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It Needs to Better Ensure Against Conflicts
of Interest and to Improve Its Inmate
Population Projections

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California State Auditor

Department of
Corrections:

September 2005
2005-105

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September 13, 2005

2005-105

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit report
concerning the Department of Corrections’ (department) contracting practices for private community
correctional facilities (CCFs) and inmate population forecasting.
This report concludes that in processing a no-bid CCF contract that was ultimately rescinded, certain
contacts made by two of the contractor’s employees who formerly worked for the department may have
violated conflict-of-interest laws, and the department does not ensure that its retired annuitants in designated
positions file statements of economic interests. Nonetheless, information the department relied upon to
determine the need for two no-bid CCF contracts appears accurate. Additionally, the department’s inmate
population projections are useful for budgeting, but have limited value for longer-range planning, such as
determining when to build additional facilities. Finally, because certain practices increase the subjectivity
of the department’s projections and no documentation of the projection process exists, our statistical expert
could not establish the validity of the projection process.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor

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CONTENTS
Summary

1

Introduction

5

Chapter 1
Although Consistent With State Requirements, the
Department of Corrections’ Noncompetitive
Contracting Policies Were Not Always Followed
and Its Policies Could Better Ensure Against Conflicts
of Interest
15
Recommendations

36

Chapter 2
The Department’s Inmate Projections Are
Reasonably Accurate for Short-Term Purposes,
but Their Value for Long-Range Planning Is Limited

37

Recommendations

50

Response to the Audit
California Department of Corrections and
Rehabilitation

53

California State Auditor’s Comments on the
Response From the California Department of
Corrections and Rehabilitation

57

SUMMARY
RESULTS IN BRIEF
Audit Highlights . . .
Our review of the California
Department of Corrections’
(department) processing
of two no-bid community
correctional facility (CCF)
contracts and its projections of
inmate populations revealed
the following:

þ Although one CCF contract
was never executed, actions
taken by two of the
contractor’s employees who
formerly worked for the
department may have
violated conflict-of-interest
laws.

þ The department does
not ensure that retired
annuitants in designated
positions file statements of
economic interests.

þ The department, the
facility owner, and the
potential contractor all
incurred costs before
the department received
approval to proceed with
a no-bid contract.

þ Information the department
relied upon to determine
the need for the no-bid
contracts appears accurate.

þ The department’s inmate
population projections
are useful for budgeting,
but have limited value for
longer-range planning,
such as determining when
to build additional facilities.

T

he California Department of Corrections (department),
which operates California’s state prisons, housed more
than 164,000 inmates on June 30, 2005. In 2004, to cope
with a large increase in inmate population, the department
remedied overcrowded conditions by using less secure areas
in its facilities to house inmates. As a partial solution to the
overcrowding, it also decided to reopen two closed community
correctional facilities (CCFs) using one-year, noncompetitively
bid contracts (no-bid contracts). CCFs are designed to house
inmates who meet certain criteria, such as lower security
classifications and no escape history.
Although its policies and procedures for processing two no-bid
contracts and identifying potential conflicts of interest are
consistent with state requirements, the department did not
ensure that these contracts were free of conflicts. For example,
two employees involved in one contract had previously
worked for the department and were still listed as retired
annuitants. The contractor failed to disclose this information,
and the department did not require the contractor to submit
employee statements of economic interests. Moreover, contacts
between these two employees and the department during the
formulation of the contract possibly violated conflict-of-interest
laws even though the contract was never executed. Further, the
department lacks a system to ensure that retired annuitants file
such statements. The department also forwarded one contract
to the contractor for signing before receiving approval from the
Department of General Services on its request to issue a nobid contract. Perhaps as a result, the department, the potential
contractor, and the facility owner all incurred unnecessary
expenses. The department later rescinded this request partially
because of concerns about conflict of interest.
Also, in justifying the two no-bid contracts for the CCFs, the
department presented a misleading claim of cost savings because
it used cost comparisons that did not include all comparable
costs. Nonetheless, the information it used to determine the
need for reopening the two CCFs appears reasonable.

continued on next page . . .

California State Auditor Report 2005-105

1

þ Because certain practices
increase the subjectivity
of the department’s
projections and no
documentation of the
projection process exists,
our statistical expert could
not establish the validity
of the projection process.

To assist it in managing its resources, in the spring and again in
the fall of each year, the department prepares a projection of the
number of inmates it expects to house over the next six years.
It uses these projections to determine its budget needs and
assess its ability to house inmates. Although the projections are
reasonably accurate for the first two years, they are significantly
less accurate after the second year. As a result, the projections are
useful for assessing budget needs—which rely on information
relating to the first two years of the projection—but have limited
usefulness for longer-range planning, such as determining when
additional facilities should be built.
Certain practices increase the subjectivity of the department’s
projections. It uses staff experience to update information it uses
for some of the variables that determine its inmate projection.
Also, the unit that develops these projections did not always
abide by its own policy that precludes using estimates that
lack reasonable support. Because of these factors and others,
including a lack of documentation, our statistical expert could
not establish the validity of the process the department uses in
making its inmate projections and believes it should consult
with a group of statisticians to develop a more defensible
projection process.

RECOMMENDATIONS
To strengthen controls over its processing of no-bid contracts,
the department should do the following:
• Wait until all proper authorities have approved the contract
justification request before signing the contract or sending it
to a contractor for signature.
• Require key contractor staff to complete statements of
economic interests.
• Include all its costs when it decides to include cost comparisons
in justification requests or state that the cost comparison is
incomplete.
To ensure that its staff is free from potential conflicts of interest,
the department should require the retired annuitants it assigns to
designated positions to submit statements of economic interests.

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California State Auditor Report 2005-105

To increase the accuracy and reliability of its inmate projection,
at a minimum the department should do the following:
• Fully document its projection methodology and model.
• Update its variable projections with actual information, such
as the new security level data, whenever feasible to do so.
Additionally, if the department intends to continue using the
projections for long-term decision making, such as facility
planning, it should ensure that it employs statistically valid
forecasting methods. It should consider seeking the advice of
experts in selecting and establishing the forecasting methods
that will suit its needs.

AGENCY COMMENTS
The department generally concurs with 10 of our
recommendations and has agreed to study the feasibility
of implementing the remaining two. n

California State Auditor Report 2005-105

3

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4

California State Auditor Report 2005-105

INTRODUCTION
BACKGROUND

E

stablished in 1944, the California Department of
Corrections (department) operates California’s state
prisons, oversees community correctional facilities (CCFs),
and supervises parolees. As of June 30, 2005, it housed more
than 164,000 inmates; with the completion of the Kern Valley
State Prison facility in January 2006, it will operate prisons and
other facilities with a maximum capacity of about 176,500.
On July 1, 2005, the governor reorganized the Youth and Adult
Correctional Agency into the Department of Corrections and
Rehabilitation. The reorganized department operates California’s
youth and adult correctional and rehabilitation operations
within three main programs: adult operations, adult programs,
and juvenile justice. The Division of Adult Institutions within
adult operations is now responsible for the secure custody of
adult inmates while providing effective programming to reduce
recidivism, duties previously carried out by the Department
of Corrections. In this report, “department” refers to the
Department of Corrections prior to the reorganization.
The department’s budget for fiscal year 2005–06 is $6.5 billion
for its five programs: Institutions, Health Care Services,
Inmate Education, Community Correctional, and Central
Administration programs. The Institutions Program is
responsible for operating 33 state prisons and
12 CCFs. The department contracts with both
private and public independent operators of CCFs
Housing for Different Security Levels
to house just over 4,700 inmates.
Level
1

Description

Open dormitories without a
secure perimeter

2

Open dormitories with secure
perimeter fences and armed
coverage

3

Individual cells, fenced
perimeters, and armed coverage

4

Cells, fenced or walled perimeters,
electronic security, more staff and
armed officers both inside and
outside the installation

California State Auditor Report 2005-105

INMATE CLASSIFICATION
The department assigns different security levels to
inmates within its prisons, based on its assessment
of behavior and other factors. It then houses inmates
in facilities designed for their security levels, which
range from level 1 to level 4, with level 1 being the
minimum-security level and level 4 the maximumsecurity level. Additionally, the department has
units designed to house the most violent and
dangerous inmates. At reception centers, where
5

new or returning inmates are received after sentencing,
a counselor evaluates each using a scoring sheet, which
determines the level necessary to ensure the safety of inmates,
correctional personnel, and the general public.
In the past, the department has found it necessary to reclassify
some inmates into higher security classifications because of
factors or circumstances not considered in the initial screening.
In October of 2002, it implemented a new scoring system that
includes several measures intended to reduce the number of
inmates being reclassified, including instituting minimum scores
for offenses such as previous escape from custody, regardless
of other factors. During a transition period inmates were
reevaluated, and all incoming inmates are now evaluated with
the new system.
Inmates are sentenced to the department’s prisons for different
reasons. As shown in Figure 1, based on prison census data,
the majority of inmates at December 31, 2004, were admitted
to prison after being sentenced for a newly committed crime.
Another quarter of the inmate population committed a new
crime while on parole for a previously committed crime. The
remaining inmates violated the terms of their parole agreement
and were returned to the department’s custody or were in the
process of having their parole revoked due to violating the terms
of their parole agreement. As of December 2004, 99 percent of
the inmates were felons, and the majority of the other 1 percent
were in prison for other offenses such as narcotic addiction.

COMMUNITY CORRECTIONAL FACILITIES
In 1965, to provide needed housing, supervision, counseling,
and other correctional programs for inmates committed to its
institutions, state law authorized the department to establish,
operate, and contract for “community correctional centers,”
commonly referred to as CCFs. The Community Correctional
Facilities Administration, within the Institutions Division of the
department, administers support functions, such as developing
and processing CCF contracts. The department’s Office of
Contract Services also participates in contract matters, such as the
administration of the original contract and any amendments.

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California State Auditor Report 2005-105

FIGURE 1
Reasons for Commitment to Prison
As of December 31, 2004
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Source: Department of Corrections’ prison census data, as of December 31, 2004.

CCF Inmates must meet certain criteria
including the following:
• Cannot have more than 18 months left
to serve on their sentence.
• Not above a level 2 security classification.
• Cannot have significant medical or
behavior problems.
• Cannot have an escape history.
• Not in prison for certain sex crimes or
certain types of assault.

