Performance audit, Arizona Department of Corrections, private prisons: report to the Arizona Legislature

              State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Private Prisons
Report to the Arizona Legislature
By Debra K. Davenport
Auditor General
ARIZONA
DEPARTMENT
OF
CORRECTIONS
July 2001
Report No. 01-13
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee
composed of five senators and five representatives. Her mission is to provide independent and impar-tial
information and specific recommendations to improve the operations of state and local government
entities. To this end, she provides financial audits and accounting services to the state and political
subdivisions and performance audits of state agencies and the programs they administer.
The Joint Legislative Audit Committee
Representative Roberta L. Voss, Chairman
Senator Tom Smith, Vice-Chairman
Representative Robert Burns Senator Keith Bee
Representative Ken Cheuvront Senator Herb Guenther
Representative Andy Nichols Senator Darden Hamilton
Representative Barry Wong Senator Pete Rios
Representative Jeff Groscost Senator Brenda Burns
(ex-officio) (ex-officio)
Audit Staff
Shan Hays—Manager
and Contact Person (602) 553-0333
Angelica Gonzalez—Audit Senior
Jung Soo Han—Audit Staff
Tanya James—Audit Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
(602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
July 11, 2001
Members of the Arizona Legislature
The Honorable Jane Dee Hull, Governor
Mr. Terry L. Stewart, Director
Arizona Department of Corrections
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Private
Prisons subprogram of the Arizona Department of Corrections. This report is in response to a
June 16, 1999, resolution of the Joint Legislative Audit Committee. The performance audit
was conducted as part of the Sunset review set forth in A.R.S. §41-2951 et seq. I am also
transmitting with this report a copy of the Report Highlights for this audit to provide a quick
summary for your convenience.
This is the fourth in a series of reports to be issued on the Arizona Department of Corrections.
As outlined in its response, the Department of Corrections will implement the report’s
recommendation.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on July 12, 2001.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
OFFICE OF THE AUDITOR GENERAL
Program Fact Sheet
Arizona Department of Corrections
Private Prisons
Program Revenue: $28.3 million
(fiscal year 2001 estimate)
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
1999 2000 2001 (Est.)
Charges for services and other
State General Fund
Equipment: In addition to basic office
equipment, such as computers and printers,
the Department has purchased the following
items used by Private Prisons staff to carry
out contract monitoring functions:
n 8 sedans
n 7 hand-held radios.
Personnel: 15 full-time equivalent staff, in-cluding:
n 1 Deputy Warden
n 3 Associate Deputy Wardens
n 1 Captain
n 4 Clerical Support
n 6 Department on-site staff
Facilities: The Private Prisons subprogram
operates out of the Department’s building at
1601 W. Jefferson, Phoenix, AZ.
Services: Private Prisons is one of the five subprograms under the Prison Operations Pro-gram
at the Arizona Department of Corrections. Its mission is to develop private prison con-tracts
and provide oversight to monitor their safe, secure, and cost-effective operation. Private
Prisons manages private prison contracts, including the conceptual development, proposal
evaluation, contract negotiations, and contract maintenance functions, such as approving
payments and clearance of contractor personnel.
Program Goals and Performance Meas-ures:
The Private Prisons subprogram has one
goal:
To maintain effective monitoring of
the private prisons through the pre-scribed
evaluation schedule by De-partment
staff.
To assess the goal, the program has five
compliance-related input, output, and out-come
performance measures, including the
number of written instructions and data col-lection
instruments reviewed for compliance,
and the overall composite compliance score
for the audited private prison facility.
OFFICE OF THE AUDITOR GENERAL
Adequacy of Goals and Performance
Measures:
The goal and performance measures for the
Private Prisons subprogram appear to be
appropriate for its mission. However, the
Department’s performance measures are de-signed
to assess only procedural compliance.
The Department should consider incorporat-ing
more substantial quality and outcome
measures that are related to the Depart-ment’s
overall mission. These measures
could address such areas as public safety and
inmate education. For example, performance
measures could include the number of es-capes,
or the number of inmates who com-pleted
General Education Diploma (GED) or
substance abuse classes.
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OFFICE OF THE AUDITOR GENERAL
SUMMARY
The Office of the Auditor General has conducted a performance
audit of the Private Prisons subprogram at the Arizona Depart-ment
of Corrections (Department) in response to a June 16, 1999,
resolution of the Joint Legislative Audit Committee. This per-formance
audit was conducted under the authority vested in the
Auditor General by A.R.S. §41-1279 and as part of the Sunset
review set forth in A.R.S. §41-2951 et seq. This audit is the fourth
in a series of six audits of the Department of Corrections. Previ-ous
audits focused on Security Operations, Human Resources
Management, and Support Services. The remaining audits will
focus on Agency Infrastructure and Arizona Correctional Indus-tries.
Arizona statutes allow the Department to contract for prisons if
doing so offers a cost advantage to the State, while still providing
comparable levels of protection and service. The Department has
contracts for three minimum-custody-level private prison facili-ties,
with a total capacity of 1,450 inmates. These facilities, located
in Florence, Marana, and Phoenix, primarily house inmates who
have committed Driving Under the Influence (DUI) or drug-related
offenses. In addition to a Department administrator who
is responsible for all privatization projects, 15 Department em-ployees
administer the subprogram. These employees monitor
contract compliance and carry out functions such as classification
and discipline of inmates housed in the private prisons. Most of
these employees work on-site at the private prisons.
