FEDERAL PRISON INDUSTRIES, INC. (FPI) INDUSTRY INVOLVEMENT GUIDELINES VIOLATION PRODUCTION OF BATTERY BOXES The Federal Prison Industries Reform Act of 1988 established the Industry Involvement Guidelines which, in part, provide procedures that FPI shall follow prior to initiating production of a new product or significant expansion of production of an existing product. Urbach, Kahn & Werlin PC (UKW), certified public accountants, reviewed Federal Prison Industries, Inc.'s (FPI) policies and procedures for ensuring compliance with the Industry Involvement Guidelines, and conducted a comprehensive historical analysis of all products produced by FPI to determine actual compliance with those guidelines. The UKW review identified one instance regarding the production of a new product that was not in full compliance with the guidelines process. Production of battery boxes as a new product: The production of battery boxes was initiated in 1991, at the Federal Correctional Institution -- Fairton, New Jersey. Production was initiated in response to an urgent request from the Department of Defense for Operation Desert Shield and the Persian Gulf War. FPI responded, but without first seeking approval from its Board of Directors to produce this product. While there is an explicit provision for national exigencies that cover such production in the current FPI rules, there was no such provision in effect at that time, and FPI inadvertently proceeded without following the guidelines process. FPI received accolades for its support at the Fairton facility after the war ended, and continued the production of battery boxes, though of a different type, without going through the guidelines process. Battery box production has continued to this day, reaching over $3.0 million in FY 1994, and again in 1997, but the requirement is scheduled to be phased out beginning in FY 1999. The battery boxes produced at FCI Fairton use an injection molded plastic process. FPI constructed the boxes from purchased molds using presses previously used for plastic seat backs. UKW indicates in its report that FPI's sales of battery boxes do not significantly impact the sizeable plastic injection molding industry. Moreover, the battery boxes, which were originally sold directly to the military as part of a gas mask system, are now sold as a component of the SINCGARS radio system, for which FPI is the prime supplier to the Department of Defense. FPI Request for Ratification of Past Violation: FPI concurs with the UKW recommendation that its Board of Directors ratify the production of battery boxes for the time period previously not permitted. FPI's Board of Directors makes the final decision authorizing the production of a new product or the significant expansion of an existing product by FPI. Given the particular circumstances surrounding the production of battery boxes, coupled with the time period when this occurred, the fact that battery boxes were initiated for military exigency during wartime need, and the minimal impact its production has imposed on the industry, we believe it is appropriate to request that FPI's Board ratify the production of battery boxes, and bring closure to the issue. Request for Public Comment: This announcement solicits comments from interested parties concerning any impact related to FPI's failure to go through the guidelines process during the time period in question. Comments on this notice are due within 45 days of the date of publication in the CBD. All comments received will be forwarded to FPI's Board of Directors for consideration as the Board evaluates FPI's request for ratification of the production of battery boxes. Please forward any comments to: Manager, Planning, Research and Activation, Federal Prison Industries, Inc., 320 First Street, N.W., Washington, D.C. 20534. The publication: Review of Industry Involvement Guidelines Process, Final Report, dated April 1998 and prepared by Urbach, Kahn and Werlin PC, certified public accountants is available to interested parties. Requests should be made to: Manager, Planning, Research and Activation, Federal Prison Industries, Inc., 320 First Street, N.W., Washington, D.C. 20534. Posted 09/25/98 (W-SN254599).

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