As shown in the text box, inmates the department
houses in CCFs must meet certain criteria. The
department houses these inmates along with
inmates who meet the CCF criteria and who are
registered sex offenders but are not considered
sexually violent predators in modified CCFs,
which have additional security features. Three of
the 12 CCFs currently under contract with the
department are modified.
Though only certain inmates are eligible for
transfer to a CCF, these facilities provide the same
living situation for inmates as a prison. Inmates in
CCFs are eligible for all services that inmates
in other institutions receive, and the department
treats inmates at the two types of facilities in the
same way.

Of the 12 CCFs in use as of July 2005, private companies operate
six and local governments operate the other six. The department
normally subjects the contracts for both private and public CCFs
to a competitive bidding process. City and local governments
run public CCFs, and the law mandates that persons providing

California State Auditor Report 2005-105

7

security at the public facilities be peace officers. Private companies
hire their own employees, but, because private citizens do not
have peace officer powers, the department provides uniformed
peace officers as an additional precaution in these six facilities.
Private companies currently run all three of the modified CCFs.
The 12 facilities provide capacity for 4,733 inmates. Figure 2
presents a map of CCF locations in California.

McFARLAND AND MESA VERDE CCF CONTRACTS
The department’s fiscal year 2003–04 budget did not include
funds to continue the contracts for three private CCFs:
McFarland, Mesa Verde, and Eagle Mountain. These three
facilities closed on December 31, 2003. According to department
records, the reason these contracts were not extended was
because of a projected excess capacity of housing for this
segment of inmate population—partly due to anticipated
parole reforms, the effects of Proposition 36, and actual inmate
population trends. Proposition 36 provides drug treatment
instead of prison terms for certain nonviolent drug offenders.
However, in 2004 the department experienced a large
unexpected increase in inmate population because parole
reform programs were not carried out and because new inmate
admissions from counties increased. Since prior population
projections had generally projected a stable population through
2009, the department did not expect this large increase. To
respond to this situation, it put thousands of added beds
into use, some located in “overcrowding” areas—temporary
beds placed in areas that are more difficult to secure, such as
gymnasiums and dayrooms. In summer 2004, the Youth and
Adult Correctional Agency and the department decided to
reactivate two of the closed CCFs, McFarland and Mesa Verde,
using one-year, no-bid contracts, while initiating a competitive
bidding process for a longer-term solution. The department did
not consider reactivating the third closed CCF, Eagle Mountain,
because it was in a remote location and the department had some
concerns about the level of security provided by the facility.
As of July 2005, the department was proceeding with an
invitation for bid—a competitive bidding process—to add
additional CCF beds or to replace those CCFs with expiring
contracts. The invitation for bid requires the department to
choose the lowest-priced responsible bidder.

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California State Auditor Report 2005-105

FIGURE 2
Location of Community Correctional Facilities
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Source: Department of Corrections’ Web site.

California State Auditor Report 2005-105

9

POPULATION PROJECTIONS UNIT
The department’s Population Projections Unit (projections
unit) generates population projections for time frames that
span six fiscal years, monitors and reports on the quality of
the projections, and explains inconsistencies between actual
and projected populations. The annual population projections
correspond with the State’s budget cycle and drive the
department’s annual budget request. The department prepares
its budget request using the fall population projection and
submits this request to the Department of Finance (Finance)
for use in preparing the Governor’s Budget. It revises its budget
request based on the spring population projection and submits
the revision to Finance for inclusion in the May revision of the
Governor’s Budget. The department also uses these projections
to assess the ability of its facilities to house the inmate
population over a six-year timeline.
The department uses a method referred to as microsimulation
to develop its inmate projection. Conceptually, this method
is designed to trace the path of individual offenders to project
inmate populations on a month-to-month basis as they come
into, move through, and move out of the correctional system. The
projection process consists of the following four distinct steps:
• Premises—the projections unit evaluates its most recent
projection to assess the continuing validity of the
assumptions that generated the projection. During this step
it also updates its forecast of new inmate admissions coming
from the State’s superior court system. Finally, the projections
unit analyzes data and interviews key staff to develop
assumptions that affect the projection. For example, it meets
with key people within state government who set policies
that can affect the amount of time an inmate spends in prison
or on parole to identify specific policies that may change or
new programs to be implemented, the effective dates of
these actions, and dynamics of the programs. This step is
considered complete once the premises have been presented
and approved by the department’s executive staff.
• Projections––the projections unit develops the population
projection by translating the assumptions of the prior step
into adjustments to the variables included in the microsimulation model. The unit bases the input variables on the
prior projection and changes them as needed.

10

California State Auditor Report 2005-105

• Postscript—the projections unit refines its projection
information to prepare a detailed final agency budget request.
This process includes developing a number of specialized
supporting projections needed for budgeting but not provided
by the projection model.
• Monitoring—the projections unit performs weekly and
monthly comparisons of projected and actual populations,
and prepares a monthly report that includes all the key
measures for analyzing projection accuracy; the unit also
assists the department’s management in formulating
recommendations for upcoming projections. Monitoring is
an ongoing process that runs through the duration of the
projection cycle.
According to the department, it developed its current
microsimulation model in 1976 when laws allowed courts to
sentence inmates to determinate prison terms, making it easier
to determine inmates’ average length of incarceration.
Since the department’s budget relies on the semiannual
projections that it prepares, the projections unit considers it very
important that its projections be accurate and objective. The unit
makes an effort to include participation of key stakeholders, such as
department staff from the institutions and parole divisions, when
presenting issues that will affect the inmate and parole populations.
The unit also receives occasional outside reviews. Although it
is within the department, the projections unit considers itself
independent of budget and policy-making decisions.

SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee (audit committee)
requested that the Bureau of State Audits evaluate the process
the department used to negotiate and enter into two no-bid
contracts for private prison facilities to determine whether
its policies and procedures are consistent with and adhere to
current laws and regulations, particularly in relation to conflictof-interest rules. In addition, the audit committee asked us to
analyze information the department used in its decision
to enter into the two no-bid contracts to determine whether
such information was accurate and reliable, to analyze the
reasonableness and consistency of its method of tracking and
projecting inmate population, and to assess the validity of any
cost savings it identified. Lastly, the audit committee asked us
to obtain a legal opinion on whether the department entered
California State Auditor Report 2005-105

11

into the two no-bid contracts in bad faith or in violation of state
law and to identify any remedies open to the State and their
potential impact.
To determine whether the department’s policies and procedures
for negotiating and awarding no-bid contracts are consistent
with current state laws and regulations, we interviewed
contracting staff and obtained an understanding of its policies
and procedures relating to such contracts. We also documented
state laws and regulations and the department’s written policies
and procedures related to no-bid contracts.
To determine if conflicts of interest were present, we reviewed
the contracts’ provisions and contract files, identified all staff
who participated in developing the two contracts, and evaluated
any statements of economic interests. We then determined
whether any staff had relationships or interests that would
present a conflict of interest for these two contracts. We also
reviewed the contract files and interviewed staff at the two
companies to identify contractor staff involved in negotiating
and completing the contracts, and assessed whether they had
previously worked for the department.
To assess whether the information the department used in its
decision to reopen the two CCFs was accurate and reliable, we
determined the information the department used to establish the
need for the two no-bid CCF contracts. In addition, we obtained
monthly inmate population counts for the last three fiscal years
and compared them to the projected population estimates for
that period to determine whether the inmate population rose
unexpectedly. We also identified any cost savings the department
claimed and assessed, to the extent possible, the validity of
the claimed cost savings. To gauge the reasonableness of the
contract amounts, we compared the annual average cost per bed
for the two no-bid contracts to the annual average cost per bed of
the department’s other CCF contracts.
To determine whether the department’s method of tracking and
projecting inmate populations is reasonable and consistent, we
reviewed forecasts for the past three fiscal years to determine
if the assumptions and variables included are reasonable and
consistent, and further analyzed those that have a material
effect on the population projection. We also consulted with a
statistical expert to obtain an analysis of the department’s use of
its microsimulation model.

12

California State Auditor Report 2005-105

In addition, we compared the actual inmate populations to
the levels forecast by the department over the past 10 years
to determine their accuracy and analyzed the sufficiency of the
department’s method of projecting the number of needed inmate
beds for facility planning purposes. Furthermore, we determined
whether the department has a process to communicate with
counties to identify policy and other changes that may affect the
number of new inmates sentenced to state prison.
In determining whether the department entered into the two
no-bid CCF contracts in bad faith or in violation of the law, we
did not find any situations that presented a conflict of interest
in the processing of the one no-bid contract that was fully
executed relating to the McFarland facility. For the other no-bid
contract for Mesa Verde, the contract was rescinded before it was
fully executed. Therefore, according to our legal counsel, the
questions of whether the contract was entered into in bad faith
or in violation of state law and what remedies are available to
the State are moot.
During this audit, it came to our attention that the department
has not fully documented a computer application it uses to
classify inmates and parolees. The State Administrative Manual
requires agencies to fully document applications of information
technology. Additionally, industry standards produced by the
IT Governance Institute require organizations to document
information technology applications for users, operators, and
trainees. However, the department has not fully documented its
classification application. Because this issue was not within the
scope of our review, we have reported it in a separate letter to the
secretary of the Department of Corrections and Rehabilitation. n

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13

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14

California State Auditor Report 2005-105

CHAPTER 1
Although Consistent With State
Requirements, the Department
of Corrections’ Noncompetitive
Contracting Policies Were Not Always
Followed and Its Policies Could Better
Ensure Against Conflicts of Interest
CHAPTER SUMMARY

O

f two noncompetitively bid contracts (no-bid contracts)
the Department of Corrections (department) developed
for community correctional facilities (CCFs), one did
not consistently comply with state requirements. Although
department policies and procedures for processing no-bid
contracts and identifying potential conflicts of interest are
consistent with state requirements, in practice the department
has not always ensured that such contracts are free of such
conflicts. For example, the contractor for one of the no-bid
contracts failed to disclose that two of its staff had previously
worked for the department, thus creating a conflict of
interest. The department ultimately rescinded this contract
because the inmate population had declined and because of
conflict-of-interest concerns. In the meantime, however, the
department sent the contract to the contractor for signing before
receiving final approval to award a no-bid contract from the
Department of General Services (General Services). Moreover,
the department, the potential contractor, and the facility owner
began incurring costs to prepare the facility for operation.
Because the contract was ultimately rescinded, the department,
the potential contractor, and the facility owner all incurred
unnecessary expenses.
The information used by the department to determine its need
to open the two CCFs appears accurate and reasonable. However,
the cost comparisons it presented in its justifications for the two
no-bid contracts did not include all comparable costs and, as a
result, presented a misleading claim of cost savings.

