Preliminary Audit Finds Issues with City MBE Program

Tallahassee Reports has received a preliminary draft of a COT Audit of the City’s Vendor Incentive Programs. Among the findings is that the Minority Business Enterprise Program “structure and operation is based upon outdated policies and statistics and therefore likely does not comply with United States (U.S.) Supreme Court rulings related to race and gender neutral alternatives.”

A preliminary audit becomes final after management responds to the issues and recommendations. There are times when management responses result in changes to a preliminary audit. 

The 61 page document reviewed the Minority Business Enterprise Program (MBE), Local Vendor Program, Charitable Contribution Program, and the Volume of Work Program. A formal response from the City Manager was requested by February 15, 2011 and has yet to be received by the City Auditor. The City Auditor is a charter position and reports directly to the City Commission.

The majority of the audit addresses the MBE program. From 2008 to 2010, approximately $30 million was awarded to prime contractors and sub-contractors under the MBE program. The findings of the audit paint a picture of a program that is outdated and has issues with oversight.

The audit found that the City only awards points to African-Americans and women, while ignoring Hispanics and Asians. The likely reason for this is that the MBE policy is based on a study of the business community conducted in 1990. A study to address this issue was conducted in 2004, but the audit stated that the “recommendations from the 2004 Disparity Study report were never implemented.” Ignoring this recommendation has put the City in the position of having a policy that is in conflict with the latest US Supreme Court rulings.

With regards to oversight, the audit found that the last annual report for the MBE program covered fiscal years 2004-2006. MBE policy requires the production of annual reports that capture payments made to MBE vendors. In addition, the MBE Advisory Committee, whose members are appointed by the Mayor with the responsibility of providing advice and guidance, have had to cancel 40% of their meetings over the last two and a half years due to the lack of attendance.

The audit found that compliance actions required by vendors and city staff have not been completed at a level required to evaluate the effectiveness of the MBE program. An audit of 15 contracts that were awarded based on an MBE sub-contractor utilization plan, found that 3 prime contractors have filed the required affidavit detailing the prime contractor’s actual payments to minority subcontractors.

In addition, City staff have reduced on site compliance visits from 75-100 per year from 2007-2009 to two site visits in 2010. MBE Policy requires the MBE Office to monitor City contracts with MBE Participation, and allows for MBE firms to be decertified from the MBE Program if they allow or participate in fraudulent representation or participation on city projects or contracts.

The audit indicates that it may be in the City’s best interest to cancel the MBE program and adopt a Small Business Enterprise Program. “A Small Business Enterprise Program (SBE) may be more suited for the City. An SBE is defined as a local business that meets a predetermined set of criteria (i.e.: revenue or profits, number of employees, or age of the business). SBE programs often track the number of different race and gender groups that make up the program, and the amounts that were spent with each group.” ( Page 2, Preliminary Audit)

Tallahassee Reports will provide more analysis of the COT Audit of the City’s Vendor Incentive Programs in future reports and will update this story when a response from the City manager is made available.

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