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Michigan Doc Prisoner Reentry Initiative Audit Feb 2011

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Apr, 1, 2011

4:17PM

No, 0086,

Internal Audit Report

State of Michigan
Department of Corrections
Michigan Prisoner Reentry Initiative
Contracting Practices
February 2011

Office of Internal Audit Services
Doug Ringler, CPA,
Director

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~.

STATE OF MICHIGAN

STATE BUDGET OFFICE

RICK SNYDER

JOHN E. NIXON CPA

LANSING

GOV~RNOR

DIRECTOR

February 22, 2011
TO:

Richard M. McKeon
Acting Director, Michigan Department of Corrections

FROM:

Doug Ringler, Director
Office of Internal Audit Mrvices

\le~ ~~\.p/"

,

SUBJECT: Internal Audit Report -Michigan Prisoner Reentry Initiative Contracting
Practices
This document contains our audit report of the Department of Corrections (DOC),
Michigan Prisoner Reentry Initiative (MPRI) contracting practices,
In addition to the 10 findings and 15 corresponding recommendations contained within,
this report also includes the program description and background information; scope, '
methodology, management responses, and noteworthy accomplishments. We segregated
our findings and recommendations by audit objective. We obtained the management
responses from department staff subsequent to our audit field work.
Summary of significant issues, conclusions, findings
We believe four of our findings are material in nature:
.

•

.

DOC did not ensure that staff fully described contract changes requests and their
justification when requesting approval from appropriate authorities, See Finding
#1.

• DOC did not effectively monitor MPRI contracts to ensure that contractors fulfi.lled
DOC's expectations in an acceptable and satisfactory- fashion, and that the contracts
were necessary. See Finding #7.
• DOC did not ensure that MPRI contractors effectively developed subcontracts and
monitored their subcontractors. See Finding #8.
•

DOC did not ensure that its staff obtained and reviewed invoices and necessary
supporting documentation to ensure that contractor chargeswereeJigible,
authorized, fair and accurate. See Finding #9.

I appreciate the professional courtesy extended by- your staff during the course of this
project.. We stand ready to provide counsel regarding appropriate corrective actions to
help mitigate the risks identified in the findings,
cc: John E. Nixon Nancy- Duncan Connie MacKenzie
:Russ Marian Gary Manns , Ken Brzozowski
BB,r'rY- Wickman
111 S, CAPITOL· P,O, BOX 30026· LANSING, MICHIGAN 46909
www.michlqan.qoY· (517) 373·7560

No, 0086

Apr, 1, 2011, 4:18PM

Table of Contents
Department of Corrections
Michigan Prisoner Reentry Initiative
Contracting Practices

Overview

Report Letter

Page
2

Agency Description and Background Information

4

Audit Scope, Methodology, and Noteworthy Accomplishments

5

Objectives, Conclusions, Findings, Reconunendations,
and Management Responses

Effectiveness of Developing MPRI Contracts and Selecting Contractors
l. Contract Changes and Advance Requests
7
2, Approved Program :Rules for Comprehensive
Plan Services

9

3, Approved Program Rules for Administrative
Agency Operations Support

11

4. Obtaining Supplemental Information from Bidders and
Contractors

12

5. Joint Evaluation Committee Member Selection

14

6. Comprehensive Plan Funding Allocation and
Adjustment Processes

14

Effectiveness of Monitoring and Evaluating MPRI Contracts
7, Contract Com.pliance Monitoring,
'8. Subcontractor Monitoring
9. Invoice Review,andApproval
10. Data Collection and Reporting Capacity

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19
21
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Agency Description and Background Information
The Department of Corrections (DOC) implemented the Michigan Prisoner Reentry
Initiative (MPRIl in 2005 to significantly reduce crime and enhance public safety by
implementing a seawless system of services for offenders from the time they enter into
prison through their transition, reintegration, and aftercare in their communities.
DOC established the Offender Reentry Services Section (ORSS) to coordinate the,
implementation of MPRI with department staff, community agencies, and the public,
ORSS is responsible for initiating and monitoring certain offender reentry contracts.
DOC's Bureau of Fiscal Management (BFM) provides oversight over the contracting and
contract monitoring processes.
In March 2010, DOC reorganized and placed ORSS under the Office of Community
Alternatives, which is within the Executive Bureau.
,

'

For fiscal year (FY) 2010, DOC budgeted $43.8 million for MPRI contracts as follows:
Comprehensive Plan Services
$27 million for contracts with administrative agencies who serve as fiduciary agents
and subcontract with other agencies to provide MPRI services within a geographic
region. Ofthe $27 million, administrative agencies retained $4.3 million for operations
support expenditures. The remaining $22.7 million was for comprehensive plaJ:l
services provided through subcontractors, which related to residential stability,
employment readiness, social support, and behavioral health.
Special Need Services
$10.4 million for contracts with agencies that expand statewide services for the special
needs population including mentally ill, developmentally disabled, youth, or medically
'
,
fragile offenders.
Risk Reduction Services
$4,5 million for contracts with agencies that expand risk reduction services such as
substance abuse treatment, sex offender treatment, parole supervision, and day
reporting.
Capacity Byilding
$1.9 million for contracts withagencies that provide capacity building and technical
assistance services. These agencies help DOC with strategic planning, public
education and outreach, statewide training, and enhancing the MPRl data collection
system.

