the matrix were approved at the meeting, and an updated matrix
was reviewed at the May 14, 2002 EHC meeting.
In interviews, DOC staff said that the EHC is the official avenue for all staffing matrix
changes to be reviewed and approved. Other changes are noted as they occur, and
are relayed to the DOC either by e-mail or by phone.

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The DOC does not receive a monthly schedule from CMS regarding shift coverage
at all facilities. However, this is a requirement of the contract.
Section III of the contract (Personnel Services) outlines the job descriptions of the
main contractual personnel who are to provide direct oversight of health care delivery
by the contractor, and serve as a liaison with the DOC.
Under Health Services Administrator, one of the required job duties is to “make available to the administrators a monthly health care services staffing schedule for each
facility prior to the initiation of the schedule. This report shall include the number of fulltime, part-time and relief staff by day, shift and location. The Health Services
Administrator shall also be responsible for providing designated State officials with all
reports required by the State.”
It is not clear if the “administrators” under this description are CMS administrators or
State administrators. However, if these reports are being produced, it would behoove
the State to receive copies to ensure compliance with the contractual staffing matrix.
Finally, when the DOC amended the contract to only hold CMS accountable for
meeting the statewide staffing matrix, it failed to amend the penalty provisions of the
contract to reflect this new approach and allow the DOC to penalize the contractor for
failing to maintain adequate staff. The current contract language still reflects the stipulation that CMS maintain positions, and only be penalized for having actual positions
remain vacant more than 31 days.
Our Office believes the DOC should re-examine this penalty provision and require
CMS to provide all FTEs called for in the contract or face a penalty.
Finding 25
The DOC reduced clinical dental hours from 80 to 68 to allow for 12 paid
administrative hours to be reimbursed to dentists, despite specific contract
language stating that dental hours were for direct service. The DOC did not
amend the contract language on fees to reflect this change.

D

ental services are a key ancillary service outlined in the contract between the
DOC and CMS that must be provided to inmates. The contract is explicit. It
states: “Contractor shall provide on-site dental services which include preventive and restorative care. The Contractor will provide a schedule, by facility, to the
State with the hours that dentists will be on-site actually seeing patients (i.e. exclusive
of time used for set-up and dismantlement of equipment and for administrative activities). The hours across all facilities must equal at least two FTEs.”
Additionally, the contract states: “The initial dental appraisal and instruction in oral
hygiene will be conducted at the time of the initial health appraisal by trained registered nurses and within fourteen (14) days of admission … If the Contractor is unable

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to provide on-site assessment, screening and/or treatment within these timeframes,
inmates shall receive services through local community dentists, with costs for said
services to be borne by the Contractor.”
During our Office’s review, we examined a letter dated November 29, 2000 from Dr.
Powell to Ann Mack, CMS’ Area Vice President, regarding “Dental Contract
Performance Guarantees and Administration,” and attempting to clarify issues around
the dental contract and any financial penalties. In this letter, Dr. Powell noted, “Given
the scenario that CHS, and subsequently CMS, inherited from the previous provider,
the VDOC feels that this contract requirement needs clarification.”
Dr. Powell further noted that the DOC was waiving any penalties for six months from
the commencement date of the contract - July 1, 2000 - and was willing to use
Medicaid guidelines regarding inmate backlogs and waiting times. This means routine
care must be completed within four weeks of request.
Finally, Dr. Powell concluded by altering another contract provision: “In addition, we
would like to clarify that up to 12 hours weekly of the contracted 80 weekly dentist
hours may be used for administrative purposes with the remaining 68 hours weekly
being utilized for direct patient care.”
These changes were not reflected in the final executed contract between CMS and
the DOC on January 24, 2001 - even though it is obvious that it had been agreed to
well in advance.
Finding 26
DOC reassigned the contract to Correctional Medical Systems (CMS) on October
31, 2000 after CMS’ purchase of CHS, without addressing the concerns of five
out of six DOC reviewers who, in May 2001, rated CMS last out of four proposals
to provide medical services.

W

hen the DOC sought proposals to provide medical services to inmates, it
evaluated four complete proposals: one from CHS, another from CMS, one
from Prison Health Services, and one from St. Barnabus Correctional Health
Systems.
During the review process, it was clear that the top choice of all reviewers was CHS.
However, CMS’s proposal was ranked fourth by four of the six evaluators and third by
the other two evaluators.
Prison Health Services (PHS), of Nashville, TN, was ranked second by four evaluators, third by one and fourth by the sixth evaluator. At the time of the evaluation, PHS
was the State’s contractor providing medical care to inmates. PHS had purchased
EMSA Correctional Care, the previous medical contractor, in 1999.

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St. Barnabus Correctional Health Systems of New York, NY, was ranked second by
two evaluators, third by three evaluators and fourth by the sixth evaluator.
In a memo to the reviewers from Dr. Thomas Powell, Ph.D., Clinical Programs
Director at the DOC, CMS’ bid was described, in part, by these main points: “comprehensive proposal in which Vermont would basically be administered as a satellite for its
Massachusetts corrections contract … weak administrative structure, skeletal staffing
… poor references with persistent complaints about low-ball bidding followed by constant add-on charges for basic care. We had unsolicited calls from wardens warning
against this company.”
Our Office found no documentation that the substantive concerns about the ability of
CMS to carry out contract services were addressed during the reassignment process.
In the evaluation sheets reviewed by the Auditor’s Office, CMS ranked high in terms
of a technical review of its proposal, but scored the lowest among all proposers during
the interview with DOC personnel (5.83 out of a possible 17.50).
Finding 27
The DOC did not have a signed and executed contract on file before services
were provided by CMS when the company first assumed the contract on
November 1, 2000 and again when the contract was extended by one year to
cover FY 2004.

C

MS assumed the CHS contract as of October 31, 2000 - however the DOC did
not have a signed and executed contract on file until January 24, 2001. Then, in
2003 the DOC received approval to extend the contract with CMS for one year
to cover FY 2004. The original contract term ended on June 30, 2003, however a
signed contract was not executed until September 3, 2003. Additionally, the AA-14 was
not signed by the Secretary of Administration until July 14, 2003.
An “Assignment and Assumption Agreement (Customer Contracts)” is on file at the
DOC that recognizes the reassignment of all CHS contracts to CMS. The reassignment date in the document is October 31, 2000. The document was signed by representatives of CMS, CHS and the DOC, however there is no date accompanying these
signatures. Despite this reassignment, there was not a signed contract amendment
recognizing this reassignment until January 24, 2001. During that time, the DOC paid
CMS $407,156 a month for services in November and December without an executed
contract in place.
The invoice for November services was dated November 21, 2000 and was paid by
DOC on February 16, 2001. The December invoice was dated January 4, 2001 and
was paid by DOC on February 16, 2001. DOC personnel approved both invoices for
payment on January 22, 2001.

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Between July 1, 2003 and September 1, 2003, CMS billed monthly for services provided in July and August totaling $1,057,748. The DOC did not pay these bills until
September 9, 2003. However, the contract monitor for this contract - and his designee
- approved these bills for payments upon arrival at DOC.
Finally, the DOC amended the CMS contract to reflect the opening of the
SouthernState Correctional Facility in Springfield. The effective date of the amendment
is October 1, 2003, but the contract was not signed by the DOC until December 29,
2003. Additionally, the AA-14 was not signed until October 30, 2003 by the DOC,
November 19, 2003 by the Attorney General’s Office, and December 3, 2003 by the
Secretary of Administration.
Finding 28
The DOC allowed a deferred payment of $227,314 to be paid at the end of years
two and three of the contract with CHS, without reducing the corresponding
monthly payments due the contractor because of insufficient staffing and dental
services.

