Performance Audit Report

Minority Business Enterprise (MBE) Participation Program

Reported MBE Participation Data Was Often Unsupported, Inaccurate or Inconsistent With Reporting Guidelines

Office of Minority Affairs Did Not Use Actual Payments to MBE’s

As an Evaluation Tool or Measure of Program Success

State Agencies Did Not Adequately Monitor MBE Participation in Contracts

November 2002

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November 7, 2002

Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee Delegate Samuel I. Rosenberg, Co-Chair, Joint Audit Committee Members of Joint Audit Committee Annapolis, Maryland Ladies and Gentlemen: We conducted a performance audit to determine the adequacy of the Governor’s Office of Minority Affairs’ (OMA) reporting of minority business enterprise (MBE) contract participation data and monitoring of State agency compliance with MBE participation program requirements. We also assessed State agencies’ procedures for program compliance. During the period covered by our audit, the Statewide MBE participation goal for contract awards was 14%. The goal was increased to 25% for fiscal year 2002. Our audit disclosed that OMA is not always fulfilling its MBE program oversight responsibilities. For example, OMA did not ensure the reasonableness of agency reported MBE participation information. Our testing of data reported by State agencies that accounted for over one-half of the Statewide MBE participation ($455 million of $833 million) disclosed that 40% of the reported MBE activity awarded was not supported. As a result, the reported fiscal year 2001 Statewide MBE participation of 19.2% could be significantly overstated. OMA did not obtain actual MBE payment information from State agencies, on completed contracts, which could be a critical evaluation tool in determining if MBE’s are receiving intended work. Our tests of completed contracts indicated that MBE’s are participating at a lesser rate than anticipated by the contract awards. Finally, our tests disclosed that State agencies were frequently not complying with the requirements of the State’s MBE program, such as monitoring and verifying the actual MBE participation and payments. An executive summary can be found on page 5 of the report. Our scope, objectives, and methodology of the audit are explained on page 11. We wish to acknowledge the cooperation extended to us during our audit by the OMA and the State agencies selected for review and testing.

Respectfully submitted,

Bruce A. Myers, CPA Legislative Auditor

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Table of Contents

Executive Summary 5 Background Information 9

Minority Business Enterprise (MBE) Participation Program 9 Responsibilities of the Governor’s Office of Minority Affairs 9

Audit Scope, Objectives, and Methodology 11 Findings and Recommendations 13 Accuracy of State Agencies’ Reported MBE Participation Data and Adequacy of 13 the Office of Minority Affairs’ (OMA) Oversight Responsibilities

Finding 1 – Five Agencies Could Not Adequately Support Their Reported 14

MBE Procurement Activity Finding 2 – The OMA Did Not Ensure the Propriety of Its Annual 17

Statewide MBE Report Finding 3 – The OMA Did Not Review Reported Actual Payments Data 18 Finding 4 – Outreach Efforts and Development of MBE’s Needs to be 20

Enhanced Finding 5 – The OMA Did Not Submit the Fiscal Year 2000 and 2001 21

Annual Statewide MBE Reports Timely Finding 6 – Certain OMA Performance Measures Do Not Appear 22

to Provide Meaningful Data Regarding the Results of Its Operations or the MBE Program

Agency Contract Monitoring and Compliance With MBE Program Regulations 25

Finding 7 – State Agencies Tested Did Not Adequately Monitor MBE 26

Subcontractor Participation on State Contracts Finding 8 – Waivers of MBE Contract Participation Were Not Always 27

Retained or Approved Finding 9 – One State Agency Did Not Follow MBE Regulations When 28

Procuring Guaranteed Maximum Price Contracts

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Exhibit 1 – Fiscal Year 2001 – Total MBE Combined, Prime 31 and Subcontractor Figures by Agency as Reported by OMA Exhibit 2 – OMA’s Mandated Responsibilities 34 Exhibit 3 – Overview of Managing For Results (MFR) 35 Auditees’ Responses Appendix

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Executive Summary Objectives We had two specific audit objectives: 1. To assess the accuracy of the Minority Business Enterprise (MBE) participation

awarded in State procurement contracts as reported by selected State agencies, and the adequacy of related oversight responsibilities of the Governor’s Office of Minority Affairs (OMA).