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Audit Scope, Methodology, and Noteworthy Accomplishments
Audit Scope
Our audit focused on DOC's practices related to contracting for certain MPRI support
services including comprehensive plan services; services to special needs population;
risk reduction services; and capacity building and technical assistance. Our audit
procedures, conducted from October 2009 through September 2010, generally covered
the period October 1, 2005 through February 28,2010.
Audit Methodology
,
'To gain an understanding ofDOC'~ MPlli contracting practices, we interviewed DOC
staff and reviewed departmental policies and program information.
'

"

Toas~es~

the effectiveness ofDOC'~ proce~~es for developing MPRI contract~ and
selecting contractors, we reviewed DOC and Department of Technology, Management
and Budget (DTMB) policies and procedure~ related to procurement, contract
development, solicitation, and evaluation of bid proposals. We interviewed DOC and
DTMB staff. We judgmentally selected a sample of nine MPRI contracts to test
compliance with procurement procedure~, and to examine the contractual requirements
and other related documentation.
To a~~es~ the effectiveness of DOC's effort~ to monitor and evaluate MPRI contracts,
wereviewedDOC and DTMBpolicies and procedures related to contract monitoring.
We interviewed DOC staff, and we examined documentation relating to DOC's
monitoring practices for a sample often MPRI contracts.
We included the following contracts inour review:
Vendor
Area Community Services Employment!
Training Council
Capital Area Michigan Works
Hillsdale Intermediate School District
United Way of Southeastern Michigan
Lifeways,
'
Professional Consulting Services
New Creations -Male (formerly T.O,P,S.)
New Creations - Female (formerly T.O.P.S.)
Goodwill (Employment/Residential Detroit)*
Michigan Council on Crime & Delinquency
" included in audit objective #2 only

Office ofInternal Audit Services

Contract Period
Comprehensive Plan
Comprehensive Plan,
Comprehensive Plan
Comprehensive Plan
Special Needs
Special Needs
Risk Reduction
,Risk Reduction
Risk Reduction
Capacity Building

10/01/09 10/01/09 10101/09 10/01109 10/01105 10/01/09 10/0U05 10/01/05 10/01/05 09/24107 -

09/30/12.
09/30/12
09/30/12
09/30/12
09/30/09
09/30/12
09/30/10
·09/30/10
09/30/10
09/23/10

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Noteworthy Accomplishments
DOC changed the FY 2010 comprehensive plan contracts to require administrative
, agencies to work with DOC to develop performance indicators and measures in terms of
achieving the outcome of public safety. DOC also restructured the administrative agency
FY 2011 funding requests to include performance targets including input measures,
intermediate outcome measures and end outcome measures for many of the MPRI
t
services.
,

,

,I'

'

In October 2010, DOC initiated the Lean Processlmprovement Projectfor obtaining direct
human service contracts under DOC's authority. The goal ofthe project wasto design a
more efficient procurement process, increase consistllncy, and standardization in contracts
department-wide" and decrease process cycle time,
'
During our audit fieldwork, DOC made various improvements to its contract development
and monitoring processes.

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Objectives, Conclusions. Findings, Recommendations,
and Managelllent Responses
, ,Effectiveness of Developing MPRI Contracts and Selecting Contractors
Background
DTMB - Procurement and Real Estate Services Administration possesses the authority to
procure goods and services for the State. DTMB delegated the authority to procure
human services and medical services to individual State departments through the
Adininistrative Guide to State Government Procedure 0510.15.
Each of the comprehensive plan, special needs, and risk reduction-type contracts that we
selected for review were procured by DOC under their delegated authority. The capacity
building contract that we selected for review was procured through DTMB.
Audit Objective #l
To assess the effectiveness of the DOC processes for developing MPRI contracts and
selecting contractors.
'
Conclusion
We concluded that the DOC processes for developing MPRlcontracts and selecting
contractors were not effective. We identified one material condition concerning contract
changes and advance requests. We also identified five additional reportable conditions.

:FlNhlNG #1
Contract Changes and Advance Requests
, DOC did not !lnsure that staff fully described requested contract changes and their
justification when requesting approval from the DOC Director, and/or DTMBProcurement and Real Estate Services Administration and the State Administrative
Board. Also, DOC did not always obtain DTMB approval for advances to contractors as
required.

We noted the following:
a. Capacity Building Contract'
DOC staff did not fully disclose the purpose of a contract amendment and the
expected deliverables on the DTMB justification forms that it submitted to DTMB
and/or the State Administrative Board regarding a capacity building contract.
," A purchase request form submitted in August 2008 stated that $679,800 of
, additional funding was necessary to make up for the loss of foundation grant funds
that the contractor was using to support their work under the contract, However,
we found that the deliverables described in the purchase request form did not
match the deliverable:> described in the funding application filed with the
foundation in November 2007, The primary objective listed on the funding

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application was to obtain funding for the contractor to hire three specialists,
, Documentation obtained from departmental emails indicated that the change order
was primarilyforother servicesthatDOC wanted thecontraetorto perform. ,The
additional services that DOC wanted were not described on the change request form
or the contract amendment.

