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The Prison Chief's Past

When Gov. Pat Quinn named Michael Randle the director of the Illinois Department of Corrections in May, he said his administration had "looked all over the country" and found "the best of the best."

But at the time Quinn hired Randle, "the best of the best" was under investigation by Ohio's inspector general for allegedly conducting business in a very Chicago way. (Did I mention that Randle is originally from Chicago?) That investigation was completed last July, but virtually no one in Illinois paid attention to it. Let's take a look.

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The investigation was spurred by this TV report about a sweetheart deal to sell prisoner-made furniture at a discount to a frat brother of Randle's.

Ohio's inspector general concluded that Randle had acted improperly, but uncovered a far more serious deal that Randle steered to his old college buddy.

"It smells of sweetheart deals, sweetheart relationships," Henry Eckhart of Common Cause told WBNS-10TV. "It smells of secrecy, of cover up, of all that."

Randle had no comment back then on the inspector general's conclusions; by that time was already Pat Quinn's new prisons chief.

You can find the Ohio inspector general's report here. We'll provide the executive summary and some other highlights.

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DATE OF REPORT: July 29, 2009

EXECUTIVE SUMMARY

On March 20, 2009, WBNS 10TV published an article on their website written by a reporter who had investigated a business relationship between the Ohio Penal Industries ("OPI"), a section of the Ohio Department of Rehabilitation and Correction ("ODRC"), and KBK Enterprises.

The article implied the business relationship evolved from a personal friendship between Keith Key, President of KBK Enterprises, and ODRC Assistant Director Michael Randle, and related that the two had been fraternity brothers while attending The Ohio State University.

The article also claimed that KBK Enterprises was able to purchase OPI products at OPI's net cost for materials and labor, a special pricing arrangement not available to state agencies.

Our investigation confirmed the relationship between Key and Randle. We did not find that Randle had a significant role in the negotiations of the agreement between OPI and KBK Enterprises. However, we did find that Randle had some minor involvement in the negotiation process and the administration of the agreement following its execution.

By Randle's own admission, we learned that he had never divulged his friendship with Key to ODRC Director Terry Collins prior to OPI entering into the business agreement with KBK Enterprises. We found an appearance of impropriety on the part of Randle for his failure to make Director Collins aware of his personal relationship with Key.

During our investigation, we identified another business transaction between ODRC and KBK Enterprises. In this instance, Randle's involvement was more substantial.

In 2004, then Deputy Director Randle chaired the Corrections Technology Committee. Following a presentation by Elmo-Tech, a company that manufactures electronic monitoring devices and systems, it was decided to purchase a group monitoring unit, which is used to monitor inmates' movements while on a work detail outside of an institution. Randle provided Keith Key's name to the Elmo-Tech representative as a possible distributor for Elmo-Tech products.

Key was subsequently contacted by the representative and entered into a distributorship agreement with the company.

Key later submitted a proposal to ODRC, addressed to Randle, for eight of the group monitoring unit packages at a total cost of $120,000.00. As Elmo-Tech was the sole manufacturer for this unit, it was necessary to obtain documentation confirming them as a sole source vendor and identify KBK Enterprises as the only distributor for Elmo-Tech in the state of Ohio.

After doing that, ODRC then submitted a request for a "Waiver of Competitive Selection" to the Ohio Controlling Board. In his interview, Randle stated he believes he may have personally testified in front of the Ohio Controlling Board when requesting this waiver. On December 6, 2004, the waiver was granted and the eight packages were purchased from KBK Enterprises. We learned that the cost of the eight packages from Elmo-Tech to KBK Enterprises was $80,000.00.

As with later dealings between KBK Enterprises and OPI, Randle did not notify then Director Wilkinson, or any of his other superiors, of his friendship with Key prior or subsequent to the purchase of the group monitoring unit. ODRC could have purchased the units directly from the company. It is unknown what the actual cost would have been, as there were never any negotiations concerning a direct purchase.

However, Elmo-Tech felt certain it would have been at a lesser cost than the 50 percent markup ODRC paid to KBK Enterprises.

Randle's lack of transparency about his friendship with Key, the fact that he provided Key's name to Elmo-Tech and the fact that ODRC could have saved a significant amount of money by buying the group monitoring unit direct from Elmo-Tech are the primary reasons we conclude that acts of wrongdoing occurred in this instance.