The Department Exercises
Strong Oversight of
Prison Contractors
(See pages 9 through 12)
Through strong contract requirements and extensive oversight
activities, the Department has ensured that contracted facilities
operate almost exactly like state-operated facilities, and at a
lower cost. The Department requires its contractors to follow the
Summary
ii
OFFICE OF THE AUDITOR GENERAL
same policies and procedures as its state-operated prisons, ex-tending
to specific details such as following the same daily
menus as state-operated facilities. Full-time contract monitors at
each private prison assess compliance with Department re-quirements,
and additional on-site Department staff perform
inmate classification and handle inmate grievances and disci-pline.
Department reviews show that its contractors met or ex-ceeded
Department operational standards at a cost averaging
about 12 percent less than state-operated beds for similar in-mates.
This difference resulted in a savings of $5.5 million in
fiscal years 1998 and 1999, including the costs of program ad-ministration
and contract monitoring. These savings are derived
mainly from providing lower salaries and benefits compared to
those of state employees.
The Department’s review and oversight activities are more ex-tensive
than those in most other states. However, the approach
appears to be effective, based on the private prisons’ compliance
with Department standards and the lower cost of housing in-mates
in private prisons compared to the cost of state-operated
facilities.
The Department Should Begin
Gathering Information To Make
Future Privatization Decisions
(See pages 13 through 17)
The Department should plan ahead so it can use private prisons
most effectively when it needs more beds to accommodate in-mate
population growth or replace unsatisfactory facilities. In
addition to the substance abuse and DUI inmates already sent to
private prisons, the Department may wish to consider privatiz-ing
incarceration of other inmate groups, such as women, geriat-ric
inmates, sex offenders, or mentally ill inmates. Other states
have privatized or are considering privatizing some of these
populations. However, in order to compare the costs of incarcer-ating
in state-operated versus private facilities for such inmates,
the Department needs to begin tracking such costs as health care,
Summary
iii
OFFICE OF THE AUDITOR GENERAL
special programs, or facility modifications required for these
inmate groups. Because the Department has moved many of
these types of inmates into separate units within Department-operated
complexes, it may be easier to track these costs.
Other Pertinent Information
(See pages 19 through 23)
The prisons that have contracts with the Department are not the
only private prisons operating in Arizona. Three additional pris-ons
operate in Arizona and house inmates from other jurisdic-tions,
such as three federal agencies, two other states and the
District of Columbia, and a tribal government. More such pris-ons
may open in the near future. Currently, state regulation of
prisons without Department contracts is minimal. However, the
Department would like the State to have more stringent regula-tion
of these prisons.
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OFFICE OF THE AUDITOR GENERAL
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OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS
Page
Introduction and Background..................... 1
Finding I: The Department Exercises
Strong Oversight of
Prison Contractors.................................. 9
Department Requires
Equivalent Operations and
Closely Monitors Compliance.................................. 9
Department’s Approach Among
Most Extensive Nationally........................................ 11
Approach Appears Effective
and Costs Remain Below
State-Operated Costs................................................. 11
Finding II: The Department
Should Begin Gathering
Information To Make
Future Privatization
Decisions ................................................. 13
Other Specialized Populations
May Be Viable Candidates for
Privatization.............................................................. 13
The Department
Should Collect Better
Cost Information....................................................... 16
Recommendation...................................................... 17
Other Pertinent Information......................... 19
Three Private Prisons
in Arizona Do Not Have
Department Contracts............................................... 19
Table of Contents
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OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Concl’d)
Page
Other Pertinent Information (Cont’d)
Prisons Governed by
Statutes, Contracts,
and Company Practices............................................ 19
Other States Have Different
Approaches to Allowing and
Regulating Private Prisons........................................ 21
The Department
Wants More Regulation
of Private Prisons ...................................................... 22
Agency Response
Photos
Photo 1 Front view of Florence private prison.... 2
Photo 2 Private prison housing............................ 14
Tables
Table 1 Arizona Department of Corrections
Private Prisons
Private Prisons in Arizona
Under Contract with the Department
of Corrections As of March 1, 2001......... 3
Table 2 Arizona Department of Corrections
Private Prisons
Statement of Revenues, Expenditures, and
Changes in Fund Balance
Years Ended or Ending June 30, 1999,
2000, and 2001 (Unaudited).................... 5
Table 3 Arizona Department of Corrections
Private Prisons
Private Prisons in Arizona Without
Department of Corrections Contracts
As of February 28, 2001........................... 20
1
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance
audit of the Private Prisons subprogram at the Arizona Depart-ment
of Corrections (Department) pursuant to a June 16, 1999,
resolution of the Joint Legislative Audit Committee. This per-formance
audit was conducted under the authority vested in the
Auditor General by Arizona Revised Statutes (A.R.S.) §41-1279
and as part of the Sunset review set forth in A.R.S. §41-2951 et
seq. This audit is the fourth in a series of six audits of the De-partment
of Corrections. Previous audits focused on Security
Operations, Human Resources Management, and Support Ser-vices.
The remaining audits will focus on Agency Infrastructure
and Arizona Correctional Industries.
Statutes Authorize
Private Prisons and
Establish Requirements
Arizona Revised Statutes §41-1609 authorizes the Department to
contract for prison facilities. The statutes require that such con-tracts
offer a cost savings to the State and a level of service qual-ity
that is at least equal to that provided by the State. The statutes
also establish qualifying criteria for contractors, including experi-enced
personnel, the ability to comply with correctional stan-dards,
and a history of successfully operating and managing
other secure facilities. The Department must conduct biennial
studies comparing contractor services against state operations,
using at least nine dimensions of service set out in statute, such
as security, and must also conduct a cost comparison every five
years for each contract. The statutes also prohibit the Department
from delegating certain functions, such as calculating inmate
release dates and determining inmate security classification lev-els,
to private contractors.