O

n June 29, 2000 - just two days before the contract with CHS was to begin - a
legal agreement was signed between CHS and the DOC that deferred compensation to CHS in the amount of $227,314.

This agreement would give CHS lump sum payments of $114,072 in July 2001 and
$113,242 in July 2002, respectively after fully completing the first contract year.
In its contract analysis for the DOC, the PHPG suggested that in order for the DOC
to keep its costs down in the first year of the contract - during a time when the DOC
was looking to squeeze as much revenue as possible from a variety of sources - that it
defer payments to a lump sum arrangement to keep monthly payments down. Also, the
DOC could use the lump sum payment as a way to address contract deficiencies, and
reduce the payment to reflect penalties or other assessments if necessary.
As is noted earlier in this report, both CHS and CMS failed to fulfill their obligations
under the contract to provide dental services or full staffing. However, the DOC did pay
out this additional money to CMS on September 7, 2001 and July 22, 2002.

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Finding 29
The DOC properly followed State bidding and contracting procedures when it
awarded the initial medical contract to Correctional Health Solutions (CHS) in
2000, but failed to properly document the negotiations that determined the final
contract, which was different from the request for proposals.

T

he DOC first hired a private contractor to provide medical services to inmates in
1997, when it contracted with EMSA. EMSA was the State’s contractor from
1997 to 2000.

When the three-year contract was coming to a close, the DOC used PHPG to write
the initial RFP for services, which also served as a template for the contract language.
PHPG was, at the time, engaged in contractual services for a variety of departments
of the Agency of Human Services. The total contract value, through 2000, was $1.66
million, of which its work for the DOC represented $116,350.
In its comments to the DOC, the PHPG noted that it was undertaking a financial
analysis to determine if the DOC could save money. In a May 5, 2000 memo from
Mary Bading of PHPG to Dr. Tom Powell, Ph.D., DOC Clinical Programs Director, she
notes: “The analysis on Pages 2 and 3 were performed to determine whether there
were areas of expense that appeared excessive or unusual for this type of contract.
Three expenses: corporate overhead, other and profit seemed to be the areas that
might be targeted for some type of reduction, if only on a temporary basis.”
The three areas, combined, represent 22 percent of the contract price. “Corporate
overhead” was 10 percent, “other” was 5 percent and “profit” was 7 percent. It is
unclear whether the DOC followed through on this advice and if it reduced the expenses in these three areas, as the proposed total contract price from CHS, as analyzed by
PHPG, was $16,963,585. However, the final contract amount was $16,350,937.
Examples of differences, include:
• The RFP did not contain language outlining how Hepatitis C treatment
services would be delivered and paid for; however this was added to the final
contract language. CMS was allowed to bill for the full cost of this treatment,
but the most recent amendment to the contract caps the annual amount
that the DOC will pay for this treatment;
• A penalty clause related to high staff turnover rates was removed
from the final contract;
• The original contract draft included language that would have required any
discounts negotiated by the contractor with pharmacy vendors to be passed
through directly to the State. This language was not in the final contract;

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• The requirement to have a disaster management plan in place; and,
• The requirement to evaluate the existing management information system that
maintains all health care records, manpower utilization and statistical summaries
of activities and if they install a new system, to assume responsibility for all
historical data.
Our Office’s review of the 2000 RFP, bid review and approval process found that the
DOC properly followed Agency of Administration Bulletin No. 3.5 Contract Procedures.
The RFP contained the necessary outline of how the bids would be reviewed and
scored, and contained a price summary form, as well as a clear expectation of the
deliverables the contractor was expected to produce.
The DOC may wish to follow nationally-established standards to document the
process and issues in between when an RFP is accepted and a contract is executed.
According to the National Institute of Governmental Purchasing (NIGP) a “key element in the process of completing a negotiation is full documentation of the entire
negotiation. Personnel turnover, the stops and starts of the negotiations, and the frailties of the human memory make accurate documentation of the negotiation essential.
The documentation must permit a rapid reconstruction of all significant considerations
and agreements. This documentation is essential especially when future contract disputes occur.”
The NIGP recommends the following elements be included in a format to document
the negotiations:
• Overview: A statement of all contract information to date, including scope of
work, names of the negotiators, and the purpose of the negotiation.
• Summary of Particulars: A summary of all areas targeted for negotiation and
the original position of the parties.
• Negotiation Summary: A summary of the results of the negotiation and how
positions changed as a result of the negotiation. This should be specific and be
the basis for the final contract.
• Justification and Recommendation for Award: This should justify the
rationale of the final contract and why it is in the best interest of the State.
It should be noted that all departments, under Bulletin No. 3.5, must include a letter
of recommendation to accompany the contract when it is sent to the Secretary of
Administration for final approval. The DOC routinely complies with this requirement.

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“I am asking you and members of the legislature to
promptly come here to Marion (Adjustment Center)
yourselves. Listen to us inmates and see for yourselves
what our conditions are. Many legislators signed off on
this CCA contract. Please don’t allow having chosen to
align yourselves with CCA to turn a blind eye to what has
been sown. Allowing VT DOC to police CCA under the
circumstances that DOC has failed to police itself with
transparency and accountability for actions having led so
far to at least 17 inmate deaths in only 5 years. Isn’t it
reasonable that the legislative oversight committee should
exercise true oversight that is not limited to VT DOC and
CCA telling you what is going on?”
- from a March 2004 letter written by inmate Kirk Wool to State
Senator Vincent Illuzzi outlining conditions at CCA Marion
Adjustment Center in Kentucky.

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Section III
Out-of-State
Housing
Contracts

Marion Adjustment Center
St. Mary, Kentucky.

Lee Adjustment Center
Beattyville, Kentucky.

- 61 -

Background

T

he State of Vermont currently contracts with the Corrections Corporation of
America (CCA) of Nashville, TN to house Vermont inmates. As of early May
2004 there were approximately 360 inmates under the care of CCA in three facil-

ities:

Marion Adjustment Center
St. Mary, Kentucky

approximately 235 inmates

Lee Adjustment Center
Beattyville, Kentucky

approximately 120 inmates

Florence Correctional Center
Florence, Arizona

6 inmates

The CCA contract expires on June 30, 2007 at a maximum cost of $29,524,829 for
up to 700 inmates. The cost is currently $42 per day per inmate for facilities in
Kentucky and $43.50 per day at the Arizona facility. The costs will rise on July 1, 2004
to $42.84 per day in Kentucky and $44.37 per day in Arizona.
The per diem costs include necessary routine medical and mental health care, pharmacy costs, training programs, and treatment programs. CCA is responsible for inpatient hospital and surgery charges for the first 72 hours an inmate is confined in a hospital, or the first $20,000 in costs, whichever comes first. The State’s contract with CCA
outlines other possible procedures and payment provisions, as well as protocols for
discipline, inmate transportation, record-keeping, etc.
From July 1, 1998 until early 2004 the State contracted with the State of Virginia for
out-of-state inmate housing. The most recent per diem at three Virginia facilities was
$48.50.

