ARIZONA CORRECTIONAL INDUSTRIES

Annual Repor t
Fiscal Year 2005

“Practicing on the inside
what works on the outside”

Dear Director Schriro:
It is my privilege to present the Arizona
Correctional Industries Annual Report
for Fiscal Year 2005, which by statute
must be presented to the Legislature
each year.
This year, through the combined efforts
of our 85 staff members in partnership
with the employees of ADC, and 1,978
inmate workers, ACI achieved recordbreaking sales of $25.6 million, an
increase of 28% over the prior year.
ACI's contribution to the Arizona
economy also exceeded previous years
with direct and indirect contributions of
$48 million, an increase of $8.4 million
over ‘04. The Auditor General report
for FY 04 and previous years stated that
the finacial statements were “presented
fairly, in all material respects”.
Inmates assigned to ACI programs
worked a total of 2,827,821 hours; each
hour representing an opportunity to
learn marketable job skills, work habits
and financial responsibility.
ACI is committed to the support of
Parallel Universe implementation in
our unique dual role as a correctional
work program and a financially selfsufficient business enterprise to the
benefit of the Department of
Corrections, the inmates and the State
of Arizona.
Sincerely,

Charles Flanagan, Administrator,
Work Force Development

“Protecting Public
Safety Now and Later”

Time for Everyone to Benefit

the leadership of Director
U nder
Schriro, ACI has been incorporated

as part of the Work Force Development
Bureau. ACI is partnered with Academic
Education and Work Based Education to
form a logical continuum of literacy and
employability acquisition. This forms
two-thirds of the literacy, sobriety and
employability roadmap to civility and the
reduction of relapse, revocation and
recidivism, which benefits society, the
Arizona Department of Corrections
(ADC) and inmates.
The business community is primarily
interested in producing profits and we
contend that by partnering with ADC,
businesses can realize their profit
objectives. Additionally, business is
interested in trained employees. ADC and
ACI can produce a trained workforce
with all of the necessary job skills to be
successful as they enter the workforce
upon reentry into society, which benefits
the business community as well.
As a correctional work program, Arizona
Correctional Industries (ACI) puts
inmates to work in an environment that
closely resembles the work environment
on the outside. This benefits inmates by
providing them with the opportunity to
become workforce ready and law abiding
taxpayers. It also helps create a civil
inmate population, focusing on acquiring
employability skills while being gainfully
employed. Thus, ACI contributes to a
safer environment inside the prison.
As a business enterprise, ACI produces a
wide range of quality goods and services
PAGE 2

for its customers, and generates
significant financial benefits for the State
of Arizona. ADC is in the process of
implementing work-based education that
integrates classroom learning and real
world work activity. It is our goal that all
of our programs will train inmates in
current demand occupations, reduce the
cost of government by supporting prison
complex operations, providing skilled
workers to ACI operations and benefiting
our communities.

Inmates

Frequently, underemployed
or un-employed prior to incarceration,
many inmates enter the Department of
Corrections with few job skills and poor
work habits. Through ACI's diverse
operations and programs, inmates learn
marketable job skills and experience firsthand the work habits, and work ethic
required to obtain and maintain
employment upon release. In fiscal year
2005, a total of $2,121,134 deductions
were taken from inmate wages (see chart).
This lays the foundation for responsible,
self-sustaining behavior and encourages
inmates to consider the impact of their
crime on their families and victims.

Mission Statement
To create opportunities for inmates
to develop marketable job skills,
civility and good work habits
through successful enterprises that
produce quality products and
services for our customers.

Room and Board*
Taxes
Dependent Support
Victim's Compensation
Court Ordered Restitution
Alcohol Abuse and
Treatment Fund
SB 1291
Miscellaneous**
Total

$1,458,667
$142,178
$30,479
$122,584
$277,227
$78,798
$8,177
$3,024
$2,121,134

* Inmate contributions deposited into the State General Fund.
**Includes deductions for disciplinary and compassionate restitution
and filing fees.

Fourth, ACI contributed $500,000 directly to the State General
Fund in fiscal year 2005 and an additional $1,410,000 to ADC
which includes $380,000 to start up 13 WBE programs.
Finally, returning law-abiding productive citizens to the
community avoids the cost associated with future incarceration.