Introduction and Background
2
OFFICE OF THE AUDITOR GENERAL
Use of Private Prisons
in Arizona
Currently, the Department has contracts with two vendors for
three minimum-custody-level facilities. Minimum-custody facili-ties
house inmates assessed by the Department as presenting low
risk to the public, staff, and other inmates. As shown in Table 1
(see page 3), the contract facilities mainly hold individuals con-victed
of DUI or drug-related offenses. One facility also houses
up to 200 male inmates awaiting a hearing after being returned
to custody for allegedly violating their release. For example, if a
person released to community supervision fails a mandatory
drug test, he could be sent to this facility until his hearing takes
place.
In addition to its current contracts, the Department will add two
more facilities once inmate numbers reach targets set by the Joint
Legislative Budget Committee. On August 10, 2000, the Commit-tee
authorized the Department to contract for 400 minimum-custody
beds for DUI inmates and 1,000 beds for non-U.S. citi-zens
who can be deported after serving their sentences, and the
Department issued requests for proposals accordingly. How-ever,
footnotes to the fiscal year 2002 and 2003 budgets prohibit
expenditures for the new beds until the Department has a 2,500-
bed deficit, and prohibit using more than half the beds for in-mates
of a single nationality. Because the Department could
Photo 1: Front view of Florence private prison
The Department con-tracts
for three minimum-custody-
level facilities.
Introduction and Background
3
OFFICE OF THE AUDITOR GENERAL
not fill the 1,000-bed prison with non-U.S. citizens without vio-lating
the latter prohibition, it canceled its request for proposals
for the 1,000-bed facility and plans to issue a new one for mini-mum-
to medium-custody DUI inmates.
This will provide, for the first time in Arizona, private prison
beds for Department inmates above the Level 2 (minimum) cus-tody
level. The Department is currently evaluating proposals for
Table 1
Arizona Department of Corrections
Private Prisons
Private Prisons in Arizona
Under Contract with the Department of Corrections1
As of March 1, 2001
Marana Community Correctional Treatment Facility (Opened 1994)
Management and Training Corporation
Gender Offenses
Current
Occupancy
Rated
Capacity
Male Substance abuse 350 350
Female2 Substance abuse 79 100
Total occupancy 429 450
Phoenix West (Opened 1996)
Correctional Services Corporation
Gender Offenses
Current
Occupancy
Rated
Capacity
Male DUI 385 400
Total occupancy 385 400
Florence West (Opened 1997)
Correctional Services Corporation
Gender Offenses
Current
Occupancy
Rated
Capacity
Male DUI 396 400
Male Returned to custody 176 200
Total occupancy 572 600
1 All three prisons are Level 2-custody facilities. The Department classifies inmates according to their risk to the
public and the institutional risk to staff and other inmates, ranking them from 1 (lowest risk) to 5 (highest risk).
The Department assigns only the lowest–risk inmates to these units.
2 As of June 5, 2001, the Department houses only male inmates at the Marana facility.
Source: Auditor General staff analysis of information provided by the Arizona Department of Corrections as of
March 1, 2001.
Introduction and Background
4
OFFICE OF THE AUDITOR GENERAL
the 400-bed DUI facility but will not implement the contract until
its bed deficit reaches the target level.
Department Staff and Budget
Dedicated to Overseeing
Private Prisons
The Department’s Deputy Director of Prison Operations over-sees
Private Prisons, a subprogram of Prison Operations. To
carry out its duties, which include developing contracts and
monitoring the safe, secure, and cost-effective operations of pri-vate
prisons, Private Prison Operations had 15 full-time equiva-lent
staff as of January 8, 2001. In addition, an administrator in
the Prison Operations program is responsible for all privatization
projects, including private prisons. At the Department’s central
office, a deputy warden oversees the program and a captain is
responsible for inmate appeals. At each private prison site, an
associate deputy warden monitors contract compliance, a lieu-tenant
is responsible for inmate disciplinary actions, and a classi-fication
specialist handles classification and inmate grievances. In
addition, four clerical staff, one each at the central office and at
the private prison sites, provide support.
For fiscal year 2000, the Private Prisons subprogram, as illus-trated
in Table 2 (see page 5) received approximately $20.9 mil-lion
in State General Fund appropriations. That year, the De-partment
paid about $19.2 million to the private prison contrac-tors,
and spent approximately $763,000 for Department em-ployee
salaries, employee-related expenditures, and other oper-ating
expenditures. Each contract includes a per diem rate that is
paid to the contractor for the delivery of correctional services. In
fiscal year 2000, per diem rates ranged from $34.33 to $41.04,
depending on program needs, and the Department’s additional
costs to oversee the private prisons totaled about $1.79 per in-mate
per day. In contrast, the average daily cost of a state-operated
Level 2 facility was $47.91 that year. According to De-partment
and prison officials, the lower costs at private prisons
derive mainly from providing lower salaries and benefits com-pared
to those of state employees.
Private Prisons received
approximately $20.9
million in General Fund
appropriations in fiscal
year 2000.