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15

IN ONE NO-BID CONTRACT, THE DEPARTMENT DID
NOT FULLY COMPLY WITH STATE REQUIREMENTS AND
TWO CONTRACTOR EMPLOYEES MAY HAVE VIOLATED
CONFLICT-OF-INTEREST LAWS
As discussed in the Introduction, in 2004 the department decided to
open two CCFs that had been closed the previous year because of a
projected decline in inmate population. One of these contracts—for
the McFarland facility (McFarland)—was appropriately approved
and is currently in effect. Although its processing of the McFarland
contract complied with state requirements, the department did not
adhere to all requirements in processing the other contract—for the
Mesa Verde facility (Mesa Verde).
The department began to incur costs relating to the Mesa Verde
contract before obtaining approval of its justification request for
a no-bid contract from General Services and failed to identify
potential conflicts of interest until after it had initially approved
the contract. Although the Mesa Verde contractor did not
identify any conflict of interest when signing the contract, two
of its employees, who were involved in the contract process,
had actually worked for the department in the 12 months prior
to the contract being developed. The department processed the
justification for the Mesa Verde contract and received all but
the final approval from the director of General Services before
rescinding it because of a decline in the population of inmates
and concerns that one of the contractor’s employees had a
conflict of interest, according to the former chief deputy for
support services.

The Department Began Incurring Costs Related to the
Mesa Verde Contract Prior to Receiving Appropriate Approval
The department, the
facility owner, and the
potential contractor all
incurred costs before
receiving approval from
General Services to award
the contract without
competition.

16

Before awarding a contract without competition, the department
must obtain the approval of General Services. Also, as part
of the contract award process, after General Services’ approval
of the request justifying an exemption from competitive
bidding, the department operations manual requires contracts
to be forwarded to the contractor for signature. This was the
process the department used in executing the McFarland
contract. However, it sent the Mesa Verde contract to the
contractor for signature before obtaining General Services’
approval of its justification for exemption. The department
later rescinded its request for exemption because of a decline in
inmate population and because of conflict-of-interest concerns.
It did notify the contractor by letter that the contract was not
fully approved or in effect until General Services gave its final
California State Auditor Report 2005-105

approval. Nevertheless, the department, the facility owner,
and the potential contractor all incurred costs before receiving
approval from General Services.
As the department began the contract process for Mesa Verde,
it developed a justification for requesting a no-bid contract for
$5.8 million and submitted it to General Services for approval.
As shown in Figure 3, on December 4, 2004, the director
of General Services approved the initial request. However,
later in that same month the department realized it had not
included $1 million to equip and refurnish the facility so that
it could be operated as a CCF. It submitted a revised no-bid
justification request to General Services for $6.8 million on
December 29, 2004. The revised request was being routed for
review and approval by the appropriate staff at General Services
when the department, on February 3, 2005, rescinded its request
and recalled the justification for the no-bid contract from
General Services because of the decline in inmate population
and its concerns related to a conflict of interest with one of the
contractor’s employees.

FIGURE 3
Mesa Verde No-Bid Justification Request and Contract Time Line
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Source: Department of Corrections’ contract files.
* Agency refers to the Youth and Adult Correctional Agency that, prior to July 1, 2005, had oversight responsibility for the
Department of Corrections.

California State Auditor Report 2005-105

17

According to the department’s associate director of the Office
of Business Services, in some cases it is not feasible from an
operations standpoint to wait until the no-bid justification
has been approved by General Services to begin processing the
contract for signature by the contractor and the department.
He further stated that, because of the length of the time frames
required by General Services to review and approve a no-bid
justification request, the department typically must begin to
process the contract while awaiting General Services’ approval in
order to obtain the goods or services required to meet its business
needs. According to the associate director, through its July 1, 2005
reorganization, the department has eliminated four approval levels
in the internal processing of no-bid justifications. He believes this
new process will help to ensure that whenever possible, no-bid
justifications will be forwarded to General Services within their
required time frames for review and approval.

Even though it had not
received approval from
General Services for the
revised justification to
proceed with the no-bid
Mesa Verde contract with
its contractor (Civigenics),
the department began to
process the contract on
December 31, 2004, and
to incur preparation costs.

18

Even though it had not received approval from General Services
for the revised justification to proceed with the no-bid Mesa Verde
contract with its contractor (Civigenics), the department began
to process the contract on December 31, 2004, by sending the
agreement to the contractor for signature. Until it rescinded the
contract justification, the department, Civigenics, and the owner
of the Mesa Verde facility began incurring costs in preparation
for operating the facility.
According to the correctional captain who would have
overseen the reactivation of Mesa Verde, the department
began interviewing staff to fill the positions needed to operate
the facility. Also, the captain said he ordered supplies such as
clothing for the inmates who would be assigned to the facility.
When we spoke to the owner of Mesa Verde in June 2005, he
told us the inmate clothing had just recently been moved from
the facility. The facility owner and Civigenics told us they
spent $200,000 and $50,000, respectively, preparing to operate
the facility on behalf of the department. The department could
not estimate the cost of the administrative time it incurred in
anticipation of operating the facility. According to the chief of its
service contracts section, the reason the department proceeded
before it obtained General Services’ approval was to expedite the
contract process so that when General Services’ approved the
justification, the department could quickly finalize it.

California State Auditor Report 2005-105

Although the Department Has Controls in Place to Identify
Conflicts of Interest, a Conflict May Have Existed With the
Unexecuted Mesa Verde Contract
Despite conflict-of-interest disclosure requirements in the
contract, Civigenics did not disclose that two of its employees
had worked for the department within the past year. As of
July 2005, these same two Civigenics employees were also
listed as current retired annuitants available to work at the
department. According to Civigenics officials, the company
hired one former high-ranking department employee to develop
a strategic plan and the other to help with the reactivation of
Mesa Verde. The employment of the two individuals by both
the department and Civigenics created potential conflicts of
interest that, had the contract been fully executed, could have
rendered it void. Moreover, certain contacts between these two
individuals and the department during the contract formation
process raise the possibility that conflict-of-interest laws were
violated even though the contract was never fully executed.

Civigenics did not
disclose that two of its
employees, who would
be involved with the
contract, were former
high-ranking employees
who had retired from the
department within the
past year and were also
current retired annuitants
of the department.

The two no-bid contracts we reviewed included standard terms
regarding conflicts of interest, which require contractors to
abide by state requirements related to conflicts of interest and
to disclose in writing all interests and activities that create
an actual or potential conflict of interest in performance of
the agreement. The terms further provide that if a contractor
violates those requirements, such action will render the
agreement void. Additionally, the terms of both contracts
provide that the department may require contractors and
their employees to file statements of economic interests. These
standard terms, if followed, appear to provide the department
with the information needed to adequately assess the presence
of conflicts on the part of contractors, subcontractors, and
employees. Despite these requirements, Civigenics did not
disclose that two of its employees, who would have involvement
with the impending contract, were former high-ranking
employees who had retired from the department within the past
year and were also current retired annuitants of the department.1
The Political Reform Act of 1974 (act) imposes various
restrictions on state officers and employees related to conflicts
of interest, both while employed by state government and after
they leave state service. These restrictions prohibit employees

1

We identified a third Civigenics employee who previously worked for the department;
however, this person separated from state service on April 28, 2000, and was never
hired as a retired annuitant.

California State Auditor Report 2005-105

19

The act defines an
attempt to influence a
government decision as
contacts, appearances,
or other attempts to
influence an officer or
employee of a state
agency, including
contacts on behalf of a
business entity.

from participating in making a government decision, such as the
decision to enter into a contract, if they have a material financial
interest in the decision. The provisions of the act that apply
during employment prohibit a public official from attempting
to use his or her official position to influence a government
decision, such as the decision to enter into a contract in which
he or she has a financial interest. In addition, the so-called
“revolving door” provisions of the act prohibit a public official
who has left state employment from contacting his or her
former employer within 12 months of leaving state employment
in an attempt to influence the formation of a contract in which
he or she has a financial interest. The act defines an attempt
to influence a government decision as contacts, appearances,
or other attempts to influence an officer or employee of a state
agency, including contacts on behalf of a business entity. The
act is designed to ensure that public officials perform their duties
impartially, free from bias caused by their own financial interests
or the financial interests of those who support them.
State agencies have the discretion to employ retired individuals
as retired annuitants. A state agency may reinstate a retired
state employee, and that person may actively perform the
duties of a state position. As shown in Figure 4, a deputy
director in the Health Care Services Division—employee A in
Figure 4—retired on January 31, 2003, and was reinstated as a
retired annuitant effective the following day. The retired deputy
director last worked for the department on June 3, 2004, but he
remained on its payroll system as a currently employed retired
annuitant as of July 2005. Similarly, the chief deputy director
of field operations—employee B in Figure 4—retired from the
department on May 30, 2003, and was reinstated as a retired
annuitant effective two days later. The retired chief deputy
director last worked for the department on May 27, 2004, but
remained on its payroll system as a currently employed retired
annuitant as of July 2005. Although these two individuals
are not actively performing state service, they are currently
employed as retired annuitants by the department, and it may
still request them to perform active state service.
The Fair Political Practices Commission (commission) is charged
with interpreting and enforcing the provisions of the act. The
commission considers an individual who is actively performing
the duties of state service to be subject to the restrictions
previously described that apply during employment, regardless
of that person’s status as a full-time, intermittent, or retired
annuitant employee. Consequently, these two individuals

20

California State Auditor Report 2005-105

FIGURE 4
Retired Annuitant Time Line
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����

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����

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Source: Department of Corrections’ personnel files.

