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NYS Comptroller


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State Education Department
Preferred Source Contracting

Issued: June 28, 2016
Link to full audit report 2014-S-77
Link to 90-day response

To determine how State agencies and facilitating agencies are monitoring contracts fulfilled by not-for-profit providers in partnership with private entities to ensure contract requirements are being met; whether the majority of the work is completed by disabled workers as required by law; and whether facilitating entities are awarding contracts in a manner that best meets the purpose of the Preferred Source Program (Program) and is in the best interest of the State. This audit covered the period April 1, 2012 through August 17, 2015.

To advance social and economic goals, certain providers have “Preferred Source” status under the law. The acquisition of commodities and/or services from preferred sources is exempted from statutory competitive procurement requirements. All State agencies, political subdivisions (i.e., local government agencies), and public benefit corporations are required to purchase approved products and services from preferred sources. Purchases from preferred sources take precedence over all other sources of supply and competitive procurement methods.

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 the categories of commodities and services that are available and provided by preferred sources. Our audit focused on contracts for preferred source services, as opposed to commodities, most of which are administered by the New York State Industries for the Disabled (NYSID), a not-forprofit organization appointed by the Commissioner of Education for the purpose of facilitating orders among both agencies employing the severely disabled and veterans’ workshops. NYSID serves and represents a network of over 120 contract-holding preferred source member agencies and their private corporate partners, who must comply with regulations established by Law and applicable standards. The State Education Department (SED) is responsible for monitoring and oversight of preferred source contracts managed by NYSID. The SED Commissioner has assigned NYSID authority to monitor compliance by its member agencies and their partners.

Key Findings

  • In general, OGS is appropriately fulfilling its current responsibilities under the Program. Nonetheless, we identified opportunities for OGS to improve its effectiveness by more clearly defining some of the services available under preferred source contracts, and by working with the Procurement Council to consider regulatory changes that would more specifically define the role of facilitating agencies.
  • Although SED is responsible for monitoring NYSID’s Program activities, it has provided only minimal oversight. As such, there is little assurance that NYSID is awarding contracts in a manner that best meets the purpose of the Program, that member agencies and corporate partners are meeting contract requirements, and that the majority of the contracted work is being completed by disabled workers.
  • NYSID’s own Quality Management Program does not provide adequate assurance that member agencies and corporate partners maintain compliance with regulations. NYSID relies on self-reported data and insufficient reviews to monitor compliance.
  • NYSID’s policy for awarding service contracts is designed to avoid the possibility of having more than one of their member agencies compete for the contract opportunity. NYSID’s practices generally do not allow member agencies the opportunity to determine whether they can meet the requirements of a particular contract because they are often not made aware of contract opportunities, especially if an existing corporate partnership is already in place. As a result, NYSID cannot be sure that the proposals it arranges come at a lower price than another preferred source may be able to offer, especially when dealing with corporate partners. Moreover, we found nearly no evidence that NYSID follows several key aspects of its own policies for awarding service contracts.
  • In the case of NYSID, the Program is 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 appear 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 appears that most – if not all – of these contracts were actually for digital printing, a service that the Procurement Council has specifically excluded from the Program. NYSID earned about $60,000 in administrative fees from these contracts.

Key Recommendations

  • OGS should provide clear definitions for the services on its list of preferred source offerings to make it easier for purchasing agencies to determine if the services they need are approved.
  • SED needs to implement a strong system of internal control for monitoring and oversight of NYSID that includes procedures for verification of self-reported information, such as contract performance data.
  • SED should require that NYSID: limit the detailed information provided to members/partners in advance of its quality reviews, make contract opportunities available to all interested parties, maintain documentation to support the contract award process, and discontinue awarding contracts for digital printing services.

Other Related Audits/Reports of Interest

Department of Taxation and Finance: Processing of Paper Tax Returns (2013-S-64)

State Government Accountability Contact Information:
Audit Director: John Buyce
Phone: (518) 474-3271; Email:
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236