Finally, we found the agreement between OPI and KBK Enterprises to be more involved than what was reported in the initial newspaper article. A key component of the agreement was a profit sharing arrangement between OPI and KBK Enterprises based on the resale price of OPI products sold by KBK Enterprises' subsidiary, Key Industries.

The terms for this arrangement were not clearly defined within the body of the agreement. These terms were spelled out in a memorandum from KBK Enterprises to OPI. Our opinion is that this key issue should have been included in the body of the agreement in order to prevent any disputes between the two entities at a later date.

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OPI/KBK Enterprises Background

Sometime in the summer of 2005, KBK Enterprises approached ODRC with a re-entry plan to ease the transition of inmates back into society upon their release from incarceration. The plan was quite involved, and included work programs, mentorships and housing for former inmates. This plan proved to be too large and complicated for the two parties to bring to fruition.

Subsequently, the idea was tabled and other avenues for a working relationship between ODRC and KBK Enterprises were explored. Ultimately, KBK Enterprises was directed to former OPI Chief Robin Knab. Knab had been party to some of the discussions and meetings involving the re-entry program and was familiar with the ideas presented by KBK Enterprises.

In April, 2007, a Memorandum of Understanding ("MOU") was executed by OPI and KBK Enterprises. This MOU was an agreement between KBK Enterprises and OPI whereby KBK Enterprises would purchase OPI products and then resell these products to the private sector.

In turn, KBK Enterprises was to share a portion of the profit with OPI.

With this MOU, Key Industries, a subsidiary of KBK Enterprises, was formed and articles of organization were filed with the Secretary of State. The MOU was meant to be a precursor for a formal contract between OPI and Key Industries. However, the two parties could not come to terms and a contract was never executed.

With the release of the news article, the personal relationship between Randle and Key became public. Questions arose as to whether or not this relationship influenced the agreement between KBK Enterprises and OPI.

Allegation: A personal relationship between ODRC Assistant Director Michael Randle and Keith Key influenced a business agreement between ODRC/OPI and KBK Enterprises.

Michael Randle began working for ODRC in 1990 when he was hired as a Case Manager. Over the years he worked at various institutions and held several positions, including Deputy Warden, Warden and Deputy Director. In April, 2006, Randle was appointed the Assistant Director of ODRC. As the Assistant Director, Randle was second in charge and oversaw the administration and operation of the entire agency. Within the agency, he reported only to ODRC Director Terry Collins.

Prior to his employment with ODRC, Randle attended The Ohio State University where he obtained a bachelor's degree in criminology. He continued his education and received a master's degree in business administration from Ashland University.

In 1986, while attending OSU, Randle joined the Omega Psi Phi fraternity where he met Keith Key. Key had also pledged the Omega Psi Phi fraternity and the two lived in the same fraternity house for approximately a year. In his interview, Randle told our office he considers Key a friend, but their contact over the years had been sporadic.

Randle stated that some time around 2006, his contact with Key, along with other fraternity brothers, became more frequent. They began socializing more often and vacationed together as a group. Key's recollection of the history of his friendship with Randle confirms much of what Randle told us. Key believes, however, that their contact became more frequent some time in 2004.

In 2005, Key said he was approached by an ODRC employee about speaking at a Black History Month event at the Southeastern Correctional Facility in Lancaster, Ohio. Key accepted the invitation and spoke at the event. According to Key, he became interested in ODRC re-entry programs following this event. Key began conversations with ODRC, during which he discussed his ideas and plans for a re-entry program. These discussions continued, and Key said he was asked to speak at a re-entry program event held at the Mansfield Correctional Facility in October, 2005.

There, Key met Ed Rhine, Deputy Director of Policy and Offender Re-Entry. Discussions and meetings between Key, Rhine and others, over Key's plan, continued throughout the remainder of 2005 and in 2006. According to those interviewed, Randle was only an occasional participant in these discussions and meetings.

In late 2006, it became apparent the proposed re-entry program, which had become a joint effort between KBK Enterprises and ODRC, was not possible. In light of this, ODRC and KBK Enterprises began exploring other options where KBK Enterprises could be involved in some type of re-entry program for former inmates.

Ultimately, KBK Enterprises was put in touch with OPI and entered into an agreement where KBK Enterprises, now operating through its subsidiary, Key Industries, would purchase OPI products at cost and then resell the items. A portion of the profit from the resale would be shared with OPI.