,
b. Risk Reduction Contracts
DOC staff did not disclose rate increases, changes in pricing methods, Or the
reasons forthem on four of five contract change requests for two risk reduction
contracts. The contracts and amendments totaled approximately $2.7 million over a
five year period.
DOC solicited bids and awarded two contracts for services relating to male and
female day reporting, based upon a unit rate per day. Within the first year of the
contract, DOC amended the male day reporting contract twice to reflect it rate
increase from $17.46/day to $38.50/day. Eight months later, DOC amended the
contract to a cost reimbursement basis.
Within the first year of the contract, DOC also amended the female day reporting
contract to reflect a rate increase from $31.99/day to $45.54/day. Eight months
later, DOC amended the contract to a cost reimbursement basis,
c. Special Needs Contracts
1. DOC staff did not fully disclose rate increases, added services, retroactive
charges, Or increased administrative costs on eight change requests for a special
needs statewide contract. The original contract was for one year and totaled
approximately $2.4 million. Contract amendments increased the funding for
three additional years and adjustedthe contract amount to approximately $16
'
million.
DOC solicited bids and awarded a one-year statewide contract for special need
serviyes. During the first year of the c?utraet, DOC amended the service fee
schedule, Starting the second year of the contract, DOC renewed the contract
and added additional service areas to the contract. During year two ofthe
contract, DOC amended the service fee schedule. During the third year, DOC
retroactively amended the contract to allow billing for services not previously
included. To start the fourth year, DOC renewed the contract and amended the
service fee schedule. During year four of the contract, DOC approved a
significant increase for administrative cost and allowed retroactive billing, ,
, To justify the amendment requests, DOC staff repeated the impact and cost
savings statements that they used to justify the original contract. DOC staff
also attached appendixes such as fee schedules to the amendment requests.
However, DOC staff did not disclose that the' changes involved rate increases,
additional services, retroactive payments, and increased administrative costs.

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2. DOC made COntract advances totaling $964,910 to two vendors that provided
services to special needs offenders; however, these contracts were not included
on the advance exception request letters that DOC submitted to, and were
approved by DTMl3.
The Administrative Guide to State Government Procedure 1270.03 allows for the
payment of contract advances under cert~in conditions, if prior approval is
obtained from DTMB.
The lack of complete disclosure ofthe purpose and impact ofthe contract changes may
have precluded approvers from providing appropriate scrutiny over the requested
changes" Also, the approvers may not have approved the contract changes, and/or may
have required re-bidding of the contracts to enSUre competitive pricing and fairness to
all original bidders. In addition, DOC may not be able to effectively enforce the
contracts, because the contract changes were not adequately described in the contract
amendments.
We noted that the DOC contractJamendmentjustification form did not require staff to
explain the description, purpose, and expected outcomes of the requested amendments.
Staff also informed us that it is sometimes difficult to fully disclose details of the
change and the rationale for them on the forms due to space limitations. DOC's form
did not instruct staff to attach additional documentation to the forms ifnecessary.
Recommendation
We recollllllend that DOC ensure the propriety of contract changes by ensuring that
staff fully describe requested changes and their justification when requesting approval
from the DOC Director and/or DTMB and the State Administrative Board.

In addition, we recommend thatDOC obtain DTMBapproval for advances to
contractors as required,
M:auagemeutResponse
DOC agrees that the contract I amendment justification form (the Purchasing Request
Form, or PRF) could be improved by inclusion of instructions that provid~d addi6onr;L1
guidance on details to be incorporated into the justification summary, and allowed the
writer to attach additional pages as necessary in support of the PRF.' Under the Lean
Process Improvement Project/or procuremeld processes, the PRF form will be revised to
provide the recomm~nd~d instructions. DOC annuallytequests authorization for cash
advances through the State Budget Office. DOC did receive an authorization letter for
FY 2009; however, the letter did not include the specific contract cited by the auditors.
.

.

.

FINDING #2
Approved Program Rules for Comprehensive Plan Services
DOC had not fully developed program rules or guidance for its comprehensive plan for
administrative agencies and subcontractors to follow when providing services to

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offenders. In addition, DOC had not established a process that includes appropriate
management or leadership team review and approval of the rules or guidance.
For FY 2010, DOC awarded $27 million to administrative agencies and su.bcontractors '
to provide comprehensive plan services to offenders. DOC staff provided guidance to
the administrative agencies, as concerns regarding certain services or costs were
brought to DOC's attention, In addition, DOC included a basic list ofu~allowable costs
in the contracts. However, DOC had not established rules or guidance to address other
key aspects of these contracts,including:
•

Rules or guidance to ensure that subcontractors only bill for services to an
offender that DOC field agents have authorized.

•

Rules or guidance regarding how long or how often offenders may participate in
residential, employment readiness, and transportation assistance programs.

•

•

Rules or guidance for procuring and paying for services when offender non~
, participation or low participation exists.
Rules Or guidance for procuring and paying for reserved capacity such as empty
apartment units.

DOC staff informed us that it is difficult to establish rules until questions or issues
present themselves and the challenge with establishing firm but flexible rules, because
of varying offender needs. We noted that DOC staff had not taken sufficient steps to
familiarize themselves with comprehensive plan service 'activities, because they had
not obtained and reviewed subcontracts, conducted perfonnance :('eviews, and required
adequate supporting documentation for invoices.
Without including a clearly defined, approved set of program rules 0:(' guidance in the
contracts, DOC cannot ensure that administrative agencies and their subcontractors
are aware of DOC n;:tanageinent's expectations.
Recommendation
We recommend that DOC fully develop progmm rules or guidance for its
comprehensive plan administrative agencies and subcontractors to follow when
providing MPRI services to offenders.