“Regarding the general issue of lack of sufficient
program, library and recreation space at the Marion
facility, I have addressed that pointedly with CCA
officials.”
- DOC Commissioner Steven Gold in correspondence with the
State Auditor on May 14, 2004.
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A. Contract Bidding
Finding 30
The DOC allowed the State of Virginia to provide out-of-state housing services
without signed contract renewal amendments in place.

T

here is an increased risk to the State and Vermont inmates when out-of-state
housing services are provided without the benefit of fully executed contracts
being in place.

This has occurred during the period when the Commonwealth of Virginia was housing Vermont inmates. The Virginia contract began July 1, 1998 and continued past its
formal endpoint of January 30, 2004 into February and March.
At several points in the State’s relationship with the Commonwealth of Virginia, a
fully executed contract was not in place while services were being provided. This
apparently had financial consequences for the State of Vermont (see Finding 2 below).
The Virginia contract formally ended January 31, 2004, but Vermont inmates continued to be housed in Virginia during February and March while a contract amendment
was moving through the approval process. As of this writing, the contract amendment
process has not been concluded and Virginia is awaiting payment for services it provided after January 31, 2004.
The new Corrections Corporations of America (CCA) contract officially began on
January 15, 2004 and expires on June 30, 2007, and has a maximum total payment of
$29.5 million.
The contract was fully executed after the contract start date, on January 19, 2004,
when it was signed by DOC Commissioner Steven M. Gold. However, CCA did not
begin receiving Vermont inmates in its Kentucky facilities until the first week of
February.
The Secretary of Administration has recently required that contracts or amendments
that need approval by the Secretary’s office be submitted to the Secretary four weeks
before the contract’s starting date. In order to accommodate this request, the DOC
Business Office now requires all completed contracts requiring Agency of
Administration action to be delivered to the Business Office eight weeks prior to the
contract’s starting date. This should help reduce the times when services begin or continue without a contract or renewal amendment in place.
Recommendation
DOC should adhere to state guidelines for timely development and signing of
contracts so that all legally required contract documents have been executed
prior to the commencement of services by a contractor.

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Finding 31
DOC followed Administrative Bulletin No. 3.5, Contracting Procedures, in
awarding a $29.5 million, 3.5-year contract to Corrections Corporation of
America (CCA), and has adequate documentation of the bidding, proposal
review and decision-making process.
The contract requires CCA to maintain accreditation by the American
Correctional Association (ACA), and does not specify other, possibly higher,
minimum standards for inmate housing, kitchen and dining areas, inmate
programming or for hiring and training correctional officers.
The contract lacks provisions on financial penalties for contractor
non-performance (except for health care accreditation).

T

he current contract with CCA is the State’s first with a privately-owned and operated prison company. As such, many legislators and citizens inquired about the
process for awarding this contract to a private-sector company.

Our review determined that the DOC adequately followed the contracting procedures
in Administrative Bulletin No. 3.5, which governs this process, and has a well-documented file on the contract. It should be noted that the previous contractor, the State
of Virginia, did not submit a proposal to continue housing Vermont inmates.
We also note that with this contract the DOC is implementing a comprehensive audit
and quality assurance system, including a checklist and workbook for use by Vermont
officials who are scheduled to visit CCA facilities in Kentucky Vermont inmates are
held. Vermont did not have such a quality assurance program during its contract with
Virginia.
However, there are areas of concern. Unlike the medical and mental health care
services contracts we reviewed, the CCA contract does not specify a minimum staffing
level of correctional officers to be achieved by the contractor in providing the required
safe custody for Vermont inmates. The contract is also silent on specific qualification
levels, background checks, and training for CCA correctional officers above those
required by ACA accreditation standards.
Vermont inmates, family members and advocates have also registered complaints
with this Office and elsewhere regarding the Marion Adjustment Facility in Kentucky,
citing the lack of a kitchen and dining hall (meals are brought from another building
and served in a hallway), cramped spaces for programs, recreation, law library and visiting area. Regarding such specific areas, the CCA contract specifies only that the
facilities will meet the national ACA standards.
The current contract with CCA also does not have specific penalty clauses outlining
the financial consequences for the potential failure of the contractor to live up to all
terms of the contract, with the exception of health care accreditation. (CCA has 12
months in which to see their Kentucky facilities accredited by the NCCHC or be subject
to a financial penalty of $500 per day.)

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Recommendation
The DOC should address issues of contractor non-performance and possible financial
penalties. The DOC should clearly describe the required background checks and minimum job qualifications and training requirements for CCA correctional officers, as well
as higher standards for inmate housing, kitchen and dining areas, inmate programming
and other areas that may be necessary. The DOC should seek to amend the CCA
contract relating to these issues at the earliest opportunity.

“The first thing to strike the visitor is that the main part of the
prison, housing Kentuckians, is a beautiful former college
campus with no fence. In contrast, the Vermont section,
known as the Columbia Unit, is a tiny enclosure rimmed by a
double fence and thousands of feet of razor wire on a hill
overlooking the rest of the prison. I was struck by an inherent
incompatibility between these two prison environments at
Marion. The Vermonters in their cramped enclosure on the hill
get to watch the Kentuckians, some of them lifers, strolling
around their beautiful grounds. There’s something cruel about
that.”
- from a letter to the State Auditor’s Office in April 2004.

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B. Fiscal Oversight
Finding 32
The DOC was assessed interest charges of $114,079 by the State of Virginia due
to late payments for five monthly payments in 2002. The DOC negotiated a lower
penalty total and paid $46,809 in interest charges for failure to pay agreed-upon
costs in a timely manner.

T

he State’s contract with Virginia spelled out the process for Virginia to submit
invoices for housing Vermont inmates, and the timelines for the DOC to pay
those invoices and penalties for tardy payments:
“Sec. 4.7 Invoicing and Payment Terms: Invoices will be submitted by the
VADOC each month for services rendered during the preceding month.
Invoices will be transmitted by mail, courier service, or other method as agreed
to by the Parties. Payments are due not later than 30 calendar days after
submission to the Director of Administrative Services for the VTDOC or his
designated agent. Beginning forty-five (45) days after submission, a charge
of 1.5% per month of the outstanding balance will be added to all past due
balances …”

The DOC was late in paying monthly per diem invoices sent by Virginia for housing
Vermont inmates for the following months:
Month of Services
July 2002
August 2002
September 2002
October 2002
November 2002

Invoice for Per Diem Costs
$636,329
$639,341
$647,591
$666,805
$682,290

Date Paid by DOC
January 30, 2003
January 30, 2003
January 30, 2003
March 12, 2003
March 12, 2003

On February 1, 2003 Virginia invoiced Vermont for $77,931 in interest charges for
delayed payments of July, August and September, 2002 per diem expenses.
On March 17, 2003, Virginia invoiced Vermont for $36,147 in interest charges for
delayed payments of October and November 2002.
Virginia invoiced a total of $114,079 for the five months in question.
There was no dispute about the Vermont payments being late. When asked by this
Office for the reason the payments were late, DOC officials said the primary reason
was that a fully executed contract was not in place during a period of transition to an
extended contract. Negotiations between Vermont and Virginia on contract language
regarding indemnification were protracted, according to DOC staff, and contributed to
the late signing of the contract.