In order to determine if Randle and Key's personal relationship had any bearing on this business arrangement, we interviewed OPI employees, as well as others at ODRC and Key Industries. We also examined records and memos, as well as e-mails and invoices sent between OPI and Key Industries.

We learned from our interviews with ODRC employees that Randle's role in the relationship between OPI and Key Industries was minimal. He would occasionally receive complaints from Key Industries and forward them to OPI to be resolved, but otherwise, he had no part in the day-to-day operations.

We found one e-mail in which Randle provided suggestions for the business agreement, but no other correspondence of this type from Randle was found. E-mails written and received by others indicated that Randle was made aware of the ongoing negotiations and would occasionally have input or questions. None of those interviewed felt any undue pressure from Randle or the Director's Office to accommodate Key Industries or any of its employees.

One person interviewed felt it was unusual that when Key Industries had an issue, they would contact Randle or someone else at the Director's Office seeking resolution, while other vendors would usually contact OPI directly with their concerns.

Normally, these calls from Key Industries were followed by a phone call to OPI seeking information about the problem. All of those interviewed said that Randle and the Director's Office would support OPI's position in these matters.

We also learned from our interviews with both ODRC and Key Industries employees that the business relationship between the two entities was difficult and frustrating. This subsequently led to problems in negotiating the terms of a future contract. And these difficulties led to the February 5, 2009 termination of the April, 2007 agreement prior to its expiration.

We found, however, that Randle, by his own admission, did not notify Director Collins, or anyone else at ODRC, of his personal relationship with Key prior to the release of the
newspaper article. Even though it was minimal, Randle had some involvement in the business agreement between OPI and KBK Enterprises.

As the Assistant Director of the agency, Randle should have realized the necessity of fully disclosing his personal relationship with Key to Director Collins prior to ODRC entering into any business agreements with Key's companies. He should have recused himself from any involvement in the business agreement between OPI and KBK Enterprises.

Accordingly, we found an appearance of impropriety on the part of Assistant Director Randle in this instance.

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Prior Dealings Between ODRC and KBK Enterprises

During our investigation, we learned of a prior business deal involving ODRC and KBK Enterprises.

In 2004, while serving as Deputy Director of Administration and as the Chair for the Corrections Technology Committee, Randle attended a presentation by Elmo-Tech. Elmo-Tech is, among other things, a manufacturer of electronic monitoring devices and systems that can be used by correctional departments and facilities to track the movements of inmates.

At this particular presentation, a group monitoring unit was marketed. At the end of the presentation, Randle said he expressed an interest in this unit to the Elmo-Tech representative. Discussion ensued and, according to Randle, the Elmo-Tech representative indicated his company's desire to work with an Ohio company to sell their products.

Up to this point, Elmo-Tech, a company based in Israel, had no formal operations center in the United States but did have representatives and distributors working throughout the
country.

Randle said he provided the names of several Ohio companies, including KBK Enterprises, to the Elmo-Tech representative. Randle asserted the company names he provided were minority-owned businesses and that it was the desire of ODRC to conduct more business with minority-owned companies. Randle also said he provided the Elmo-Tech representative with the Ohio Department of Administrative Services contact information for a possible direct purchase from Elmo-Tech.

According to our discussions with the Elmo-Tech representative, however, he only recalled being provided the name of Keith Key, the owner of KBK Enterprises. He also expressed that his company was indifferent to dealing with ODRC through another Ohio company.

However, he felt that since Key's name was provided by Randle, this would be the way for his company to do business with ODRC.

Subsequent to this presentation, Elmo-Tech contacted Key and entered into a distributorship agreement with KBK Enterprises, thereby making KBK Enterprises the sole distributor for the Elmo-Tech group monitoring unit in Ohio. As such, any future purchases of the unit would have to be transacted through KBK Enterprises.

Some time after signing the distributor contract, Key sent a proposal for the purchase of eight packages of the group monitoring unit to ODRC and addressed the undated document to Randle. Key's proposal included a breakdown of costs for the components of the unit and reflected a "one time" overall discount of $15,120.00.

After this discount, the total for the eight complete packages included in the proposal was reduced to $120,000.00.

After receiving a letter verifying the group monitoring unit to be a sole source product manufactured by Elmo-Tech, the process for obtaining a "Waiver of Competitive Selection" from the Ohio Controlling Board ("Controlling Board") was begun.

