Audit Report on the Department of Small Business Services’ Administration of the Minority and Women-Owned Business Enterprise (M/WBE) Certification Program

The Minority and Women-Owned Business Enterprise (M/WBE) Program was enacted in 2005 under Local Law 129 to promote fairness and equity in New York City’s (City) procurement and strengthen the ability of certified enterprises to compete successfully. The Department of Small Business Services (DSBS) administers the M/WBE program. Business enterprises that meet eligibility requirements may apply to DSBS for participation in the program. Certified M/WBEs have an increased opportunity to sell their products and services to City agencies endeavoring to meet participation goals promoted by the law.

All applicants seeking M/WBE certification must complete and submit to DSBS the M/WBE Certification Application along with the required supporting documentation. DSBS’s Division of Economic and Financial Opportunity (DEFO) reviews these documents and decides whether the applicant should be certified or denied certification as an M/WBE. In the event of a denial, the applicant may appeal the determination to the Office of the General Counsel, which renders a final decision.

In Fiscal Year 2011, there were 626 newly certified M/WBEs. As of December 31, 2012, there were 3,597 certified enterprises in DSBS’s Online Directory of Certified Businesses, which provides a detailed profile of each certified enterprise. This audit determined whether DSBS has adequate controls to ensure that businesses certified as M/WBEs meet the necessary qualifications.

Audit Findings and Conclusion

DSBS has adequate controls to ensure that businesses certified as M/WBEs meet the necessary qualifications with two exceptions noted below. Of the 40 sampled businesses that applied for M/WBE certification, the case files contained sufficient evidence to support DSBS’s determination for 36 (90 percent) of them. The case files for two businesses did not contain sufficient evidence or third-party review to justify the DEFO director’s decision to overrule the analysts’ recommendations to deny certification, increasing the risk that DSBS might inappropriately certify a business. The case files for the remaining two businesses were incomplete so we could not substantiate DSBS’s initial determinations.

DSBS does not ensure that certified M/WBEs submit annual affirmation affidavits in a timely manner, as required by law, so that only qualified enterprises remain in the program. Our review of the certified enterprises in our sample that were required to have an annual affirmation affidavit by October 2012 revealed that only 16 percent of them submitted the affirmation.

DSBS also does not have a third-party review process in place to evaluate the DEFO director’s decision to overrule an analyst’s recommendation to deny certification. This control weakness increases the risk that DSBS might inappropriately certify a business. The audit also found that DSBS does not track the number of instances in which the director overrules analysts’ recommendations.

Audit Recommendations

This report makes a total of 11 recommendations, including that DSBS should:

• Ensure that all M/WBE certified enterprises submit their affirmations annually.
• Ensure that certifications are revoked for those enterprises that do not submit their affirmations in a timely manner and remove them from DSBS’s Online Directory of Certified Businesses website.
• Require that the DEFO director provide a more detailed explanation to justify overruling the reviewing analyst’s recommendation to certify or deny certification of an applicant to the M/WBE program.
• Develop a third-party review process for when the DEFO director overrules the analysts’ recommendations to deny the certification of a business.

Agency Response

In their response, DSBS officials generally agreed with eight of the report’s 11 recommendations and disagreed with three pertaining to the lack of third-party review when the director overrules analysts’ recommendations to deny certification.