By Maureen O'Hagan

Until recently, Oregon's state prison work program - especially its line of blue jeans - was touted as a national model for success.

Now, the Secretary of State's Office has uncovered evidence of incompetence and mismanagement in a program that underreported its expenses by $1 million to a supervisory board.

The problems were so bad that the prison work program, a division of the state Department of Corrections, was insolvent.

Although no one is alleging outright fraud, the findings have made some state leaders skeptical if not fearful about the implementation of Measure 17, the 1994 voter-approved initiative requiring all prison inmates to work full time. (The Legislature appropriated $22 million for the measure's implementation this biennium.)

That means the Department of Corrections must find employment for more than 6,500 inmates. The question is, if corrections can't properly manage a 450-inmate work program, how will it manage to put 15 times that number to work without breaking the bank?

"This program is going to greatly expand," notes Greg Parker, director of administration for the Secretary of State's audits division. "You have to make sure you're not losing nickels with a little program and you're not losing dollars with a big program."

The Prison Industries Board, created as part of Measure 17 and composed of the secretary of state, the governor and the treasurer, was concerned about those lost nickels when it asked for an audit of the program in September.

The program was already reeling from the firing of longtime director Fred Nichols and the layoffs of two top managers last summer. (Corrections officials will not comment about the dismissals, but there is speculation that Nichols' management style did not mesh with that of officials brought in to implement Measure 17.)

Those concerns led the Prison Industries Board to demand an audit before it would authorize $4 million in expenses submitted in September. By law, the board is required to approve all expenses related to prison work. However, Department of Corrections officials hadn't sought or received such approval since April 1, when the measure took effect.

"When [work program officials] came before the board, basically they said, 'We've already spent the money. You have to approve it,'" explains Secretary of State Phil Keisling. "We said from what we can tell, we don't have the assurance we need that the numbers accurately reflect what happened."

In its defense, the corrections department noted that for much of that period, the department was without a director, as was the prison industries division.

When an audit team looked at the prison industry books, they uncovered chronic problems. Internal controls were so weak that the wrong items were shipped to customers, materials were ordered and never used, and goods were received without purchase orders.

The audit, which will be expanded in 1996, was done quickly so that the Prison Industries Board could see the financial picture before it approved the expenses. For that reason, the document doesn't go into great detail, but some of the examples it cites reveal a pattern of mismanagement.

For example, in June, a vendor shipped lumber to the furniture factory located within prison grounds without a purchase order. It was then discovered that the vendor was not the winning bidder for the shipped items. However, by the time the department figured that out, inmate workers had used most of the material. The invoice was paid.

In many cases, the audit found that no one checked materials received at state prison warehouses to see if they were accurately reflected on invoices. In some cases, department employees signed for deliveries they never saw. Moreover, department policy allowed shipments to exceed the authorized dollar figures by up to 10 percent, a practice that makes budgeting inaccurate.

In all cases, the invoices were paid without question or explanation.

"I think it's safe to say there is obvious management deficiencies there that the Department of Corrections has to deal with," Keisling told Willamette Week. "It's not that there has been evidence of fraud or funny business. It's more standard bureaucratic incompetence."

The fact the department is unable to keep inventory and bookkeeping records straight has left some skeptical whether Measure 17 will ever be fully implemented as envisioned. Thirteen months after voters approved the measure, the department still has no target date for when it expects to comply with the new law, according to Brian Bemus, who is charged with its implementation.

The scrutiny of the program will soon intensify. The state plans two more audits, one that looks at the same factors over a longer time period and the other part of a simultaneous audit of prison work programs nationwide.

[End]

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