Introduction and Background
5
OFFICE OF THE AUDITOR GENERAL
Table 2
Arizona Department of Corrections
Private Prisons
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended or Ending June 30, 1999, 2000, and 2001
(Unaudited)
1999 2000 2001
(Actual) (Actual) (Estimated)
Revenues:
State General Fund appropriations $22,139,300 $20,899,300 $28,125,400
Charges for services 129,608 175,788 141,500
Other 476 222    
Total revenues $22,269,384 $21,075,310 $28,266,900
Expenditures and other uses:
Direct administrative support:
Personal services $ 646,525 $ 607,572 $ 820,400
Employee-related 108,105 96,996 183,600
Aid to individuals and organizations 4,977 9,854
Travel, in-state 168 529 600
Other operating 87,519 34,193 50,000
Equipment 14,881 14,059     
Total direct administrative support 862,175 763,203 1,054,600
Inmate Education and Treatment Program 1 386,083 521,939 447,100
Professional and outside services 2 20,788,094 19,202,146 19,560,500
Total expenditures 22,036,352 20,487,288 21,062,200
Operating transfers out 5,743
Remittances to the State General Fund 130,084 176,010 141,500
Reversions to the State General Fund 97,205 412,012   7,063,200 3
Total expenditures and other uses $22,269,384 $21,075,310 $28,266,900
1 Consists of payments to inmates for work performed at privately operated prisons.
2 Consists of payments to contractors to obtain inmate housing in privately operated prisons.
3 In 2001, the Department received additional State General Fund appropriations to contract for 1,400 new beds. However,
the Department did not acquire these beds; consequently, it plans to revert these monies back to the State General Fund.
Source: Auditor General staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Extract File for
the years ended or ending June 30, 1999, 2000, and 2001 (through December 31, 2000); the AFIS State of Arizona Ap-propriations
Report for the years ended June 30, 1999 and 2000; and the Department’s Program Budget Unit Summary of
Expenditures and Budget Request for fiscal years 2002 and 2003.
Introduction and Background
6
OFFICE OF THE AUDITOR GENERAL
Audit Scope and Methodology
This audit focused on the Department’s approach to contract
monitoring and possible opportunities for expanding privatiza-tion.
To obtain an understanding of contract monitoring and the
issues surrounding prison privatization, auditors used a variety
of methods, including a review of contracts, requests for propos-als,
monitoring tools, monthly and annual inspection reports,
and the Arizona Competitive Government Handbook. In addition,
auditors surveyed corrections officials in 11 states regarding their
experience and practices related to private prisons.1 Finally, audi-tors
interviewed private prison contractors and their staff, as well
as Department staff.
To identify the potential costs and benefits of privatizing special-ized
populations, auditors conducted interviews with experts in
the area of prison privatization, private prison staff who do not
contract with the Department, private prison contractors who
incarcerate specialized populations in other states,2 and correc-tions
officials in states that contract out specialized inmate popu-lations.
3 In addition, auditors conducted an extensive review of
privatization literature, including professional journal and
newspaper articles, books, Internet Web sites, and reports from
other states.
1 Colorado, Ohio, Oklahoma, Tennessee, and Texas were surveyed because
Department officials identified them as similar to Arizona in their ap-proach
to privatization. California, Nevada, and New Mexico were sur-veyed
because they are neighboring states to Arizona. Finally, Alaska and
Hawaii were surveyed because they currently send inmates to private
prisons in Arizona and because they use different approaches to privatiza-tion.
2 Contractors interviewed included a health care company that provides
inpatient care for geriatric inmates from Georgia and South Carolina, and
one private company that incarcerates female inmates in Florida, Nevada,
and New Mexico.
3 States surveyed regarding contracting specialized populations included
Florida, Nevada, and Oklahoma, which have contracts for incarcerating
female inmates.
Introduction and Background
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OFFICE OF THE AUDITOR GENERAL
This audit includes findings in two areas:
n The Department exercises strong oversight of prison contrac-tors.
n The Department should plan ahead for future privatization
of additional populations.
In addition, the audit provides Other Pertinent Information (see
pages 19 through 23) regarding other private prisons that oper-ate
in Arizona, but do not have contracts with the Department of
Corrections. These private prisons house inmates on behalf of
federal agencies and other states and jurisdictions.
This audit was conducted in accordance with government audit-ing
standards.
The Auditor General and staff express appreciation to the Direc-tor
of the Department of Corrections, his staff, and private prison
officials for their cooperation and assistance throughout the au-dit.
8
OFFICE OF THE AUDITOR GENERAL
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9
OFFICE OF THE AUDITOR GENERAL
FINDING I THE DEPARTMENT
EXERCISES STRONG
OVERSIGHT OF PRISON
CONTRACTORS
The Department closely supervises its private prison contractors.
The Department requires contractors to follow the same policies
and procedures as state-operated prisons, and also closely moni-tors
their operations. In fact, Arizona’s approach to contract
monitoring is among the most extensive nationally. While costly,
the Department’s approach appears to be effective, based on the
private prisons’ compliance with Department standards and the
lower cost of housing inmates in private prisons compared to the
cost in state-operated facilities.
Department Requires
Equivalent Operations and
Closely Monitors Compliance
The Department requires that private prisons mirror state-operated
facilities, and performs extensive oversight activities to
ensure that its contractors meet its requirements. In order to
maintain uniform standards for state and private prisons, the
Department requires contractors to follow Department Orders,
Director’s Instructions, Technical Manuals, Institution Orders,
and Post Orders. These requirements extend to specific details,
such as following the same daily menus as state-operated facili-ties.
Contractors may request waivers from the Department for
policies that are not applicable to private prisons, such as state
fiscal management practices, employee evaluations, and em-ployee
benefits.
To monitor its contractors’ operations, the Department stations
Department employees at each private prison, conducts regular
audits similar to internal audits used in state-operated facilities,
Private prisons must
mirror state operations.
Finding I
10
OFFICE OF THE AUDITOR GENERAL
and performs comparisons with state operations at two-year and
five-year intervals as required by statute. Specifically,
n On-Site Department Staff—The Department assigns three
full-time staff and at least one part-time employee to work on-site
at each private prison. An associate deputy warden at
each private prison, equivalent in rank to the second-in-command
position at some state-operated prison units, serves
as a full-time contract compliance monitor. The monitor par-ticipates
in daily private prison staff meetings; conducts daily
walk-around reviews of the prison; monitors weekly and
monthly audit compliance in ten or more contract areas, such
as inmate detention, inmate funds, and armory procedures;
and works closely with the private prison warden and staff.