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After discussions with Virginia officials, the DOC agreed to settle two outstanding
issues. One was the interest charges on late payments, and the other was a large
health care bill for a hospitalized inmate that was submitted nearly two years after
services were rendered. Vermont agreed to pay the entire hospital bill, but only a portion of the interest charges for late payments - $46,809. Virginia accepted this agreement in June 2003, and Vermont made the agreed-upon payments in July 2003, which
totaled $100,000.
Recommendation
The DOC should ensure that adequate internal control procedures are in place in
order to execute contracts and pay appropriate invoices in a timely manner so
as to avoid unnecessary interest penalties on late payments.
Finding 33
When out-of-state inmates in Virginia had to go to the hospital or other health
facility for special services that Vermont would pay for, the DOC pre-approved
the expenses verbally, leaving no written record to refer to when invoices for
these services were received up to a month or more later.

T

he Vermont-Virginia contract included in the basic per diem rate the provision by
Virginia of “necessary medical, dental, psychiatric, optometric and medication
services necessary to provide for the health and well-being of Vermont inmates
in the same manner as it provides for Virginia inmates.”
Some types of additional medical services were billed to Vermont, but the DOC first
had to approve the expense. This approval was given verbally to Virginia officials by
the Vermont out-of-state housing unit, and not written down. DOC officials reported
that the number of these approvals was modest and that invoices for extra charges
could be related by memory to previous telephone authorization.
A better business practice would be to keep a log of approvals, including date, type
of service authorized, etc., and to use this log to review invoices for additional charges
as they arrive in case non-authorized procedures were performed.
The State’s new contract with CCA requires the contractor to obtain “written VTDOC
approval” when scheduled inpatient hospitalization or surgery is likely to result in costs
being paid by the State of Vermont.
Recommendation
The DOC should keep a written record of approvals given to out-of-state
contractors for additional medical services the State is obligated to pay for
under the contract, and require that these approvals be reviewed before
approving any payment for service.

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“Since his incarceration he has received very little
medical treatment. [He is] suffering from headaches as
well as complaining that his left eye feels ‘floppy.’
“Having all medications taken way literally overnight as
well as the withdrawal from nicotine and caffeine,
suffering from constant pain and not being able to sleep,
has clearly caused a serious deterioration in [his]
mental and physical health. I am very concerned about
his mental condition right now as he has become severely
depressed.”
- from letters received by the State Auditor’s Office in FebruaryMarch 2004.

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Section IV
Inmate Program
Contracts

Dale Correctional Facility in Waterbury.

- 69 -

Background

T

he DOC manages a wide variety of contracts for specific offender treatment services. The DOC has issued more than 60 contracts at a cost of nearly $7 million
since 2000 to provide a variety of offender treatment services.

These services include:
Residential and Community-Based Substance Abuse Programs;
Sex Offender Treatment Services;
Cognitive Self-Change Services;
Domestic Abuse Treatment Program; and,
Consultation and Supervision Services for Offender Treatment Programs.
Services are provided at correctional facilities and at Community Correctional
Service Centers (CCSCs) and Court & Reparative Service Units (CRSUs) throughout
the State.

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A. Contract Bidding
The Department of Corrections does not have an adequate system of controls to
ensure compliance with State contracting procedures when using private
contractors to provide services to inmates.
Finding 34: The DOC does not fully document its activities when issuing, reviewing
and approving proposals to provide inmate program services, which means it does not
always fully comply with Agency of Administration Bulletin No. 3.5, Contract
Procedures.
Finding 35: The DOC allows facility superintendents and supervisory field unit
superintendents to develop, issue and maintain contracts and contract files for a
variety of services with little or no oversight by the Central Office.
Finding 36: The DOC issues multiple contracts with the same vendor to provide
identical services to separate locations - jails, prisons or community field sites. Multiple
contracts for similar services typically add unnecessary administrative overhead and
staff costs to oversee and manage the contracts.
General Recommendation
The DOC should comply with the spirit, intent, and requirements of Agency of
Administration Bulletin No. 3.5, Contracting Procedures, and fully document all
activities associated with the issuance, review, approval and amendment of all private
contracts for services. To accomplish this, the DOC should:
• Ensure all contracts and amendments are signed and fully executed before the
effective dates and actual delivery of services;
• Hold contract monitor meetings on a quarterly, rather than annual basis, and
enhance training opportunities for key personnel to monitor private contractors
for fiscal and program performance;
• Review all service contracts issued from field sites and facilities to ensure they
fully comply with State contracting procedures;
• Review the practice of issuing multiple contracts to the same vendor to provide
identical services at multiple DOC locations and determine legal ramifications of
combining contracts in these instances to reduce State administrative overhead
and processing costs; and,
• Conduct on-site reviews, as well as post-contract audits, at facilities and field
sites to ensure compliance with contract requirements as well as State and
DOC and policies and procedures.

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Finding 34
The DOC does not fully document its activities when issuing, reviewing and
approving proposals to provide inmate program services, which means it does
not always fully comply with Agency of Administration Bulletin No. 3.5, Contract
Procedures.

T

o determine if the DOC was complying with Bulletin No. 3.5 provisions related to
maintaining a record of public bidding, staff review and contract approval and
any subsequent amendments, our Office tested a select number of contracts
from each program area: ISAP, IDAP, CSC, Sex Offender treatment, and RSAT.
During test work, our Office observed instances of missing documents from several
contract files. Specifically, we found:
• The statewide ISAP RFP (for CCSC sites) did contain the proper scope of
services, price quotation form and identified how a vendor would be chosen.
There was also documentation in the contract file to verify bid openings and
contractor selection and approval. The contract is for three years, and a written
explanation outlining why it is more than two years in length (per Bulletin
No. 3.5 provision) was in the file. The only item missing was verification that the
DOC had advertised the RFP.
• The RSAT RFP did contain the proper scope of services, and identified how a
vendor would be chosen, but did not contain a price quotation form. There was
also documentation related to bid openings and public advertising of the
contract. However, there were no documents related to how the contractor was
selected. The contract has been amended three times, each reauthorizing for
another year Phoenix Houses of New England.
• The CSC file did contain the RFP with the scope of services, copies of public
notices, but did not contain information related to how a contractor would be
selected, a price quotation form or evidence related to how the contractor was
selected. The contract file also did not have a list of vendor bids solicited and
reviewed - or notification that only one bid was received.
• The sex offender treatment program contract files did contain documentation
that the DOC had reviewed and evaluated vendor proposals in those
cases where more than one clinician replied to an advertisement (which were
also in the contract file). The RFP did contain the scope of services to be
provided, but vendors are not told in writing how they are to be evaluated
and scored, although our Office found that the DOC did conduct
exhaustive reviews of each proposal. Other than handwritten notes on each
resume and cover letter, there is no final, written evaluation that states why a
vendor was selected. There was evidence that rejected bidders were notified.

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Finding 35
The DOC allows facility superintendents and supervisory field unit
superintendents to develop, issue and maintain contracts and contract files
for a variety of services with little or no oversight by the Central Office.

