When a private prison corporation paid Ohio $72.7 million in 2011 to purchase one of the state's facilities, the company touted the deal as a "groundbreaking" move that would serve as a model for other states looking to cut costs.
But in the year since Corrections Corporation of America took over the 1,700-bed Lake Erie Correctional Institution, state audits have found patterns of inadequate staffing, delays in medical treatment and "unacceptable living conditions" inside the prison -- including inmates lacking access to running water and toilets. The state docked the company nearly $500,000 in pay because of the violations.
In addition, a major uptick in crime near the private prison has burdened the small town of Conneaut, Ohio, with police there making a series of recent arrests related to attempts to smuggle drugs and alcohol into the facility. Officers responded to 229 calls related to the prison last year, nearly four times as many as the previous five years combined, according to the city's crime data.
"We understand that it's a private entity now, and that it's for-profit, but nothing can come at the expense of the safety and security of our citizens," said Conneaut Councilman Neil LaRusch, who recently sent a letter to Ohio Gov. John Kasich's office requesting assistance with the crime problem. "With the city finances the way they are right now, I can't go put 20 more people on staff at the police department."
Private prison companies such as CCA have pushed for a growing share of the nation's inmate population, promising to save states and the federal government money by managing their prison systems. Yet criminal justice experts say the experience in and around the Lake Erie prison amounts to a cautionary tale for other states considering whether to hand over their own facilities to private corporations.
"This is not a bargain for the states," said Michele Deitch, a senior lecturer and criminal justice expert at the University of Texas School of Public Affairs. "The longer the contracts are, the more likely you are to give rise to poor conditions and problems. It gives the states very little leverage to demand improvements."
CCA spokesman Steve Owen said the company has a "very strong track record" of transitioning prisons from state to private management, and said more recent audits have shown improvements at the Lake Erie prison. He said its sale offered immediate revenues for the state of Ohio, and as a private entity, the facility will provide local property tax revenue.
Private prison companies typically build their own facilities or manage existing prisons; the Ohio prison sale was the first of its kind. In an attempt to trim the state's corrections budget, Kasich, a Republican, in 2011 proposed selling off and privatizing up to five state prisons. After studying the costs, the state decided to sell only one: the Lake Erie Correctional Institution. (The state previously owned the prison but it had been managed by another contractor, Management & Training Corp.)
For its purchase price, CCA obtained not only the prison but a 20-year management contract to house inmates for the state and an initial guaranteed 90 percent occupancy rate. (The state has the option of renegotiating the occupancy rate down the line.)
Seeking to expand its market, CCA then used its successful Ohio purchase as a centerpiece of a nationwide sales pitch last year, offering to buy state prisons in exchange for long-term management contracts. In a letter sent to 48 states, CCA called the Ohio purchase a "seamless" acquisition that would build on the company's history of "safe and efficient operations."
Critics argue that the Lake Erie facility offers a textbook example of the problems that can arise from prison privatization: high rates of staff turnover, problems in administering health care and poor physical conditions.
"CCA has positioned this as a seamless transition," said Mike Brickner, public policy director for the American Civil Liberties Union of Ohio. "It's been anything but that from the very beginning."
A September state audit found that inmates being disciplined in segregation at the prison were using plastic containers and bags as a makeshift restroom, in the absence of working toilets and running water.
Owen, the CCA spokesman, wrote in an email that a follow-up state audit, released in November, found improved conditions inside the facility. He also pointed to high marks for the Lake Erie prison in an outside inspection recently released by the American Correctional Association, an industry group that performs audits every three years.
"While we received an initial audit report for the facility that did not meet our high standards, both a re-inspection from the State and an extensive audit from the independent American Correctional Association ... confirm our commitment to ensuring that [the prison] is operating at the highest quality," Owen wrote.
He cited the ACA inspection as proof of CCA's high standards, calling it a "rigorous process involving a 72-hour, onsite audit of the facility and its operation," where auditors evaluated standards such as employee training, health care, rehabilitation programs and safety and security.
Outside critics argue that the ACA has inherent conflicts of interest that weaken its potential for oversight. The association's current president, Davidson County, Tenn., Sheriff Daron Hall, is a former managing director for CCA, and part of its budget comes from thousands of dollars in fees that prisons must pay to be accredited.
A spokesman for the ACA did not respond to requests for comment.
Over the past year, the state of Ohio has assessed almost $500,000 in penalties on CCA related to the Lake Erie prison, deducting $318,000 for staff vacancies and an additional $181,000 in damages for not adhering to its contract. Staffing was a persistent problem at the facility, according to state records. CCA did not fill several important positions, including a required vocational instructor and nurse practitioner.