Note: Employee A is a former deputy director; employee B is a former chief deputy director.
* The deadline for filing annual statements of economic interests is April 1.

would be treated as state employees for purposes of the act both
prior to their retirement and during the period they actively
performed state service as retired annuitants immediately
following their retirement. However, it is unclear whether a
retired annuitant who is not currently performing active state
duties would be treated as a current employee or as a former
employee for purposes of the act. Nevertheless, any attempts
to influence this contract during the period in question would
violate the act.
In October 2004, the department selected Civigenics, the current
employer of these individuals, to operate Mesa Verde. It initially
received approval from General Services to award this contract
on a noncompetitive basis in December 2004 but rescinded its

California State Auditor Report 2005-105

21

Several department staff
told us the former chief
deputy director contacted
them during the time
the contract was being
processed to inquire on
its progress.

request in February 2005. Several department staff told us the
former chief deputy director contacted them during the time
the contract was being processed to inquire on its progress.
The current department director and a chief deputy director of
field operations told us the former chief deputy director visited
the executive offices of the department, accompanied by
representatives of Civigenics. In addition, department staff told
us the former deputy director contacted the department at least
once during this period in his capacity as a Civigenics employee.
Because these individuals contacted the department during
this period, we believe they may have violated the applicable
provisions of the act. Despite the fact that the department
rescinded its request for General Services’ approval and this
contract was never executed, our legal counsel has advised
that any “attempts to influence” the contract decision-making
process may still constitute a violation of the act.
The Public Contract Code imposes similar restrictions both
during employment and post-employment. Section 10410
prohibits a current employee from receiving compensation
for an activity funded by a state contract, and Section 10411
prohibits a former employee from entering into a contract with
his or her former agency if the official held a policymaking
position with the agency in the same general subject area as
the proposed contract within the 12 months prior to leaving
state service. Regardless of whether we treat these individuals
as current employees by virtue of their continued status as
currently employed retired annuitants or as former employees
because they were not currently performing active state service,
they would have violated the applicable provisions and voided
the contract if it was fully executed.
Identifying potential conflicts of interest early on in the
contracting process helps avoid investing resources into a
contract that may ultimately be void and require that the
whole contracting process be repeated. One way the department
could guard against situations such as this in the future would
be to exercise its authority to require key contractor staff to
complete statements of economic interests (statements) as
part of the contract development process or to specifically ask
whether any current or former department employees will be
assigned to the contract. Moreover, had the department required
its retired annuitants to file statements, it would have been
aware the retired annuitants were also employees of Civigenics.

22

California State Auditor Report 2005-105

The department now apparently believes the involvement of
these former employees in a contract with Civigenics would
violate conflict-of-interest laws. In June 2005, Civigenics
submitted a competitive bid for the Mesa Verde contract.
However, the department disqualified this bid in a letter dated
July 14, 2005, on the basis that the participation of a current
employee created a conflict of interest.

No Apparent Conflicts of Interest Exist in the
McFarland Contract
In February 2005 a newspaper article alleged a connection
between the former director of the Department of Finance
(Finance) and the GEO Group, Inc. (GEO), the company the
department contracted with to operate the McFarland CCF.
The former director of Finance was appointed as a trustee of a
real estate trust that owns the McFarland facility. We reviewed
this connection to determine whether the former director’s
involvement constituted a conflict of interest. Even though the
former Finance director serves on the board of trustees (board)
of a real estate investment trust company that has an ownership
interest in McFarland, we found no evidence that she influenced
the department’s decision to reopen the facility.

Even though the trust
benefits from the lease on
McFarland, the 10-year
lease between the two
companies began more
than five years before the
former Finance director
joined the trust’s board.

The former director left Finance in October 2004 and joined
the board of Correctional Properties Trust (the trust), whose
wholly owned subsidiary owns McFarland. The subsidiary
leases McFarland to GEO, who operates the facility. According
to its most recent annual report, neither the trust nor its
wholly owned subsidiary has an ownership interest in GEO.
Nonetheless, 90 percent of the trust’s rental income comes from
leases with GEO. Even though the trust benefits from the lease
on McFarland, the 10-year lease between the two companies
began in April 1998, more than five years before the former
Finance director joined the trust’s board. Moreover, GEO was
the only company that could have operated McFarland on the
department’s behalf because it had an existing noncancelable
lease on the facility through April 2008. Because GEO’s lease
payment is fixed during the 10-year lease period, allowing for
annual inflation adjustments not to exceed 4 percent, the State’s
contract with GEO to operate the facility does not appear to
provide an additional benefit to the trust. Since the former
Finance director is associated with the trust and not with GEO, it
does not appear that she has a conflict of interest in regards to the
McFarland contract.

California State Auditor Report 2005-105

23

We also reviewed other GEO staff who were involved with or
could have influenced the contracting process to determine
if any had recently worked for the department and therefore
presented a potential conflict of interest. However, none of the
GEO staff we identified had worked for the department in the
past five years. We identified no conflicts of interest relating to
the department’s no-bid contract with GEO.

THE DEPARTMENT CAN IMPROVE ITS COLLECTION
AND REVIEW OF REQUIRED DISCLOSURE FORMS

The two retired annuitants
we reviewed in designated
positions have not filed
required statements of
economic interests.

State law requires agencies to adopt a conflict-of-interest code
that designates employees in decision-making positions and
requires them to file periodic statements. Accordingly, the
department has adopted regulations that list the designated
positions and spell out the disclosure requirements. Although
most of the employees who are assigned to designated positions
with a role in developing the CCF contracts completed the
required statements, some did not. All 20 department staff we
reviewed who had a role in developing the two no-bid facilities
contracts filed statements covering all or part of 2004, but two
retired annuitants associated with one of these contracts did not.
According to the commission, retired annuitants in designated
positions are subject to the same rules as other employees.
However, one retired annuitant who, as of July 2005 is listed
on department records as a retired annuitant chief deputy
director, did not file the required statements for calendar years
2003 and 2004. Another retired annuitant initially assigned to a
designated position required to file a statement and reassigned
two months later to another designated position never filed a
statement for the periods covering either position.
A personnel analyst told us the department struggles to track
retired annuitants when they are hired because they are not
assigned to established positions, and it is sometimes not clear
whether the duties included on their duty statements could
lead to conflicts of interest. However, the duty statements for
the retired annuitants we reviewed clearly indicated a potential
for conflicts of interest to exist. For example, one of the retired
annuitants is classified as a chief deputy director of field
operations, which is a designated position. This retired annuitant’s
position description includes broad responsibilities, such as to
plan, organize, direct, and coordinate the field operations of the

24

California State Auditor Report 2005-105

department. Therefore, the department is not following the law
when it fails to require retired annuitants assigned to designated
positions to complete required disclosure forms.
The department’s practice of continuing former employees as
active retired annuitants when they are not actually working
could create confusion about whether its retired annuitants are
subject to revolving-door prohibitions or the conflict-of-interest
provisions that apply to current employees. According to the
department, one of the primary reasons it hires staff who retire
at the deputy director level and above as retired annuitants is
to provide expert testimony in pending litigation. Typically, the
department appoints retired annuitants to one-year terms and
will reappoint them in the subsequent year if their services are
still needed. However, because of the state hiring freeze in effect
during 2001, the former department director issued a memo
directing each institution and the department’s headquarters
personnel office to delete the expiration dates of all currently
employed retired annuitants as of December 31, 2001, to
eliminate the need to seek formal freeze exemptions approved
by Finance each new calendar year.

We believe the
department’s practice of
leaving the expiration
dates blank when
appointing retired
annuitants contributed
to potential conflicts with
the two retired annuitants
employed by Civigenics,
and continues to pose the
risk for conflicts involving
the department’s other
retired annuitants.

To ensure a continuing need for the services of retired
annuitants, the former department director initiated an internal
procedure in the same memo requiring a form to be prepared
justifying why each annuitant’s continued services are critical
to the department’s mission. The forms were to be reviewed
and approved by the appropriate chief deputy director before
scheduling these individuals for work. For all appointments
taking effect after December 31, 2001, the memo directed that
the department must file a freeze exemption and obtain the
approval of Finance before allowing the retired annuitant to
begin work.
The department continues to leave the expiration date blank
when entering such appointments in the payroll system and
does not use the internal procedure each year to ensure its
retired annuitants’ services are still needed. We believe this
practice contributed to potential conflicts of interest with the
two retired annuitants employed by Civigenics, as previously
discussed, and continues to pose the risk of conflicts involving
the department’s other retired annuitants. This would be true
even for employees who have not worked for the department
in over a year and would otherwise no longer be subject to the
revolving-door limitations.

California State Auditor Report 2005-105

25

According to the chief of Personnel Services, although as of
August 2005 the department is still abiding by its policy of
not entering expiration dates on its appointments of retired
annuitants, it plans to ask each division to annually advise
Personnel Services’ staff which retired annuitants are no longer
working. The department will then separate the identified
retired annuitants from state service. However, until it
implements this change, the department will continue to be at
risk from potential conflicts of interest with its contractors and
has no way of knowing if its retired annuitants are still needed.
Further, the department did not adhere to its previous internal
procedure, which required a form to be prepared justifying
why each annuitant’s continued service is critical to the
department’s mission. Therefore, we are not confident that
the department will follow through with its proposed policy.
Because the hiring freeze is no longer in effect, we believe a
better control would be for the department to revert to its earlier
process of appointing retired annuitants to one-year terms and
reappointing them annually if there is still a need.
If its only purpose in hiring these employees as retired annuitants
is to provide expert testimony in pending litigation, the
department could explore other potential options for securing
these services rather than hiring former employees as retired
annuitants. For example, state law exempts contracts for expert
witness services from the conflict-of-interest restrictions. The
department could contract with these retired employees rather
than appointing them as retired annuitants. However, this
option would limit these retired employees’ services to only
providing expert testimony.

Four of 20 employees’
statements we reviewed
were filled out incorrectly.

26

Also, the department does not ensure the completeness of
the statements employees do file. Four of the 20 employees
whose statements we reviewed filled out their statements
incorrectly. For example, one employee did not fill out the
dates the statement covered, so it was unclear to what period
the disclosures related. Another employee did not attach any
supporting disclosure schedules and also did not indicate
whether he had any reportable interests requiring supporting
disclosure schedules. Since the statement was not complete, it
was not possible to determine if the employee had a conflict of
interest. Because the department does not review all the filed
statements for accuracy or completeness, it cannot ensure that
its employees in designated positions have met their respective
disclosure requirements.

California State Auditor Report 2005-105

Three of the four incorrect
statements had errors
or omissions on the
cover page relating to
information the filing
officer is required to
review. If the filing officer
had properly reviewed
these statements, she
would have identified the
errors in three of them.

According to the conflict-of-interest filing officer, she randomly
reviews for completeness 20 percent of the statements filed by
department staff. Although state regulations require the filing
officer to complete a more extensive review on at least 20 percent
of statements that are filed on time, these regulations also require
the filing officer to review every statement for certain information
contained on the cover page. Three of the four incorrect
statements had errors or omissions on the cover page relating to
information the filing officer is required to review. If the filing
officer had properly reviewed these statements, she would have
identified the errors in three of them.

