Purpose

To determine the extent of implementation of the five recommendations included in our initial audit report, Preferred Source Contracting (Report 2014-S-77).

Background

New York State’s Preferred Source Program, established under Section 162 of the New York State Finance Law (Law), grants “preferred source” status to Corcraft and not-for-profit organizations that serve and employ the blind, severely disabled, and veterans. The intent of the Program is to advance social and economic opportunities for these groups. The Office of General Services (OGS) is the State’s central procurement agency and is responsible for approving pricing for preferred source contracts over $50,000, and for maintaining, on behalf of the New York State Procurement Council (Procurement Council), a current List of Preferred Source Offerings (List) which includes the categories of commodities and services that are available and provided by preferred sources. Facilitating agencies are non-profit corporations established to serve the approved, non-profit preferred sources as their agent by disseminating information regarding preferred sources and their offerings, by processing inquiries and orders as a one stop contact for purchasers, and by facilitating the distribution of commodities and services provided by preferred sources. The New York State Industries for the Disabled (NYSID) is the facilitating agency designated by the Commissioner of Education to facilitate orders among agencies for the severely disabled and veterans’ workshops. The State Education Department (SED) is responsible for the monitoring and oversight of NYSID and for ensuring NYSID is in compliance with all applicable regulations.

Our original audit found that, although SED was responsible for monitoring NYSID’s activities, it has provided only minimal oversight offering little assurance that NYSID was awarding contracts in a manner that best meets the purpose of the program as well as meeting program requirements. Finally, we found in the case of NYSID, the program was extremely vulnerable to possible manipulation and circumvention of the competitive bid process to increase profits for corporate partners and revenue for NYSID itself. Many NYSID contracts awarded for reproduction services appeared to have circumvented the competitive process. We found one private printing company, which partnered with a NYSID member agency, had received 89 contracts for reproduction valued at over $1.5 million. However, it appeared most - if not all - of these contracts were actually for digital printing, a service the Procurement Council has specifically excluded from the Program.

Key Findings

• OGS officials have made significant progress in addressing the issues we identified in the initial audit. We found the initial report’s three recommendations to OGS were all implemented.
• SED officials have taken steps to establish criteria within its designation agreement with NYSID for reviews going forward but have not yet taken the appropriate steps to ensure compliance with it or verify self-reported contract data. We found the two recommendations directed toward SED were both partially implemented.
• Additional progress is needed by NYSID in implementing changes required by the agreement.

Key Recommendation

SED officials are given 30 days after the issuance of the follow-up report to provide information on any actions that are planned to address the unresolved issues discussed in this report.

Other Related Audit/Report of Interest
Office of General Services/State Education Department: Preferred Source Contracting (2014-S-77)