In Search of Funding for Post-Secondary Prison Programs -- FPI Scholarships

By George Hook

Again, I did not want to blow the whistle.  I just wanted to search for funding available to federal prisoners for post-secondary education courses.  While searching for post-secondary programs I also came upon this statement made by the Department of Justice ("DOJ") in Bridges to Opportunity--Federal Adult Education Programs For the 21st Century Report to the President on Executive Order 13445, U.S. Department of Education Office of Vocational and Adult Education, dated July 2008  as the only example of funding, at p.18:

"ProgramNationwide.  Federal Prison Industries (FPI) is a self-sustaining government corporation that awards scholarships for postsecondary study to selected, qualified inmates working in FPI factories. FPI allocates a portion of revenues generated from the sale of its products and services to federal agencies for the FPI scholarship program. Eligible inmates working at prison factories can take postsecondary or occupational training courses with accredited colleges, universities or technical schools.  Federal inmates are not eligible to receive Pell grants to fund postsecondary studies. The FPI scholarship program allows federal inmates the opportunity to take postsecondary or occupational training courses in order to acquire skills, degrees, or certificates that will enhance their post-release employability.

Inmates submit scholarship application forms. A local scholarship committee at the

institution reviews application forms and selects award recipients following established

procedures. Postsecondary institutions receive the scholarship program funds directly.

The scholarship program uses no appropriated funds. Revenue generated from the sale of

FPI products and services funds the program. There is no cost to taxpayers for the program."

The requirements and other details for the FPI Scholarship fund are set forth in the Code of Federal Regulations at 28 CFR 345.84. I wanted to explore how many scholarships had been awarded. I thought the best place to find that was on the FPI Website.  I must have been wrong because I found nothing.  I thought the FPI Annual Report might be a good source.  So there I went.  The 2011 Report, the latest, gave no indication of any allocation, expenditure, or funding for the scholarship fund.  My immediate thought was that the amounts might have been too meager to be reflected in the financials. 

According to said Regulations, at 345.84(c)(1): "…one scholarship may be awarded per school period for every fifty workers assigned. At least one scholarship may be awarded at each institution location, regardless of the number of inmates assigned."  The Regulation goes on at (c)(2) to state that the scholarship would be for tuition and books.  FPI reported factories at 66 institution locations in 2011 and 14,200 "inmates employed. Doing the math, at least 66 scholarships could have been awarded on the basis of location, and 284 based on personnel; so assuming a maximum amount in the Pell Grant range, FPI could have put into the scholarship fund $5,500 x 66, or $363,000 to $5,500 x 284 or $1,562,000.  FPI's 2011 Report discloses no scholarship provision or funding.  This could mean that there has been none.  In accord with my initial uneducated surmise, it could mean that such provision and funding were too immaterial to disclose.  Financial Accounting Standards Board (FASB) Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information, defines materiality as "the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement."  The rule of thumb is that a fluctuation in net income less than or equal to 5% is not material and need not be disclosed.  The FPI's 2011 Annual Report shows a loss of about $1.8 million.  So the 5% rule of thumb should have compelled disclosure, I believe, if scholarship funding existed. 

Since the FPI is a federal government corporation the only "investment influence" on it is political.  So another possible reason for non-disclosure is cautionary: to avoid FPI Scholarships being scuttled based on the kind of adverse political spin that eliminated Pell Grants for prisoners.  Cotton & Co., the auditors, may have alerted FPI to the disclosure concern, if it existed, and then agreed to plug their ears from what they heard based on this overriding political concern.