We also recommeJ:],dthat DOC establish a process in which appropriate management or
leadership teams review and app:('Olle the program rulesN guidance.
Management Response
DOC agrees. AlthoughFY 2010program rules addressed allowable services and were
improv~d in 2010 to provide greater detail forFY 2011, DOC agrees that rules did not
provide guidanc~ on all of the aspects cited by the auditors.

,

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For 2011 DOC is continuing to eualuate andimpfOve its MPRI related procedures and
processes, including the establishment ofrules to:
'
• Ensure that contractors only bill for offender services that have been referred by DOC
field agents
• Set forth allowable duration and frequency of offender participation in residential,
employment and transportation assistanc~ programs,
'
• Specify standards and processes for procuring and paying for services when there is
low or no offender participation, or for reserved capacity such as empty apartment
units.

FINDING #3
Approved Program Rules for Administrative Agency Operations Support
DOC had not established approved program rules guidance for funds that it
awarded to administrative agencies for operations support. In addition, DOC did not
always adequately scrutinize these funding requests before awarding the funding, As
a result, DOC did not ensure that State funds used for administrative agency
operations support were appropriate and reasonable.

or

For FY 2010, DOC awarded $4.3 million to administrative agencies for operations
support. Operations support includes expenditures for items such as community
coordinators; administrative personnel; public education and outreach; supplies and
materials; and travel. Duriug our review of these contracts, we noted;
a. DOC did not establish work·hour limits or compensation reimbursement limits
for positious it fuuded. DOC funded a community coordinator position as one
full·time pogition for$100,000. DOC also awarded funding to the administrative
agency for this same person to serve as the commuIlitycoordinator for two
federal grants for all additional $30,000. Through other inquiries, we learned
that this person also served as a paid executive director of a non-profit agency.
DOC should consider establishing reimbursement limits pertaining to funded
positions. DOC should also limit funding for any person to one full-time
position. In addition, DOC should also require administrative agencies to ensure
that fully-funded, fulHime po~itions each provide 2,080 hours.
b. DOC had not established rules for other administrative charges. For example,
DOC informed us of an instance in which an administrative agency planned to
. expend monies for out-of-state training. DOC should establish rules or
.
restrictions for administrative charges similar to those that pertain to State
operations.

Recommendation
We recommend that DOC establish approved program rules or guidance for funds that·
it awards to administrative agencies for operations support.
.

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We also recommend that DOC adequately scrutinize funding requests for
administrative agency operation Bupportexpenditures before it awards funding.
Management Response
DOC agrees that there were no program rules or guidance that established work-hour
limits or compensation reimbursement limits for positions it funded, and that such rules
should beestablis·hed. DOC will issue a program rule that limits DOC funding to 1.0
full-time position per individual, but allows fundingfrom other sources for hours in
excess ofthe equivalent to 1,0 position, with prior approval.
In May 2010, DOC notified all administrative agencies that prior approval must be
obtained for out-of-state travel for whIch reimburs~ment with stat~funds would be
sought, and specified criteriaIor approval consistent with procedures pertaining to stat~
operations.
DOC agrees that program rules or guidance on MPRI operations support funding is
necessary under the CUTTent reimburs~ment-for.expenses model, Guidance. was in place
for development ofFY 2010 MPRLcompreh.ensive plans, improved for FY 2011
compreh~nsiue planning process, and will be rel,Jiewed and improwd for FY 2012
comprehensive plans.
DOC incorporated various existing financial procedures into a Financial Guide that"
was distributed for commentto all MPRI Administrative Agencies in October 2010. The
Financial Guide is being revised and expanded, and will be reissued by March 2011.

FINDING #4
Obtaining Supplemental Information from Bidders and COlitractors
DOC did not obtain supplemental information from bidders and contractors that could
assist DOC with identifying possible irregularities prior to awarding contracts or
throughout contract periods. As a result, DOC did not take the opportunity to identify
.potential issues such as overlapping funding sources, unexpended fund balances,
potential conflicts of interest, unstable financial viability, weaknesses in the financial
controls or practices, Or to verify information contained within bids.
We obtained and reviewed available supplemental information for some of the MPRI
contractors and noted~
a. Disclosure of Funding- Sources
A not·for·profit agency contractor received funding from a federal grant in
addition to the funding it received from DOC, for staff that DOC fully funded.
After we brought thido management's attention, DOC adjusted the contractor's
billings 10 recover a $13,500 overpayment and adjusted the contractor's .
. .
authorized budget.
DOC had not required bidders and contractors to report all funding sources for
services that are funded byDOC, .
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b. l"inancial Statements
A not.for.profit contractor'~ financial ~tatements showed that the contractor
collected excess revenues from DOC totaling $479,000 over a two-year period..
Becau,se DOC had not obtained contractors'
financial statements, DOC was
,
unaware that this contractor's MPRI revenues significantly exceeded its MPRIrelated expenditures and had not taken steps to resolve the funding disparity.
c. Form 990s, Return of Organization Exempt from Income Tax
A not-for-profit contractor that was responsible for reviewing the progress of
MPRI administrative agencie~ had a board director who also served as the
community coordinator for one ofthe administrative agencies.
While this may not have created a conflict of interest, information such as the
names and compensation of officers, directors, trustees, and key employees is
available on the federal Form 990 as are the names of key contributors,
Obtaining l"orm 9908 from contractors that are required to file the form may
help DOC to identify potential conflicts ofinterest, verify compellsation
information for positions that DOC funds, and identify potential overlapping
funding sources.
Recommendation
We recommend that DOC take steps to identify possible contractor irregularities prior
to awarding contracts and throughout the contract period by requiring bidders alld
contractors to:

a. Disclose amounts that they receive from other funding sources for services
pertaining to the bid Or cOlltract.
b. Provide copies of financial audits covering theirorganization or programs.
c. Provide federal Form 990 Return of Organization Exempt from Income Tax from

contractors who are required to file the form.
Management Response
DOC agrees that contractors should provide the specified disclosures and documents
from bidders when awarding contracts and from contractors throughout the contract
period. However, the DOC disagrees that the process used during this audit period was
not effective, nor was it wholly DOC's process. The Invitation to Bid was processed
according to Department of Technology, Management and Budget (DTMB) procurement
procedures. Further, in FY2010, DOC collected programmatic and financial audits
from contractors and inquired about other funding sources for costs funded under
MPRI.

For FY 2012, this information will be used to identify possible contractor irregularities
w~en awarding contract annual funding, Regarding future bids, DOC will consult with
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DTMB to make changes to Request for Proposal boilerplate language within Article 5 , Required Bidder Information requiring bidders to disclose the results offinancial
, audits, provide federal Form 990, when appropriate, and disclose alternative funding
sources pertaining to this bid, for which DOC will evaluate in determining bid·awards.

FINDING #5
Joint Evaluation Committee (JEC) Member Selection
DOC did not always comply with the Administrative Guide to State GDvernment,
because some JEG members had direct supervisory responsibility over other JEC
members,
We reviewed the JEC member selection process for eight contracts. For one of the
special needs contracts, we found that two of the five JEC members who evaluated the"
contract proposal had a direct supervisory relationship overtwo other JEC voting , "
members.
Administrative Guide Procedure 0510.34 states that no persoJ:! representing the
requesting agency may serve on a JEC as a voting member if they are in a direct
supervisory relationship to another: JEC voting member. DTMB :Purchasing
Operations may grant exceptions to this requirement; however, DOC did not request
an exception.
'
This requirement is in place to ensure that the subordinate person's ability to
objectively review the proposal is not unduly influenced due to supervisory pressure
and scrutiny.
Re~ommendation

We recommend that DOC ensure that it complies with the State policies regarding JEC
member selection.
Management Response
DOC agre!!s and will ensure that an exception is sought and granted prior to a
supervisor and subordinate serving on the same JEC, Through the Lean Process
Improvement Project, JEC procedures will include the necessary instructions.

FINDING #6
Comprehensive Plan Funding Allocation and Adjustment Processes
DOC had not established "documented governance or oversight process to review and
evaluate comprehensive plan funding allocations and significant adjustments to
funding categories. As a result, DOC cannot ensure that it awarded comprehensive
plan funding using processes that bear integrity, and are founded on appropriate
. .
criteria and decision.making.

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For FY 2010, DOG awarded$27million to 18 comprehensive plan contractors. During
our review of those contracts we noted:
a, DOC had not established a governance process to review and evaluate
comprehensive plan funding allocations.

,

,

DOC obtained its MPRI comprehensive plan services through a competitive bid
process. Once DOC received bids, a joint evaluation committee evaluated the
bids and recommended an administrative agency for each of the 18 geographic
areas. Because the bid proposals received from successful bidders exceeded the
amount that DOC had available to award, ORSS staff informed uS that they
determined the contract awards for each successful bidder based on several
factors including current capacity, MPRI parolee population demographics,
needs of returning offenders, cost differences between regions, and other factors.
DOC could enhance the credibility and integrity associated with comprehensive
plan funding allocations by creating a documented governance process to review
and evaluate the allocations before submitting the contracts to the DOC Director' ,
for approvaL
b. DOC had not established an oversight process to review and evaluate significant
adjustments to funding categories.
Section 2.14.1. ofthe DOC's comprehehsive plan contract~ requires DOC to
approve all funding adjustment requests that shift funding for a service category
by more than 10%,
An ORSS program manager approved several FY 2010 adjustments that shifted
funds between service categories by more than 10%. For example,we noted a
$67,000 adjustment. We did not find evidence that the adjustments were
reviewed and approved by a higher level of ORSS management.

DOC could improve its process for making significant funding adjustments by
creating a documented oversight process to review and evaluate the adjustments
and the reason for DOC's decision.

Recommendation
We recommend that DOC establish a documented governance or oversight process to
review and evaluate comprehensive plan funding allocations and significant
'
'
adjustments to funding categories.
Management Response
DOC agrees with the recommendation and established a system to document the
comprehensive plan review process for FY 2010, improved the process for FY 2011, and
will continue to be evaluated and improved for FY 2012,

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ORSS works with DOC's Bureau ofFiscal Management to review fund adjustments
,withthe authority to shift funding residing with the DOC's contract compliance
inspector: ' Changes resulting in contract increases have always been reviewed by the
appropriate administrators overseeing offender reentry services and fiscal management,
DOC also implemented an improved methodology for setting FY 2011 annual funding
levels for MPR] contracts. DOC will develop a written procedure to document the
annual comprehensive plan review process and the budget 'adjustment request process.