ACI CONTRIBUTIONS
TO THE ARIZONA ECONOMY

Customers

48.0

33.7

15.8
7.8

16.9

34.5

17.5

16.8 17.0

8.0
'95

'00

'01

38.0 39.6

34.1

24.3
19.5

17.6

18.5

16.5
'02

'03

20.6

19.0

23.7

'04

'05

Fiscal Year

HISTORY OF REVENUES
30

of the State of Arizona in five distinct ways.

25
In Millions of Dollars

State of Arizona ACI contributes to the economic prosperity
First, ACI is a financially self-sufficient program of the Arizona
Department of Corrections. Receiving no financial support from
the taxpayers, the program operates entirely on revenues
generated from its business activities.

25.6

20
15

18.9

18.3

'00

'01

17.4

18.9

20.0

'03

'04

11.4

10
5

Second, deductions from inmate wages (including taxes, room
and board, and family support) relieve taxpayers of some of the
expense of incarceration. During fiscal year 2005, inmate wage
deductions totaled $2,121,134.

0

'95

'02

'05

Fiscal Year

INMATES EMPLOYED
(Monthly Average)

Third, in support of its industries and enterprises, ACI purchases

2000

1870

Number of Inmates

1600

1523

1524

'02

'03

1595

1200
854
800
400
0

PAGE 3

1494

1634

'95

'00

'01

'04

'05

Direct

ACI customers include Arizona State Agencies,
schools, cities, private enterprise, municipalities and civilians.
They receive quality goods and services at reasonable prices,
allowing them to make more cost-effective use of the taxpayer
dollars allocated to them. ACI also contracts with the private
sector to provide consistent and reliable workers for businesses
that have been unable to meet their work force requirements
through the traditional labor market.

50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

Indirect

Institutions
In a time of overcrowded prisons and underfunded programs, ACI promotes safety and security by serving
daily as an incentive for inmates to engage in model behavior.
ACI jobs are earned by inmates whose institutional conduct is
good and work and education achievements are noteworthy. ACI
maintains high standards of work performance and conduct for
inmates assigned to its industries.

goods and services, employs staff, and creates a demand for goods
and services that directly and indirectly benefit the Arizona
economy. During fiscal year 2005, these direct and indirect
contributions totaled $48 million while also creating 403 jobs
during that same time (Arizona State University Center for
Business Research). Direct contributions represent expenditures
for goods and services, and staff compensation. Indirect
contributions represent demand for good and services created by
ACI operations and enterprises.

In Millions of Dollars

INMATE WAGE DEDUCTIONS
Distribution by Type

ACI Prison Industry Enterprises

MARKET SEGMENTS
% OF REVENUE

Operations Profile

Schools 3.8%

ACI enterprises consist of two categories of operations:
Owned-and-Operated and Public/Private Sector
Partnerships. (See list of Operations by Institution)

Manufacturing:
Bakery,
Bedding,
Furniture, License Plates, Garments,
Signs, Wood/Metal Refurbishing, Metal
Fabrication and Kit Manufacturing.
Service: Graphic Arts, Data Fulfillment,
Installation/Support Service, Office
Support, Retail Outlet, Copy Service and
Warehousing.
Agriculture: Crop planting, irrigation,
maintenance and harvesting.

ACI has 27 partnership agreements
providing labor to the private and public
sectors.
Private Sector: ACI furnishes workers
for private enterprises that are unable to
meet their work force requirements
through the traditional labor market.

Bakery 11.5%

Private Sector 36.5%

State Agencies 22.6%

Some of these
businesses have established operations
within prison walls, while others have
operations in the community, with
eligible inmates transported to and from
the work site.
Public Sector: ACI also enters into
contracts with other governmental
agencies, such as the Arizona Department
of Transportation, Motor Vehicle
Division. The use of inmate workers
allows government agencies to offer
greater services to the community
without significant increases in taxpayer
support.
Prison Industry Enhancement Certified
Program (PIECP’s): These 3 programs
employ inmates in manufacturing under
enabling federal statutes.

