FPI Board of Directors' Approved Minutes

FPI Board of Directors Meeting Minutes
March 29, 2007
FMC Carswell, Texas

A meeting of the Federal Prison Industries (FPI) Board of Directors was held at FMC Carswell on March 29, 2007:

IN ATTENDANCE:
David Spears, Chairman (by phone)
Donald Elliott, Vice Chairman
Audrey Roberts, Member

QUORUM: A quorum was present.

ALSO IN ATTENDANCE:
Harley Lappin, Director, Bureau of Prisons and Chief Executive Officer, FPI
Paul Laird, Chief Operating Officer-Select

AND:
Tom Kane, Assistant Director, Bureau of Prisons
Gerardo Maldonado, Regional Director, Bureau of Prisons
Ginny Van Buren, Warden, FMC Carswell
Phil Sibal, Deputy Assistant Director
Bruce Long, Controller and Chief Financial Officer
Marianne Cantwell, General Counsel
Robert Grieser, Chief Administrative Officer
Kathy Ott, Superintendent of Industries, FMC Carswell
Todd Baldau, Executive Assistant

Chairman Spears called the meeting to order at 10:18 am.

I. Approval of the November 14, 2006 Meeting Minutes

The Board of Directors considered the minutes from the November 14, 2006 meeting. The minutes were unanimously adopted.

II. Date and Location for next FPI Board Meeting

The Board discussed potential dates and locations for the next FPI Board meeting. The Board noted that at its next meeting, the Board will receive the FY 2008 Operating Plan, with the General Manager of each FPI business group providing the Board with a short presentation on the group’s activities. The Board decided its next meeting would be in Washington, DC in either July or August, 2007.

III. Chief Executive Officer’s Report

Director Lappin introduced Chief Operating Officer-Select Paul Laird to the Board of Directors, briefly discussing Mr. Laird’s background and his previous assignments in the Bureau of Prisons. Director Lappin said the Bureau and the FPI program were very fortunate to have somebody with Mr. Laird’s ability as the new Chief Operating Officer.

The Director reported that the Bureau of Prisons will soon activate its newest institution, USP Tucson, Arizona. He said that in 2008, the Bureau will activate FCI Pollock, Louisiana. Director Lappin said the Bureau’s inmate population is increasing by approximately 5,000 per year. He expressed concern regarding crowding, since the Bureau is adding only one institution next year to accommodate the increasing inmate population.

Director Lappin said that as a result of the Bureau’s efforts to reduce its expenditures, the agency’s financial situation has improved. The Director stated that he had testified before Congress the previous week on the Bureau’s budget. He said he was pleased with the Bureau’s current budget request, and he expressed his appreciation for the Administration’s continued support for the Bureau. The Director said the FY 2008 funding request provides for one new institution, tentatively planned for Aliceville, Alabama. He said one of the Bureau’s most significant challenges will be the ability to open and operate new FPI program factories at newly activated Bureau institutions.

The Board asked if the Bureau’s increasing inmate population is impacting recidivism among BOP inmates. Director Lappin said the recidivism rate among inmates in the Bureau is approximately 40%, compared with approximately 66% in the average state correctional system. The Director said the difference is due primarily to the more extensive programming offered by the Bureau. He noted that the Bureau is better-funded than most state correctional systems, allowing the Bureau to hire staff such as teachers, vocational training instructors, recreation specialists, and psychologists, rather than only correctional officers.

Mr. Kane noted that the overall recidivism rate for inmates in the Bureau is approximately 40%, but recidivism among inmates in the FPI program is 24% less than that. Mr. Kane said this is especially significant because the FPI program is focused on those inmates who are generally more difficult to manage, more prone to violence, and have little or no previous work experience.

The Board asked about the positive social impacts of the FPI program beyond reducing recidivism. Mr. Kane stated that a study by the Washington State Policy Institute found that for every $1 spent on prison industries programs (such as the FPI program), it resulted in $6.21 in costs avoided elsewhere in the criminal justice system. The Board said this information ought to be given to Congress. Director Lappin said he shares this data each time he testifies before Congress.

IV. Controller’s Report

Mr. Long briefed the Board on the FPI program’s fiscal position. He reported that in January, the FPI program transferred $35 million from its capital reserve into its operating account. Mr. Long said the primary drains on the FPI program’s operating cash are inventories and accounts receivable. He said he hopes to transfer this money back to the capital reserve by the 1st quarter of FY 2008, so that it will be available for future factory activations. Mr. Long said while he has short-term concerns regarding transferring money from the capital reserve fund, he expects a medium-term recovery allowing for the money to be transferred back.

Mr. Long said the FY 2007 operating results continue to be driven by the Electronics business group and the Clothing/Textiles business group while the other five business groups are struggling to achieve profitability. He said his primary long-term concern continues to be finding a way to achieve profitability while balancing the FPI program’s traditional industries with its newer business groups. Mr. Long noted that most future FPI program factory activations will be in either the Services, Recycling, or Fleet Management business groups, all of which have very thin margins for earnings.

Mr. Long reported that for FY 2007, the independent auditors for the FPI program will be KPMG, replacing PricewaterhouseCoopers. Mr. Long said KPMG now has the audit contract for almost every component of the Department of Justice.

Mr. Long said he accompanied several senior KPMG staff on visits to FCC Butner and FMC Lexington. He said the KPMG staff were very pleased with the level of sophistication of the FPI program factory and business office at both locations.

