Oregon Corrections Enterprises Change of Administrator Review, #12-06

Shawn Haywood, MBA, CFE, Internal Audit Administrator Prepared by: Susan Erickson, Senior Internal Auditor June 13, 2013

BACKGROUND:

Oregon Corrections Enterprises (OCE) is a semi-independent organization established in 1999 in order to engage inmates in work and on-the-job training. OCEs administrator reports to the director of the Oregon Department of Corrections (DOC). By developing inmates work ethics and job skills, OCE collaborates with the DOCs efforts in assisting inmates to return to their communities as productive citizens. At the request of DOCs Audit Committee, Internal Audit conducted a change of administrator review for OCE following the departure of former administrator Robert Killgore. The audit steps used for this review were modeled after the program used by the Secretary of State Audits Division. In the past, the Secretary of State had conducted reviews when a director left an agency, as noted in Oregon Revised Statute 297.210 (2).

OBJECTIVES:

The objectives of our review were to: Document the former administrators dates of service, any continued service, and reason for termination. Verify that any agency assets assigned to the former administrator were used appropriately and returned to OCE in a timely manner. Verify access to OCEs computer systems was terminated promptly. Determine that controls, policies, and approval guidelines were followed for travel and nontravel reimbursements during the last three months of employment. Verify accuracy of timesheets and payroll and leave registers for the last three months prior to the former administrators departure. Ensure recent contracts are appropriate and compliant with rules and policies.

SCOPE AND METHODOLOGY:

Dates of Service: We verified through discussion with appropriate OCE management staff that Robert Killgore served as Administrator of OCE from February 5, 2001 to March 13, 2013 and that there was no continued service after termination. Mr. Killgores t ermination letter cited several reasons for ending his employment, including but not limited to administering agreements without DOC Directors approval, consultation with outside counsel, and lack of trust from the union with OCE management. Usage of Assets: We reviewed and documented OCEs Inventory and Property Control policy 02.01.03, Corporate Charge Card policy 02.02.04, and Fuel Credit

Cards policy 02.02.05. We examined records documenting the timely return of all OCE assets issued to Mr. Killgore including DOC ID card, Jeep Cherokee, Voyager Card, OCE Visa Card, office keys, electronic door FOB, parking meter keys, and iPhone. We examined cell phone invoices, credit card invoices, and purchase receipts for the three months prior to Mr. Killgores departure. We determined all charges and purchases were appropriate and compliant with policy. We also verified that Mr. Killgores signature authority had been revoked in a timely manner. We reviewed OCEs policy 05.01.02 on Network and Information System Access and Security and received a list of systems to which Mr. Killgore had access and dates his access was removed. Travel and Reimbursements: We reviewed OCE Policies 02.01.11 Travel and Employee Reimbursement and 02.01.04 Travel and Business Expense. We examined Mr. Killgores Travel Expense Detail Sheets and matching reimbursement check copies for December 2012, January 2013, and February 2013 and found them to be reasonable and appropriate. Though Mr. Killgore did not check off and initial the mandatory line 24 of the forms stating whether he did/will or did not/will not accept travel rewards, there is no indication in the records we examined that Mr. Killgore received travel rewards during these three months. Payroll and Leave: We read and studied OCEs Electronic Employee Time Tracking policy 06.02.00 in order to understand OCEs payroll process which is different from the Oregon State Payroll System. Mr. Killgores last 3 timesheets were inspected and found to be appropriately authorized and mathematically correct. Original payroll and leave accrual registers were inspected for the three payroll periods prior to Mr. Killgores departure and the payroll period following his departure. We found no unusual payroll deductions or unusual additions to pay, and we verified that Mr. Killgore did not receive pay after his date of departure. Auditor also inspected the original benefits register and verified that Mr. Killgore did not appear on the employee listing for benefits for the billing period following his termination. Recent Contracts: Internal Audit performed a high level review of OCE contracts with which Mr. Killgore was involved during the last 90 days of his employment. These OCE business contracts include Portland State University, Ecotex, and AFL-CIO. Irregularities were found in each of the three contracts and are listed in the Results section below. The review was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, promulgated by the Institute of Internal Auditors. This report has been produced for use by DOC and OCE management.