Administration
ACI currently employs 69 civilians in
support of its activities. ACI averages
$301,176 in revenue per FTE (NCIA
utilized the number 85 and ACI has 101
authorized FTE’s), the national average is
$191,624 in revenue per FTE. ACI
maintains extremely low administrative
overhead costs.

Private and Public Sector
Partnerships, Labor Agreements
and PIECP Programs

ADC 15.1%

Cities, Towns &
Counties 3.3%

Owned-and-Operated
These 25 operations are primarily
dedicated to saving taxpayer dollars
directly by supplying many of the needs
of the Arizona State Agencies (including
the Arizona Department of Corrections
and other public agencies) at
a
competitive price. Through 25 ownedand-operated enterprises, inmates gain
experience in a variety of manufacturing,
service and agricultural operations.

General 7.2%

ACI Quality
Initiative
In fiscal year 2005, ACI launched a
Quality Initiative as a tool to enhance
customer satisfaction and contribute to
inmate vocational skills. All staff and
inmates were required to complete
quality training and planning customized
to their particular enterprises. Staff and
inmate teams established benchmarks
and then created measurable goals and
objectives. Although this program is in
its infancy, favorable comments have
already
been
received
on
its
accomplishments.
Additionally, the Arizona Quality
Alliance recently audited ACI’s quality
programs, and ACI is being recognized
with the Showcase in Excellence Award
for the 2005 Arizona State Quality
Awards Program. The Showcase in
Excellence Award recognizes Arizona
companies that have implemented a
professional quality program throughout
their organization. ACI will be formally
recognized for their efforts at the State
Quality Awards Banquet on December
15, 2005.

TOTAL INMATES EMPLOYED
IN ALL OPERATIONS
(Monthly Average)
Service Enterprises 12.0%
Public and Private
Sector Partnerships 64.0%
Agricultural
Enterprises .1%

Total: 1870

Manufacturing Enterprises 23.9%

Inmates worked a total of 2,827,821 hours during FY 2005
PAGE 4

ACI OPERATIONS
By Location and Type
Arizona State Prison Complex - Florence
Agriculture
Bedding Factory
Central Warehouse Operations
Transportation Division
Operations Administration
Dixon Farms*
Eagle Milling Co., Inc.*
Eurofresh Bobbin Operations*

Metal Fabrication Factory
Prison Retail Outlet
Furniture & Refurbishing Factory
Commodity/Consumer Products Division
Industrial Maintenance
License Plate Factory
Solar Industries*

Arizona State Prison Complex - Perryville
Garment Factory
Data Fulfillment Center
Graphic Arts Division
Sodexho-Marriott*
Greater Auto Auction*

AZ Department of Transportation -Motor Vehicle Division (2 Operations)*
Televerde (3 Operations)*
Hickman's Egg Ranch (2 Operations)*

Arizona State Prison Complex - Tucson
Sign/Office Products Factory
AZ Department of Transportation-Motor Vehicle Division*

Farmer's Insurance Company*
Dixon Farms*

Arizona State Prison Complex - Lewis
Green Acres*

Common Market Equipment Company*

Arizona State Prison Complex - Winslow
Kit Manufacturing & Re-Upholstery Plant

Eurofresh*

Arizona State Prison Complex - Douglas
Garment Factory

Southeast Arizona Medical Center*

Arizona State Prison Complex -Eyman
Bakery Division

Solar Industries (2 Operations)*

Arizona State Prison Complex - Yuma
Safety Services Co. (2 Operations)*

Arizona State Prison Complex - Safford/Fort Grant
Eurofresh*

Arizona State Prison - Marana
ESB Modular Manufacturing*

Arizona State Prison - Phoenix West
Greater Auto Auction*

ACI Central Administrative Office
Installation/Support Services (3 Teams)
Copy Service

Central Office Operations

* Public and Private Sector Partnerships
PAGE 5

Arizona Correctional Industries Fact Sheet
o ACI currently maintains 25 Owned and Operated Business
enterprises, employing nearly 700 inmates in 6 prisons.
o
ACI manages 27 private sector and governmental labor
partnerships with 15 private sector businesses and one
governmental agency (ADOT/MVD), employing over 1,000
inmates from 8 prisons.
o
ACI manages 3 Prison Industry Enhancement Certified
Programs with 2 private sector companies, which employ more
than 100 inmates from 3 prison units.
o ACI broke all records for productivity, recording sales of
$25.6 million in FY 05, which represents an incredible increase
of 27.79% over FY 04.
o
The monthly average of 1,870 inmates employed (1,978
positions) by ACI in 57 enterprises produced over 2,827,821
hours of productive work in FY 05, which represents an increase
of nearly 300,000 hours above the level in FY 04. It also
represents an increase of 275 inmates employed.