In the request submitted to the Controlling Board (Exhibit D), KBK Enterprises was identified as "the only authorized dealer for Elmo-Tech products in Ohio." During an interview, Randle stated he "may have even gone to the board on this" referring to testifying in front of the Controlling Board. He said it was not unusual for him to appear in front of the The Ohio Controlling Board is authorized and governed by Chapter 127 of the Ohio Revised Code. Its primary duties are the transferring of appropriation authority between line items within an agency and granting waivers of competitive selection.

On December 6, 2004, the Controlling Board approved the waiver which allowed ODRC to purchase the group monitoring units from KBK Enterprises.

In our conversations with two Elmo-Tech representatives, we were assured that ODRC could have purchased the group monitoring units directly from Elmo-Tech. When questioned, both believed KBK Enterprises purchased the eight packages of the unit from their company for around $80,000.00.

While neither Elmo-Tech representative could tell us how much the savings would have been had the units been purchased directly from the company, we were told it would have cost less for ODRC to purchase the units direct rather than through a third party where the markup was $40,000.00. From documents we later received from Elmo-Tech, we know that the cost of the equipment to KBK Enterprises was $80,000.00.

According to an itemized pricing sheet we also received from the company, the cost of their product included two days of training. When interviewed, both Key and Randle implied that the price of the group monitoring unit charged to ODRC was due in part to the cost of training. However, this cost was already incorporated into the cost of the product sold to KBK Enterprises. And, in the itemized invoice from KBK Enterprises to ODRC, there was no notation of training as a separate cost or that training was included as part of the overall price of the unit. Finally, the proposal memo from Key to Randle clearly states that two days of training would be provided at no cost for the initial order.

Overall, ODRC purchased the eight packages of the group monitoring unit at a 50% higher cost than it was sold to KBK Enterprises. Randle stated in his interview that had he known the cost of the unit if acquired from Elmo-Tech through a direct purchase, then ODRC would have dealt directly with the company.

In this instance, as with the other business arrangement between OPI and KBK Enterprises, Randle did not notify his superiors of the personal friendship that existed between him and Key. When questioned about whether or not he notified then Director Reginald Wilkinson, Randle said he had not. He stated he "was functioning in the capacity of a Deputy Director for the Department of Corrections" and that he did not feel it was an issue.

Based on our investigation, it was clear that had Randle or ODRC explored the option of purchasing the group monitoring units directly from Elmo-Tech, the agency would have realized a substantial cost savings. Further, Randle's actions were improper when he provided the name of Keith Key to the Elmo-Tech representative and then subsequently received a proposal from Key that was addressed to him alone. This proposal ultimately resulted in the requesting and granting of a waiver of competitive selection from the Controlling Board. Finally, Randle failed to divulge to his superiors the friendship that existed between him and Key prior and subsequent to the business transaction between ODRC and Key's company, KBK Enterprises.

Accordingly, we found reasonable cause to believe that wrongful acts or omissions occurred in this instance.

The ODRC/OPI and KBK Enterprises Agreement

The initial news article about the agreement between OPI and KBK Enterprises, dated March 20, 2009, would have the reader believe that only KBK Enterprises was profiting from the sale of the OPI products. This was simply not the case. Part of the agreement between OPI and KBK Enterprises was the previously-mentioned profit sharing arrangement. A follow-up article published in The Columbus Dispatch, a sister affiliate of WBNS 10TV, dated March 31, 2009, written by the same reporter, addressed the issue of the profit sharing arrangement, as well as the termination of the agreement between OPI and KBK Enterprises.

We reviewed the MOU executed between OPI and KBK Enterprises. We also interviewed key players who negotiated the terms of the MOU and those who worked within the parameters of the agreement following its execution. We found the MOU document to be standard in form with all but one of the terms clearly spelled out. The profit sharing agreement between OPI and KBK Enterprises, which was somewhat unorthodox, was not addressed within the body of the MOU.

The terms for this arrangement were later set out in a memo from Keith Key to former OPI Chief Robin Knab, both of whom signed the MOU. We also found an e-mail where Key Industries wanted to change the terms for this arrangement to their benefit. This was found to be unacceptable by OPI, and the terms of original memo stayed in place.

