GOVERNOR AIMS TO CUT PRISON WATCHDOG

Agency Has Thwarted Numerous Problems

SACRAMENTO - The state's independent prison watchdog agency, which Gov.
Arnold Schwarzenegger wants to eliminate because it's a "waste," has
uncovered tens of millions in potential savings and exposed dangerous
conditions in the state's prisons.

In hundreds of pages of confidential reports and summaries obtained by the
Mercury News, investigators from the Office of the Inspector General
provide a grim indictment of a system unable to root out corruption or curb
skyrocketing costs.

Among the office's findings: the cost of drugs bought by prisons ballooned
111 percent to $133 million over three years while the prison population
declined, shortcomings in the corrections internal-affairs unit undermined
investigations of serious staff misconduct, and classes for high-security
inmates costing $48 million a year were held just 25 percent of the time --
but teachers were still paid and prisoners still got credit for early release.

Schwarzenegger wants to put the office, which now reports to the governor,
under the direct supervision of the corrections agency it is supposed to
keep tabs on. The office became independent in 1998 in the wake of a prison
scandal so it could take on a more aggressive watchdog role.

The governor also wants to cut the office's budget from $2.8 million to
$630,000, continuing a whittling-down that Gov. Gray Davis and the
Legislature began two years ago. At its peak in 2002, the office had a
budget of $11 million and 116 employees. Now, it has about 16 auditors and
investigators monitoring more than 54,000 employees in dozens of facilities.

The proposal comes as the troubled $6 billion-a-year corrections system
faces intensified criticism for being unable to police its own ranks.

Recent Criticism

In the past two weeks, a federal court monitor declared the Department of
Corrections had "lost control" of its ability to discipline guards for
abusing inmates, and lawmakers held hearings on an inspector general's
report that raised questions about a possible cover-up after a 2002 riot at
Folsom State Prison. A week ago, court-appointed experts reported that
juveniles are regularly locked in cages, over-medicated and denied
essential psychiatric treatment.

Schwarzenegger, who campaigned on ridding the state bureaucracy of waste,
charged last week that the Inspector General's Office had not "done the job
they were supposed to do."

Vince Sollitto, a Schwarzenegger press aide, said the governor was merely
"taking his cue" from the Legislature and the Davis administration, which
he said had gutted the office to the point where it could not stand alone.

"In the governor's view, the focus of that office should be on rooting out,
exposing and prosecuting and preventing malfeasance and misconduct,"
Sollitto said.

Schwarzenegger is not alone in his criticism. Some lawmakers see the office
as an unneeded bureaucracy and, with the state bleeding red ink, targeted
it for elimination.

In his first interview since Schwarzenegger replaced him as acting
inspector general, John Chen disputed Schwarzenegger's characterization of
his office as a waste.

"The governor obviously has been misinformed," said Chen, a veteran state
auditor. "He said he wants to identify government waste through audits. If
he is sincere, he should start by looking at some of the audit reports
produced by this office."

Chen estimated that the office identified from $40 million to $50 million
in possible savings in reports in the past several years.

Schwarzenegger replaced Chen on the eve of legislative hearings at which he
was expected to be quizzed about his office's report on the Folsom
cover-up. Administration officials said the governor wanted his own
appointee to run the office and the timing was a coincidence.

The adult prison system has been engulfed in controversy ever since the
massive build-up of prisons in the 1980s and 1990s saw the population of
inmates quadruple. California, the nations's largest state prison system,
has about 161,000 inmates.

After reports of widespread brutality and cover-ups at Corcoran State
Prison, Gov. Pete Wilson signed legislation in 1998 to bolster the
inspector general and make the post a gubernatorial appointee. Wilson, now
one of Schwarzenegger's political mentors, stressed that the office would
operate "as an independent oversight body" and promised "this added
protection will further ensure integrity and professionalism."

Both the Texas Department of Criminal Justice and the federal Bureau of
Prisons have inspector generals with considerable independence. In Texas,
the inspector general reports to a board that oversees the system. "That's
a critical component to being able to operate and root out any allegations
of misconduct without fear," said Texas Inspector General John Moriarty.

Source Of Irritation

The Inspector General's Office in California was led by Steve White, a
former Sacramento County district attorney, from 1999 to last November and
became an irritant to prison administrators.

The Mercury News obtained copies of 31 reports issued over the past four
years, as well as summaries of several others. The reviews, audits and
investigations of inmate discipline, financial irregularities and
mismanagement represent just a fraction of the work of the Office of the
Inspector General.

The reports were given to corrections officials but most were not made
public. As of Jan. 1, the law allows audit findings to be disclosed.
Schwarzenegger administration officials are reviewing them and plan to
release them.

In one of his first major reports, White concluded that the corrections
department office that investigates serious employee misconduct was plagued
with problems.

The Office of Investigative Services, he concluded, had an "inaccurate and
unreliable" system for tracking cases, failed to do background checks on
temporary employees and had "inadequate controls to prevent abuse of
overtime pay." From March 2000 to March 2001, for instance, the office paid
$1.15 million in overtime to 62 special agents or $18,612 per employee.

Budget Overruns

The corrections department is notorious for exceeding its budget year after
year.

At the time, the interim assistant director said the report would be used
as a "blueprint for change." One of White's top lieutenants recently was
named to oversee internal prison investigations.

The Inspector General's Office also found last year that $48 million was
being spent every year to give some of the state's toughest criminals
required academic and vocational classes. But, the report concluded, "with
lock-downs frequently lasting several months," classes at the state's 11
most secure lock-ups operate an average of only 25 percent of the time.

Even when classes are shut down, inmates received credit -- leading to
reduced sentences -- and teachers were paid.

The report urged the state to replace classroom instruction with in-cell study.

Bob Martinez, a corrections official, said the department was "concerned
about these high costs" and was moving toward making changes even before
White's report.

The Inspector General's Office has repeatedly targeted runaway health care
costs.

Last July, the office reported that drug costs had skyrocketed 111 percent,
from $63 million in 1999 to $133 million in 2002. In the same period, the
prison population declined 2 percent and the consumer price index for drugs
increased just 22 percent. One prison continued to renew prescriptions for
inmates released as many as eight months earlier and then discarded the
drugs as unclaimed.

The inspector general also determined that the cost of drugs was
"significantly higher" than the two prison systems of comparable size --
Texas and the federal government.

Officials from those two systems estimated California could save at least
20 percent on drugs with more effective controls, and a private vendor
estimated it could save even more -- up to $77.5 million.

Medical Contracts

In 2002, the office determined that contracts for medical services
increased 82 percent over three years, from $92 million to $168 million.

Citing a "lack of sound contract management," the inspector general's
report says the Department of Corrections paid more than $77,000 for
clinical services that weren't performed and more than $1 million for
services that weren't authorized. At the time, the department agreed with
the finding, citing confusion over the terms of the contract.

Schwarzenegger appointed Roderick Hickman, a rising star in state
corrections, as his secretary of the Youth and Adult Correctional Agency.
Hickman has indicated that he would consider keeping the Inspector
General's Office as an independent entity.

Don Spector, director of the Prison Law Office, which has prompted
widespread prison reforms through legal challenges, questioned whether the
governor's advisers have given him an accurate characterization of the
Inspector General's Office. "They have done a very good job of
investigating corruption, guard brutality, guard misconduct, waste within
the prison bureaucracy," he said.