Effectiveness of Monitoring and :Evaluating:MPRrContracts
Audit Objective #2
To assess the effectiveness of the Department of Corrections efforts to monitor and
evaluate MPRI contracts.
Conclusion,
We concluded thatthe Department of Corrections efforts to monitor and evaluate MPRI
contracts were not effective, We identified three material conditions concerning contract
compliance monitoring, subcontractor monitoring, and invoice review and approvaL We
identified one reportable condition concerning data collection and reporting capacity.

FINDING #7
Contract ComplianceMo~itoring
DOC did not effectively monitor MPRI contracts to ensure that contractors fulfilled
DOC's expectations in an acceptable and satisfactory fashion, and that the contracts
were necessary, '
The Administrative Guide to State Government Procedure 0510.37 describes the duties
and responsibilities oftheContract Compliance Inspector. The Inspector is responsible
to ensure successful completion of a contract including:
• Maintaining accurate and thorough documentation including contract
compliance reports and vendor performance data.
• Monitoring contracts to ensure compliance with all contract provisions,
• Monitoring progress of work to ensure that services are performed according to
the quality, quantity, timeframes and manner specified in the cOntract.
• Reviewing and approvingcontractdeliverables_ '
.. Ensuring that vendor payments are commensurate with the level ,of goods and
services received.
• Reporting vendorperformance in:MAIN, both positive and negative comments..
• Holding regularly scheduled meetings with the contractor to review progress and
document results.
In addition, Section 8 of DOC's direct human service contractsrequired DOC to
conduct performance reviews of the contractor quarterly, semi~annually or annually, to

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assess quality, timeliness, completion of work, accuracy of billings, customer service,
completion and submission of required paperwork, etc.
ORSS informed us that they did not have sufficient staff to conduct effective contract
monitoring and performance evaluation of contractors. We also noted that various
DOC units shared responsibi\ity for certain contract compliance inspector dutie~, but
the duties of each unit were not clearly defined and assigned.
For FY2010, DOC budgeted $43.8 million for MPRlcontracts. During our review of
contracts, we noted the following weaknesses:
Program Areas

DOC did not:

Impacted:

Special Needs, Risk
Assess the quality, timeliness, and effectiveness of services
provided, ,This could be done through surveys of offenders,
Reduction,
Comprehensive Plans and DOC field agents.
Special Needs, Risk
Reduction (fee"for"
service contracts)

Verify that billed services were provided to offenders. This
could be done by tracing billings to offender case records.
Ensure that the contractor provided the full realm of required
services. This could be done by reviewing the contractor's
processes,

Risk Reduction,
Comprehensive Plans
(cost reimbursement
basis contracts)

Verify that contractors' billings for salaries and other
administrative costs were commensurate with the level of
service provided. This could be done by reviewing personnel
and finanCial records~

Special Needs

Assess the quality of offenders' case management plans that
were developed by the contractor. This could be done
through peer reviews of case management plans.
Verify that services were provided according to the offender's
prescribedplan.'l'his could be done by comparing offender
file information to the offenders' plan.
Assess the quality ofthe contractor's capacity development
efforts, This could be done by reviewing progress reports,

Risk Reduction

Assess the quality and thoroughness of programs. This could
be done by reviewing the contractor's program manuals.
Verify that the contractor submitted required reports to
DOC.

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Ensure that the services p:rovided by the contractors were
coordinated through the appropriate administrative agencies.
Determine that the contract pricing structure was cost
effective. This could be done by reviewing program
participation and utilizationrates. For example, our review
of the October 2009 invoice and, supporting documentation for
one risk reduction contract disclosed that DOC was fully
funding aeontractor's day reporting program but only a
portion of the participants were DOC offenders. DOC or its
fiscal agent had only referred 18 of the 26 female offenders
listed on the attendance sheets. Of the 18 offenders, only 12
attended sessions during the period. ,We noted similar
underutilization and non-participation for another risk
reduction contract. After we brought this to DOC's attention,
DOC cancelled the two contracts for which DOC had
budgeted $550,000 for FY2010.
>

,

Capacity Building

"

Ensure that the contractor prOVided reqUired deliverables
including:
-Plans of action
-Training to the 18 comprehensive plan administrative
agencies on how to perform subcontractor performance
reVlews
-Site visits at each ofthe 18 administrative agencies.

DOC could employ many of the above monitoring techniques by using sampling
methods.
Recommendation

We recommend that DOC clearly define and assign responsibility to ensure that DOC
staff effectively monitor MPRI contractors for fulfillment of DOC's expectations in an
acceptable and satisfactory fashion, and that the contracts were necessary.'
Management Response
The DOC agrees with this recommendation and has increased staff within the ORSS to
properly monitor contr(Lcts, discontinued risk r~duction contructs, un-d stren-gthened
con-trvct development and monitoring processes for the capacity building, special needs,
and comprehensive plan contracts under ORSS management.

