October 25, 2016
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Audit finds NYC Small Business Services Ignoring Minority & Women Business Program






According to an audit released today by New York City Comptroller William C. Thompson Jr., the Department of Small Business Services (SBS) is not properly monitoring how well City agencies are meeting their goals as they relate to minority- and women-owned businesses participating in the City’s contractual procurement process.

Thompson’s audit – available at
www.comptroller.nyc.gov – determined whether the SBS complied with key provisions of Local Law 129 relating to its administration of the Minority- and Women-owned Business Enterprise (M/WBE) Program.


“The M/WBE Program was created to help ensure that the procurement process was equal and open to everyone who wanted to conduct business with the City, no matter their race or gender,” Thompson said.  “Unfortunately, auditors determined there was a clear lack of oversight on the part of SBS in monitoring whether agencies were in compliance with their M/WBE participation goals.”


The M/WBE Program was newly created in 2005 in response to a study conducted by the City Council, which found a significant disparity in contracting opportunities afforded to certain M/WBE groups in the procurement of construction, professional services, standard services, and goods.


As part of its responsibilities under Local Law 129, the SBS is required to:


·         Establish and operate a centralized program for the certification of minority- and women-owned businesses,

·         Create, maintain, and periodically update a directory of certified minority- and women-owned businesses for use by City agencies and contractors,

·         Conduct, coordinate, and facilitate technical assistance and educational programs for certified minority- and women-owned businesses,

·         Periodically review the compliance of City agencies with the provisions of the local law, including the participation of minority- and women-owned businesses in City procurement, and

·         Audit at least five percent of all contracts with established M/WBE utilization plans and five percent of all contracts awarded to certified minority- and women-owned businesses to assess their compliance with the local law.


Auditors determined that SBS generally adhered to provisions of Local Law 129 as they relate to outreach, training, counseling, and certifications.  However, the agency did not comply with key provisions related to its monitoring of City agencies’ M/WBE utilization goals.


“Outreach, certification, training, and counseling are important steps toward ensuring that M/WBEs are in a position to compete for the opportunity to conduct business with the City,” Thompson said.  “However, the fundamental goal of the program is to increase M/WBE participation in the City’s procurement process, not merely to give these companies an opportunity to compete.  By failing to adequately monitor agency compliance with M/WBE utilization goals, the SBS cannot fully assess the program’s overall effectiveness in this area and recommend improvements where necessary.”


Auditors requested from SBS officials their Fiscal Year 2007 and Fiscal Year 2008 comparisons of the actual utilization rates of M/WBEs by City agencies with the agencies’ submitted utilization plans.  The documentation did not come to the Comptroller’s Office until five months after the initial request, raising doubts as to whether comparisons were done prior to Thompson’s request.


The Comptroller’s review of FY 2008 agency purchases from M/WBEs found that of the 23 agencies that were required to submit an agency utilization plan, 12 agencies met a total of 21 prime contract utilization goals out of 241 applicable categories.  The total value of the prime contracts entered into by these agencies was $369,417,386, with a targeted goal to spend $107,816,905 in contracts with M/WBEs.  However, the actual value of contracts with M/WBEs was a paltry 14 percent of that goal, or $14,882,561.


With respect to subcontracting goals, 10 of the 23 agencies required to submit agency utilization plans had subcontracts in construction and professional services awarded on prime contracts with M/WBE goals totaling $36,932,104 for the year.  Our analysis determined that 7 agencies met a total of 12 subcontract utilization goals out of the 36 applicable goal categories.


The total target set forth by the agencies required to submit subcontracting plans was $11,490,272.  The actual amount of subcontracts with M/WBEs totaled $11,232,961, or 98% of the goal.  However, the results were not as they seemed.


“This percentage is very misleading,” Thompson said.  “Two-thirds of the goal categories were not achieved by the agencies.  In areas where the goal was met, the agencies far exceeded the goals in those categories, raising the overall utilization amount.”


In addition, the Comptroller’s auditors found that there was no proof that SBS actually met with the various agencies to discuss their shortcomings, and there was no formal process on record to document such meetings if they in fact ever took place. 


“Monitoring these agencies is an important tool in gaining information on how the program is actually working,” Thompson said.  “In order to assess the effectiveness of other aspects of the program such as training and counseling for small businesses, SBS needs to complete all their mandated oversight of the program.  This will properly monitor the success of the program and lead to recommendations and changes where needed.”


SBS, in consultation with Mayor’s Office of Contract Services (MOCS), is required to audit at least five percent of all construction and professional service contracts for which M/WBE subcontracting utilization plans are established, and five percent of the subcontracts awarded to M/WBEs to determine whether they are in compliance with participation goals set by the agencies in accordance with Local Law 129. 


The SBS conducted four pilot audits in Fiscal Year 2008.  The Comptroller’s Office reviewed the findings for each audit and found several noncompliance issues of contractors that were discovered by SBS, including:


·         A prime contractor adjusted the subcontracting requirements of a contract without notifying the agency,

·         No proof of payment to a subcontractor was provided by the prime contractor for two contracts, and

·         A prime contractor did not meet its subcontracting goals.


The Comptroller’s Office surprisingly found that although noncompliance was discovered, the SBS never notified the audited agencies and contractors of the findings. 


“If an agency is not made aware of the audit’s outcome, especially when there are findings of noncompliance, there is no way to ensure they know what is taking place and certainly have no means to ensure the problem gets rectified,” Thompson said.  “Common sense was missing here.”


In addition, the SBS was found to be lax in their duties of completing client assessments for all newly certified M/WBEs.  SBS Procurement Initiatives Unit is tasked with the duty to assign a newly certified M/WBE a procurement counselor, whose job it is to ensure that the business is informed of assistance available, and work with the business to identify which service programs best suit that particular company. 


Of the 707 newly certified businesses during FY 2008, only 592 (84%) assessments were completed.


Client Assessments for the remaining 115 newly certified businesses were either not completed or not started (as of January 2009), as follows:


·         44 businesses were nonresponsive (meaning that the counselor attempted at least two calls but not more than three calls, and received no response from the business within one week of the previous call),


·         40 client assessments were pending (meaning that at least one call attempt was made), and


·         31 client assessments had not yet started; these 31 newly certified businesses were assigned to the Procurement Initiatives Unit during February 2008 through June 2008.


“I think the overarching message we have received from these audit findings is that the SBS has serious issues with ‘follow-up,’” Thompson said.  “We have seen them fail to follow up with agencies that were underperforming on their M/WBE contractual goals, fail to follow up on audit findings of agencies and fail to follow up to ensure that all newly created M/WBEs have the essential tools to compete for City business.  It is my hope that the SBS takes a hard look at their performance in this area and institutes the changes needed to fix the problem.”



Additional news available at www.comptroller.nyc.gov

You can sign up for news alerts at the Comptroller’s Twitter site at http://twitter.com/ComptrollerNYC/

New York City Comptroller’s Office press@comptroller.nyc.gov / Main: (212) 669-3747 / Fax: (212) 669-8879


# # # 


October 8, 2009

Contact: Kristen McMahon, (212) 669-2589


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