o Inmate deductions totaled $2,121,134 in FY 05, which is an
increase over the deductions in FY 04 of over $358,000.
Deductions went into the Victim's Compensation Fund, Family
Support, Court Ordered Restitution, AATF, SB 1291, Taxes and
Room and Board (R&B goes into the General Fund and not back
to ADC).
o ACI has funded the start up of 13 Work Based Education
Programs in partnership with the Community Colleges, at a FY
05 cost of $380,000, which provide real employability skills and
experience to inmates at 9 prisons.
o ACI has not substantially grown in staffing size since it's
inception, and employs up to 101 civilians. In spite of this,
productivity has increased more than 4 fold (from approximately
$6 million in annual sales to over $25 million which equals a
415% increase). Additionally, ACI, although smaller in size than
comparable correctional agencies, is more productive. The
national average revenue per FTE is $191,624, while ACI is
producing $301,176 average revenue per 85 actual FTE’s. This is
in spite of not having laws in Arizona mandating that State
Agencies purchase goods from ACI, such as are in place in other
states.
o ACI had a long history of producing profits through labor
contracts; however, producing significant deficits with its Owned
and Operated Business Enterprises. We have instituted
significant changes in this regard. In FY 04, ACI reported a
deficit of ($869,967) in the Owned and Operated area. In FY 05,
we reported a profit in the same area of $456,814. This is an
amazing success in any business arena.
o
ACI has initiated a Quality Program, reducing customer
complaints, late deliveries, and increasing profitability. We have
submitted a nomination for the Showcase in Excellence Awards
from the Arizona Quality Alliance, due to our commitment. ACI
has subsequently been awarded the Showcase in Excellence
Award.
o Through storm damage which brought our central office roof
down in multiple locations and left us with severe flooding
damage, ACI was out of our offices for well over 6 weeks, which
had an inevitable negative impact on our business. Nevetheless,
our dedicated employees pulled together to keep our operations
up and running, and are committed to being as successful or
more successful than last year.
o ACI is beginning to explore business opportunities that had
not been considered before. We are partnering with our WBE
programs such as Graphic Arts, we are expanding our
Hydroponics bobbins production, making plastic bags, and in
discussion relative expansion into food service, packaging and
other areas.

PAGE 6

STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
ARIZONA CORRECTIONAL INDUSTRIES
Statement of Net Assets
Fund Net Assets - Enterprise Fund
Year Ended June 30, 2004 and 2005

2004

2005

Assets
Current Assets:
Cash in Bank and on Hand
Cash on Deposit with State Treasurer

$44,491
3,241,734

$65,711
3,348,949

Accounts Receivable net
Interest Receivable
Inventories
Prepaid Expenses
Total Current Assets

2,509,872
14,639
3,299,881
126,673
9,237,290

2,594,523
15,682
3,728,179
140,415
9,893,459

692,438
1,759,335
2,451,773
11,689,063

692,438
1,866,829
2,559,267
12,452,726

428,789
194,522
233,376
540,973
1,397,660

443,738
211,364
363,393
564,081
1,582,576

2,451,773
7,839,630
$10,291,403

2,559,767
8,310,383
$10,870,150

Noncurrent assets:
Capital assets, not being depreciated
Capital assets, being depreciated net
Total noncurrent assets
Total Assets

Liabilities
Current liabilities:
Accounts Payable
Accrued Payroll and Employee Benefits
Accrued Compensated Absences
Other Accrued Liabilities
Total Current Liabilities
Net Assets:
Invested in capital assets
Unrestricted

Total Net Assets
Unaudited

PAGE 7

STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
ARIZONA CORRECTIONAL INDUSTRIES
Statement of Revenues, Expenses and Changes in
Fund Net Assets - Enterprise Fund
Year Ended June 30, 2004 and 2005