Audit #12-06 OCE Change of Administrator Review

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As a result of our review, we found: RESULTS/ RECOMMENDATIONS: POTENTIAL CONFLICTS OF INTEREST Ecotex Letter of Intent: OCE Advisory Council received a request from Ecotex dated November 23, 2011 requesting OCE to step away from programs that compete or may compete with private businesses. OCE entered into discussions with Ecotex in late 2011 to form a letter of intent and nondisclosure and nonsolicitation agreement outlining the general terms of a contemplated public/private partnership service agreement for OCE to provide laundry services for Ecotex at 25 cents per pound as well as leasing a 10,000 square foot warehouse and office space for the sum of 15 cents per square foot per year. In anticipation of potential litigation, the Advisory Council asked attorney Neil Bryant (an OCE Advisory Council member) and his firm to provide an analysis and an opinion on the legal issues involved in the Ecotex matter. OCE paid $9,401.50 to Bryant, Lovlien & Jarvis, PC for this consultation. Mr. Bryant joined the OCE Advisory Council in 2004 and resigned on November 28, 2011. Portland State University Interagency Agreement: OCE entered into an agreement with Portland State University (PSU) to review OCE s operating model and business practices, perform a risk analysis, assess potential for expanding OCEs mission and offering services to other agencies, and make recommendations for implementing this expansion. Total cost to OCE for this interagency agreement was $165,000. Mike Greenfield joined the Advisory Council in 2008 and resigned from the Council via an email to Robert Killgore dated January 31, 2012, the same date the agreement was signed. According to Mr. Greenfields resignation email, PSUs Marcus Ingle asked him to join their review team in order to add his experience and expertise with state government. AFL-CIO Agreements: Mark Warne, an OCE Advisory Council member and an AFL-CIO official, designed and implemented the construction craft training skills program at Coffee Creek. The agreement was signed on September 4, 2012. Mr. Warne joined the Advisory Council in 2011 and resigned on September 10, 2012. The Construction Craft Training Skills Pilot Program operates at the Coffee Creek Correctional Facility in Wilsonville. In the contract, OCE agreed to provide all necessary tools and materials, classroom space, security and DOC training for AFL-CIO staff, and to pay AFL-CIO $10,714.29 per month for 14 consecutive months. AFL-CIO agreed to provide three four-month training sessions known as triads to an approximate total of 90 inmates, including program design, curriculum, instruction, inmate supervision, inmate progress reports, and invoice for services. Recommendation: We recommend furt her review of OCEs business relationships with their Advisory Council members. Also, ORS 421.347 and OCEs Advisory Council Policy 01.01.11 outline membership requirements and duties, methods of appointment and removal, composition of the Council, frequency of meetings, and expense reimbursement. To supplement the policy, Audit #12-06 OCE Change of Administrator Review Page 3 of 5

we recommend that OCE establish bylaws for their Advisory Council as well as an application process and conflict of interest agreement for prospective members. The bylaws and conflict of interest agreement should include guidelines for appropriate behavior and restrictions on benefits council members may receive as a result of their position on the council. CONTRACTING PRACTICES Overpayment for Services: In response to an unfair labor practice complaint, OCE permanently hired an AFL-CIO instructor. The existing Pilot Program Agreement #5604 was not adjusted to reflect the additional cost to OCE for this employees salary and benefits. To date, OCE has overpaid for two payroll cycles, totaling $9,100 plus benefits and related payroll taxes and expenses. OCEs year-to-date income statement shows a deficit balance of net income. An additional contract (Service Agreement #5604-1) was drafted with AFL-CIO extending the inmate training program for two years and allowing for expansion into additional facilities. This contract, signed by AFL-CIO on March 13, 2013, stipulates that OCE is responsible for providing the instructor, yet the dollar amount of OCEs obligation remains the same. OCE staff state that Mr. Killgore intended to sign this agreement on the day he was terminated. Recommendation: OCE should recover the overpayment made to AFL-CIO as a result of hiring the instructor, and the current contract should be amended to compensate for the additional cost of the instructors salary and benefits. Outside Representation: OCE consulted with a private attorney rather than DOJ on the Ecotex contract. This was not in compliance with ORS 180.220 (2) which states No state officer, board, commission, or the head of a department or institution of the state shall employ or be represented by any other counsel or attorney at law. Recommendation: OCE should consult with DOJ attorneys as required by ORS Chapter 180 for legal advice and services. Contract Policy Exceptions: OCEs Contract Manager was not closely involved with the Portland State and Ecotex contracts. A review of permanent contract files indicate that a Contract Request form is not completed for contract amendments as required by OCE policy 02.02.01 effective January 11, 2013. This applies to PSU Amendment #5 to Interagency Agreement dated January 31, 2013 and Ecotex Third Amendment to Letter of Intent dated March 15, 2013. The file review also indicated that OCE did not have fully-executed copies of contract amendments on file. PSU Amendments #2 and #5 were missing PSU signatures. Ecotex First, Second, and Third Amendments are missing the Ecotex CEOs signature. Recommendation: OCE leadership should ensure that all contract policy requirements are met. Because our review was limited to 90 days prior to Mr. Killgores departure and we identified irregularities, we recommend furthe r review of OCEs past contracting practices. Audit #12-06 OCE Change of Administrator Review Page 4 of 5

Department of Corrections Internal Audit 503-945-0934

Audit #12-06 OCE Change of Administrator Review

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