T

he DOC has roughly 60 contracts to provide offender treatment services at its
nine jails and prisons and nine Community Correctional Service Centers (formerly known as Probation & Parole offices). Some of these contracts are managed
and overseen from the Central Office in Waterbury, and some are handled directly at
the facility or CCSU.
For those services in which contractors report directly to a facility superintendent or
CCSU superintendent, the main contract file (all bid documents, staff analysis, and
subsequent reports) are kept on site. Only copies of invoices are kept at the Central
Office in Waterbury.
This decentralization, without proper written policies and procedures, is a weakness
in the overall system the DOC has developed over time to respond to emerging needs
of its inmate population. This lax oversight allows for separate monitoring and payment
procedures and policies to be developed at each site, with no uniform process in place
that can be easily reviewed by the Central Office.
For example, not all facility or CCSU superintendents review and approve invoices
from contractors, even though they are listed in the contracts as the DOC’s designated
contact.
The DOC’s Central Office has the authority to put in place system-wide policies and
procedures related to reviewing, approving and documenting contractor invoices, and
could make it a priority to ensure that each field site is adhering to these standards.
This approach would likely require that the Management Executive, or his or her
designee, make routine site visits to verify compliance.
The DOC’s Central Office could also take a more direct role in the contract bidding
and approval process to ensure that the payment provisions provide clear instructions
to all contractors about what they must provide to support their invoice for services.
Without significant changes in staffing, it is not probable that the Central Office could
review and approve all contract invoices prior to payment, but it can and should establish a clear tone that can ripple through all divisions and field sites about what to
expect from private contractors.

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Finding 36
The DOC issues multiple contracts with the same vendor to provide identical
services to separate locations - jails, prisons or community field sites. Multiple
contracts for similar services typically add unnecessary administrative overhead
and staff costs to oversee and manage the contracts.

T

he DOC has adopted, though not by a strict policy, an overall goal of bidding out
for services rather than using simplified bids or sole source contracts. This has
provided the DOC an opportunity to review multiple submissions. This appears to
have kept costs down for individual programs by finding the best deal for Vermonters
in a number of instances.
This unofficial policy has led to the DOC to issue multiple contracts for identical services (just different in terms of where in the state the service is provided) to a single
vendor. Here are some examples:
• Spectrum Youth & Family Services in Burlington provides IDAP services at
the CCSCs in Barre, Burlington, Rutland and St. Albans while also serving as a
consultant and evaluator for the statewide program.
• Spectrum Youth & Family Services also provides CSC services for women at
the Burlington CCSC and at Northwest State Correctional Facility in St. Albans,
and group CSC services in Burlington. Most of these contracts are for different
time periods, but for nearly identical services.
• Phoenix Houses of New England provides a variety of ISAP services at the
nine CCSCs and at the Northeast Regional Correctional Facility in
St. Johnsbury.
• Charles Gurney provides direct services for CSC and IDAP Programs and
evaluative services for the CSC program.
While keeping with the spirit of Bulletin No. 3.5 to provide for competitive bidding for
services when contracting out is contemplated, the DOC may wish to combine select
contracts with providers. The services could still be separately bid upon completion of
the contract, but it may allow for more efficient and effective contract administration
and monitoring. It may also reduce the administrative cost the contractor bills to the
State in order to invoice multiple program directors, and the State’s cost to review and
approve multiple invoices from the same contractor.

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B. Contract Payments
The Department of Corrections did not have sufficient controls in place to
assure that staff hours and services were provided according to signed
contracts. As a result, DOC may have paid for hours not worked and
services not provided.
Finding 37: The DOC does not require full details of expenditures (payroll, mileage or
office expenses) to be submitted by contractors. This limits the ability of the DOC to
assess contract deliverables, and has allowed payments to be made for services that
may, or may not, have been fully delivered.
Finding 38: The DOC incurs costs for services provided before a fully executed
contract is on file at the DOC. In some cases, services are provided before the
Attorney General and Secretary of Administration sign the AA-14 that grants approval
to enter into the contract.
General Recommendation
The DOC should properly manage its inmate program services contracts to ensure
contract performance and cost containment. A contract monitoring and administration
oversight team should be created to:
• Enforce current invoicing requirements in the contract;
• Establish better controls to account for and assess professional hours worked
and services provided in each field site and/or facility by the contractor;
• Review all provider non-staffing responsibilities in the contracts, including
reporting provisions, and assess penalties where necessary and renegotiate
and amend the current contract to reflect realistic work goals and the need for
contract monitoring;
• Develop a standard invoice for all inmate program service contractors to report
activity to the DOC when they invoice for services; and,
• Develop appropriate amendments that would better protect the interests of the
State, the DOC and Vermont inmates.
The DOC should conduct a thorough review of all invoices paid under the inmate program services contracts to assess possible overpayments due to insufficient staffing or
failure to meet reporting requirements. The DOC should seek to recover funds for
hours not worked in accordance with the penalty provisions in the contract, plus interest, from the contractor.

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Finding 37
The DOC does not require full details of expenditures (payroll, mileage or office
expenses) to be submitted by contractors. This limits the ability of the DOC to
assess contract deliverables, and has allowed payments to be made for services
that may, or may not, have been fully delivered.

I

n its standard payment provision language for its contracts the DOC does not
require contractors to provide supporting documents that specifies the work performed and hours worked when submitting invoices for payment.

Some contractors provide this information without prompting from the DOC; however,
there is no consistency in how the data is reported. In some cases, hours and mileage
are provided in lump sums, (i.e. monthly hours worked x hourly rate = amount to be
paid and/or miles traveled during the billing period x mileage reimbursement rate =
amount to be paid.) In other cases, contractors provide explicit service delivery dates,
the number of hours worked on those days, the numbers of inmates served and, when
appropriate, the miles traveled on those days. However, this type of reporting is the
exception not the rule. For example, our test work found:
• Invoices for IDAP services provided by Spectrum Youth & Family Services at
the Rutland CCSC did not include dates of service, just total hours for the
month. However, Spectrum did provide very detailed invoices for its statewide
IDAP consultation services contract;
• Invoices from Dr. Paul Cotton, MD, PC, to provide services under the Sex
Offender Treatment program did not indicate dates and locations of services,
only a flat eight hours per month charge;
• Invoices from Phoenix Houses of New England to provide RSAT services, do
not provide a detailed list of the dates of service and total hours worked, and
there are no vouchers for mileage and equipment that was billed and
reimbursed by the DOC; and,
• Invoices from Steven Woodson, who provides consultation services under the
CSC contract, do not detail dates of services, just total hours for the month.
The DOC has, in the past, attempted to create a uniform invoice for all contractors to
provide in terms of service delivery contracts. Only one contractor uses this form,
which was drafted but never approved for official use.
This form provides a wealth of information and requires the contractor to provide
more than just the hours worked in a month, the hourly rate and an amount to be paid.
This form requires the contractor to fill in all service dates, number of hours on those
dates, number of individuals served and if any amount of the service was charged to
the offender or to an insurance company.

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This level of detail, if submitted from all contractors, would provide the DOC with
valuable, auditable information that can be used to inform clinical directors and business staff that contract deliverables are being met. It would also allow facility and field
site managers to randomly audit those invoices and compare those dates with the
scheduled dates of therapy sessions.
Finding 38
The DOC incurs costs for services provided before a fully executed contract is
on file at the DOC. In some cases, services are provided before the Attorney
General and Secretary of Administration sign the AA-14 that grants approval to
enter into the contract.