The monitor’s job also includes coordinating and overseeing
responsibilities the Department cannot delegate, including
inmate release dates, approving inmate jobs, changing inmate
custody levels, and disciplinary actions.
In addition to the monitor position, each private prison has a
classification specialist, responsible for reviewing inmate cus-tody
levels and responding to inmate grievances, and a lieu-tenant,
responsible for inmate discipline. Arizona Revised
Statutes §41-1609.01(P) prohibits delegating these duties to
private prison contractors. These two Department employees
also help to ensure that the private prison follows Department
inmate management practices. Finally, an employee provides
clerical support.
n Annual Audits—Private prisons must undergo annual audits
and inspections by Department employees, identical to those
used in state-operated prisons, to further ensure compliance
with Department policies. The Department also conducts spe-cial-
purpose inspections, such as reviews of the inmate bank-ing
system and inmate health services.
n Biennial Comparisons—As required by A.R.S. §41-1609.01,
the Department compares contractor performance to the
state-operated prisons, using professional correctional stan-dards
established by the director every two years. These
comparisons consider, at a minimum, nine dimensions of
service, including security, inmate management and control,
Three Department staff
work full-time at each
private prison.
Finding I
11
OFFICE OF THE AUDITOR GENERAL
inmate programs and services, and facility safety and sanita-tion.
n Five-Year Cost Comparisons—The same statute also re-quires
the Department to work with the Governor’s Office
for Excellence in Government to complete a cost comparison
every five years, to ensure that each contract continues to
provide cost savings to the State.
Department’s Approach Among
Most Extensive Nationally
Compared to other states and jurisdictions, the Department’s
oversight approach is one of the most extensive in the nation.
Other states and jurisdictions use a wide variety of oversight
approaches, ranging from on-site to periodic monitoring. For
example, the Federal Bureau of Prisons also stations Bureau staff
on-site to ensure contract compliance, similar to the Depart-ment’s
approach. In contrast, some states conduct only periodic
monitoring visits to private facilities. For example, Alaska and
Hawaii use monthly or quarterly visits to monitor contract com-pliance
at private prisons located in distant states such as Ari-zona.
Variations also exist in delegating other duties to contrac-tors.
For example, in Colorado, Nevada, New Mexico, and Okla-homa,
contractors handle the administrative work associated
with inmate classification, instead of placing state staff on-site to
carry out these duties.
Private prison contractors perceive Arizona as a strict state to
contract with. Officials at companies that contract with Arizona
told auditors that Arizona is among the most stringent states to
contract with, and that if they can contract with Arizona, they
can contract with other states.
Approach Appears Effective
and Costs Remain Below
State-Operated Costs
The Department’s approach appears to be successful, and the
costs of using and monitoring private prisons remain lower than
The Department’s ap-proach
is one of the most
extensive in the nation.
Finding I
12
OFFICE OF THE AUDITOR GENERAL
using state-operated facilities. According to a 1997 evaluation
conducted by an outside consultant and a recent Department
report, all three contracted private prisons met or exceeded De-partment
operational standards.
Department administration and oversight of the Private Prisons
subprogram represents about 13 percent of the program’s total
cost, but the Department still saves money by using private pris-ons.
A recent Department report found that, even with these
costs included, private beds cost about 12 percent less than state-operated
beds for similar inmates in fiscal year 1999. Altogether,
the report showed the Department saved $5.5 million in two
years through privatizing prison beds. According to Department
and private prison officials, the lower costs at private prisons
derive mainly from providing lower salaries and benefits com-pared
to those of state employees. For example, one vendor’s
starting salary is $8.00 per hour, compared to $11.30 for new
Department employees.
Department records show
private prisons cost about
12 percent less than state-operated
facilities.
13
OFFICE OF THE AUDITOR GENERAL
FINDING II THE DEPARTMENT
SHOULD BEGIN GATHERING
INFORMATION TO MAKE
FUTURE PRIVATIZATION
DECISIONS
In order to make the best use of privatization in the future, the
Department should begin planning and gathering good cost
information. In the future, the Department could contract for
housing additional inmate groups, such as women, geriatric
inmates, or mentally ill inmates, as has already been done in
some other states. However, the Department needs to begin
collecting cost information regarding such inmates now in order
to make good privatization decisions in the future.
Other Specialized Populations
May Be Viable Candidates for
Privatization
Privatization can help accommodate future growth in the inmate
population, as well as the need to replace beds in aging or inade-quate
facilities. The Department prefers to use private prison
beds for defined groups instead of general population inmates,
in order to simplify selection of inmates to send to a particular
prison. Even within the constraints imposed by this preference,
the Department has numerous inmates who would qualify for
private beds. In addition to DUI and substance abuse offenders
housed in private prisons under current contracts, several other
inmate groups may be viable candidates for privatization. Other
states have already privatized beds for women. Geriatric in-mates,
mentally ill inmates, and sex offenders may present simi-lar
opportunities to increase privatization. According to auditors’
Finding II
14
OFFICE OF THE AUDITOR GENERAL
estimates, at the end of fiscal year 2000, at least 28 percent of the
Department’s inmate population fell into one of these groups.1
n Female Inmates—At least five states have contracts for
housing female inmates. For example, three different compa-nies
operate facilities for women in Nevada, New Mexico,
Florida, Oklahoma, and Texas. In addition to cost savings,
other states report efficiencies related to consolidating spe-cialized
medical services, and improved programs for
women, such as parenting classes and, in Nevada, a Girl
Scout Troop where inmate mothers serve as troop leaders.
Arizona had 1,883 female inmates in the prison system at the
end of fiscal year 2000.