THE DEPARTMENT’S POLICIES AND PROCEDURES
FOR NO-BID CONTRACTS AND FOR IDENTIFYING
CONFLICTS OF INTEREST ARE CONSISTENT WITH
STATE REQUIREMENTS
To protect the public from misuse of public funds and to provide
all qualified bidders with a fair opportunity to enter the bidding
process, the law requires the department to advertise and obtain
competitive bids on all contracts that exceed $75,000 unless
otherwise excluded from these requirements. State law exempts
departments from competitive bidding requirements when,
among other reasons, the director of General Services approves
an exemption because the State’s best interests are better served
by doing so. To promote sound business decisions and practices
in securing necessary services, the State has developed the State
Contracting Manual, which contains policies, procedures, and
guidelines relating to no-bid contracts. The State Administrative
Manual also provides policy direction for departments concerning
contracts exempt from General Services’ approval and contracts
exempt from advertising in the State Contracts Register.
To ensure that public officials perform their duties in an
impartial manner, free from bias caused by their own financial
interests, state law also precludes public officials from making,
participating in making, or using their official position to
influence a government decision in which they have a financial
interest. To accomplish this, the law requires agencies to
adopt and publish a conflict-of-interest code. As part of this
code, agencies are required to identify the positions in their
organizations that are responsible for making, or that participate
in making, decisions which may have a material effect on any

California State Auditor Report 2005-105

27

financial interest. After identifying such positions, each agency
must then determine the specific types of interests it will require
staff occupying those positions to report.
The department has established policies regarding the processing
of contracts, as well as regulations and policies relating to
conflicts of interest, that are consistent with state requirements
for these areas. Consistent with state law, the department
operations manual requires all contracts above a specified
amount to be competitively bid, unless specifically approved for
exemption by the director of General Services. The department
also has established regulations in the California Code of
Regulations and policies in its operations manual to guide its
staff in identifying conflicts of interest that are consistent with
state law.
In its regulations, the department has established a conflictof-interest code, identified the positions designated to file
statements, and specified the categories of information the
employees occupying these positions are required to disclose.
Also, it has established policies in its operations manual that
prescribe when employees who are in designated positions must
file statements and when employees should be disqualified from
making, participating in, or influencing any decisions that have
a foreseeable material effect on their financial interests.

INFORMATION THE DEPARTMENT RELIED ON TO
DETERMINE THE NEED FOR CCF CONTRACTS
APPEARS ACCURATE
The two main causes
the department cited for
the unexpected increase
in inmate population
were the failure of its
parole reforms to reduce
inmate numbers and the
large increase in inmate
admissions from counties.

28

In justifying the need to open two CCFs using no-bid contracts,
the department cited an unexpected increase in inmate
population as its reason for the sudden need for additional beds.
The two main causes the department cited for this increase
were the failure of its parole reforms to reduce inmate numbers
and the large increase in inmate admissions from counties. It
had reasonably relied on earlier population projections that
reflected a stable or declining inmate population. Nonetheless,
when justifying the no-bid contracts, the department included
a cost comparison that did not include all applicable costs. The
remaining information it relied on to establish the need for two
no-bid CCF contracts appears reasonable.

California State Auditor Report 2005-105

Parole Reforms Enacted by the Department Did Not Produce
the Expected Results
In January 2004, the department implemented a new parole
model consisting of three alternatives to returning parolees
to prison (see text box) who had committed certain types of
parole violations. It expected these reforms to
reduce by 24,000 the number of parolees who
return to prison each year for parole violations. The
Department Parole Reforms
department included the expected effects of these
• Electronic In-Home Detention
parole reforms when it created one of its projections
Program—1,000 electronic monitoring
of future inmate populations. As we discuss in the
devices used to monitor parole violators in
this curfew or home detention program.
Introduction, it uses these projections to assess
the sufficiency of its facilities to house its inmate
• Community Correctional Reentry
Center or Halfway Back Center
population six years into the future. According to
Program—900 beds that provide housing
former management staff, the department was not
and other services for parole violators
able to realize the estimated inmate reductions.
outside of prisons.
In fact, in April 2005, the agency secretary who
• Substance Abuse Treatment Control Unit
oversees the department discontinued the parole
Program—1,316 beds to house and treat
parolees for 30 days in a jail setting while
reform programs because of implementation
providing them with services, training, and
problems.
90 days of aftercare in the community.
The department’s parole reforms are presented in
more detail in a separate report, Bureau of State
Audits’ Report 2005-111, to be released in fall
2005, including a federal judge’s June 2005 decision requiring
the department to reinstate certain elements of the parole
reform programs.

New Inmate Admissions From Counties Rose Unexpectedly
The other main reason the department provided to explain
the unexpected increase in the number of inmates was the
higher-than-expected number of inmates local courts sentenced
to prison in fiscal year 2003–04. Our review of new inmate
admissions confirmed the department’s assertion. As shown
in Figure 5 on the following page, new inmate admissions
from counties increased by 4,818 during fiscal year 2003–04, a
significant factor in the increase in population during this time.
According to the department director, Los Angeles County
had the largest increase in inmate admissions of all California
counties. The department’s county admission data for new
inmates indicated that Los Angeles County accounted for
36 percent of the overall increase in inmate admissions in fiscal

California State Auditor Report 2005-105

29

FIGURE 5
Total New Inmate Admissions From Counties

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Source: Department of Corrections’ Offender Information Services Branch.

“Broken Window” Theory of Policing

year 2003–04. The director attributed much of this
increase to the city of Los Angeles’s new police chief’s
“broken window” method of policing (see text box).

This form of policing is based on the theory
that if one window in a building is broken
and is not repaired, all of the rest of the
windows will soon be broken. As less serious
offenses go unpunished, an atmosphere of
disorderliness can permeate a community,
leading to more serious offenses.

The director told us that until recently, the
department did not communicate regularly with
counties to identify changes that would affect
the number of inmates counties send to state
institutions. Accordingly, the department did not
anticipate the increase in new inmate admissions
Aggressive policing of less serious crimes can
beginning in fiscal year 2002–03. The director
bring about a reduction in more serious future
crimes.
identified two efforts the department has recently
undertaken to enhance communications with local
Sources: Wilson and Kelling, “Broken Windows.” The
governments. First, it began attending statewide city
Atlantic Monthly, March 1982 and Worrall, “Does
police chiefs’ meetings, which are held every other
‘Broken Windows’ Law Enforcement Reduce Serious
Crime?” California Institute for County Government
month. The director said that by attending these
Research Brief, August 2002.
meetings, the department hopes to identify the
effect local decisions may have on the State’s inmate
population by more effectively communicating
with local agencies. According to the acting deputy director
for the Parole and Community Services Division, a department
representative began attending the police chiefs’ meetings in
April 2004. Second, the department is in the process of reinstating
a law enforcement consortium in which it teams with local law
30

California State Auditor Report 2005-105

enforcement agencies to exchange information to solve common
problems. The acting deputy director stated he expects these
meetings to begin by September 2005.

The Unexpected Increase of Inmates Created Security Concerns

Since the actual inmate
population was increasing
when the department
had projected a stable or
declining population, it
had to accommodate the
increase through placing
thousands of new beds
in temporary locations
that are harder for staff
to secure.

Concern for public safety was one of the main reasons the
department cited in its justification for the no-bid one-year CCF
contracts. Since the actual inmate population was increasing
when the department had projected a stable or declining
population, it had to accommodate the increase through placing
thousands of new beds in temporary locations that are harder
for staff to secure. The department’s concern for public safety
appears reasonable, and its reliance on this information to assess
the overcrowded situation and to decide to open two CCFs also
appears reasonable.
As previously described, total inmate population rose unexpectedly,
so the department’s short-term projections, which usually are
fairly accurate, fell short of the actual numbers. Therefore,
relying on the population projection it prepared in spring 2004
that included the estimated effects of the parole reforms, the
department was not prepared for the surge in actual population
it experienced later that year. As shown in Figure 6 on the
following page, the population projection it prepared in spring
2004 anticipated a decline in future inmate population from
161,000 in June 2003 to 157,000 in June 2005. However, the
actual inmate population increased by 3,317 from January 2004
to September 2004. This increase alone exceeds the inmate
design capacity of some of the department’s institutions. This
influx brought the total inmate population to 165,102 inmates,
higher than the fiscal year-end population numbers for any of
the previous seven years.
Twice a year, the Program Support Unit within the department
releases an institution activation schedule (activation schedule)
to coincide with the population projections. This is a schedule
of new beds to be added and existing beds to be removed from
service for the next two fiscal years, based on the population
projection. If the department needs more or fewer beds
than originally planned, the assistant deputy director of the
Institutions Division releases an emergency memo detailing
where to place additional or remove excess beds. When the
department cannot house inmates in the beds located in areas
normally designated for that purpose, it places temporary beds

California State Auditor Report 2005-105

31

FIGURE 6
Actual Versus Forecast Inmate Population
June 2002 Through June 2005
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Sources: Department of Corrections’ monthly report of population and spring 2004 population projection.

in overcrowded areas such as dayrooms or gymnasiums through
the use of these emergency memos. When this happens, safety
concerns are heightened because these areas are harder for staff
to secure.
From April 2003 to October 2004, the department placed 7,087
new beds into service using the activation schedule or through
emergency memos. Figure 7 shows the cumulative change
in capacity from January 2003 to December 2004. Some of this

32

California State Auditor Report 2005-105

FIGURE 7
Cumulative Change in Inmate Capacity
From January 2003 to December 2004
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Sources: Department of Corrections’ monthly institution activation schedules and related emergency revision memos.

increase in capacity came as a result of the department having to
house inmates in dayrooms and gymnasiums, since the department
did not open or reopen any institutions in 2003 and 2004.

The Cost Comparisons the Department Used to Justify the
No-Bid Contracts Were Incomplete
Although the information on which the department based
its decision to open two CCFs using no-bid contracts appears
reasonable, its justification for these contracts included
incomplete cost comparisons. The department stated in its
justification that the two contracts represented a potential
cost savings to the State because the per diem rates for the
facilities are less than the daily jail rate of $59, the maximum
the department can reimburse counties for detaining certain

California State Auditor Report 2005-105

33

state parolees who have violated parole and therefore are being
sent back to prison. However, the two costs are not comparable.
Because the CCF contract amounts, unlike the daily jail rate, do
not include all the costs of housing an inmate, the department’s
claim of cost savings is misleading. Compared to other CCF
contracts, however, the average annual per-bed cost of the two
no-bid contracts appears to be within a reasonable range.
The daily jail rate was established in law in 1993 and represents
the department’s average cost of housing inmates. According
to the department, it has adopted the same benchmark for
comparison purposes when considering contracts to house
inmates in CCFs. Therefore, in calculating the savings included
in the justifications for the two no-bid contracts, the department
compared the daily per-inmate costs from the CCF contracts to
the daily jail rate. According to state law, if the department is
unable to accept new inmates due to overcrowding, it can house
the inmates waiting to be transferred to prison in local jails until
it can identify space within one of its institutions. Therefore,
this daily jail rate is the maximum daily amount the department
can legally pay local governments for housing state inmates.