Other breaches highlighted in the September audit included problems with medical care and concerns about security:
- Inmates requesting to be seen by a nurse were not seen within 48 hours
- Doctors' appointments were usually delayed, and often there were no follow-ups
- Staff wasn't following the proper procedures for chronically ill inmates, including those with diabetes and AIDS
- Inmates were triple-bunked, with some sleeping on mattresses on cell floors
- "Some staff expressed safety concerns due to low staffing numbers and not having enough coverage."
The follow-up audit in November noted many improvements at the facility, particularly with cleanliness of the kitchens and other parts of the prison. The running water problems for inmates in segregation were fixed, according to the report.
But the state said there had not been enough time to determine whether there were consistent improvements to medical care at the facility. "Continual monitoring is needed to ensure the corrective action remains in full compliance," the report said.
Meanwhile, city officials in Conneaut are asking state police for additional assistance in monitoring the prison's perimeter. LaRusch, the local councilman, pointed to the recent arrest of a man who was trying to smuggle crack cocaine, marijuana and a cache of cell phones into the facility.
Owen said in an email that CCA has a "positive working relationship" with local law enforcement in Conneaut, and added that criminal incidents inside the prison have decreased. "While we cannot prevent people from trying to introduce contraband at the facility, our team, along with local law enforcement, has been able to successfully impede these efforts, which is a positive for facility safety and overall public safety," he wrote.
LaRusch said CCA officials have been receptive to suggestions about adding additional lighting and security guards to the prison, but he said the increase in smuggling points to a breakdown of control within the facility.
"There's something going on within the prison that is changing the atmosphere, that's saying, 'Yeah, you can get away with it,'" La Rusch said. "If they have that little amount of control inside their own prison, how long until there's an escapee? That's what we are really concerned about."
Also on HuffPost:
1. Martin L. Grass
> Company: Rite-Aid<br> > Current status of the company: Still active<br> In 1999, Rite-Aid (NYSE: RAD) CEO Martin L. Grass, the son of company founder Alex Grass, was forced to resign from the post he had held for just four years. Grass was formally indicted in 2002, along with several other high-ranking executives at the drugstore chain, for conspiracy to defraud, making false statements, as well as accounting fraud. In 2004, Grass pleaded guilty and reached a plea agreement to serve at least eight years in prison and pay a $500,000 fine, as well as waive $3 million in owed salary. In 2009, Grass moved into a halfway house and was subsequently released in 2010.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
2. Joseph Nacchio
> Company: Qwest<br> > Current status of the company: Acquired<br> In March, 2005, telecommunication company Qwest's CEO Joseph Nacchio and several executives were indicted by the SEC. The charges included inflating revenue estimates, lying about nonexistent forthcoming government contracts, and illegally profiting from the run-up in the stock price. In 2007, Nacchio was sentenced to six years in prison. He was also ordered to pay a $19 million fine and forfeit an additional $52 million he had made through illegal trading. Nacchio appealed several times, losing his final appeal in the U.S. Court of Appeals for the Tenth Circuit. He began serving his term in February, 2009, but even now his legal team is petitioning to be heard in the Supreme Court.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
3. Walter Forbes
> Company: Cendant<br> > Current status of the company: Split up<br> In 1998, Hospitality Franchise Systems, a platform used to purchase hotel chains, merged with direct marketing company Comp-U-Card International to form Cendant. The new corporation soon discovered, however, that Walter Forbes, CUC's former CEO and the CEO of the newly formed Cendant, had grossly misrepresented the financial status of CUC. He reported at least $500 million in nonexistent profits. Forbes, who insisted he knew nothing about the situation, was forced out. By 2002, the ex-CEO was indicted under fraud charges, and in 2007, after years of appeals, he was sentenced to 12 years in prison and $3.28 billion in damages. In 2005, Cendant split up and spun off into several different companies.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a> Read more: Top Ten CEOs Sent to Prison - 24/7 Wall St. http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison/#ixzz1vEd1RweC
4. Richard Scrushy
> Company: HealthSouth<br> > Current status of the company: Still active<br> Richard Scrushy, former CEO of HealthSouth (NYSE: HLS), has 20 years of illicit practices to his credit. Scrushy authorized the firing of whistle blowers, bribed and threatened HealthSouth execs and was complicit in illegal accounting practices. In November, 2003, Scrushy was indicted on charges of conspiracy, securities fraud, money laundering and mail fraud. However, the slippery Scrushy was acquitted on all charges in June, 2005. Less than four months later, he was indicted once again, this time on 30 counts of extortion, obstruction of justice, money laundering, racketeering and bribery. In June, 2007, Scrushy was finally sentenced to six years and 10 months in prison.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
