PRIDE halts business with spinoff
Responding to a critical state audit, the nonprofit says it might have overpaid Industries Training Corp. and has closed several businesses.
By JONI JAMES
Published January 22, 2005
TALLAHASSEE - The St. Petersburg nonprofit company that sells goods made by Florida prisoners has severed ties with a controversial spinoff and acknowledged the alliance might have financially compromised the firm.
As of Dec. 30, PRIDE Inc. is no longer using the administrative services of Industries Training Corp., a 6-year-old spinoff run by former PRIDE executives. PRIDE also said it may have overpaid the company for years.
How much PRIDE may have overpaid is unknown. But emboldened by a new cost analysis, PRIDE said it paid ITC just $396,000 for the final quarter of 2004 compared to the $1.56-million in average payments for the first three quarters.
PRIDE said it has closed three businesses in the past six months, including a money-losing citrus processing plant, and consolidated three others. Four other unprofitable ventures were put on "profitability improvement" plans.
The changes are mentioned in PRIDE's written response to a highly critical audit last month by Derry Harper, the governor's inspector general.
The response blames former executives for withholding important financial information from PRIDE's board, whose members are appointed by Gov. Jeb Bush or work for him.
Ten months after critics started questioning PRIDE's relationship with ITC, Harper found PRIDE had insufficient internal controls, a flawed business model and potential conflicts of interest. He also said the way PRIDE created ITC violated state law, which says only PRIDE can oversee prison labor.
The seven-page response provided little defense of the Board of Directors, except to say they had good intentions. "Although the audit report was generally critical ... it is important to note that there were no findings of any wrongdoing by anyone associated with PRIDE," the PRIDE response said.
On Friday Bush named five new members of PRIDE's board to replace members whose terms expired. Ten of the 11 board members are appointed by Bush; the 11th is always the state's corrections secretary.
"The good news is they are accepting the recommendations made by the inspector general and they have agreed to take steps to rectify the situation," Bush said. "You can't undo what's been done. It's not going to go back to whatever you would call normal in PRIDE world."
Bush said he would discuss whether further changes are needed with Corrections Secretary James Crosby, PRIDE's leading critic since joining the board a year ago. Crosby said he has faith in Jack Edgemon, interim CEO and a longtime PRIDE employee. "Sometimes in business I guess you cut your losses and stop the bleeding," Crosby said. "I'm not sure anyone understood, when they were creating ITC, what could happen."
PRIDE said "management did not provide the board with realistic business plans. ... Businesses that were unable to achieve their plan goals repeatedly were not submitted to the board for review or corrective action."
The St. Petersburg Times in July reported how PRIDE, after creating ITC in 1999, shared its executives and board members with ITC, provided at least $10-million in interest-free loans and agreed to compensate ITC handsomely for handling payroll, insurance coverage and accounting.
The venture was part of PRIDE's plan to transform itself from a company focused on prison manufacturing and farming into a conglomerate of spinoffs and subsidiaries. For years, PRIDE paid inmates to make office furniture, shoes, uniforms and other items.
The idea was to teach prisoners skills they could use in the real world. But PRIDE said it was difficult to compete with globalized manufacturing.
PRIDE believed it could create spinoffs that wouldn't be subject to the same marketing constraints as a prison labor company and could launch nonprison businesses to help its bottom line.
But during the same five years, PRIDE saw revenues plummet 30 percent and inmate jobs reach a 15-year low. Meanwhile, Bush's office discovered some executives got pay increases averaging 14 percent annually.
"I'm disappointed in the self-dealing, the higher pay for the same work," Bush said.
Harper's audit found the new business model failed to meet its goal of more jobs for Florida prisoners. In 2003, PRIDE offered 2,049 jobs, more than 600 fewer than it offered in 1999. The ambitious expansion plan also cost PRIDE at least $16-million in assets.
PRIDE officials estimate ITC still owes $12.9-million from loans, and suggested ITC might sell some assets to repay some of that balance. But PRIDE said it doesn't plan to figure out whether it overpaid ITC. Calculating the actual costs would be time consuming, PRIDE said, and even if it did overpay ITC, "it is unlikely that PRIDE would be able to collect on the over payments."
Pamela Jo Davis, the former PRIDE chief executive who oversaw the launching of ITC and served simultaneously as head of both companies, could not be reached for comment. Her office said she was out of the country. As scrutiny heated up last summer, Davis stepped down from her PRIDE post, but she remains CEO of ITC. Her salary was listed as $236,000 last year.
Edgemon, PRIDE's interim CEO, is paid $141,755 annually.
ITC chief financial officer Mike Smith, who also had served as PRIDE's CFO, did not return a call for comment.
It was unclear Friday what the future holds for ITC. The company, which leases space in the same office building as PRIDE on 28th Street N in St. Petersburg, has lost its biggest client.
ITC board chairman Randall May, in a written response to questions submitted by the Times, did not address ITC's future.
"The Inspector General found no wrongdoing in its investigation. ... Some of the business ventures were unsuccessful," May wrote. He also denied ITC overcharged PRIDE.
PRIDE doesn't get state money, but has exclusive access to prison labor and facilities and favored status supplying goods to state agencies. When PRIDE was formed, the state transferred some assets to the company. The state is entitled to share profits, a provision that has never been exercised.
PRIDE'S TROUBLESf,8.5,ux0,,10.8 DECEMBER 2003: Legislative audit criticizes PRIDE's corporate restructuring.
JUNE 2004: PRIDE board suspends its top two executives.
JULY 2004: PRIDE ousts its two top executives.
DECEMBER 2004: Governor's inspector general finds the way PRIDE created a spinoff company violated state law.