DOC improved the MPRI comprehensive planning process for FY 2011 contracts by
developing and dissemin-atingdetailed program guidan-ce on- allowable MPRI program
costs and program performance targets, and conducting annual contractor training in
the summer2010. DOC developed improved programmatic and financial review
'
,protocols for con-dutting on-site reviews of MPRI contractors with advic~ from the

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auditors. Financial site visits were made to all MPRI administrative agencies by the
end ofDecember, 2010. Program site visits are underway and are scheduled to be
complete by April, 2011.
DOC strengthened its contract development and monitoring for the capacity-building
contract by working with auditors to successfully implement improved work planning,
billing review, and ve/ification protocols. DOC successfully CZosed"out the risk reduction
contracts (T.O.P.S atzd Goodwill) by March, 2010.

FINDING #8
Subcontractor Monitoring
DOC did not ensure that MPRI contractors effectively developed subcontracts and
monitored their subcontractors. As a result, DOC staff were not familiar with
MPRI subcontractors' scope of services, perfonnance requirements, and billing
structures.
For FY 2010, DOC budgeted at least $22.7 million that was passed through to
subcontractors. We noted the following by program area:
a. Comprehensive Plans, Capacity Building, and Special Needs
i. DOC did not obtain and review subcontracts prior to commencement of work
so that it could, if necessary:
,

,

• Instruct the contractor to ~larifY the subcontractors' performance
requirements.
• Instruct the contractor to clarify documentation requirements for
subcontractors' monthly invoicing.
• Instruct the contractor to remove services listed in the subcontracts that
are not allowed or not preferred.
• Assess the need for the subcontractor's services and/or disapprove the
subcontract.
'. Identify unfavorable pricing and instruct the contraetorto bid or re-bid
'
and/or disapprove the subcontract,
• Assess the subcontractor's ability to provide the desired services and/or
disapprove the subcontract.
• Clarify guidance concerning unallowed or non-preferred MPRI services.
When the contractors provided subcontracts upon our request, we, along with
DOC staff, questioned whether the pricing was fair and whether the services
were necessary..
Provisions of each contract required the Contractors to submit copies of all
subcontracts to DOC for review, The contracts also reserved the State's right
to disapprove funding for subcontract provisions.

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No, 0086

2, DOC did not obtain and review documentation to verify thatsubcontracto:t5
were selected on a competitive basis.
'
The contracts required the contractors to select subcontractors on a
competitive basis to the extent practicable,
,

I

, ,

,

DOC could perform this task on a sample of subcontracts or those that it
determines to be of higher·risk for each contractor,
b, Comprehensive Plans
1. DOC did not obtain aDd review required on-site review reports that
contraetors prepared of their subcontractors so that it could, if necessary:

Provide guidance to contractors concerning their on-site reviews of
subcontractors' quality of work, timeliness, completion of work, and cost~
effectiveness, '
,
,
• Moni~orcontractor follow up of subcontractor deficiencies.
• Take action to address common subcontractor deficiencies.
•

Provisions of the comprehensive plan contracts required the contractors to at
least annually conduct formal on-site reviews of each subcontractor's
.operations and fiscal administration. The contractors were also required to
provide copies of the site review reports to the State, to include review of
compli'ance with financial requirements, programmatic requirements, and
progress in resolving deficiencies.
Once DOC obtains the on-site review reports, DOC1;houldconduct steps to
obtain assurance that information provided in the contractor's on-site reports
of subcontractors is complete, reliable, and accurate. DOC could perform this
task on a sample of subcontracts or those that it determines to be of higherrisk for each contractor,
2. DOC did not require contractors to periodically submit subcontractor invoices
andJor other supporting documentation to demonstrate that the contractors
had determined whether their subcontractors' monthly charges were eligible,
authorized, fair, and accurate. DOC should require contractors to obtain and
review information from subcontractors such as lists of offenders served;
dates, types, and locations of services, cost of services, and referral
information. DOC should require contraet6rs to periodically submit this
information to DOC for each subcontractor to provide proof that the
contractors reviewed and appropriately approved the subcontractors' monthly
charges.
When contractors submitted this information along with their invoices, DOC
was able to question some subcontractor charges,

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DOC staff informed us that they did not have sufficient staff to ensure that
contractors were effectively developing subcontracts and monitoring their
subcontractors_ We also noted that various DOC units shared responsibility for
certain contract compliance inspector duties, but the duties of each ullitwere not
clearly defined and assigued.
I

Recommendation
We recommelld that DOC clearly define alld assign responsibility to ensure that
DOC obtains subcontracts, subcontractor bid illformation, subcontractor mouitoring
reports, and subcontractor invoices from MPRI contractors to ensure that the
contractors effectively developed subcontracts and monitored their subcontractors.
Management Response
DOC agrees that subcontracts, a selected sampling of subcontractor bid information,
and subcontractor monitoring reports should be obtained from MPRI contractors.
For regular rwiew ofmonthly MPRI reimbursement requests, DOC requires that
agencies submit copies ofdetailed general ledgers together with summary
spreadsheets that identify expenditures by subcontractor or service category, and that
detailed invoices be submitted only as needed. This approach enables DOC to morereadily identify duplicate billings, excessive charges, and other issues that may arise.
Additionally, during financial site visits, DOC staffreview sampled expenditures for
each subcontract and trace supporting documentation to the original CFJ-140
request for services to ensure that the services were requested, approved, and paid in
compliance with the contract or subcontract. Further, in 2010, DOC hired and
assigned to ORSS two contract monitors who are obtaining and reviewing
subcontracts and subcontractor monitoring reports.