Costs of CCF Inmates Paid Directly
by the Department
• Health services provided for anything
other than first aid.
• Certain transportation costs.
• Discipline costs when inmates are
transferred back to a state institution.
• Department peace officer staff employed
at private CCFs.
• Correctional counselors.
• Administration of the inmate
appeal system.

Although the per diem amounts included in the
no-bid contracts—$45 per day for the McFarland
contract and $54 per day for the Mesa Verde
contract—are less than the $59 maximum daily
jail rate, the amounts are not comparable because
contract amounts do not include all of the costs of
housing an inmate; the daily jail rate does include
all such costs. The rate at which the department
reimburses local entities is intended to include all
the costs of detaining a state prisoner. However, it
incurs the additional costs shown in the text box
for state inmates housed in CCFs that are beyond
those reflected in the CCF contract amounts.
The department did not include these costs in its
comparison to the daily jail rate.

• Administrative services the department
performs at the state level that also apply to
CCF inmates.

According to the acting chief of the Community
Correctional Facilities Administration, to process
the justification for the no-bid CCF contracts, the
department had to indicate how each contract’s
price was determined to be fair and reasonable. To do this, it
elected to use the daily jail rate for comparative purposes, but
she acknowledges the actual daily rates for the CCF contracts do
not include all service and operation costs.

34

California State Auditor Report 2005-105

Nevertheless, the costs included in the two no-bid contracts still
appear reasonable when compared to the other CCF contracts.
As shown in the Table, we compared the average annual cost per
bed for the two no-bid CCF contracts to the average annual cost
per bed for the other CCF contracts existing in 2004. Although
both no-bid contracts are more expensive than the average
annual CCF contract cost of $15,278 per bed, they appear to be
within a reasonable range of the other CCF contracts.2

TABLE
Average Annual Cost Per Bed for No-Bid Contracts and
Existing Community Correctional Facilities
2005 No-Bid
CCF Contracts

Facility
Lassen CCF

CCF Contracts in
Place in 2004
$16,824

Mesa Verde CCF (Civigenics)*

†

McFarland CCF (The GEO Group, Inc.)

$16,814
16,239

Leo Chesney Center CCF

16,238

Victor Valley MCCF‡

16,165

Claremont Custody Center CCF

15,738

Baker CCF

15,562

Taft CCF

15,408

Shafter CCF

15,250

Delano CCF

14,705

Golden State MCCF‡

14,523

Adelanto CCF

14,413

Central Valley MCCF‡
Desert View MCCF

‡

Average for 2004 CCF contracts

14,401
14,112
$15,278

CCF = Community Correctional Facility.
* This amount does not include $1 million in start-up costs to furnish and equip the CCF
that the department added to the contract. If the $1 million is considered, the average
annual cost per bed for this contract would be $22,696, which is significantly above the
range of current CCF contracts.
†

This contract was not executed.

‡

MCCF refers to a modified community correctional facility.

2

We computed the annual average cost for the Mesa Verde CCF contract excluding the
$1 million start-up cost to furnish and equip the facility for operation. If the $1 million
is included in computing the average, the amount, $22,696, is considerably above the
range of current CCF contracts.

California State Auditor Report 2005-105

35

RECOMMENDATIONS
To strengthen controls over its processing of no-bid contracts,
the department should do the following:
• Wait until all proper authorities have approved the no-bid
contract justification request before sending a contract to a
contractor for signature or signing the contract itself.
• Require key contractor staff to complete statements of
economic interests.
• Include all its costs when it decides to include cost comparisons
in justification requests or state that the cost comparison is
incomplete.
To ensure that its staff is free from potential conflicts of interest,
the department should do the following:
• Ensure that its retired annuitants in designated positions
submit required statements of economic interests.
• Ensure that statements of economic interests submitted by
staff are complete.
• Consider contracting with retired staff to provide expert
testimony in litigation instead of its current practice of hiring
them as retired annuitants.
• When appointing retired annuitants, limit such appointments
to a one-year period and require annual reappointment. n

36

California State Auditor Report 2005-105

CHAPTER 2
The Department’s Inmate Projections
Are Reasonably Accurate for
Short-Term Purposes, but Their Value
for Long-Range Planning Is Limited
CHAPTER SUMMARY

A

lthough the inmate population projection of the
Department of Corrections (department) has an average
error rate of less than 5 percent for the first two years
of its six-year projection, by the last year the average error rate
climbs to almost 30 percent. As a result, the projection is useful
for assessing the next two years’ budget needs but has limited
usefulness for longer-range planning, such as the need to build
new prisons. In addition, the department does not update inputs
to its projection model with historical data using a statistical
process but rather adjusts the variables by relying on staff
experience. Also, because it does not update information related
to prisoners’ security classifications using the most recent data,
the department is projecting security needs based on an obsolete
classification system that may differ significantly from the
current inmate population.
Furthermore, our statistical expert advised us the department’s
process for making inmate population projections is not based
on a statistically valid method for creating a forecast. Moreover,
the department’s Population Projections Unit (projections unit)
did not adhere to its policy precluding the use of estimates for
which it does not have reasonable support, such as the estimated
effect of proposed legislation. Such actions reduce the accuracy
of a projection and make it difficult for the unit that produces
the projections to defend its independence. Finally, until
recently, the department did not effectively communicate with
local governments, hindering its ability to anticipate factors that
could have an effect on inmate populations.

California State Auditor Report 2005-105

37

THE DEPARTMENT USES PROJECTIONS IN BUDGETING
AND JUDGING WHETHER AVAILABLE BED SPACE
IS SUFFICIENT
Each fall, the projections unit projects the number of inmates
it expects the department to house over the next six years
and revises the projection the following spring.3 It uses a
microsimulation model to trace the path of individual offenders
to project inmate populations on a month-to-month basis. This
movement of inmates through the projection model is depicted
in Figure 8.

FIGURE 8
Inmate Projection Model

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Source: Credible Projections Require More Than a Good Model, Jack Leonard and Scott Sweet, Population Projections Unit,
Department of Corrections, presented at a prison population forecasting workshop, Washington, DC, December 10–11, 1997.

The projections unit primarily uses two types of variables in
developing its projection: one relating to the amount of time
inmates stay in a particular stage of the correctional system
and the other relating to where in the correctional system the
inmates will move next. The first type of variable predicts, as a
percentage, the probability that inmates will move to another
stage of the correctional system in each of the months after
entering the current stage. The other type of variable represents
the percentage probability of different stages inmates can enter
when they do move. These percentages are based on data from
prior experience. When applied to the current inmate population
and adding the projection for newly admitted inmates, the model
simulates inmates’ projected movement between each stage of
the corrections process over a six-year time span, up to when
they exit the system, either through release from parole or death.
By combining these movements between stages, the department
creates a projection of expected population in each stage for each
month for the following six years.
3

38

The department’s projection includes inmates, parolees, inpatients, and outpatients
under its control. For the purposes of this report, we only discuss the projection as it
relates to inmates.

California State Auditor Report 2005-105

The projections serve two primary purposes. First, the
department uses them in developing its budget for institutional
and parole operations. Projecting the expected number of
inmates is important in determining the budget for items such
as correctional officers, food costs, and transportation. Second,
the department uses the projection to assess the sufficiency of
available bed space at its institutions to house the projected
inmate population. Its Facilities Management Division
(facilities division) compares the population projection to
the number of inmate beds the department has or will have
in the periods covered by the projection. This comparison
allows the department to assess whether it needs additional
beds or prisons in the future to meet its security requirements or
whether it has excess capacity.

WITH HIGH ERROR RATES, THE DEPARTMENT’S
LONGER-TERM PROJECTIONS DO NOT ACCURATELY
PREDICT ITS NEED FOR INMATE HOUSING

While the average error
rate of the department’s
projections is less than
5 percent in the first two
years, it increases rapidly
beginning in the third
year, reaching almost
30 percent by the end of
the sixth year.

The department’s process for projecting future inmate population
is reasonably accurate for short-term purposes, such as for
developing budgets, but is much less accurate for longer-term
purposes, such as assessing the housing needs of future inmate
populations. To determine the accuracy of the projections,
we compared the actual inmate populations at June 30 for
each year that was available as of June 2005 to the levels the
department projected for each year of each projection between
spring 1995 and spring 2005. We then determined the average
error rate of each year for the projections it produced during this
period. As shown in Figure 9 on the following page, although
the projections are reasonably accurate for the first two-and-ahalf years of a projection period, they become increasingly less
accurate beyond that point, quickly rising to average error rates
that render them useless for their intended purpose.4
In developing its budgets, the department primarily relies on
information from the first two years of a projection, which
reflects the period for which the department is preparing
a budget. As shown in Figure 9, the average error rate of
the projection process in the first two years is less than
5 percent and therefore appears reasonable for this purpose.
However, because of the time needed to build a new prison,
the department also uses projections to assess the sufficiency
4

Because the time period of some projections had not yet lapsed as of June 2005, the
number of projections used in computing the average error rates appearing in Figure 9
range from 11 for the first half-year to five for the sixth year of the projection.

California State Auditor Report 2005-105

39

of its facilities to house future inmate populations. For this
assessment the department uses all six years of the projection
period. As Figure 9 shows, the average error rate increases rapidly
beginning in the third year, reaching almost 30 percent by the
end of the sixth year. Therefore, the department’s reliance on
its projections in assessing the sufficiency of its facilities and
planning future prison construction appears misplaced.

FIGURE 9
Average Error Rate of Projections Completed Between Spring 1995 and Spring 2005 at
Six-Month Intervals After Projection
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Source: Department of Corrections’ population projections.
Note: Because the time period of some projections had not yet lapsed as of June 2005, the number of projections used in computing
the average error rates range from 11 for the first half-year to five for the sixth year of the projection.