We learned that the desire to enter into this agreement with KBK Enterprises was, in part, due to the company's ability to do business with OSU. At one point a letter, specifically for the university, was drafted identifying Key Industries as being involved in a business arrangement with OPI and that the purchase of OPI products should go through Key Industries.

We received a copy of this letter from the university. No one at OPI we spoke with knew of this letter which caused us to initially question its veracity. We were later able to verify the letter's authenticity and determined that it was drafted by Key Industries and forwarded by Keith Key to Randle for Director Collins' signature.

Prior to this, OPI had little involvement with OSU, although they desired the business the university could provide. In this instance, Key Industries, in effect, "opened the door" for OPI to do business with OSU. This subsequently led to a large order to purchase OPI furnishings for the university through Key Industries. The order is to be delivered in 2010. However, since the termination of the April, 2007 agreement, Key Industries will not realize any pricing benefit other than a quantity discount which would be offered to any other private party or state agency based on the number of items purchased.

From the onset of our investigation, it was clear the business relationship between OPI and Key Industries was frustrating on both sides. We learned from OPI employees that problems between the two entities began almost immediately. Much of the controversy centered on claims that Key Industries did not understand how OPI operated. The same concerns were voiced by Key Industries, which held the belief that OPI had difficulty understanding private sector business operations. OPI claimed they never knew what the end user, who purchased the OPI products sold by Key Industries, was actually paying for the items.

By contrast, we were informed by those employed by Key Industries that their company was more than willing to divulge the sales price of the items but they were never asked by anyone from OPI. In the end, Key Industries provided an accounting to OPI of the final price of the items they sold. From this, OPI was able to calculate the amount they felt they were owed from the profit sharing arrangement. The total business transacted between OPI and Key Industries amounted to just over $11,000.00. It was OPI's belief that they were owed $3,234.86 in profit margin share. After some discussion between OPI and Key Industries, Keith Key paid the amount requested and so ended the agreement between the two.

A memo dated October 24, 2007, and signed by Director Collins, encouraged private vendors and non-state agencies to do business with Key Industries when purchasing OPI
products. It lauded the partnership between OPI and Key Industries as an example of a private company and a component of state government working together and exhibiting the ability to "think outside the box."

And, while we find no criticism with this thought process, we do have concerns with the MOU not clearly defining the terms for the profit sharing arrangement. While we believe this key issue should have found a place within the wording of the actual MOU document, we do not feel this oversight rises to the level of a wrongful act.

Accordingly, we did not find reasonable cause to believe a wrongful act occurred in this instance.

CONCLUSION

One would believe, from the initial news article which spurred this investigation, that KBK Enterprises was the sole beneficiary of an agreement with OPI, and that the business relationship was the result of the personal friendship between ODRC Assistant Director Randle and Keith Key. We determined that this friendship had a minimal role in the OPI/KBK Enterprises business relationship. Nonetheless, Randle failed to disclose the friendship to his superior. As the Assistant Director, he should have known the necessity of notifying Director Collins of his friendship with Key, and he should have had no involvement in any aspect of formulating the business agreement.

OPI suffered no loss as a result of this business relationship. OPI was paid its production cost and, eventually, a portion of the profits from the resale of products sold to KBK Enterprises' subsidiary, Key Industries.

It appears this friendship between Randle and Key had a much more substantial role in arranging a separate business deal between ODRC and KBK Enterprises. In that instance, Randle not only provided Key's name to an Elmo-Tech representative, but also assisted in obtaining a waiver from the Controlling Board so ODRC could purchase a product through Key's company.

While there are no laws expressly prohibiting a state employee from doing this, provided the employee receives no personal benefit from the purchase, the referral and subsequent purchase clearly give the appearance of impropriety.

We found no evidence to indicate Randle received any personal benefit from the purchase of the group monitoring units from KBK Enterprises.

However, Randle failed to notify his superiors of the friendship that existed between him and Key. The appearance of impropriety in this instance is enhanced by the fact that ODRC could have purchased the product directly from Elmo-Tech at a lesser cost, thereby saving the state money.

Finally, we believe any key component in a business agreement should be clearly spelled out in the written documentation of the agreement. That was not the case in the MOU between OPI and KBK Enterprises. The profit sharing arrangement was not included in the actual document. In the long run, this led to problems with OPI collecting its share of profits from Key Industries.

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Comments welcome.



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Posted on February 15, 2010


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