1 According to Department records, as of June 30, 2000, female inmates
comprised approximately 7 percent of the total inmate population. Ap-proximately
8 percent of the total inmate population was over 50. During
that same period, 12 percent of inmates were housed in units designated
by the Department for sex offenders, and over 1 percent of inmates were
housed in units designated for mentally ill populations.
Photo 2: Private prison housing
Dormitory-style housing at a private prison specifically designed for
substance abuse treatment.
Arizona had 1,883 female
inmates as of June 30,
2000.
Finding II
15
OFFICE OF THE AUDITOR GENERAL
n Geriatric Inmates—In response to the increase in older in-mates
in their prison populations, at least eight states house
geriatric inmates separately in state-operated prisons, and
some have issued requests for proposals to contractors for
private geriatric facilities. Older inmates have increased
needs for medical services, and officials in some states believe
private companies may offer reduced costs. At the end of fis-cal
year 2000, approximately 2,250 of all Arizona inmates
were age 50 or older.1
n Mental Health Inmates—Although several states, like Ari-zona,
house mentally ill inmates together in state facilities,
this group may present another opportunity for successful
privatization. According to the Department, about 2 percent
of the Department’s inmates are seriously mentally ill. The
Department houses many of these inmates in one of its old-est,
least satisfactory physical facilities, on the grounds of the
Arizona State Hospital in Phoenix. Contracting for incarcerat-ing
these inmates could provide an opportunity to move
them to a better facility, while possibly saving on the costs of
medication and other treatment. Currently, there is one pri-vate
mental health prison facility in Mississippi. As of June
30, 2000, about 345 Arizona inmates were housed in areas
designated for mentally ill inmates.
n Sex Offenders—Finally, Arizona could consider contracting
for incarcerating inmates convicted of sex offenses. While it
appears that no other state has privatized the sex offender
population, Department officials report that such inmates
tend to present fewer management problems than general
population inmates, which may make them good candidates
for privatization. The Department currently houses over
3,000 such inmates, mostly at designated sex offender units in
its Florence and Eyman prison complexes.
1 Corrections literature defines “geriatric” as over age 50, because inmates
typically have a physiological age about 10 years older than their chrono-logical
age. Literature attributes this difference to substance abuse, poor
health care, and other characteristics of many inmates’ lifestyles prior to in-carceration.
The Department houses
over 3,000 inmates in
units designated for sex
offenders.
2,253 Arizona inmates
were age 50 or older at the
end of fiscal year 2000.
Finding II
16
OFFICE OF THE AUDITOR GENERAL
Each of these specialized populations may present other consid-erations
that could affect the decision to privatize their incarcera-tion.
For example, the Department may prefer to retain female
inmates in its own facilities to better ensure appropriate staff-inmate
behavior. The Department has established a training
program designed to eliminate inappropriate staff-inmate behav-ior
in its own prisons as a result of a lawsuit filed by female in-mates
under the federal Civil Rights of Incarcerated Persons Act
(CRIPA).1
The Department
Should Collect Better
Cost Information
To make more informed decisions regarding privatizing addi-tional
inmate groups, the Department needs to collect better cost
information. According to criteria established by the Arizona
Competitive Government Project, before deciding whether to
privatize any additional inmate groups, the Department must
determine if it can reduce costs or obtain better service at similar
costs. However, the Department lacks reliable cost information
regarding its specialized populations. Auditors requested infor-mation
on health care costs for female inmates, for example, but
the Department could not provide it. Collecting such informa-tion
has not been deemed a high priority by Department staff,
and the Department lacks adequate computer tracking systems
to separate out such costs. However, the Department has moved
many of these specialized inmate groups into designated units
and complexes, which may make it easier for Department staff to
identify costs associated with these inmates in the future.
In order to assess the potential for reducing costs through privat-izing,
the Department should begin to track costs separately for
specialized inmate populations. Specifically, the Department
should monitor their health care costs and the costs of special
1 In response to the 1997 CRIPA lawsuit, the Department entered into a
settlement agreement with the federal government in 1999 to establish a
specialized training program designed to eliminate inappropriate staff-inmate
behavior. The Department satisfied the agreement requirements
and the case was dismissed in December 1999.
Finding II
17
OFFICE OF THE AUDITOR GENERAL
programs, such as sex offender treatment programs. In addition,
the Department should monitor any increased staffing costs. For
example, some specialized population units may require a
higher staff-to-inmate ratio than similar general population units.
The Department should also keep track of costs associated with
modifying facilities for special populations, such as adding
wheelchair ramps and widening doors. Finally, the Department
should identify other costs that might change upon privatization,
such as the cost of monitoring adherence to the CRIPA lawsuit
requirements or the cost of assessing sex offenders for possible
referral to the sexually violent persons program.
Recommendation
The Department should begin planning ahead for possible fu-ture
privatization by separately identifying costs associated with
incarcerating women, geriatric inmates, mentally ill inmates, and
sex offenders who could reasonably be housed in private pris-ons.
18
OFFICE OF THE AUDITOR GENERAL
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19
OFFICE OF THE AUDITOR GENERAL
OTHER PERTINENT INFORMATION
During the audit, auditors acquired information about private
prisons in Arizona that do not have contracts with the Depart-ment
of Corrections.
Three Private Prisons
in Arizona Do Not Have
Department Contracts
Three private prison facilities, operated by Corrections Corpora-tion
of America and located in Eloy and Florence, are not under
contract with the Department of Corrections. Rather, these pri-vate
prisons house inmates on behalf of several federal agencies,
other states, and jurisdictions. These private prisons house more
inmates and higher-custody-level inmates than state-contracted
private prisons. Table 3 (see page 20) shows the number, sources,
and custody levels of inmates at these prisons.
