Maryland prison industries failed to collect millions in past-due bills, audit says

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Maryland Correctional Enterprises, which produces and sells goods using prison labor, failed to pursue millions in payments it was owed for the goods and services it sold last year, according to a recent state audit.

The Office of Legislative Audits said that of $12.9 million in accounts receivable the agency held as of June 30, 2023, about $7 million had been due for more than 90 days — with some accounts languishing for more than a year.

MCE failed to send dunning notices threatening legal action or to turn the past-due accounts over to a state collection agency, the June 20 audit said. But the audit also noted that 96% of the past-due accounts — or $6.7 million — were owed by other state agencies that, by law, cannot be turned over to a collection agency.

“It’s pretty clear from this audit that MCE has a fundamental problem in how it is able to do its work and sustain itself. Any other business would have gone under by this point if they can’t invoice and collect on the work from services that they’re doing,” said Sen. Clarence Lam (D-Howard and Anne Arundel).

“It’s interesting that the primary customer, so to speak, of MCE are other state agencies,” said Lam, the Senate chair of the Joint Audit and Evaluation Committee that received the audit. “In fact, like almost all of the outstanding invoices over 90 days were from other state agencies.”

Calls seeking comment from MCE officials Tuesday were not immediately successful. But in its written response to the audit, the agency said it will begin reviewing accounts receivable at the end of every month and will send past-due notices at 30 days and again at 60 days.

For state agencies that have outstanding bills longer than 90 days, MCE said its accounts receivable office will first turn to the secretary of Public Safety and Correctional Services for help, and then elevate the issue to the governor’s office.

For private organizations that have not paid their bills, MCE will turn the account over to the State Central Collection Unit and will put a hold on any new orders from the delinquent organization, it said.

That is an option MCE does not have with state agencies, as state regulations prohibit one agency from referring another to the CCU. Lam said he wasn’t sure whether the lack of collection of funds was MCE’s fault or agencies exploiting a loophole.

“So it’s either a problem of MCE not properly invoicing, or following up on those invoices, or it’s a problem of the other agencies have figured out that the emperor has no clothes,” Lam said, “and if we don’t pay MCE, nothing happens, which is basically true.”

MCE is a self-supporting agency that does not receive tax dollars but lives off profits from the goods and services it sells, from printing to furniture to laundry, among other services. It says its mission is to provide inmates with job skills that can help them on the outside.

But Lam there are a lot of people in Annapolis, like him, who have questioned the purpose of MCE.

“I know some people have fundamental concerns of, you know, making those who are incarcerated perform labor for the state,” Lam said.

“There are others who see that MCE brings very little value. I think there are many who have expressed concern that the quality of their work is not to the par of what could be procured in the private sector,” Lam said.

Sen. Antonio Hayes (D-Baltimore City), is one of those people who challenge the purpose and value of MCE. He noted that state agencies are pushed to do business with the prison industries agency.

“In Maryland procurement law, MCE is designated as a preferred provider. What a preferred provider means is essentially they have a monopoly over all of the services that they offer,” Hayes said.

“If you are a state agency, a state university, and MCE carries a product, whether it be chairs, office furniture, whatever, you have to get it from MCE,” he said.

Hayes this year sponsored SB 194, which can waive the requirement in certain circumstances that state agencies do business with MCE. While that bill passed, two others — to remove MCE from the preferred provider list, and to cross-reference products provided by MCE with products from private providers — failed this year.

But Hayes said he will continue fighting, because he thinks it is wrong that Maryland uses prison labor.

“I think this is like one of the greatest tragedies that we continue to participate in, state-sponsored kind of exploitation of people,” Hayes said.

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