Audit Report on the New York City Department of Housing Preservation and Development’s Administration of the Minority- and Women-Owned Business Enterprise Program

EXECUTIVE SUMMARY

The objective of this audit was to determine whether the New York City Department of Housing Preservation and Development (HPD) complied with the key provisions of Local Law 1 of 2013 (LL1) that pertained to New York City’s Minority- and Women-Owned Business Enterprise (M/WBE) Program.

HPD is the largest municipal housing preservation and development agency in the nation.  The agency is responsible for promoting the construction and preservation of affordable, high quality housing for low- and moderate-income families throughout the City by enforcing housing quality standards, financing affordable housing development and preservation, and ensuring sound management of the City’s affordable housing stock.

In 2005, Local Law 129 (LL129) created the M/WBE Program, which was modified by LL1 in 2013¹.  The M/WBE Program, administered jointly by the Department of Small Business Services (DSBS) and the Mayor’s Office of Contract Services (MOCS), aims to eliminate discrimination in City contracting.  Such discrimination was quantified through a disparity study commissioned by the New York City Council.  Based on this disparity study, the City Council established Citywide contracting participation goals for M/WBEs that it set forth in LL1.  Pursuant to LL1, these contracting participation goals may be met through awards of prime contracts or subcontracts for the procurement of professional services, standard services, construction services and goods.  The M/WBE Program aims to increase M/WBE contracting opportunities by maximizing access to bid or proposal opportunities for prime contracts.  However, under New York State law, agencies are required to award prime contracts through a competitive process and M/WBE status may not be a factor in making such an award.  The M/WBE Program requires City agencies to set M/WBE participation goals on individual contracts, subject to the law².

LL1 requires City agencies to develop and submit an M/WBE Utilization Plan each fiscal year to DSBS³.  Each agency must factor in Citywide goals for M/WBE utilization when setting its own goals for procurement, and make all reasonable efforts to meet the goals it has set for M/WBE participation.  LL1 also requires that agency M/WBE Officers⁴ monitor their agency’s procurement activities to ensure utilization goal compliance and to assess their agency’s progress towards the participation goals established in its plan.

Audit Findings and Conclusion

The audit found that HPD is not in compliance with key provisions of LL1 that pertain to the M/WBE program.  Specifically, HPD does not track or maintain a complete centralized list of all contracts and subcontracts subject to LL1 that were awarded to M/WBEs.  HPD also did not record all required contract information in the City’s Financial Management System (FMS) for contracts subject to LL1 M/WBE participation goals⁵.  Because of HPD’s failure to record all of the required contract information in FMS, we found that HPD potentially overstated the reported dollar amounts awarded to M/WBEs for four sampled prime contracts totaling $174,554 by $13,900.

We also found inadequate evidence that HPD monitored its prime contractors’ use of M/WBEs for contracts awarded with participation goals.  There was no documentary evidence of HPD’s review of the prime contractors’ records to verify payments made to subcontractors, and no evidence of job-site inspections or of any contacts with M/WBE subcontractors to verify their use.  Further, we found inadequate evidence that HPD: (1) considered relevant information required by LL1 when setting its annual Agency M/WBE utilization goals;⁶ (2) performed some M/WBE initiatives that the agency stated it would perform in its FY 2014 and FY 2015 M/WBE Utilization Plan; and (3) monitored its progress towards achieving its M/WBE utilization goals.

The deficiencies identified in this report hinder HPD’s efforts to effectively assess its compliance with its agency-wide M/WBE utilization plan and its prime contractors’ compliance with established participation goals.

Audit Recommendations

Based on the audit we make 12 recommendations, including:

• HPD should maintain a complete centralized list of all prime contractors and subcontractors to help track and monitor contracts subject to LL1.
• HPD should ensure that it correctly enters all prime contracts and subcontracts into the applicable FMS tables.
• HPD should monitor and document the prime contractors’ use of M/WBEs and verify payments made to them by, at a minimum, performing job-site inspections to ensure subcontractor performance and utilization, contacting M/WBEs identified in the plan to confirm their participation and auditing the contractors’ books and records.
• HPD should conduct a more thorough evaluation of its M/WBE utilization goals, consider increasing its goals in future years where applicable, and document all factors considered in establishing its goals.
• HPD should advertise procurement opportunities in minority publications in order to increase opportunities for prospective M/WBE bidders.
• HPD should establish a formal means of monitoring its procurement activities to ensure compliance with the agency’s utilization plan and to monitor its progress towards meeting the participation goals established in its plan.

Agency Response

In its response, HPD agreed with 11 of the audit’s 12 recommendations but disagreed with the need for eight of them, arguing that the agency was already in compliance.  HPD also disagreed with many of the audit’s findings, stating that it “had already implemented many of the policies and practices recommended in the Audit Report.”  After carefully reviewing HPD’s arguments, we find no basis to alter any of our audit’s findings or the report’s overall conclusion

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