2. To assess the adequacy of procedures used by selected State agencies to monitor

compliance with the MBE participation goals included in procurement contracts. Background The State has committed to awarding a specified percentage of procurement contracts to businesses owned and operated by members of socially and economically disadvantaged groups. Prior to fiscal year 2002, State law established a goal whereby at least 14% of a State agency’s procurement contracts should be procured from certified MBE’s. According to the OMA’s report of Statewide MBE participation, Statewide MBE awards in fiscal year 2001 were reported to be $833 million, which represents 19.2% of the $4.35 billion in reported Statewide procurements. The report also disclosed that 36 of the 75 agencies reported that they did not individually meet the 14% goal. Effective in fiscal year 2002, State law was amended to increase the participation percentage goal for State agencies from 14% to 25%. State Regulations require individual State agencies to take certain actions to encourage MBE participation in contracts, such as establishing outreach programs and MBE participation goals for individual contracts. In addition, State agencies are responsible for monitoring the activities of contractors to ensure that MBE’s are properly used. State agencies annually report certified MBE participation award information to the OMA, who is required by State law to summarize and report this information each year to the Board of Public Works and the General Assembly. Conclusions Our audit disclosed that the OMA did not adequately oversee the MBE program and State agencies did not effectively monitor MBE participation on their contracts. These results raise significant concerns about the reported MBE award activity. For example, the OMA did not ensure the reasonableness of annual MBE participation activity submitted by State agencies. Furthermore, our audit disclosed several patterns suggesting that awards to MBE’s could be significantly lower than reported.

Effective fiscal year 2002, the State’s MBE participation goal increased from 14% to 25%.

Accuracy of reported MBE participation awards is questionable.

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Specifically, our review of agencies with reported fiscal year 2001 MBE participation awards of $455 million disclosed that $184.7 million, or 40% of the amount subject to review, was unsupported. There were several conditions contributing to this finding including: ! The Department of Budget and Management (DBM) included an estimated $163

million in their reported MBE participation of $187 million that represented open contracts. These open contracts represented pre-approved listings of Information Technology (IT) vendors that agencies could use in the future. DBM counted the total value of the open contracts, not the actual awards made by agencies to these vendors. Therefore, the Department’s MBE percentage was significantly overstated.

! The Department of Human Resources (DHR) could not provide a detailed listing of

contracts to support their reported MBE participation awards of $17 million and reported MBE participation of 11.8%.

! The Department of General Services (DGS) included $2.8 million of MBE

participation awards that could not be supported, which increased their reported MBE participation from 13.2% to 14.7%.

! The Public School Construction Program (PSCP) included $1.9 million of MBE

participation awards that could not be supported, which slightly overstated its reported MBE participation percentage.

Our review raised further questions regarding the reported MBE participation of 19.2% because the completeness of the Statewide reporting was uncertain. For example, ! The Maryland Port Administration (MPA) excluded several significant fiscal year

2001 contract awards with low MBE participation from their annual report. For example, we noted one contract awarded by the Administration in fiscal year 2001 for $79 million and MBE participation of $817,000 (or 1% of the contract award) that was excluded from their reporting, resulting in a significant overstatement of its reported MBE participation.

! The Maryland Stadium Authority (MSA) used actual payments to MBE contractors

totaling $12.7 million in their annual reporting of MBE participation, instead of contract awards as required by law. We were unable to determine the impact of this reporting error on the Statewide reported MBE participation percentage.

We also noted that the OMA did not obtain information from State agencies regarding actual payments to MBE’s on completed contracts. Our audit tests disclosed significant differences between the anticipated MBE work and the value of work actually performed by MBE’s. Specifically, our tests of completed contracts with MBE participation from

The OMA did not consider actual MBE payments to evaluate agencies that may need Program assistance.

Review of certain agencies’ fiscal year 2001 reported participation disclosed 40% was unsupported.