2004
Sales
Cost of Goods Sold

2005

$19,928,145
17,149,328
2,778,817

$25,499,193
21,031,342
4,467,851

490,166
1,894,817
2,384,983
393,834

588,531
1,966,455
2,554,986
1,912,865

72,090
18,093
90,183
484,017

74,405
(2,937)
71,468
1,984,333

Capital Contributions
Transfers out to ADC
Transfer out to other state funds
Increase (decrease) in net assets

(1,000,000)
(515,983)

4,500
(910,086)
(500,000)
578,747

Total net assets, July 1

10,807,386

10,291,403

$10,291,403

$10,870,150

Gross Profit
Operating Expenses
Selling
General and Administrative
Total Operating Expenses
Operating Income
Nonoperating Revenues (Expenses):
Investment Income
Net Gain (Loss) on Disposal of Equipment
Net Nonoperating Revenues
Net Income

Total net assets, June 30

Unaudited

PAGE 8

STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
ARIZONA CORRECTIONAL INDUSTRIES
Statement of Cash Flows - Enterprise Fund
Year Ended June 30, 2004 and 2005
2004
Cash flows from operating activity:
Receipts from customers
Payments to suppliers for goods and services
Payments to employees
Payments to inmates

$19,220,516
(8,427,784)
(5,155,893)
(5,671,214)

Net cash used for operating expenses

(34,375)

Cash flows from noncapital financing activities:
Cash transfers to other state funds

2005
$ 25,581,994
(11,437,203)
(5,480,035)
(6,674,437)
1,990,319

(1,000,000)

(1,410,086)

(1,000,000)

(1,410,086)

413
(226,615)

(308)
(530,395)

(226,202)

(530,703)

74,949
74,949

74, 405
4,500
78,905

Net increase (decrease) in cash & cash equivalents

(1,185,628)

128,435

Cash and cash equivalents, July 1

4,471,853

3,286,225

$3,286,225

$3,414,660

Net cash provided (used) for noncapital financing activities
Cash flows from capital and related financing activities:
Proceeds from sale of capital assets
Purchases of capital assets
Net cash provided (used) for capital and related financing activities
Cash flows from investing activities:
Interest receipts on investments
Contributed capital
Net cash provided (used) by investing activities

Cash and cash equivalents, June 30

Unaudited

PAGE 9

STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
ARIZONA CORRECTIONAL INDUSTRIES
Statement of Cash Flows
Year Ended June 30, 2004 and 2005

Reconcilliation of operating income to net cash source/used for operating activities:
2004
Operating Income (Loss)
Adjustments to reconcile operating income
to net cash provided by operating activities:
Depreciation expense
Net changes in assets and liabilities:
Accounts Receivable
Inventories
Prepaid Expenses
Accounts Payable
Accrued payroll & employee benefits
Accrued compensated absences
Other accrued liabilities
Net cash provided (used) by operating activities

2005

$411,446

$1,920,496

468,522

411,598

(233,990)
(623,295)
(74,443)
(495,044)
59,604
(14,973)
467,798
$(34,375)

(84,651)
(428,298)
(16,193)
14,949
146,861
25,557
$1,990,320

The following noncash transactions occurred during the year ended June 30, 2004 and 2005:
Building improvements
Construction in progress completed
Depreciation expense for discontinued operations
Accumulated depreciation related to discontinued operations
Capital assets, net of accumulated depreciation
Gain (Loss) on disposal of equipment
Donated Equipment
Capital Contributions

Unaudited

PAGE 10

94,499
(94,499)
18,093
(18,093)
-

332,820
(332,820)
(246)
(2,937)
(2,937)
-

CONTACT US:
Arizona Correctional Industries
3701 West Cambridge Ave
Phoenix, AZ 85009
602-272-7600
www.aci.az.gov
Work Force Development
Administrator
Charles Flanagan
General Manager
and Marketing and Sales
Bill Branson
Finance and Accounting
Dale Beatty
Work Based Education
Robert Streeter
Partnerships
Bruce Farley
Owned and Operated
Gregg Hillebrand
Ralph Cluff
Quality
Judi Longmeyer

PAGE 11