A

rule of contracting is to have an agreed-upon and fully executed document in
hand before services begin. Our Office observed that a number of contracts, and
subsequent amendments, were fully executed after the date services began. In
some cases, it was only days, but in others it was more than a month.
In other instances, services were being provided before representatives of the DOC,
the Attorney General’s Office and the Secretary of Administration (where applicable)
signed the AA-14 form granting approval to enter into the contract. Examples include:
• The statewide ISAP contract with Phoenix Houses of New England to provide
services at the CCSCs was dated to begin June 3, 2002, but was not officially
signed until July 16, 2002. The contractor billed the DOC $33,600 for the
entire month of June, and $33,050 for the entire month of July. Additionally, the
AA-14 was not signed until June 5, 2002 by the DOC and the Attorney
General’s Office and on June 28, 2002 by the Secretary of Administration.
• The contract to provide RSAT services by Phoenix Houses of New England
was originally signed 10 days after services began on May 1, 2001. However,
the second amendment to the contract, which extended the contract term for
one year, was signed on July 10, 2002. Services began on May 1, 2002 and the
contractor submitted invoices for $32,910 and $34,939 for services provided
during the full months of May, June and July 2002. In addition, the AA-14 was
not signed until May 21, 2002 by the DOC, May 27, 2002 by the Attorney
General’s Office and June 7, 2002 by the Secretary of Administration.

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C. Contract Monitoring
The Department of Corrections does not have an independent system to
evaluate the quality of inmate program services and ensure compliance
with all contract requirements.
Finding 39: The DOC has allowed contractors to not comply with service agreements
and the DOC has not issued penalties or held back payments.
Finding 40: The DOC utilizes multiple contracts to vendors in separate contract areas
that are designed to provide supervision and evaluation. In some instances, these
vendors are also providing direct services to offenders. This allows a contractor to hold
potentially conflicting roles as both an evaluator and service provider.
General Recommendation
The DOC should establish written policies and procedures to provide contract monitors
with clear protocols to evaluate the performance of contractors. To accomplish this
task, the DOC should consider:
• Creating a contract monitoring team for each contract that is split up into at
least three components: fiscal oversight, performance evaluation, and
procurement. The first would ensure that all financial provisions of the contract
are being met and documented, the second would ensure that all deliverables of
the contract are being met and documented and the third would ensure that the
contract file is complete and that all reports are filed timely and consistently.
• Conducting post-contract meetings with key State and contracted personnel to
constantly evaluate the contracting system to ensure it is meeting the goals of
the DOC and the private contractors. Any problems should be addressed
in future contracts.
• Conducting an analysis of how to streamline the use of contractors to provide
services, supervision, and evaluation of its offender treatment programs.

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Finding 39
The DOC has allowed contractors to not comply with service agreements and
the DOC has not issued penalties or held back payments.

T

he DOC has issued more than 60 contracts at a cost of nearly $7 million since
2000 to provide a variety of offender treatment services. During our review of the
offender treatment programs, we were unable to find any instance where a contractor was penalized for failing to provide required reports or services, even though
evidence exists that such deliverables were not provided.
For example, the statewide ISAP contract with Phoenix Houses of New England to
provide substance abuse services at the nine CCSCs requires the contractor to provide group counseling at each site, for a total of 32 across the state. The contract
requires Phoenix Houses to deliver the following number of standard treatment groups
at DOC CCSCs:
• Barre - 4
• Bennington - 4
• Brattleboro - 3
• Burlington - 5
• Newport - 2
• Rutland - 4
• St. Albans - 3
• St. Johnsbury - 4
• White River - 3
The contract also states:
“The number of groups at each site is flexible and may be adjusted to meet
changing conditions. Adjustments in group quantity by location may be changed
with the approval of both Parties, provided that overall number of groups (32)
remains unchanged. The Parties may agree to change the overall number of
groups, if a shift of resources to one of the other program components
described in this contract is agreed to by both Parties.”
In turn, Phoenix Houses receives monthly payments from the DOC, based on a formula of receiving $1,600 for the first group in each location and $1,100 for each additional group. Monthly payments range from a full coverage amount of $39,700 to a low
of roughly $32,000 with only partial coverage.
Each invoice from Phoenix Houses of New England includes a matrix that identifies
each of the nine CCSCs, the number of first groups, amount billed, the number of second groups, amount billed, and a total due. There is no other information provided by
the contractor, such as dates of service or material that verifies that a group was held,
to the DOC.

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While reviewing invoices submitted by Phoenix Houses of New England, and
approved by the DOC’s Clinical Director, there are number of instances in which there
are either no group services being provided in St. Albans and White River from June
through October 2002, or extremely limited services.
There is no evidence in the contract file that the DOC approved Phoenix Houses’
reduction in services at these CCSCs, or explanation why the contractor was unable to
provide services at these locations. While the State was not charged for services that
were not provided, the fact remains that a key deliverable was not being provided to
the State to carry out its offender treatment programs in two locations and the State
charged no penalties against the contractor.
However, the contractor did submit revised invoices in April 2003 that appear to correct these numbers and show full or partial coverage in these areas during July,
August, September and October 2002. The Clinical Director approved some of these
adjustments, and the Director of Violence and Substance Abuse Services approved
others. It is not clear what other evidence the contractor submitted to the DOC to
adjust these numbers.
Per the contract, for each ISAP group not held the DOC is to be credited $75. There
is no evidence that credits were sought from the contractor related to non-performance.
Additionally, Phoenix Houses of New England is required to submit the following
reports:
Monthly operational reports (that include):
a. Number of individual assessments;
b. Preliminary treatment plans;
c. Program admissions;
d. Number of units of service for each category of services (e.g. group sessions,
treatment plan reviews, risk assessment testing, relapse prevention plan
development, etc.) during the period.
Quarterly outcome/disposition reports (that include):
a. The number of ISAP participants at the beginning of the period;
b. The number of new participants added;
c. The number of participants leaving the program (broken down by reason for
discharge);
d. A summary of offender demographics and treatment services delivered.

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Quarterly and annual financial statements, using State-furnished
templates:
a. Quarterly reports will be due 45 days after close of the quarter;
b. Final annual financial statements will be due 120 days after the close of the
contract period.
Our Office attempted to review the above-mentioned reports submitted to the DOC
and were given what files were on hand at the DOC. Given what our Office reviewed it
became clear that either not all quarterly reports had been submitted, or the DOC had
not properly maintained the contract file.
Additionally, those reports that were on hand lacked the specific information outlined
above. There was also no evidence that the contractor had submitted either the monthly reports or the quarterly and annual financial statements as required in the contract.
Our Office’s review of other contract areas that require reports found widespread
compliance with reporting provisions. Those areas include Sex Offender Treatment,
CSC, RSAT and IDAP.
Another program area we reviewed, RSAT, raised some concern regarding the level
of detail reported back to the Federal government in the annual reports.
On the Federal form used to report annual progress, information is requested to
assess how much the program costs per inmate. In each of the reports our Office
reviewed, this line was left blank. However, both the DOC and the Department of
Public Safety have allowed this to occur and the Federal government has endorsed the
program.
It was also difficult to determine from these reports how many inmates had been
dropped, and then re-enrolled, in the program on an annual basis. In assessing the
cost of this program, these two details would be helpful and the DOC should endeavor
to find a way to work with the contractor to provide this information.

