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Financial Analysis of Detention Centre Costs
Edwards BSc (HONS) FIA FIAA FNZSA
Overview of
Detention Centre costs
Australia’s “Detention Centres” are managed by the
Department of Immigration and Multicultural Affairs (DIMA). I have
estimated that it costs DIMA $117 per day to house each person in the
Detention Centre.
During a year there are
between 3000 and 4000 [1] people living in the Detention
Centres. Assuming an average of 3,500 people, this comes to $150
million dollars per annum. Where does all the money go?
Is $150 million the right cost to house 3,500 people for a year? Are
there cheaper alternatives?
The cost of running
the detention centres.
I estimate that the total cost of housing a detainee for a day in a
detention centre is $117. This is made up of an estimate DIMA has
given to the Senate of $104 for direct costs plus a loading for indirect
costs.
|
Cost
component
|
Description
|
Cost
per day
|
|
Wackenhut payment
|
Payment to Wackenhut
– a US private prison manager and the outsourced service provider
|
$77
|
|
DIMA
costs
|
Cost of
managing the contract and other DIMA staff
|
$27
|
|
Total direct costs
|
As per Government
Senate statement [2]
|
$1042
|
|
Indirect
costs
|
Capital
loading for land and buildings
|
$13
|
|
Total costs
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Average daily cost
per man, woman or child
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$117
|
Each of these
components are discussed fully below.
Wackenhut payment
The detention manager – Australian Correctional Management Pty Ltd - is
a subsidiary of Wackenhut Correctional Services, a US private prison
manager. This is an indirect relationship, obscured through
countless layers of holding companies. DIMA is at pains to keep the
manager’s real identity secret. This is probably because Wackenhut
are experiencing many law suits in the US for both their failure to meet
contracts and for deaths in detention of their prison “clients” [3] .
Wackenhut however are not so shy about the relationship with DIMA.
Wackenhut’s 2000 SEC filings [4] state that DIMA is their third
largest client globally. The Wackenhut report says that in the year
to December 2000 DIMA paid Wackenhut $98 million dollars. While DIMA
have downplayed and even denied Wackenhut’s involvement with the detention
centres, it is clear from the Wackenhut filings and annual reports that
their relationship with DIMA is extremely important and they are very
anxious to both increase numbers in the Detention Centres and to increase
their profit margin on the relationship. At present the profit margin
appears to be around $8.5 million i.e the US company makes over $8 million
dollars profit for running the detention centres.
Appendix One gives a
comprehensive derivation of the Wackenhut payment, as well as a derivation
of the profit margin.
By dividing the Wackenhut payment of $98 million by the average number
of people we get the per person daily cost of $77. As expected most
of DIMA’s cost figure of $104 goes to Wackenhut, who provide security at
all DIMA detention facilities, provision of accommodation (excluding the
cost of the buildings, which is an indirect DIMA cost covered below),
maintenance, catering, heath care and medical/ dental treatment,
educational and recreational facilities, welfare and counselling.
DIMA costs
There is also a cost to DIMA in overseeing the Detention Centres,
ensuring compliance with the contract, running the Detention Task Force and
dealing with issues such as the riots and fires at Woomera and so on.
PR alone must be enormous, dealing with the Australian and foreign press,
human rights groups and the United Nations’ criticisms of the
Centres. We have estimated the $27 per day DIMA cost as the
balancing item to reach DIMA’s estimate given to the Senate of $104 per
person per day.
Indirect costs
While most government departments are selling buildings and lands, DIMA
is buying and building more to house the detainees. In the year to
Jun 2001 DIMA spent $17 million on land purchase and building costs, after
spending $16 million in 2000 [5] . As of May 2000, the
Government allocated a further $52.1 million to be spent over four years in
building new Detention Centres in Darwin and Brisbane. [6] This gives an average additional expenditure of
$13 million per year.
These assets are highly specialised, in “remote” locations and suitable
only as high security prisons or other such institutions. They are
probably very illiquid and difficult to sell. The capital cost of the
Detention Centres is carried as an asset in DIMA’s accounts and slowly
amortised. Therefore the cost is not shown as a direct cost to the
Australia tax payer. In reality however the centres are
unnecessary expenditure and not creating a saleable asset. In our
calculations, we have therefore included a daily loading of $13 per day
(equivalent to $17 million per year, the current spending rate) in
assessing the true cost of the Detention Centres.
Are there cheaper
alternatives?
A single Australian who is unable to work because he/she is disabled or
cannot find a job is paid about $250 a week (which includes a rental
allowance), or $200 for those with free accommodation available. Extra is
paid for children and families, but the additional child or spouse
obviously receives less than $250 each. This maximum payment of
$250 per week is equivalent to $36 a day.
If Australia were to allow its asylum seekers to live in the community,
and pay them the single persons disability allowance, the daily cost would
reduce to $63. This is shown below.
|
Cost component
|
Description
|
Cost per day
|
|
Weekly living
allowance
|
Disability benefit
paid to each and every detainee
|
$36
|
|
DIMA costs
|
Cost of managing the
contract and other DIMA staff
|
$27
|
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Total costs
|
Average daily cost
per man, woman or child
|
$63
|
This number of $63 is overstated as it assumes that all the people
living in Detention Centres are single adults. In fact, many are
children and families, so the true cost would be much lower. It also
assumes that DIMA costs are unchanged – while there would be more cost in
managing individual families, the cost savings in not running the outsource
provider and the reduction in the cost of “incidents” such as damage to
Woomera (which the Commonwealth normally bears, not Wackenhut) would be
enormous.
