The Phaserl


Taxpayers pay for empty cells at for-profit prisons

from RTAmerica:

Private, or for-profit prisons, are supposed to be more cost-efficient and safer than government-run facilities. But lower crime means lower profits for these private prisons, and it’s up to taxpayers to foot the bill of empty beds because of a “Prison Bed Occupancy Guarantees Clause.” This information comes from a new report by In the Public Interest, a group that focuses on privatization and responsible contracting. Meghan Lopez talks to RT correspondent Ramon Galindo about the effects of privately run corporations on taxpayers and the prison system in general.

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1 comment to Taxpayers pay for empty cells at for-profit prisons

  • rich

    Empty cells like in spreadsheet….what a game.

    Why You Should Not Trust the Financials of Private Equity Owned Companies

    Today, we are going to examine iLevel in greater detail. We will see that this company is built from the ground up as vehicle to convince PE investors and the SEC that Blackstone and other PE firms have implemented robust financial controls over the companies they own. The reality, however, is the opposite: by design, iLevel gives PE firms unprecedented ability to cook the books of their portfolio companies while maintaining a facade of compliance.

    This may all seem like a very arcane discussion of reporting workflow, but it is important to understand that the PE firms want your eyes to glaze over. The key issue is that PE firms want their investors and the SEC to believe that their iLevel database has been constructed in a tamper-resistant fashion, which is always a central design goal of accounting software systems. If an accounting system allows people to change entries after the fact, that system is absolutely, utterly worthless. But that’s what iLevel explicitly allows to occur because, rather than extracting the data directly, it requires portfolio company employees to re-enter information into iLevel from their general ledger accounting system. Moreover, iLevel presents as one of its advantages that “key stakeholders” can “verify and approve the data”. That’s code for “tamper with”.

    Why do LPs and the SEC care about the data that goes into iLevel? In a version of its website that was labeled “test” and never posted live, but which was nevertheless crawled by Google, iLevel lays out its value proposition to PE firms in dealing with the SEC and LP investors:

    The SEC has begun its initial ‘interviewing’ of Private Equity firms and their practice of valuing their investment holdings. The questions provided to several PE firms requests information such as supporting evidence for the valuations of all fund assets and any document establishing an assigned value for any assets owned by the fund.

    The real purpose for a PE firm using iLevel is to trick the SEC and LP investors into believing that there is a reliable basis for the data underlying a PE firm’s portfolio company valuations, which in turn affects what the PE firm gets paid. As iLevel points out in the quote above, the SEC is asking for documentation to support valuations. With iLevel, the PE firms can say to the SEC and LPs, “The data was provided directly to the iLevel database by the portfolio company, via an automated process.” The SEC and LP investors are likely to hear this statement as, “The data was extracted from the portfolio company general ledger via an automated (and inherently tamper-resistant) process, in which we – the PE firm – had no role.” What the SEC and LPs should interpret this statement to mean is, “The data was manually input by a portfolio company employee whom we – the PE firm – have hiring and firing authority over. There is no process to reconcile or audit the data input to iLevel with a portfolio company general ledger.”

    This scheme is actually quite ingenious. Whereas the SEC and PE fund limited partners have various degrees of audit authority over the PE firms themselves, that authority does not extend to the portfolio companies. If the data input into iLevel is inflated at a PE firm’s behest, neither the SEC nor the limited partners have any ready mechanism to compare the iLevel data with the portfolio company general ledger, so the fraud is overwhelmingly likely to go undetected.

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