Prisons Governed by
Statutes, Contracts,
and Company Practices
Like several others states’ statutes, Arizona Revised Statutes §§41-
1682 through 1684 and 41-1830.31 allow private prisons to oper-ate
in the State, and establish certain requirements all such com-panies
must follow. Specifically, they must show financial re-sponsibility
before constructing a private prison, maintain photos
and fingerprints of all inmates, and, upon release, return out-of-state
inmates to the states where they were sentenced. In addi-tion,
they must notify the Governor, the Department, and the
Department of Public Safety of inmates transferred into the State,
providing the number of inmates transferred, their names and
security levels, and the transfer date. The Department receives
such notice in the form of a list of inmates. Finally, in the event
Arizona statutes permit
private prisons to house
out-of-state inmates.
Other Pertinent Information
20
OFFICE OF THE AUDITOR GENERAL
of an escape from a private prison, the company must pay a
minimum penalty of $10,000 per escapee to the Department of
Administration.
Table 3
Arizona Department of Corrections
Private Prisons
Private Prisons in Arizona
Without Department of Corrections Contracts
As of February 28, 2001
Central Arizona Detention Center (Opened 1994)
Corrections Corporation of America
Source of Inmates
Custody
Level 1
Current
Occupancy
Rated
Capacity
District of Columbia Maximum 139
Alaska All 794
United States Marshals Service All 1,547
Total occupancy 2,480 2,304
Eloy Detention Center (Opened 1995)
Corrections Corporation of America
Source of Inmates
Custody
Level 1
Current
Occupancy
Rated
Capacity
Federal Bureau of Prisons Low 490 500
Immigration and Naturalization Services All 890 1,000
Total occupancy 1,380 1,500
Florence Correctional Center (Opened 1999)
Corrections Corporation of America
Source of Inmates
Custody
Level 1
Current
Occupancy
Rated
Capacity
Immigration and Naturalization Service All 241
United States Marshals Service All 100
Hawaii All 540
Pascua Yaqui All 34
Total occupancy 915 1,600
1 Low/minimum-custody inmates pose a relatively low risk of escape or few management problems. Medium-custody
inmates require frequent supervision, with direct observation of their programs and activities areas.
Maximum-custody inmates require constant supervision because they present serious escape risks or pose
serious threats to themselves, to other inmates, or to the State.
Source: Auditor General staff analysis of information provided by Corrections Corporation of America.
Other Pertinent Information
21
OFFICE OF THE AUDITOR GENERAL
In addition to Arizona’s statutory requirements, private prisons
without Department contracts also operate according to contract
requirements set by the jurisdictions that send them inmates and
by their own company practices. The contract requirements
drive operational details such as inmate clothing, education,
work programs, and, for federal contracts, employee salaries.
Currently, one company owns all three of these prisons in Ari-zona,
as well as 67 other facilities in 20 other states. This com-pany
mandates that each facility meet internal monitoring prac-tices,
as well as other operational standards established by the
American Correctional Association.
More such prisons may be located in Arizona in the future. Cur-rently,
the Federal Bureau of Prisons is considering bids from
companies to build and operate new prison facilities. The new
facilities will house approximately 4,500 low-security males, who
are not U.S. citizens, but committed crimes in the United States.
Arizona sites named in some of the bids under consideration
include Kingman, Yuma, Florence, and Eloy. Bidders also pro-posed
sites in California. The Bureau of Prisons will decide on a
bid at the end of this year. The Department has asked the Bureau
to reject any site that already supports a prison, due to concerns
about the adverse effect on labor resources.
Other States Have Different
Approaches to Allowing and
Regulating Private Prisons
States have established different levels of regulation and over-sight
for private prisons that do not contract with them. Accord-ing
to the American Federation of State, County, and Municipal
Employees’ (AFSCME) compilation of states’ private prison
statutes, in November 2000, 15 states, including Arizona, had
statutes that specifically mention housing out-of-state inmates in
private prisons. (The remaining states either prohibit private
prisons entirely or do not mention others states’ inmates in their
statutes pertaining to private prisons.) Six of those states prohib-ited
importing inmates from other states, and two allowed im-porting
inmates only upon approval of a state agency.
Other Pertinent Information
22
OFFICE OF THE AUDITOR GENERAL
In a survey of selected states, auditors asked officials to charac-terize
their state’s identified form of regulation as restrictive,
somewhat restrictive, or permissive.
n Restrictive: Ohio and Oklahoma officials describe their state
oversight of such prisons as restrictive. For example, Ohio re-quires
such prisons to have contracts with a local govern-ment
in Ohio and mandates accreditation by the American
Correctional Association, and bars them from housing in-mates
with a history of assaulting prison workers or visitors.
n Somewhat Restrictive: A Texas official describes their state
regulation as somewhat restrictive. The Texas Commission
on Jail Standards oversees private jails that house out-of-state
inmates. The Commission establishes minimum standards
for construction and operation of jails, reviews and com-ments
on jail construction documents, and monitors compli-ance
with adopted standards.
n Permissive: New Mexico and Tennessee officials character-ize
their state regulation as permissive. These states have few
requirements and no state oversight. According to Arizona
Department of Corrections officials, Arizona’s level of regula-tion
of prisons that do not contract with the Department also
falls into the permissive category.
The Department
Wants More Regulation
of Private Prisons
The Department has proposed that Arizona should have more
stringent regulation, and two bills introduced in the 2001 legisla-tive
session would have increased regulation of noncontracted
private prisons. First, an amendment to Senate Bill 1213 would
have prohibited private prisons from housing maximum-security
inmates. The amendment failed. Currently, Arizona
does not prohibit the import of maximum-security inmates into
private prisons. In contrast, Idaho’s, Texas’, and West Virginia’s
statutes allow private prisons to import only minimum- and
medium-security inmates. Department officials believe that such
SB 1213 would have
prohibited private prisons
from housing maximum-security
inmates.