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six agencies disclosed that actual payments to MBE’s by five agencies were significantly lower than anticipated under the contract awards – in one case by more than half. Furthermore, OMA did not formally identify the causes of the inability of agencies to meet the State’s MBE goal nor assist them in developing corrective actions. In this regard, actual payment data could be used to identify agencies that may need assistance in the utilization of MBE’s, ultimately contributing to the success of the Program. For example, although the State Highway Administration generally established MBE participation goals for individual contracts that met the State goal of 14%, the actual payments often fell short of these goals. We estimated that the difference between the 14% award goal and the Administration’s actual payments to MBE’s for fiscal year 2001, totaled approximately $60 million. According to the Administration, this was due to the lack of qualified MBE contractors for certain types of projects and in certain geographic areas of the State. None of the six agencies reviewed consistently complied with all State laws and regulations governing the MBE Program. For example, with the exception of the State Highway Administration’s construction contracts, none of the agencies compared the actual payments to MBE subcontractors upon completion of contracts to the amount that the MBE’s were intended to have received under the contract’s participation goal. In addition, only the Department of General Services and the Administration ensured that MBE subcontractors actually performed contracted work by performing site visits during the course of the contract. Finally, we noted that the annual summary reports of Statewide MBE participation were submitted to the Board of Public Works and the General Assembly much later than the dates required by State law. Among the agencies reviewed, our audit also identified certain best practices in contract monitoring efforts performed by the two agencies previously mentioned that could be adopted by other State agencies. We also noted that the Department of General Services maintained an informative website (http://www.dgs.state.md.us/MBE/index.html) that provided detailed information for MBE’s and links to other MBE resources. Recommendations We recommend that the OMA develop appropriate procedures and controls to ensure the reasonableness of reported Statewide MBE activity. In addition, the OMA should obtain and report completed contract data from State agencies to provide a more complete determination of Program success. Furthermore, we recommend that the OMA assist State agencies in developing and implementing action plans to help agencies meet the State’s recommended MBE participation goal and comply with related State regulations. Finally, all State agencies should comply with existing State regulations regarding the MBE Program. More specific recommendations follow each audit finding.

Statewide MBE activity was not reported timely by the OMA.

Statewide reporting needs to be accurate, timely and more meaningful by including actual payments to MBE’s.

OMA did not formally identify the causes for low MBE participation by certain agencies.

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Background Information

Minority Business Enterprise (MBE) Participation Program The State’s MBE Participation Program is authorized under Sections 14-301 to 14-309 of the State Finance and Procurement Article of the Annotated Code of Maryland. Prior to fiscal year 2002, State law required State agencies to try to achieve a minimum of 14% of the agency’s total procurement contracts directly or indirectly (via subcontracts) from certified MBE’s. Effective July 1, 2001, the law was amended to increase this minimum goal to 25%. The amended law also provided for specific percentage goals of procurement contracts for certain minority groups (that is, African-Americans and women). State law also provides guidance to contractors on how to achieve MBE participation for individual contracts, including identifying work categories that are appropriate for subcontracting by MBE’s, directly soliciting MBE’s, and assisting MBE’s in fulfilling bond requirements. This law also requires the Board of Public Works to adopt regulations to carry out the requirements of the law and outlines the content of the regulations. The law further requires the Governor’s Office of Minority Affairs (OMA) to accumulate certain procurement information each fiscal year and report annually to the Board and to the Legislative Policy Committee of the General Assembly. As required by State law, the Board adopted regulations included under the State Procurement Regulations to provide guidance for State agencies and potential contractors on implementing the MBE Program. These Regulations address the following: ! Outreach Efforts ! Procurement Solicitations, including subcontracting ! Agency Contract Awards ! Waivers (from achieving MBE participation goals for individual contracts) ! Compliance (agency verification and disciplinary procedures) ! MBE Certification ! Reporting of MBE activity MBE’s are certified by the Maryland Department of Transportation. Responsibilities of the Governor’s Office of Minority Affairs (OMA) The OMA serves as an advocate for MBE’s. The OMA’s mission is to facilitate MBE activities through the coordination and promotion of government programs aimed at strengthening and preserving minority business firms. The OMA is also responsible for providing the organizational framework for units of State government to plan and carry out projects that are intended to overcome special problems related to MBE

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participation initiatives. Subject to State law, the OMA has numerous mandated responsibilities, which are listed in Exhibit 2. In addition to the above responsibilities, State law requires the OMA to prepare an annual report summarizing procurement activity by State agencies for each fiscal year, including the dollar value and percentage of awards made to certified MBE’s. According to the OMA’s fiscal year 2001 report, State agencies awarded contracts totaling approximately $4.35 billion, including $833 million (or 19.2%) to certified minority vendors. See Exhibit 1 for a summary by agency of reported fiscal year 2001 MBE participation. According to this report, 36 of 75 agencies reported that they did not meet the State’s 14% MBE goal. These 36 agencies had MBE awards totaling $196 million, which was 23% of the total Statewide MBE reported fiscal year 2001 procurements.

Chart 1

Value of MBE Contracts for AgenciesMeeting or Not Meeting Goal in FY 2001

23% 77%

Agencies Not Meeting 14% Goal Agencies Meeting 14% Goal

Source: OMA Annual Statewide MBE Report

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Audit Scope, Objectives, and Methodology Scope We conducted a performance audit by visiting the Governor’s Office of Minority Affairs (OMA) and six State agencies, to assess the reliability of minority business enterprise (MBE) participation reported by the OMA and to review the OMA’s and state agencies’ procedures used to implement the Program. We conducted the audit under the authority of the State Government Article, Section 2-1221 of the Annotated Code of Maryland and performed it in accordance with generally accepted government auditing standards. Objectives We had two specific audit objectives: (1) To assess the accuracy of the Minority Business Enterprise (MBE) participation

awarded in State procurement contracts as reported by selected State agencies and the adequacy of related oversight responsibilities of the Governor’s Office of Minority Affairs (OMA).