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Finding 40
The DOC utilizes multiple contracts to vendors in separate contract areas that
are designed to provide supervision and evaluation. In some instances, these
vendors are also providing direct services to offenders. This allows a contractor
to hold potentially conflicting roles as both an evaluator and service provider.

T

he DOC relies on a variety of consultants to evaluate each of the offender treatment programs, at a cost of more than $350,000 annually. These consulting
services include:
• Direct IDAP services are provided by Spectrum Youth & Family Services
in multiple locations throughout the State. This non-profit organization
also provides statewide consultation and supervision services to the
DOC - mainly by helping craft program guidelines and standards
for tracking contractor performance and inmate treatment. The value of
these contracts is roughly $340,000 annually. The supervision/consultant
contract is more than $105,000 annually;
• The CSC program uses three contracted evaluators, and one of those
evaluators is also providing direct group services in Bennington (this
consultant also provides IDAP services). The total value of the evaluator
contracts is more than $100,000 annually;
• The sex offender treatment program uses several assessors and special
consulting contracts to provide services other than direct therapy. The
total value of these contracts is more than $65,000 annually; and,
• Managed Correctional Resources provides additional supervisory and
evaluation services under the direct supervision of the Clinical Programs
Director to all of these above-mentioned program areas. The total value of
this contract is up to $65,000 for nine months of service.

A mix of contractor clinical staff (a cost included in the service contract) and State
personnel oversee the three substance abuse program areas - the statewide ISAP,
RSAT and the facility-based substance abuse treatment programs. There is a single,
one-year $5,000 contract with the Howard Center for Human Services to provide consultation for this program.
The DOC has staff designated as directors of these programs: Director of Violence
and Substance Abuse Services, the Chief of Sex Offender Programs, and the director
of Domestic Violence, Women Offender and Family Services. All of these positions
report to the Clinical Programs Director.

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Currently, the Clinical Programs Director is responsible for direct oversight of IDAP
services and the Deputy Commissioner reviews and approves invoices. The director of
IDAP services has been reassigned in the past year and is now the Director of Women
Offender Services.
DOC staff said in interviews that certain specialty care positions are hard to bring
into public sector pay grades. However, relying too heavily on outside contractors can
result in Central Office staff spending more time monitoring invoices than conducting
assessments and evaluations of actual services and ensuring that all program guidelines and DOC protocols and directives are being followed.
Both 3 V.S.A. §342 and Bulletin No. 3.5 require that before going out to bid, departments must determine that the cost of providing the service is a savings to the State,
that the contract is not burdensome on State personnel to oversee and monitor, and
that the service could not be done more effectively by State personnel. The DOC may
find it useful to conduct such an evaluation before the close of each contract to determine if the services need to be re-bid, or if using State personnel would be more costeffective.

Southeast State Correctional Facility in Windsor.

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- 84 -

Purpose, Authority, Scope & Methodology
Purpose
The Office of the State Auditor is reviewing how the Department of Corrections (DOC)
contracts for the following inmate services: Out-of-State Inmate Housing, Medical
Services, Mental Health Services, Intensive Substance Abuse Programs, Sex Offender
Treatment Services, Cognitive Self-Change Programs, and Intensive Domestic Abuse
Treatment Programs. This report was prepared with the goal of providing compliance
and performance information related to the DOC’s systems of contract management.

Authority
This review was conducted pursuant to the Office of the State Auditor’s authority outlined in 32 V.S.A. §§ 163 and 167.

Scope & Methodology
The scope of this review is to provide findings and recommendations focusing on three
primary areas of contract management:
1. Contract Bidding;
2. Contract Payments; and,
3. Contract Monitoring.
The process includes reviewing the design and implementation of internal control systems related to contract management to ensure that established procedures and controls are being followed and continue to be appropriate, and to assess compliance with
any relevant laws, rules, and regulations.
The review of contracts assessed compliance and internal controls in a number of
ways, including:
1. An analysis of DOC policies and procedures and internal controls
related to contract administration;
2. Interviews with key DOC staff, contracted staff, and attending
Legislative hearings;

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3. A review of contract files for documentation relating to the bidding, evaluation
and awarding of contracts to determine compliance with Agency of
Administration Bulletin No. 3.5, Contract Procedures and any other applicable
rules and regulations; and,
4. A review of contract work specifications and deliverables, payment
provisions, contractor invoices and DOC payments to determine if they
are appropriately issued, recorded and processed.
This review is not an audit conducted in accordance with applicable professional standards. The purpose of an audit is to express an opinion. The purpose of a special
review is to identify observations related to a particular issue or program, and to make
recommendations so that the relevant department can better accomplish their mission
and more fully comply with laws, regulations, or grant requirements.

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Appendix A

Department’s Response to Draft Review

May 21, 2004
Elizabeth Ready, Auditor of Accounts
132 State Street, Drawer 33
Montpelier, VT 05633-5101
Re: Commissioner’s Response to Auditor’s Review of the Department of Corrections’
Oversight and Management of Selected Contracts for Inmate Services
Dear Auditor Ready:
I have reviewed the draft copy of the State Auditor Office (SAO) document: A Review of the
Department of Corrections’ Oversight and Management of Selected Contracts for Inmate
Services. As you stated in your cover letter to me for that draft, the report’s observations and
recommendations, which reiterate the findings and recommendations of the SAO’s initial
report, A Review of the Department of Corrections Oversight and Management of Mental
Health Services Contracts, “will add to the excellent work you and your staff have recently
achieved in laying out a new direction for the Department, one founded on improved performance and accountability.”
As you are aware, the Department has addressed the recommendations of the first report
through strategies detailed in the Plan of Response presented to the Joint Legislative
Corrections Oversight Committee on April 28, 2004. Those strategies will likewise serve to
carry out the recommendations of this second report. Specifically, those documented strategies,
some of which are already underway, will have the Department:
• Establish a contract administration oversight team that will ensure adherence to the
spirit, intent and requirements of Agency of Administration Bulletin 3.5 and ensure and
enforce financial performance and penalty provisions of contracts;
• Conduct a review of invoices paid under all service contracts to assess possible
overpayments and seek to recover funds from contractors that may be owed to the
Department;
• Develop written policies and procedures to provide contract monitors with clear
protocols to evaluate contractor performance. This will be carried out within the context
of the planned development of both internal and external Quality Assurance units
focusing on the operations of the Department and its contractors, with the monitoring of
the medical, mental health and substance abuse services contracts conducted by the
Department of Health.