Mr. Long said the KPMG auditors appear more focused on the Government Accounting Report, rather than on the Generally Accepted Accounting Principles (GAAP) report. He said KPMG has indicated their auditors plan to visit 10-12 FPI locations. Mr. Long reported he was confident the FPI program would have a successful GAAP audit, and he was confident the FPI program would overcome any issues that may arise in the Government Accounting Report.

Mr. Grieser and Mr. Long briefed the Board on the auditor’s review of FPI’s production guidelines. Mr. Grieser said FPI has greatly decreased its reliance on the guidelines since the 1990s. The Board accepted the report from Mr. Grieser and Mr. Long, and in light of the guidelines decreased use, recommended no further action be taken.

V. Chief Operating Officer’s Report

Mr. Sibal provided the Board of Directors with a brief update on the operations from each of the seven FPI business groups.

Mr. Sibal reported that the Electronics business group continues to generate sales and earnings above planned levels. The group has a strong backlog of orders. The increased military requirements resulting from the war have prompted many new private vendors to jump into the military electronics market. As a result, FPI must contend with several new “players” competing for military business. The Electronics business group recently took over the factory located at FCI McKean, converting it from office furniture to a plastics operation.

Mr. Sibal reported the Fleet Management and Vehicular Component Repair business group had three of its five vehicle retro-fit factories in the black. He said the Fleet Management group is suffering from confusion within the Customs and Border Protection (CBP) agency. CBP is one of the group’s primary customers, but it has been slow to get funds released for its vehicle needs. Mr. Sibal said the vehicular re-manufacturing factories at FCC Beaumont and FCI Gilmer both have sufficient work, but need to improve their efficiencies.

Mr. Sibal reported the Industrial Products business group received only half of a large order for metal containers purchased by the U.S. Postal Service. The Industrial Products group had hoped to obtain more of the order. The dormitory and quarters (D&Q) factory at USP Leavenworth was recently closed. The institution’s inmate employment will be replaced by the textile, print, distribution, and recycling factories.

Mr. Sibal reported the Office Furniture business group continues to be a cause of concern as its sales continue to drop. Since FY 2002, the group’s sales have declined from $217 million to $118 million. This represents a decrease of more than 40%. The Board asked if changing the sales force for the office furniture program might generate improved sales. Mr. Sibal said FPI had changed the organizational structure and sales commission formula for the office furniture program. He said FPI is working to get more focused market research on the Federal government market.

Mr. Sibal reported that all seven of the Recycling business group’s factories were in the black. The recycling group is opening collection centers in Sheridan, Oregon and Englewood, Colorado. A new recycling factory at USP Leavenworth is expected to activate shortly.

Mr. Sibal reported that most of FPI’s new factory activations are in the Services business group. The private vendor with whom FPI contracts on its call center operations recently merged with another private call center provider. It is hoped the merger will benefit the FPI call center program by increasing the resources available to the partnership. The Services group’s automated data processing (ADP) and printing programs are both operating well.

Mr. Sibal reported the Textiles business group continues to perform strongly, with excellent sales, earnings, and inmate employment. He said the Textiles business group continues to do the best job of planning of all the FPI business groups.

Mr. Sibal said the FPI program recently completed successful testing of its “disaster recovery” solution, covering more than six separate information technology systems for FPI. The disaster recovery solution is based in Dallas, Texas, and involved significant upgrades to FPI’s computer hardware and software, insuring that FPI field locations are able to continue operations even if both FPI’s Central Office and the Department of Justice data center located in Rockville, Maryland are unable to function.

Mr. Sibal reported that FPI has adopted “Lean Six Sigma” as its standard program for continuous improvement. This is a powerful tool to analyze productivity. Mr. Sibal said staff from every business group and support branch have take Lean Six Sigma green belt training, with some staff already working on projects to achieve Lean Six Sigma black belt status.

Mr. Sibal said FPI recently upgraded its hardware to run SAP, the enterprise resource planning system utilized by FPI. This was a significant upgrade which was necessary because FPI was still using hardware purchased when FPI first converted to SAP in 2000.

Director Lappin asked about the status of the audit of FPI’s electronics recycling program by the Department of Justice’s Office of Inspector General (OIG). Mr. Sibal said staff from the OIG have already visited four of the seven recycling factories. He said FPI had received positive feedback from each of the visits thus far.

Ms. Cantwell provided the Board with an update on Congressional legislation related to the FPI program. She reported that Congressman Hoekstra had not yet introduced the new version of his bill, but that Senator Levin has introduced a bill focused on the FPI program. Ms. Cantwell said FPI is fortunate to have the continued strong support of the Department of Justice. She said staff from the Department continue to meet with interested parties to discuss possible legislative ideas regarding the FPI program.

The Board asked if, with all the staff turnover in the Department of Justice, the key players regarding FPI were still in place at the Department. Mr. Kane said the key players for FPI in the Department are Attorney General Gonzales and Deputy Attorney General McNulty, both of whom are strong supporters of the FPI program.

Following-up from the previous Board meeting, Mr. Grieser briefed the Board on the projected impact to FPI if the mandatory source micro-purchase limit were increased from $2,500 to $3,000. Upon the recommendation of staff, the Board increased the mirco-purchase limit to $3,000.

Chairman Spears adjourned the meeting at 12:07 pm.

_________________________________________________
Paul Laird, Chief Operating Officer/Corporate Secretary