A state purchasing law designed to spur hiring in South Carolina has not worked while costing taxpayers about 3 percent more than necessary for goods and services, a report released Wednesday said.

The S.C. Legislative Audit Council examined “purchasing preferences,” a section of the law that allows companies based in South Carolina to get government contracts even if they are not the low bidder.

State agencies spent $5.3 million on preference contracts during the past two fiscal years, according to the Budget and Control Board.

“As a result, state government incurred an extra cost of approximately $170,000,” said the council, which looked into the issue at the General Assembly’s request.

The agency’s limited review found no evidence linking an increase in South Carolina employment to the law in its review of the contracts.

Yet, there is evidence the law causes S.C. companies to be shut out from bidding on potentially lucrative contracts in other states. New York, for example, prohibits companies from getting contracts if they are based in states with preference laws.

The audit council’s findings are proof South Carolina’s purchasing laws are not working, said Frank Knapp, president of the S.C. Small Business Chamber of Commerce.

“It definitely shines a light on a procurement process that needs to be tightened,” he said.

For more than a year, Knapp has pressed legislators to consider replacing preferences with what he calls the “best value concept.”

Value means more than low prices, Knapp said. Within reason, he added, the state’s bidding process should reward companies that pledge to use South Carolina goods and services. Where a company is based should not be a factor.

“What we want to do is follow the money,” Knapp said. “It’s not as important who owns the company, but where the money ends up.”

Responding to the report, Frank Fusco, executive director of the Budget and Control Board, said changing the law is a matter for state legislators. Various government audit groups have recommended the change for decades.

The audit council also said the Budget and Control Board’s staff was sloppy with record-keeping and following state public disclosure laws.

Fusco said problems with retrieving documents, or how data were recorded, have been corrected or are in the process of being fixed. The staff has been instructed about what is considered a public document, he said.

Gov. Mark Sanford, chairman of the Budget and Control Board, is going to study the audit council’s report, said his press secretary, Will Folks.

Folks said that since Sanford was elected, his boss has been biased toward running the government more efficiently while increasing taxpayer value.

“Finding a balance that is fair is important,” Folks said, referring to the need to protect South Carolina companies. But Folks added Sanford “is going to look at the bottom line.”

Reach Werner at (803) 771-8509 or bwerner@thestate.com.