Elizabeth Ready, Auditor of Accounts
May 21, 2004
Page Two
Regarding the report’s references to and advocacy for the standards and advice of the National
Institute of Governmental Purchasing (NIGP), while I appreciate and the Department will
incorporate, to the extent practicable, the NIGP information, it is the case that resource constraints will affect the degree to which these very extensive standards can be implemented. In
fact, as I am sure you are aware, resource constraints will always significantly impact the ability of any State entity to have the capacity to accomplish the ideal.
That said, the Department of Corrections is committed to doing the best job it can do with the
resources it has available and will work closely with the Agency of Human Services and the
Department of Finance and Management to improve its oversight and management of its services contracts.
Sincerely,

Steven M. Gold
Commissioner

Appendix B

Supplemental Correspondence during Review

May 7, 2004
Mr. Steven Gold, Commissioner
Department of Corrections
103 South Main Street, 6 South
Waterbury, VT 05671-1001
Dear Commissioner Gold:
I continue to receive messages and letters from out-of-state inmates and their families about
poor and unsafe living conditions and inappropriate treatment by staff at the CCA facilities in
Kentucky.
With the current focus on DOC’s out-of-state inmate housing contractor, I recently reviewed the
DOC out-of-state housing audit manual. I was favorably impressed with the comprehensive
nature of the audit checklist and the regular inspections being conducted by DOC staff to evaluate CCA’s compliance with the contract.
One of the weaknesses we found in reviewing the DOC’s in-state mental health contracts was
DOC’s reluctance to hold the contractor to all the terms of the contracts and to assess penalties
when necessary.
Your new action plan stresses accountability and quality assurance in inmate services. The quality program you have instituted regarding out-of-state housing should give comfort to inmates,
families and Vermont taxpayers concerned about conditions in Kentucky.
However, reports seem to indicate that CCA may not be meeting all contract terms. For example, the word from the Marion facility is that there is no kitchen or dining room; meals are
delivered from another building and served in a hallway. Fire extinguishers and airpaks are
reported as being missing. Recreation and library spaces, and the segregation unit, are reported
to be small. Staff may be insufficient at times, which is another safety concern. If critical deliverables in the contract are not being provided, the State should consider financial penalties and
must insist that corrective actions are quickly taken. I would be interested in knowing your
views on the situation.
Sincerely,
Elizabeth M. Ready
Vermont State Auditor

The DOC’s reply to the May 7 letter

Via e-mail

May 14, 2004

Dear Auditor Ready:
In response to your letter of May 7, 2004, regarding complaints about poor and unsafe living
conditions and inappropriate treatment by staff at the CCA facilities in Kentucky, I have consulted both with my staff who directly oversee the CCA contract operations there and with
CCA officials concerning the specific issues you have raised with the Marion Adjustment
Center.
The Marion facility, as are all CCA facilities, is an American Correctional Association (ACA)
accredited facility, which means that it meets all the life and safety standards set by that organization. CCA officials informed me that when it was reviewed, it received a score of 100%, the
highest score possible. ACA accreditation is the standard for correctional facilities in the USA.
CCA staff specifically said that all ACA required fire safety equipment is appropriately placed
in the facility. However, I believe that ACA does not require airpacks; I will look into that further.
Regarding the general issue of lack of sufficient program, library and recreation space at the
Marion facility, I have addressed that pointedly with CCA officials. They have responded
immediately by: 1) reducing the population at Marion by 30 inmates, transferring them to the
Lee Adjustment Center, about which we have heard no complaints regarding its space or program availability and which is a much more spacious facility. This results in approx. 200 VT
inmates continuing to be housed in Marion. 2) Initiating the purchase of folding tables, similar
to those used in many schools, which will be placed in the gym and brought out for each meal,
for which there will be two sittings. This will create a dining hall situation that will be an
improvement over the current practice of providing individual meals from a steam cart on the
units. Regarding meal preparation, I have been assured that all meals are prepared under close
supervision by CCA staff.
In addition, they are working on costing out: 1) pushing the secure perimeter fence out to make
more outside recreation room and 2) bringing a modular building into the facility to use for program space (we do that here in VT at the Rutland facility for the school and it works well).
Beyond that, they are looking into further reducing the population or even possibly eliminating
Marion as as VT inmate housing site, using the Lee facility or another nearby in Tenn. I have
expressed great interest in this last direction but regardless will insist that physical space at
Marion be improved.
We will continue to monitor the contract closely and will insist on corrective actions.
Sincerely,
Steve Gold

Appendix C

Initial Letter of Engagement

February 10, 2004
Steve Gold, Commissioner
Department of Corrections
State of Vermont
103 South Main Street, 6 South
Waterbury, VT 05671-1001
Dear Commissioner Gold:
Based on a number of Legislative and citizen requests my Office is engaging the Department of
Corrections (the Department) in a review of internal controls, business processes and procedures associated with the bidding, awarding, and oversight of contracts for services to Vermont
inmates.
Our review will initially focus on some or all of Department contracts that provide the following inmate services: Out of State Inmate Housing, Medical Services, Mental Health Services,
Substance Abuse Services, Sex Offender Treatment Services, Cognitive Self-Change Services,
and Domestic Abuse Treatment Services.
This review will be conducted in accordance with our responsibilities and authority contained
in 32 V.S.A. §§ 163 and 167. In connection with our audit of the Basic Financial Statements of
the State of Vermont and the Federal Single Audit, we are required to perform certain procedures with respect to the internal control structure for the State and to test the State agencies’
and departments’ compliance with certain Federal and State statutes, rules and regulations. The
general objectives of this Office’s review are:
• To review the Department’s systems related to contract management to ensure that
established procedures are being followed and continue to be appropriate; and,
• To assess compliance with relevant laws, rules, and regulations.
In assessing compliance and Department systems internal controls, this review may include, but
is not limited to:
• Analyzing Department policies and procedures and conducting interviews to
understand business objectives and identify and prioritize areas of risk and assess the
adequacy of manual and systems controls;

• Reviewing contract files for documentation relating to the bidding, evaluation of
bidders and awarding of contracts to determine compliance with Agency of
Administration Bulletin 3.5, Contract Administration and any other applicable rules
and regulations;
• Reviewing contract work specifications and deliverables, payment provisions,
contractor invoices and Department payments to determine if they are appropriately
issued, recorded and processed; and,
• Assessing the adequacy of the Department’s oversight of contracts, including but not
limited to cost containment, quality assurance and data management.
Michael Clasen, Deputy State Auditor, and George Thabault, Chief of Special Audits and
Reviews, will coordinate the review for the Office. Mr. Clasen will be the primary contact for
your staff throughout the review and he may be reached at 828-4633 or by e-mail at
Michael.Clasen@state.vt.us. In addition to staff from my Office, we may utilize the expertise
of outside consultants to assist us in this review. I encourage you or your staff to contact Mr.
Clasen or me if you have any questions.
The review will result in a report to be distributed to the General Assembly, the Governor, the
Agency of Administration, the Department of Finance and Management and the general public.
When the process is complete a draft report will be provided to you for your evaluation of factual accuracy and your response. A Management Representation Letter verifying that all relevant information and documentation was provided to the State Auditor’s Office will be requested from you upon completion of the review.
We look forward to working with you and your staff and appreciate your cooperation.
Sincerely,

Elizabeth M. Ready
State Auditor
Cc: Senator Vincent Illuzzi, Chair, Senate Committee on Institutions
Senator Richard Sears, Chair, Joint Legislative Corrections Oversight Committee
Representative Cola Hudson, Chair, House Committee on Government Operations
Representative Margaret Hummel
Charles Smith, Secretary, Agency of Human Services

To obtain additional copies of this report contact:
Elizabeth M. Ready
State Auditor
Office of the State Auditor
132 State Street
Montpelier, VT 05633-5101
(802) 828-2281
1-877-290-1400 (toll-free in Vermont)
auditor@sao.state.vt.us
This report is also available on our website:
www.state.vt.us/sao