Maintain Financial Sustainability
Financial sustainability is the generation of sales revenue to cover all costs and financial obligations associated with Correctional Industries (CI) operations. The concept of a triple bottom line has emerged in Correctional Industries which focuses not only on the needs of customers, but also the funding of the social mission and value provided by the organization to incarcerated individuals for successful re-entry.
Triple bottom line accounting expands the traditional reporting framework to take into account social and environmental performance in addition to financial performance. This has also been further referred to as identifying business performance as “full cost accounting” including economic/financial, social/ethical and environmental/ecological.
Financial sustainability is essential to CI’s mission of providing vocational and soft skills training and certifications for individuals while incarcerated. These certifications and training, in turn, lead to increased opportunities upon release for real life employment for incarcerated individuals, thereby reducing recidivism.
Achieving financial self-sufficiency will result in financial gains and therefore maintenance or growth of adequate operational funds. In order to achieve this, CIs must be customer-driven, focusing on quality, on-time delivery and competitive pricing. In addition, CIs should pursue new business partners/models to bring in new products and revenues, and seek cost efficiencies and competitiveness while operating in a corrections environment.
Adequate operational funds will cover fixed costs as well as allow for the timely ability to procure raw materials, maintain inventories, capitalize building and equipment purchases, fund any necessary expansion of operations and provide the ability to complete needed repairs & maintenance. These funds also allow Correctional Industries to meet the demands of customers and to keep up with technology advances in operations. This also creates an ability to increase the number and types of opportunities offered to the incarcerated workforce in job training programs.
There may be business units that are not financially self-sufficient but provide valuable work opportunities for numerous incarcerated individuals. Correctional Industries can balance these with business units that can offset the financial loss.
Financially self-sufficient Correctional Industries are recognized as a viable reentry/ incarcerated job program that does not burden annual General Fund appropriations. Additionally, Correctional Industries reduces the cost of corrections security and/or programming staff required for the supervision of the incarcerated individuals.
Financial sustainability and associated funding reserves provide the basis for promoting current operational expansion as well as the ability to explore, consider, and implement new operations, thereby maintaining the number of current incarcerated individual positions and creating and expanding incarcerated individual opportunities within Correctional Industries. Funding reserves will help carry a CI through an economic downturn and/or lean budget cycles.
1. Develop annual business operating plan to support the strategic plan
a) Budgets (Short and Long-Term)
· Historical data should be considered when preparing budgets. Known business changes (expansions, end of a product line, etc.) should be considered when preparing budgets.
· Forecasts of sales revenue are generated for the budget period by the sales and marketing plan. Define key market segments, customer groups, and stakeholder groups and the key requirements and expectations for products, operational capabilities, customer support services, and overall operations.
· Include asset planning in the budget development process. The primary goal of asset planning is to maximize the return on investment of existing or additional assets which leads to delivery of customer value.
· Determine costs based on sales volume and product mix using Generally Accepted Accounting Principles (GAAP). The following is a list of some common costs which should be included:
o Cost of sales (raw materials, indirect and direct labor)
o Administration (including salaries & benefits)
o Repair & Maintenance
b) Sales & Marketing
A Sales & Marketing plan should be included within the business plan. The Sales and Marketing plan should identify the customer base for particular products and services so that efforts can be geared to those areas. Increasing sales will allow for greater contributions to funding reserves, thus contributing to financial sustainability.
c) Expansion Planning
Correctional Industry programs must always have a focus on the future. Monitoring market trends and identifying opportunities is essential in understanding when investments should be made in particular business units.
d) Financial Statements
The three primary types of financial statements useful to manage a financially self-sustaining organization are:
· Balance Sheets
· Profit and Loss (P&L) Statements
· Statements of Cash Flow
Monthly P&L statements must adhere to GAAP and need to be generated and tracked by your fiscal department and distributed to executive, operational, and sales management staff for analysis and adjustments in operations/sales. Managers at every level should be able to read and interpret financial results so that trends, threats, and opportunities can be identified and acted upon as quickly as possible. Footnotes should be included as part of these statements to explain current vs. past results and unexpected variances which will assist in proper assessment of future expectations upon which to make decisions.
e) Maintain positive cash flow
Revenue streams are the channels through which money flows into an organization. Self-sustaining CIs must rely primarily on sales of products and services.
Sufficient operating funds should be maintained to pay monthly expenditures and purchase raw materials and goods to efficiently run business operations.
One of the biggest factors affecting cash flow is the cash conversion cycle – the period of time beginning with initial outlay of cash for raw materials and ending with receipt of payment for goods or services provided. For many CI’s, this can be a longer period than expected (or experienced in the private sector) due to governmental customers’ rules and regulations for processing payments, CI’s raw material procurement requirements, production capabilities, incarcerated individual staffing, delivery timelines, collection capabilities, etc.
2. Manage Legislative Environment
Review legislative language for potential impact on CI’s, as well as for possible market expansion. It is important to understand the legislative landscape and revenue streams available in each state to maximize those revenues and training opportunities for incarcerated individuals. Some legislative considerations may include the following markets:
· Non-Profit Organizations
· State Employees and Retirees
· General Public (in-state)
· Contractors Working on Public Contracts
· Service Operations
3. Implement Enterprise Resource Planning (ERP) software solutions
· Inventory Control
· Real time order processing
· Estimated versus actual costing
· Accurate and timely financial reporting both monthly and annually
· Develop annual budgets with sales and capital forecasting
4. Communicate with Executive Leadership and Industry Boards
· Collaborate with department leadership on initiatives and challenges
· Establish open communication and regular meetings with executive staff and industry boards.
· Work with institutional leadership to prevent production interruptions.
5. Obtain compliance verification
Compliance may be obtained through the following audits or assessments:
- Fiscal Audits
- Performance Audits
· American Correctional Association Audits
· Risk Management Audits
· Human Resource/Payroll Audits
· Bureau of Justice Assistance (PIECP)
· Financial Statements
· Positive net income and fund reserves
· New or Expanded Operations
· Ability to fund CI reentry programs for incarcerated individuals
· Diversified customer base
· Customer Satisfaction Ratings
Bragg, S.M. (2011) Inventory Best Practices (2nd Ed.). Hoboken, NJ: John Wiley & Sons, Inc.
Bruner, R. F., Eaker, M. R., Freeman, E. R., Spekman, R. E., Teisberg, E. O., Venkataraman, S. (2003). The Portable MBA (4th Ed.) Hoboken, NJ: John Wiley & Sons, Inc.
Piasecki, D. J., (2003). Inventory Accuracy: People, Processes, & Technology. Kenosha, WI: OPS Publishing.
Womack, J. P., Jones, D. T., Roos, D. (2007). The Machine that Changed the World: The Story of Lean Production. New York: Free Press.
American Institute of Certified Public Accountants, Subject matters: Risk Management and Internal Controls.
Government Accountability Office, Subject matters: An Audit Quality Control System: Essential Elements.
The International Organization for Standards outlining International Standards for business, government and society. Subject matters: ISO 31000 Risk Management – Principles and Guidelines
The Baldrige Performance Excellence Program website, Subject matters: Baldrige Criteria for
American Correctional Association for ACA Standards and Performance-Based Standards for Correctional Industries
Budgets and Strategic Plans, 1 year and 5 year
Enterprise Resource Planning (ERP) solutions (Global Shop, Epicor, SAP)
Financial statements: Monthly and Annual
Generally Acceptable Accounting Principles (GAAP)
NCIA Regional and National Conferences including vendor contact, training sessions and networking with other Correctional Industries professionals.