(2) To assess the adequacy of procedures used by selected State agencies to monitor

compliance with the MBE participation goals included in procurement contracts. Our audit objectives did not include an evaluation of the State’s procedures for certifying MBE’s (which is the responsibility of the Maryland Department of Transportation) or recalculating the State’s reported MBE participation for fiscal year 2001. In addition, since our audit scope was limited to MBE participation in fiscal year 2001, we did not determine if State agencies are meeting the MBE participation goal of 25% established for fiscal year 2002. Methodology To accomplish our objectives, we reviewed applicable State laws and regulations as well as policies and procedures established by the OMA and the six selected State agencies. We also interviewed personnel involved in the oversight of the MBE Participation Program and responsible for procurement of State contracts at selected agencies. We reviewed procurement contract files maintained by these agencies and annual reports of MBE participation. Since our results were based on non-statistical tests, we cannot project the results to the fiscal year 2001 reported MBE performance. We discussed the results of our audit with the responsible agency officials.

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Agency Selection Process We focused our efforts on agencies with material procurement activity as reflected in the OMA’s fiscal year 2001 Statewide MBE Participation Report. According to this report, 10 departments or independent agencies awarded approximately 94% of the State’s procurements during the fiscal year. We judgmentally selected six of these departments or agencies to review MBE contract information and reporting. For the agencies audited, we limited our testing to completed contracts, which were selected from a listing of contracts provided by each agency, the fiscal year 2001 MBE Procurement Report and supporting documentation submitted to the OMA.

Table 1

Summary of Fiscal Year 2001 Reported MBE Procurement Activity

Agency

Dollars Awarded

Percent of Total

Statewide Awards

Reported MBE

Participation Rate

State Highway Administration (SHA) $756,957,545 17.4% 12.4% Maryland Port Administration (MPA) 48,724,119 1.1% 18.2% Other Department of Transportation Administrations

342,142,972 7.9% 15.7%

Public School Construction Program (PSCP) 691,496,716# 15.9% 14.8% Department of Budget and Management 572,020,929 13.1% 32.8% University System of Maryland 529,836,103 12.2% 14.0% Department of Health and Mental Hygiene 336,814,943 7.7% 43.6% Department of Public Safety and Correctional Services

318,799,749 7.3% 10.8%

Department of General Services (DGS) 225,719,319 5.2% 14.7% Department of Human Resources (DHR) 143,914,557 3.3% 11.8% Maryland Stadium Authority (MSA) 81,790,768 1.9% 15.5% Department of Juvenile Justice 35,089,748 0.8% 12.1% All Other State Agencies 266,762,169 6.1% 15.1%

Statewide Total $ 4,350,069,637

100% 19.2%

Source: Governor’s Office of Minority Affairs, Minority Business Enterprise Report for fiscal year 2001. #Amounts represent contracts approved by the Program and awarded by the 24 local boards of education. Agencies Selected for Audit Fieldwork and Agency Responses We conducted our fieldwork from January to July 2002. The responses to our findings and recommendations appear as an appendix to our report. As prescribed in the State Government Article, Section 2-1224 of the Annotated Code of Maryland, we will advise the agencies regarding the results of our review of their responses.

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Findings and Recommendations

Accuracy of Reported MBE Participation Data and Adequacy of the Office of Minority Affairs’ Oversight Responsibilities

