Purpose

To determine if the Empire State Development Corporation’s (ESD) Department of Economic Development properly certified and recertified Minority- and Women-Owned Business Enterprises (MWBEs) and processed agencies’ annual MWBE goal plans and utilization reports, which are used to prepare an overall MWBE program report to the Governor and the Legislature annually. The audit primarily covers the period from January 15, 2011 through February 27, 2015. However, MWBE certifications and re-certifications were reviewed for the period May 1, 2008 to April 30, 2014.

Background

The Department of Economic Development’s (DED) Division of Minority and Women’s Business Development (Division) administers, coordinates, and monitors a statewide program to assist the development of MWBEs in accordance with Article 15-A of the New York State Executive Law. The Division’s responsibilities include:

• Reviewing contracting agencies’ Annual Goal Plans and Quarterly Compliance Reports. The Division requires each contracting agency to submit an Annual Goal Plan on January 15 of each year summarizing its MWBE procurement opportunities based on its annual budget and expenditures.
• Reporting annually to the Governor and the Legislature actual MWBE participation in State contracts.
• Preparing and maintaining an updated directory of certified MWBEs. As of April 2014, DED had certified 7,919 unique businesses as MWBEs. Some businesses are both a minority-owned business enterprise (MBE) and a women-owned business enterprise (WBE).

Key Findings

Accurate vendor contact information is critical for interested agencies and contractors to identify and contact MWBEs. However, the addresses for five of 20 MWBEs we examined were not accurate. For example, in October 2013, an MWBE was sold to a new owner who renamed the business, but the MWBE’s former name and address were still listed in the Division’s directory in 2014.

• State agencies and public authorities must file a master goal plan or an update by January 15 of each year. Such plans must also indicate the amount of budgeted expenditures available for MWBE participation. However, plans for ten sampled agencies were submitted late (one by more than five months), and six of the 10 agencies did not explain why significant amounts of their budgets were exempted and excluded from MWBE participation. Further, there was no evidence the Division took actions to address these instances of non-compliance.
• For the audit period, 39 (46.9 percent) of the 83 files we requested were either missing mandatory and required documents used to certify MWBEs or the files could not be located. A lack of mandatory supporting documentation and missing files increase the risk that ineligible firms could be certified as MWBEs. In 2013, DED implemented a fully integrated online certification process for submitting both first-time and re-certification applications, including the required supporting documentation. This automated process should help ensure that applicants provide DED with all mandatory documents.

Key Recommendations

• Develop and implement formal mechanisms to periodically verify that certified MWBEs are at their address of record.
• Require analysts to obtain all mandatory and other applicable documents before certifying applications. Further, document the reasoning for any waiver of mandatory or required documents.
• Improve record-keeping and archiving systems to ensure that pertinent files and records can be easily retrieved and accessed.
• Formally require and remind agencies to submit goal plans timely.

Agency Comments

ESD’s response to the draft report is misleading and disingenuous. In it, ESD repeatedly tries to portray auditors as unwilling to review information provided by ESD and not using due diligence. Such assertions, however, are false. In fact, throughout the unnecessarily lengthy audit process, auditors carefully reviewed all information provided and went to extensive lengths to work with ESD officials. Nevertheless, ESD officials obstructed the audit process, by refusing to provide auditors with access to pertinent records and staff and by failing to provide requested feedback on certain preliminary audit findings. This resulted in significant delays to audit progress.

For example, when auditors tested MWBE certification files, ESD officials allowed discussions of only four files per week and forbade auditors from speaking directly with the staff (based in New York City) who actually performed MWBE certification reviews. Instead, ESD sent an attorney (not based in New York City) to meet with auditors, although the attorney was not responsible for the certification reviews. This process took nine meetings, spread out over four months (from October 3, 2014 to February 4, 2015), but could have been completed in a few weeks if ESD officials were reasonably cooperative. 

Other Related Audits/Reports of Interest

Dormitory Authority of the State of New York: Contract Participation of Minority- and Women-Owned Business Enterprises (2014-S-7)
Metropolitan Transportation Authority: Contract Participation of Minority-and Women-Owned Business Enterprises (2014-S-6)