Audit Report on the Administration of the Minority- and Women-owned Business Enterprise Program by the Department of Small Business Services

AUDIT REPORT IN BRIEF

The mission of the Department of Small Business Services (DSBS) is to make it easier for businesses in New York City to form, do business, and grow. It is tasked to provide direct assistance to business owners, foster neighborhood development in commercial districts, link employers to a skilled and qualified workforce, and promote economic opportunity for minority-and women-owned businesses.

DSBS also runs the Minority and Women-owned Business Enterprise (M/WBE) Program, newly created in December 2005 when Mayor Bloomberg signed Local Law 129 into effect. This law was enacted in response to a disparity study commissioned by the New York City Council. It was found that there was a significant disparity in contracting opportunities afforded to certain M/WBE groups in the procurement of construction, professional services, standard services, and goods. Local Law 129 was intended to address the disparities revealed by the study. As stated in the law, DSBS “shall administer, coordinate, and enforce a citywide program established by local law for the identification, recruitment, certification and participation in city procurement of minority and women owned business enterprises.”

On November 2, 2006, DSBS entered into an agreement with Miller3 Consulting, Inc. (Miller3) to conduct an Availability/Disparity Study (disparity study) to update the findings of the 2005 City Council disparity study. As of May 1, 2009, DSBS officials informed us that the final report had not been received and that they are continuing to work with the contractor on an appropriate extension of the time frame for concluding the study.

Audit Findings and Conclusions

DSBS did not comply with the key provisions of Local Law 129 and §6-129 of the Administrative Code related to its monitoring of City agencies’ M/WBE utilization and how well agencies met their goals. As a result, DSBS cannot fully assess the M/WBE program’s effectiveness in increasing the participation of M/WBEs in the City’s procurement process. The agency generally complied with key provisions only with regard to outreach, training, counseling, and certification. DSBS stated it was not able to fully comply with provisions related to auditing M/WBE contracts due to the low number of qualifying contracts in effect during the audit period.

Although DSBS received the M/WBE utilization plans from all City agencies required to prepare them, there is little evidence that DSBS reviewed the plans in a timely manner or that it met with the City agencies that did not meet their goals to determine the causes of noncompliance and to discuss possible remedies. We acknowledge that 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. 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 agencies’ compliance with M/WBE utilization goals, DSBS cannot fully assess the program’s overall effectiveness in this area and recommend improvements where necessary.

We also noted two significant internal control weaknesses that should be immediately rectified—(1) DSBS did not adequately discuss, document, and follow up with the contractors and the contracting agencies regarding the results of its audits of contracts with M/WBE subcontracting goals and (2) DSBS did not conduct client assessments for 16 percent (115) of the newly certified M/WBEs in Fiscal Year 2008.

Audit Recommendations

Based on our findings, we make seven recommendations, including that DSBS should:

• Immediately meet with all agencies not meeting their goals to discuss ways that they could improve, and document the results of those meetings.

• At least annually review and document its review of the utilization of M/WBEs by the agencies subject to the local law requirements to determine if they are meeting the goals stated in their M/WBE utilization plans.

• Meet and document its meetings with the agencies that are not achieving their M/WBE utilization goals to determine the reason(s) the goals are not being met and whether the agencies are making all reasonable efforts to do so. In addition, based on the results of these meetings, DSBS should determine whether any common factors exist among the agencies that may need to be addressed.

• Establish a system whereby audit findings are followed up with contractors (both prime and subs as appropriate) and contracting agencies in a timely manner.

DSBS Response

DSBS officials generally agreed with the audit’s seven recommendations but claimed that it already performs the tasks identified in three of them.