5. Bernard "Bernie" Ebbers
> Company: WorldCom<br> > Current status of the company: Bankrupt and acquired<br> The fall of Bernard "Bernie" Ebbers, former CEO of WorldCom, began once the telecommunication company's proposed merger with Sprint (NYSE: S) fell through in June 2000 due to antitrust laws. WorldCom's stock subsequently plummeted and Ebbers and his executive team continued to rearrange the books to the tune of $11 billion in a desperate attempt to cover up losses. In 2002, the fraud was discovered by internal auditors and Ebbers ousted. In March 2005, Ebbers was convicted of conspiracy, securities fraud and seven counts of filing false reports with regulators. He's currently serving a 25-year sentence in a Louisiana jail.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
6. Jeffrey Skilling
> Company: Enron<br> > Current status of the company: Dissolved<br> Along with Chairman Kenneth Lay, former Enron CEO Jeff Skilling was instrumental in the Enron mega-scandal. Skilling encouraged the use of mark-to-market accounting, which appraises holdings based on expected values. In Enron's case, the lack of concrete pricing data for energy allowed it to act on overly optimistic forecasts. This accounting tactic resulted in Enron grossly overvaluing its holdings and sometimes even reporting gains on contracts that resulted in losses. Adding to his rap sheet, Skilling signed off on Chewco, a subsidiary of Enron that essentially served as a closet in which the company could stuff any debt it was trying to conceal. When Chewco's accounting practices were discovered, Enron was forced to adjust the company's books to reflect $405 million in additional losses; it was the beginning of the end. In May, 2006, Skilling was convicted of conspiracy, securities fraud and making false statements to auditors. He was sentenced to 24 years and four months in prison.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
7. John Rigas
> Company: Adelphia<br> > Current status of the company: Paying creditors before dissolving<br> In 2002, John Rigas was forced out of his position as CEO of cable provider Adelphia after being indicted of securities, bank, and wire fraud. Six other executives were also charged in the incident, including his two sons, Timothy and Michael. It became apparent during the trial that Rigas and his sons had used corporate funds for personal expenses. They had also concealed several billion dollars in owed loans. In 2003, a year after the incident began, Adelphia was still a member of the Fortune 500 companies. By 2006, the scandal had finally caught up with it, and the corporation had spiraled into bankruptcy as a direct result of the scandal. Rigas was sentenced to 15 years in federal prison, and is scheduled to be released in 2018.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
8. Dennis Kozlowski
> Company: Tyco<br> > Current status of the company: Still active<br> In 2002, CEO Dennis Kozlowski and chief financial officer Mark H. Swartz, were accused of illegally siphoning off roughly $600 million from Tyco (NYSE: TYC). Kozlowski is mostly famous for his unabashed opulent spending of the monies he stole, shelling out for $6,000 shower curtains, expensive artworks and lavish corporate parties. He also threw private parties at the company's expense, including a Sardinia bash that included ice sculptures and a performance by Jimmy Buffett. Kozlowski was charged for receiving bonuses he claimed were paid at the direction of Tyco's board of directors. A judge disagreed and in June, 2005, convicted Kozlowski of theft. He was sentenced to serve a minimum of eight years and four months and a maximum of 25 years.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
9. Sanjay Kumar
> Company: Computer Associates<br> > Current status of the company: Still active, renamed<br> Sanjay Kumar, former CEO of Computer Associates, led a $2.2 billion fraud at the company almost entirely via cooking the books. He and his fellow execs utilized sometimes comically simple tactics such backdating contracts and adding an extra week to the financial reporting period -- "the 35-day month." Kumar escaped prosecution for more than five years. His fraud started before 2000, but it was not until 2006 that he was finally indicted on charges of obstruction of justice and securities fraud. He was convicted and is currently serving a 12-year prison sentence.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>
10. Martha Stewart
> Company: Martha Stewart Living Omnimedia<br> > Current status of the company: Still active<br> Implicated in the ImClone insider trading scandal, former Martha Stewart Living Omnimedia (NYSE: MSO) CEO Martha Stewart is the most famous entry on this list. Stewart's troubles began Christmas Day, 2001. That is when Samuel D. Waksal, CEO of ImClone Systems, found out that the company's experimental cancer drug Erbitux had been denied Food and Drug Administration approval. Waksal passed the information to friends and family, including his broker, Peter Bacanovic. He, in turn, tipped off Stewart, who dumped her shares before the news became public knowledge. Stewart was charged and ultimately convicted -- not of insider trading, but of perjury. She was sentenced in July, 2004, to five months prison time and two years probation.<br> <a href="http://247wallst.com/2012/05/17/top-ten-ceos-sent-to-prison" target="_hplink">Read more at 24/7 Wall St.</a>