Other Pertinent Information
23
OFFICE OF THE AUDITOR GENERAL
prohibitions in other states will make it more likely that other
jurisdictions will transfer maximum-security inmates to private
prisons in Arizona.
A second bill, Senate Bill 1478, would have required the Depart-ment’s
director to approve private companies’ prison proposals,
and the Joint Committee on Capital Review to assess proposals
before private prisons are built in Arizona. The bill failed. Cur-rently,
private prison companies do not have to seek approval
from the Department before constructing a private prison. De-partment
officials assert that private prisons located near state-operated
prisons could hamper Department efforts to recruit and
retain sufficient correctional officers.
24
OFFICE OF THE AUDITOR GENERAL
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OFFICE OF THE AUDITOR GENERAL
AGENCY RESPONSE
OFFICE OF THE AUDITOR GENERAL
(This Page Intentionally Left Blank)
July 5, 2001
Debra K. Davenport, CPA
Auditor General
Office of the Auditor General
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Re: AUDITOR GENERAL’S PERFORMANCE AUDIT
PRIVATE PRISONS SUBPROGRAM FINAL REPORT RESPONSE
Dear Ms. Davenport:
The mission of the Arizona Department of Corrections (ADC) is to serve and protect the citizens of Arizona
by imprisoning offenders legally committed to ADC and by providing community based supervision of those
conditionally released. Private Prisons play an important role in the mission by providing quality incarceration
at a level equal to ADC operated prisons at a cost savings. We believe we operate private prisons in
compliance with applicable state statutes and are a national leader in the area of prison privatization.
However, the perspectives provided by your staff will further enhance our program.
We have reviewed your revised audit draft report of June 28, 2001. Below please find our written response to
the audit findings.
Finding II
Recommendation: The Department should begin planning ahead for possible future privatization by
separately identifying costs associated with incarcerating women, geriatric inmates, mentally ill inmates,
and sex offenders who could reasonably be housed in private prisons.
Response:
The Department concurs in this finding and the audit recommendation will be implemented.
Comment: The Department shall review the methodology used to capture and report identifying costs which
may potentially aid in the improvement of the Cost Model used to evaluate privatization issues. However, the
reference to those population types identified in this recommendation as being, “reasonably housed in privately
prisons” remains to be determined. While there are states privatizing these population types, it is too early to
unequivocally determine that these are in fact the population types to privatize. ADC will continue to monitor
national trends noting both successes and difficulties in the privatization arena. More importantly, ADC will
seek empirical evidence supporting the privatization of population types. ADC will then, based on sound
correctional practice and taking into
consideration community concerns, political interest and the needs of the agency, determine what population
type(s) to privatize.
Debra Davenport
July 5, 2001
Page 2
ADDITIONAL REPORT COMMENTS:
Program Fact Sheet - Adequacy of Goals and Performance Measures:
Comment: ADC annually reviews the goals and objectives. The suggestion to incorporate quality and
outcome measures related to the Department’s mission is noted and appreciated.
Finding I:
Comment: Page 9: While the costs related to the monitoring staff are adjusted for in the Cost Model to
ensure the vendor is providing the service at a lower cost than the State could, the private company does not
directly pay the wages of the monitoring staff. The Department is examining what effect requiring the
contractor to pay for the cost of the monitoring would have on the per diem cost.
Finding II:
Comment: Page 14: Female Inmates: ADC has consolidated the females into one exclusive female complex
and one release center in an effort to reduce costs and maximize program activities.
On behalf of the Arizona Department of Corrections and its staff, I wish to take this opportunity to thank you
and your staff for the observations offered regarding our Private Prison Program. It has been a pleasure
working with your staff. I am certain our efforts will improve our approach to prison privatization and continue
to benefit the citizens of this State.
Thank you for affording this opportunity to respond.
Sincerely,
Terry L. Stewart
Director
TLS/CLR/lls
cc: Charles L. Ryan, Deputy Director, Prison Operations
Lacy L. Scott, Administrator, Privatization & Contract Services
Tim Murphy, Deputy Warden, Private Prisons
Other Performance Audit Reports Issued Within
the Last 12 Months
01-10
Future Performance Audit Reports
Arizona Automobile Theft Authority
Department of Real Estate
00-16 Arizona Department of Agriculture—
Pesticide Compliance and Worker
Safety Program
00-17 Arizona Department of Agriculture—
Sunset Factors
00-18 Arizona State Boxing Commission
00-19 Department of Economic Security—
Division of Developmental
Disabilities
00-20 Arizona Department of Corrections—
Security Operations
00-20 Universities—Funding Study
00-21 Annual Evaluation—Arizona’s
Family Literacy Program
01-01 Department of Economic Security—
Child Support Enforcement
01-02 Department of Economic Security—
Healthy Families Program
01-03 Arizona Department of Public
Safety—Drug Abuse Resistance
Education (D.A.R.E.) Program
01-04 Arizona Department of
Corrections—Human Resources
Management
01-05 Arizona Department of Public
Safety—Telecommunications
Bureau
01-06 Board of Osteopathic Examiners in
Medicine and Surgery
01-07 Arizona Department
of Corrections—Support Services
01-08 Arizona Game and Fish Commission
and Department—Wildlife
Management Program
01-09 Arizona Game and Fish
Commission—Heritage Fund
01-10 Department of Public Safety—
Licensing Bureau
01-11 Arizona Commission on the Arts
01-12 Board of Chiropractic Examiners