But what about the cost of abscondees? Suppose that those
15% of asylum seekers who are not ultimately granted asylum here escape to
the community where they live out their days without being caught.
These people’s benefit would be terminated and, as Julian Burnside has
noted “If they manage to stay out of the Government’s way, it probably
means they are living law-abiding lives”. [7]
$63 a day is equivalent to $80 million each year. By letting
people live in the community, we have saved the Australian tax payer seventy
million dollars each year. Other papers have dealt with the
legal and ethical aspects of the detention centres.
Naomi Edwards BSc
(HONS) FIA FIAA FNZSA
21January 2002
APPENDIX ONE –
ANALYSIS OF WACKENHUT REVENUES
ACM Ownership
Structure
The Australian detention centres are managed by Australasian Correctional
Management Pty LTD (ACM). ACM is owned as follows:
The ACM contract is managed by DIMA. Payments to ACM are included
in the line Supply of Goods and Services in the DIMA financial
Statements. They can not be extracted from this line as it includes
many other goods and services.
Wackenhut’s SEC
filings
Wackenhut Correctional Services (WCS) is required to file quarterly and
annual statements with the US Securities and Exchange Commission
(SEC). The annual statement (produced at December every year) must
disclose any individual customers who accounted for more than 10% of WCS’s
global revenues. DIMA qualified as such a customer in 2000, the
latest return available. The SEC return shows the following:
|
|
2000
|
1999
|
1998
|
|
WCC consolidated
revenues US$000 [8]
|
535,557
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438,484
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312,759
|
|
DIMA percentage of
revenues
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11%
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6%
|
4%
|
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Implied DIMA payments
US$000
|
58,911
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26,309
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12,510
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Implied DIMA payments
A$000
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97,535
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41,530
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19,748
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From the above we can see that DIMA paid ACM some $98m
in fees in calendar year 2000.
How much profit did
ACM make on the DIMA contract?
Again, we cannot see this directly from either the DIMA accounts or the
Wackenhut filings. However we can estimate it closely by examining
the proportion of Wackenhut’s total profit attributable to its overseas
(I.e. non US) operations. The profit made on the DIMA contract is
estimated in the table below.
|
|
2000
|
1999
|
1998
|
|
WCC international
revenues9 US$000
|
109,047
|
67,151
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48,117
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|
WCC international net
income [9] US$000
|
9,292
|
4,381
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1,568
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|
WCC implied profit
margin on contracts
|
8.5%
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6.5%
|
3.3%
|
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WCC profit on DIMA
contract A$000
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8,311
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2,709
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644
|
The estimate of $8.3m profit on the DIMA contract is valid for calendar
year 2000, where DIMA comprised over 50% of WCC international
revenues. The prior year estimates are not as robust.
What can we say
about Calendar Year 2001?
The SEC 10K filings are not yet available for 2001. However the
quarterly filings (SEC 10Q)are available up to 30 September 2001.
Assuming that DIMA continues to represent a major proportion of WCC’s
international earnings, then we can use that trend line as a proxy for
DIMA. The quarterly WCC international revenues are shown below.
|
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2000
|
Q1 2001
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Q2 2001
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Q3 2001
|
|
WCC international
revenues10
US$000
|
109,047
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24,301
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26,085
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27,474
|
|
WCC international net
income [10] US$000
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9,292
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1,265
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911
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915
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Australia compensated
resident days3
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1,800,000
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449,999
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446,418
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467,117
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There are two features apparent from this. Total revenues and
compensated resident days have stayed stable over 2001. But profits have
fallen sharply, due in part to the fall in the Australian dollar and in
part to the start-up costs of the Auckland Central Remand Prison.
Overall it seems that DIMA revenues were stable with a decline in Q2 2001
relative to 2000 but a jump in Q3 2001 revenues relative to 2000.
Cross checking the
SEC Return numbers
There are two ways to try and validate these numbers. One is from
the DIMA financial statements and Notes to the Accounts. The other is
from the ASIC filing (Report #017282174) that ACM has filed as a result of
being a “large entity” operating in Australia.
The DIMA returns do not disclose anything about the ACM contract – in
fact they do not even mention it, which is surprising given it is the
single largest contractor by an order of magnitude. The payments made
to ACM are included in the Supplies of Goods and Services. We can
compare this line to our estimates as follows:
|
|
2000
|
1999
|
1998
|
|
Our estimate of DIMA
calendar year payments – A$000
|
97,535
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41,530
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19,748
|
|
Supplies of Goods and
Services - averaged [11] - A$000
|
314,031
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252,210
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173,388
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This simply tells us
that our estimate is less than DIMA’s total payments to suppliers, and that
the proportion of payments to ACM is rising as expected. It tells us that
payments to ACM for running the detention centres made up nearly a third of
all of DIMA’s goods and services for the year 2000.
More importantly however in cross checking our calculations (although I
should stress that the SEC filings are audited by Arthur Andersen) is Note
7A of the DIMA 2000 Financial Statements. This note says “Note the
2000 onwards figure [for Supply of Goods and Services] includes …. $88.573m
of Supplier costs in respect of detention centres.” This figure of
$89m for supplier costs can be compared with our estimate of $98m for
calendar year 2000. Given the DIMA figure is for a June year, this is
close enough to give a great deal of comfort to the SEC numbers.
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