According to the chief of the Offender Information Services
Branch, the average error rate of the projections would be
much smaller if projections completed prior to fall 1996 were
excluded. The chief stated that the projections unit made a
significant adjustment to the projection model in fall 1996
related to the State’s three strikes law. However, even if we
exclude projections completed prior to fall 1996, our concerns
remain. In fact, excluding these projections creates an average
error rate that ranged from 1 percent after the first six months

40

California State Auditor Report 2005-105

to 25 percent by the projection’s sixth year. These results are not
appreciably different than the original range of the average error
rates shown in Figure 9.
Also, the projections tend to overestimate future populations,
which could result in the department building facilities
that are not needed if it relies solely on the projections. The
manager of the projections unit stated that she was not aware
of the projections’ tendency to overstate inmate populations.
She stated that over the last 10 years, the projections unit
understated as much as it overstated the inmate population
in the first two years of the projection cycle. However, the
manager’s focus on the first two years of the projection cycle
seems misplaced. The facilities division informed us that it takes
at least three to five years to build a prison, so it is concerned
with years three through six of the projection cycles. As shown
in Figure 10 on the following page, most of the projections for
periods beyond year three prepared between spring 1995 and
spring 2000 projected populations that exceeded the actual
number of inmates. For example, the department’s fall 1995
projection forecast that the inmate population would exceed
232,000 in 2001. However, the actual population in 2001 was
161,000, a difference of 71,000 inmates.
The deputy director of the facilities division told us that it is
department policy to request new or expanded prisons to house
populations based on these projections. He further stated that
the department requested funding for constructing new prisons
in 1995 and again in 1996, but the Legislature did not approve
these requests. Had the department actually built the prisons
needed to house the number of inmates shown in its fall 1995
projection, it would have vastly overbuilt for its actual needs.
In fact, our analysis shows that the department would be more
accurate in its long-term planning if it simply used the actual
inmate population at the time it created each projection and
assumed the population would not change over the six-year
projection period. As presented in Figure 11 on page 43, beyond
the third year of a projection’s time period, the average error rate
of assuming no change in the inmate population is less than
that of the department’s projection.

California State Auditor Report 2005-105

41

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Comparison of the Final Three Years of Each Projection to Actual for Spring 1995 Through Spring 2000 Projections

FIGURE 10

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42

California State Auditor Report 2005-105

FIGURE 11
Average Error Rate Over the Projection Period
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Source: Department of Corrections’ population projections.

THE DEPARTMENT NEEDS TO REDUCE THE
SUBJECTIVITY IN ITS PROJECTIONS
The department includes over 50 variables in its model for
developing projections of inmate populations, such as the
amount of time left on an inmate’s sentence and the severity
of the offense. Each variable has some effect on the projection.
However, for over half of the variables, rather than using a
statistical process based on historical data to update each
variable, the department makes adjustments based on staff
experience. Also, in developing some of its projections, the
department included variables for which it did not have
trend—or historical—information and therefore had no solid
basis on which to determine their effect on the projection. As a
result of these actions, the department has increased the level
of subjectivity in the projection, making the result less reliable.

California State Auditor Report 2005-105

43

Finally, until recently, the department did not effectively
communicate with counties, hindering its ability to anticipate
changes that may affect its prison population.

The Department Does Not Appropriately Update Its
Projection Data

According to our
statistical expert, the
department cannot
support its forecasts using
its present methodology.

The department’s projection model uses data from prior
experiences to establish the likelihood of certain events
occurring at steps along the projection process. For example, at
a given point in the simulation model, an inmate hypothetically
may have a 40 percent chance of being released on parole,
a 50 percent chance of remaining in prison for at least
another month, and a 10 percent chance of dying in prison.
However, the department does not always appropriately update
the frequencies—or relative percentages of the likelihood of
different options occurring—using sufficient historical data.
Rather than using a statistical process to develop the frequencies,
the department takes the same frequencies used in its previous
projection and then updates the numbers based on analysts’
experience and review of the actual data since the last projection.
This method increases the possibility of bias entering into the
projection. According to our statistical expert, the department
cannot support its forecasts using its present methodology.
Also, its practice of using amounts from a prior projection may
have resulted in the department projecting inmate security
classifications in error. It uses projected security levels of
future inmate populations to ensure it has sufficient housing
capabilities required for each security level. Although analysts
have made adjustments based on their subjective judgment,
the variables related to inmates’ security classifications have
not been updated with actual numbers since October 2002.
The manager of the projections unit stated that in 2002 the
department implemented a new classification system and the
projections unit has not yet received the information necessary
to forecast the different security classification levels from the
Classification Services Unit (classification unit). The manager
further stated that the new security classification system has not
yet generated enough data to determine a trend but suggests
that there will be enough information by 2006. However, data
we obtained from the classification unit shows that by relying
on 2002 data, the projections unit may have underestimated the
future need for security level 2 beds.

44

California State Auditor Report 2005-105

According to staff who maintain the new classification
system, the projections unit has not requested, and therefore
the classification unit has not created, the report showing
the number of inmates by security level classification. The
classification unit did provide us with information related
to inmates’ security scores, which the department uses to
determine the inmates’ security level classifications. However,
the unit did not provide us with information regarding how
many inmates are reclassified into a higher security classification
than their initial score would indicate because of safety concerns
or other special circumstances, which could potentially change
the population in each classification. The acting deputy director
of the Risk Management Division stated that it would be difficult
for the department to generate the information concerning
such reclassifications in time to use for our audit because of the
amount of programming and data verification it would need to
complete to develop this information. The data the department
did provide to us on security classifications without the effect of
inmate reclassifications is presented in Figure 12 on the following
page, which shows that during the new classification system’s
implementation period in 2003, the number of inmates with
security scores of level 1 and level 2 changed significantly.

Because it used outdated
information, the
projections unit may be
forecasting significantly
different security
requirements for the
inmate population than
are truly needed.

From June 2004 to June 2005, the respective populations settled
into a more stable trend. Because it used outdated information
from 2002, the department’s most recent projection forecasts
a security level 2 population of 32,000 in June 2005, which is
significantly less than the actual level 2 population of 46,000
reported by the new classification system, excluding the
potential effect of any reclassifications. As a result, when the
department uses the projection for infrastructure planning
and staffing, it may be underestimating the number of security
level 2 beds needed to house future inmates. By failing to use the
information from the new classification system, the projections
unit may be forecasting significantly different security
requirements for the inmate population than are truly needed.
We believe the department already has enough data to establish
a reliable trend. According to our statistical expert, because
the new classification system has caused a significant change
in the populations of the various security classifications, the
department should begin using actual data collected under
the new system. Our expert also stated that the monthly
information obtained during the last year and a half would be
able to more accurately project the current security requirements

California State Auditor Report 2005-105

45

FIGURE 12
Actual Prisoner Population by Security Classification Level
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��

��

��

��

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Source: Department of Corrections’ Classification Services Unit.
Note: Data does not include the effect of any inmate reclassifications, which the department was unable to provide during
our audit.

of the population than the 2002 data based on the old
classification system, providing the department enough data
points to create a more accurate forecast.

Contrary to Its Policy, the Projections Unit Used Speculative
Estimates in Its Projections
At the direction of the department and contrary to its own
policy, the projections unit used estimates in its projections that
are not based on past experience or that include information
from programs whose effects could not be reasonably estimated
in several instances. Specifically, in the 2004 spring and fall
projections, the department’s former chief deputy director
of support services directed the projections unit to include
the estimated effects of various parole reforms. According to

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California State Auditor Report 2005-105

the manager of the projections unit, these estimates were
based on changing criteria, and the parole reforms in question
had numerous issues that needed to be resolved before any
reasonable expectation of population reductions could be
estimated. From our review of department policy memos, we
noted that criteria such as which inmates were eligible for
these programs and the maximum amount of time inmates
could be enrolled changed during the time period in which
these projections were being made. Nonetheless, department
management required the projections unit to include the
estimates in its population projections, thus compromising
the unit’s independence. Without being able to function
independently of internal or external pressure to use certain data
or arrive at certain conclusions, the credibility of the projections
unit’s forecasts is diminished.
According to the manager of the projections unit, including these
estimates in the projection led to a major variance between actual
and projected populations. In fact, our analysis confirmed that
the spring 2004 projection was 2 percent off after six months
and 4 percent off after a year and a half, resulting in one of the
department’s least accurate projections in the last 10 years. Because
these estimates are a part of the projection and are not identified
as separate from a forecast based on trends in the data, our
statistical expert concluded that the validity and independence of
the entire projection is called into question and the value of the
projection for decision-making purposes is reduced.

The manager of the
projections unit objected
to including estimates in
the projection, stating it
compromises the integrity
of the projections process.

In fact, the manager of the projections unit, when required to
include these estimates in the projection, made the following
statements in a letter to her supervisor noting her concerns:
I strongly object to this change because I believe it
compromises the integrity of the projections process
and the credibility of the projections produced by my
unit. The projections have become a topic of political
debate. We were told that the fall 2004 projections
could not be released to the Governor’s Office because
the numbers were too high and that we must include
estimates of the [parole] reforms in the fall 2004
projections publication, even though they were not a
part of the formal projections process.
The projections unit stated that a projection process must isolate
policymakers from the actual creation of the projection and that
the projections unit must never include speculations about the

California State Auditor Report 2005-105

47

effects of proposed legislation or policy changes. Furthermore,
the unit has stated that no proposed legislative or policy change
is included in the projections until the changes have been
formalized and a date of implementation has been set. However,
by insisting that the projections include the estimated effects of
the parole reforms, the department caused the projections unit
to violate these principles.

The Department Failed to Obtain Information From Counties
That Would Have Alerted It to Rising Admissions

The department is
developing ways
to establish better
communications with
the counties.

As discussed in Chapter 1, in addition to the unrealized effects of
parole reforms, the spring 2004 population projection was also
understated because of an unexpected rise in inmate admissions
from counties. Because county superior courts sentence felons to
state prison, changes in county policies on prosecuting criminals
can affect inmate admissions at the state level. Los Angeles
County was the primary source of the rising inmate admission
rate during this period. According to the department’s director,
the new chief of police of the city of Los Angeles changed the
city’s approach to policing, increasing the number of people
being sent to prison. However, until recently, the department
did not have an effective process in place to communicate with
local governments to identify such changes and their effect on
the number of inmates being sentenced to prison. As further
described in Chapter 1, the department is developing ways to
establish better communications with the counties.
The department may not be able to use the information it
receives from these efforts in its projections because sufficient
historical data may not be available to allow the projections
unit to adequately assess the effects of the identified issues.
Nonetheless, the department will be able to use the information
in its decision-making process and therefore will be able to
better anticipate future increases and decreases in inmate
population that result from changes made at the local
government level.