DOC has developed a draft written procedure to formalize the subcontract review
and approval process which incorporates the review criteria recommended by the
auditors for use on reviewing FY 2011 subcontracts.

FINDING #9
Invoice Review and Approval
"
DOC did not ensure that its staff obtained and reviewed invoices and necessary
supporting documentation to ensure that contractor charges were eligible, authorized,
fair and accurate.
For FY 2010, DOCbudgeted $43.8 million forMPRI contracts. Our review disclosed:
,a. Comprehensive Plan Invoices
DOC has not required the contractors to submit information identifying each,
subcontractor and the amount paid to them for each service category,
When contractors submitted general ledger expenditure data for each subcontractor
byservice category level, DOC was able to mOre effBctively review, analyzB, and
.evaluate the contractor's invoices,
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The average monthly FY 2010 billings for the four contractors that we selected for
review ranged from $102,000 to $545,000 per month, ofwhichappro:riwately 90%
was passed through to subcontractors.
b. Special Need Invoices
DOC did notreview special needs contractor
monthly invoices and supporting
,
documentation to ensure that the listed offenders were eligible and billed at the
proper rate. DOC staff should review internal records to verifY the offenders'
eligibility and billing category.
The average FY 2009 monthly billing for one contractor was approximately
$467,000. The average FY 2010 wonthly billing for the other contractor was
approximately $700,000.
c. Risk Reduction Invoices
DOC did not review the monthly invoices for one risk reduction contract to ensure
that the listed offenders wenhe mmimum participation requirements priorto
billing. DOC should review,OMNI to verify that the offenders met the minimum
participation requirements.

\

The average FY 2010 monthly billing for the contract was approximately $15,000.
d. Capacity Building InvoiCes
DOC did not require the capacity building contractor to submit supporting
documentation along with their monthly invoices. When the contractor provided
this information because of our review, we, along with DOC staff, questioned
whether the invoiced items were commensurate with the level of goods and service,
received and whether the contractor's organizational hourly rates, which were as
high as $350 per hour, were reasonable.
The contract required the contractor to submit invoices that showed the level' of
detail reasonably necessary to ensure that the invoice was fair and accurate,
including hours worked and hourly billing rates for services performed on a time
and materials basis. DOC should enforce the contract and require the contractor to
submit information that identifies whtl provided the service, the type of service
provided, dates of services, location of service, and progress report" rei"ted to the
contract service categories, including services provided by subcontractors.
The average FY 2010 monthly billing for the contract was approximately $54,000. '
We noted that various DOC units shared responsibility for certain contract compliance
inspector duties, but the duties of each unit were not clearly defined or assigned,
particularly relating to offender eligibility verifications and enforcement of invoicing
requirewents.

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Recommendation
We recommend that DOC clearly define and assign responsibility to ensure that DOC
staff obtain and review general ledgers, invoices and other necessary supporting
documentation to ensure that contractor charges were eligible, authorized, fair, and '
accurate.
,

Management Response
, DOC agrees that staff roles and responsibilities, while not ill-defined, could be more
clearly defined through a written document. DOC's Offender Reentry Services Section
and Financial Services Section are developing procedures that will more clearly assign
relative roles and responsibilities.
However, MPRI monthly Contractor invoices are reviewed upon receipt for accuracy,
adequacy ofdocumentation, and allowability ofcosts under comprehensive plans and
the MPm contract. Financial Services Section confirms invoice accuracy, collects
supporting documentation, analyzes records to identify duplicate billings, and identifies
potential areas ofconfZict with the contract or comprehensiw plan, ORSS cross-checks
referral information and determines allowability of invoiced expenses.
DOC is developing a written procedure to formalize MPRI invoice processing in support
ofeffective contract management and timely Invoice prooessing.

FINnlNG #10
Data Collection and Reporting Capacity
DOC had not established the capacity to collect and report data related to services
provided to offenders by MPRI contractors arid subcontractors. As a result, DOC is
limited in its ability to monitor and report statistics relating to delivered services and
to evaluate the cost-effectiveness of each service component.
In orderto establish data collection and reporting capacity, DOC needs to identify and
define the monitoring and reporting needs of management and other interested parties.
DOC informed us that it established a workgroup to develop a system-wide
management information system. DOC also informed us, that in the interim,
admini~trative agencies have begun their own effort to create a small scale, short-term
information systernto collect some basic information concerning contractor
performance.
DOC should continue its efforts to build its capacity to collect and report data relating
to services provided to offenders by contractors and subcontractors such as:
• Number of offenders served (i.e. referred, admitted, discharged) by program
component.
• Number of offender readmissions to program component. .
• Number of program components utilized by offenders.
• Cost per offender served by program component. .
• Length oftime offenders spentin a program component.

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Reconunendation
We recommend that DOC continue its efforts to establish the capacity to collect and
report data related to services provided to offenders by :M:PRI contractors and
subcontractors.

,
Management Response
DOC agrees, The DOC is in the process ofenhancing its departmental database in two
key areas:
a. Enhanced Case Management System - Web·based application will allow
contractors to enter service utilization and cost data for contract-funded services.
b. Development ofa Management Information System - Development of reports used
by contractors and the DOC to monitor service utilization and cost. DOC will
have the capability to create reports by contractor for billing review and approval.

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