LACK OF DOCUMENTATION CASTS DOUBT ON THE
VALIDITY OF THE PROJECTION PROCESS
To assess the statistical validity of its projection process, our
statistical expert met with key department staff to review
the documentation of the projection method. However, the
department does not have documentation describing its
complete projection model, so we were unable to assess its
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California State Auditor Report 2005-105

validity. According to our statistical expert, documenting a
projection process, including the computer program used, is
important so others can evaluate the process and understand
its limitations and capabilities. She added that, for staff within
the department, such documentation is very valuable for the
continuity of the forecasting process when current staff retire
or leave. She concluded that data analysis is a constantly
evolving process and appropriate documentation is crucial in all
stages to continuously improve the analysis as more and more
data become available. According to the chief of the branch
that includes the projections unit, it is currently revising the
projection model and plans to produce documentation for the
revised version.
Nonetheless, key department staff described the process to our
expert to provide an understanding of the methodologies the
projections unit uses. Based on these discussions, our statistical
expert provided the following observations:

Our statistical expert
concluded that the
department’s projection
process, as described,
is not based on a valid
statistical method.

Because there is no documentation to describe the
projection process, we are unable to evaluate the model
itself and are evaluating the process as described to us.
The simulation process described to us by [department]
staff is not based on a valid statistical method that is
available in the statistical literature. The description of
the simulation process also did not include appropriate
theoretical justification. The underlying assumptions of
the model, the accompanying theory, and the validity
of the simulation process was not established either
through published research papers or statistical journals.
Both the State Administrative Manual (administrative manual)
and information technology (IT) industry standards require
the documentation of IT systems. The administrative manual
specifically requires that documentation meet the needs of
nontechnical users, technical users, outside auditors, and any
agency measurement necessary. Additionally, the adequacy
of documentation is a required factor when purchasing any
IT components and a required element in any project plan.
Without documentation, the department cannot ensure the
proper use of the applications and technological solutions it has
put in place.

California State Auditor Report 2005-105

49

Therefore, because the department lacks documentation for its
projection model, and because the model as described to our
expert is not based on established statistical methods, its validity is
uncertain. Nonetheless, our expert provided the following insights
related to the department’s two primary uses of the projection:
Although not the result of a standard statistical model,
the results of the projection evaluated alone are
reasonable in the short term, because the projected
population does not increase by more than 10 percent
per year and includes a significant amount of detail
on subpopulations, which the department needs for
budgeting purposes. However, as the model is used
more, the accuracy of the projection should increase.
The department should not provide a long-term forecast
if it is unable to achieve a reasonable level of accuracy.
To address the validity of the department’s projection model,
our statistical expert stated the following:
The department needs to bring a group of
statisticians together to get advice on establishing
a statistically valid forecasting methodology with
the current data system. A time series specialist, a
non-parametric statistician, and a finite population
sampling theorist along with a statistical computing
expert will be able to design a suitable forecasting
tool for the department’s needs. There are national
experts available in all these areas of statistics within
California’s higher education system. Both the
California State University and the UC campuses
have researchers specializing in these areas right
here in Northern California. One of the benefits for
the department is that this group of statisticians
will be able to provide the state-of-the-art statistical
tools needed for the department’s short-term and
long-term forecasts.

RECOMMENDATIONS
To increase the accuracy and reliability of its inmate projection,
at a minimum the department should do the following:
• Fully document its projection methodology and model.

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• Update its variable projections with actual information, such
as the new security level data, whenever feasible to do so.
• Continue its recent efforts to enhance its communications
with local government agencies to better identify changes
that may materially affect prison populations.
• Disclose when a projection includes estimates for which
inadequate historical trend data exists, such as the estimated
effects of a new policy, and the specific effect such estimates
have on the projection.
Additionally, if the department intends to continue using the
projections for long-term decision making, such as facility
planning, it should ensure that it employs statistically valid
forecasting methods. It should consider seeking the advice of
experts in selecting and establishing the forecasting methods
that will suit its needs.
We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the California Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of this report.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor
Date: September 13, 2005
Staff:

Doug Cordiner, CGFM, Audit Principal
David E. Biggs, CPA
Renee Davenport
Jonnathon Kline
Heather McIntier

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51

Blank page inserted for reproduction purposes only.

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Agency’s comments provided as text only.
Department of Corrections and Rehabilitation
Risk Management Division
P.O. Box 942883
Sacramento, CA 94283-0001
August 29, 2005
Elaine M. Howle*
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
The Department of Corrections and Rehabilitation (CDCR) has reviewed your draft audit report
entitled “California Department of Corrections: It Needs to Better Ensure Against Conflicts of
Interest and to Improve Its Inmate Population Projections.” We appreciate the opportunity to
respond to the draft report. Enclosed is the CDCR’s response to the report’s recommendations.
We appreciate the attention to accuracy and detail that your staff put into the process. Your staff has
been professional and at all times available to discuss the issues. Please extend our appreciation to
those who participated in this review.
As indicated in the enclosed response, the CDCR is committed to making further improvements by
addressing the issues presented in the report. If you have any questions concerning the response,
please contact me at 323-6001
Continued Success,
(Signed by: Roderick Q. Hickman)
RODERICK Q. HICKMAN
Secretary
California Department of Corrections
and Rehabilitation
Enclosure

* California State Auditor’s comments appear on page 57.

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53

RESPONSE TO BUREAU OF STATE AUDITS (BSA) DRAFT REPORT

California Department of Corrections: “It needs to Better Ensure Against Conflicts of
Interest and to Improve Its Inmate Population Projections.”

Chapter 1
BSA Recommendation #1: Wait until all proper authorities have approved the contract
justification request (a.k.a. NCB) before signing the contract or sending it to a contractor for
signature.

1

CDCR’s Response: CDCR’s general practice is to wait until all proper authorities have approved
the contract justification request before signing the contract or sending it to a contractor for
signature. However, when timing is critical, obtaining the contractor’s signature in advance helps
to expedite the process but does not, in any way, execute the contract. CDCR’s Instructions to the
Contractor clearly state that the Contract is of no force and effect until they receive a fully approved
original signature copy of the Contract for their files. A contract is not valid or executable until
approved by DGS’ Office of Legal Services (OLS).
BSA Recommendation #2: Require key contract staff to complete statements of economic
interests.
CDCR takes under advisement BSA’s recommendation to have key contract staff complete the
statement of economic interests and will immediately initiate a review of the recommendation for
feasibility of implementation. It is anticipated the review will be completed within 60 days.
BSA Recommendation #3: Include all its costs when it decides to include cost comparisons
in justification requests or state that the cost comparison is incomplete.
CDCR concurs with the recommendation.
BSA Recommendation #4: Ensure that its retired annuitants in designated positions submit
required statements of economic interests.
CDCR’s Response: The CDCR agrees to adopt BSA’s recommendation to enter expiration dates
on the appointments of retired annuitants. This will allow each retired annuitant (RA) appointment
to be reexamined each year as to the applicability of conflict of interest (COI) compliance. The
CDCR will also strive to educate and train the hiring authorities as well as the personnel analysts
with the COI criteria. This will enable staff to question RA paperwork and forward questionable RA
duty statements to the COI filing officer for review.

1

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California State Auditor Report 2005-105

BSA Recommendation #5: Ensure that statements of economic interests submitted by staff
are complete.
CDCR’s Response: The CDCR filing officer will comply with the Regulation 18115 and ensure that
each cover page is complete. In addition, the Department filing officer will review 20 percent of all
timely statements (one half of which will be selected at random).
The CDCR is in the process of adding COI information and filing site to the CDCR website. This
site will assist staff and management in the filing of the COI forms and will provide listings of the
classifications required to file as well as easy to follow instructions on correct completion of the
cover page. Since this site is easily accessible to staff with internet or intranet access, it will make
information regarding the COI form more convenient and may reduce the incomplete submission of
the COI form.
BSA Recommendation #6: Consider contracting with retired staff to provide expert
testimony in litigation instead of its current practice of hiring them as retired annuitants.
CDCR’s Response: The CDCR will review its current procedures for expert witnesses and
evaluate the feasibility with legal staff regarding hiring retired staff as consultants rather than RAs.
This may not be a feasible option in some cases, as the high level executives that are required to
be expert witnesses possess the needed high level expertise to assist the CDCR in developing
operational policies and procedures. If these employees are under contract, they may be precluded
from working as RAs under Penal Code Section 10410 (Prohibitions as to state officers and
employees).
BSA Recommendation #7: When appointing retired annuitants, limit such appointments to a
one-year period and require annual reappointment.
CDCR’s Response, The CDCR will adopt BSA’s recommendation to start entering expiration dates
on all RA hires.

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55

Chapter 2 Responses

BSA Recommendation #1: Fully document its projection methodology and model.
CDRC’s Response: The Department agrees with this recommendation. The Department is in the
process of revising the existing simulation model and writing documentation for the revised version.
BSA Recommendation #2: Update its variable projections with actual information, such as
the new security level data whenever feasible to do so.
CDRC’s Response: The Department agrees with the recommendation to use the new security
level data and intends to do so as soon as it is feasible.
BSA Recommendation #3: Continue its recent efforts to enhance its communications with
local government agencies to better identify changes that may materially affect prison
population.
CDRC’s Response: The Department concurs.
BSA Recommendation #4: Disclose when a projection includes estimates for which
inadequate historical trend data exists, such as the estimated effects of a new policy, and
the specific effect such estimates have on the projection.
CDRC’s Response: The Department agrees with this recommendation.
BSA Recommendation #5: Additionally, if the Department intends to continue to use the
projections for long-term decision-making, such as facility planning, it should ensure that
it employs statistically valid forecasting methods. It should consider seeking the advice of
experts in selecting and establishing the forecasting methods that will suit its needs.
CDRC’s Response: The Department welcomes the advice of such statistical experts in an effort to
improve its forecasting methods. The Department will be initiating an Interagency Agreement for an
independent review of the forecasting methods. It is anticipated that the review can be completed
within 12 months.

3

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2

COMMENTS
California State Auditor’s Comments
on the Response From the California
Department of Corrections and
Rehabilitation

T

o provide clarity and perspective, we are commenting on the
California Department of Corrections and Rehabilitation’s
(department) response to our audit. The numbers below
correspond to the numbers we have placed in its response.

1

We do not dispute what the department has stated.
Nevertheless, as we cite on page 1 of our report, perhaps as a
result of beginning to process the Mesa Verde contract before
receiving approval from the Department of General Services,
the department incurred needless costs relating to a contract it
ultimately rescinded.

2

The department may have misunderstood our recommendation.
As we state on page 45, the department already has sufficient
actual security level data to establish a reliable trend.

California State Auditor Report 2005-105

57

cc:

58

Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press

California State Auditor Report 2005-105