Conclusion Our audit disclosed that the OMA is not always fulfilling its responsibilities to sufficiently oversee the MBE Program. For example, the OMA did not ensure the reasonableness of agency reported MBE participation data. Our testing of fiscal year 2001 MBE participation reports from six agencies disclosed that five of the six reports contained unsupported and/or inappropriate information related to procurement awards and amounts awarded to MBE’s. These six agencies collectively accounted for approximately $1.9 billion, or 45% of the State’s fiscal year 2001 procurements and approximately $268 million, or 32% of the State’s MBE awards. Our review of the report also disclosed significant cases of overreporting of MBE participation at an additional agency that reported MBE activity of $187 million. Collectively, these findings indicate that at least 40% of the reported fiscal year 2001 Statewide MBE participation for those agencies we reviewed, totaling $455 million, was unsupported. As a result of these findings, we could not conclude whether the reported MBE participation awards for these agencies were accurate; however, our findings do suggest that the documented MBE participation awards for fiscal year 2001 could be significantly lower than reported. Given the relative significance of the reported MBE participation for these agencies to the State as a whole, the accuracy of the OMA’s overall reported Statewide MBE participation rate of 19.2% is questionable. This conclusion takes on added importance given the increase in the Statewide MBE participation goal from 14% to 25% for fiscal years 2002 and after. In addition, the OMA did not obtain information on actual payments to MBE’s on completed contracts to identify agencies that did not meet the 14% participation goal that may require assistance, as well as to provide a more complete evaluation of Program success. For example, our test of 38 completed contracts from 6 agencies with contract awards totaling $219 million disclosed that actual payments to MBE’s by five agencies were significantly lower than anticipated under the contract awards—in one case by more than half, see Chart 2 on the next page.

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Chart 2 Comparison of MBE Participation Contract Awards to Actual MBE Contract

Payments for Completed Contracts Tested

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

DHR PSCP MPA MSA SHA DGS Avg.

Contract Award Actual Payments

Furthermore, the OMA did not ensure the accuracy and propriety of annual MBE participation activity submitted by State agencies. Finally, the OMA did not submit the annual Statewide MBE Participation Report timely as required by the Annotated Code of Maryland. Finding 1 Five agencies could not adequately support the procurement award activity included in their Minority Business Enterprise Procurement Report submitted to the OMA. Analysis Five agencies that collectively accounted for 21% of the total Statewide MBE participation could not adequately support the award activity included in their fiscal year 2001 MBE participation reports submitted to the OMA. For example, we noted that two agencies did not retain documentation supporting the amounts included in the report and two agencies made unsupported adjustments to source documents that resulted in significant increases to their MBE participation rates. The accuracy of the procurement activity and related MBE participation is critical, since these self-reported amounts are the basis for the OMA’s annual report of statewide MBE participation. A summary of our findings is as follows:

Table 2

Details of Finding 1 Test of Accuracy of Fiscal Year 2001 Annual MBE Procurement Reports

Agency

(reported MBE participation rate)

Findings

Examples/Results Department of Human Resources

(11.8%)

The Department did not retain detailed documentation (that is, a listing of contracts) to support reported MBE participation. Instead, the Department used a procurement activity report from the State’s accounting system as the basis for their reporting without determining its accuracy. In addition, the Department’s reported amount reflected an unsupported adjustment of $4.2 million.

We were unable to determine the propriety and accuracy of the MBE participation amount reported. The Department’s unsupported adjustments increased its MBE participation rate from 8.7% to 11.8%.

Department of General Services

(14.7%)

The Department made unsupported adjustments to source documents that were the basis for the amounts reported. In addition, based on our tests, the amount of MBE subcontractor participation included in the Annual Report exceeded the amounts reported by prime contractors.

The Department decreased reported amounts for construction contracts from $38 million to $34 million, while increasing the related MBE participation from $6.5 million to $8 million without retaining supporting documentation. In addition, our test of 15 fiscal year 2001 contracts with reported MBE subcontractor participation totaling $6.1 million disclosed that $1.3 million of participation was not supported. These three adjustments resulted in an increase of MBE participation from 13.2% to 14.7%.

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Table 2

Details of Finding 1 Test of Accuracy of Fiscal Year 2001 Annual MBE Procurement Reports

Agency

(reported MBE participation rate)

Findings

Examples/Results Maryland Port Administration

(18.2%)

The Administration did not retain detailed documentation (that is, a listing of contracts) to support reported MBE participation.

We were unable to determine the propriety and accuracy of the MBE participation amount reported. We did note however, that the Administration excluded from its reporting a $79 million contract awarded by the Administration in fiscal year 2001 that had a 1% MBE participation ($817,000). Including this contract in the reported amounts results in reducing MBE participation to less than 8%.

Maryland Stadium Authority

(15.5%)

Reported data was inconsistent with the OMA’s reporting guidelines. Specifically, the Authority reported actual payments made on all contracts during fiscal year 2001, instead of contract awards, as was required.

Authority personnel informed us that actual payments were reported since such data was believed to be a more useful indicator of MBE performance. We could not readily determine the Authority’s MBE award activity.

Public School Construction Program

(14.8%)

The Program did not always retain adequate documentation to support amounts awarded to MBE subcontractors.

Our test of 15 contracts totaling $69.5 million, with $6.9 million in MBE subcontractor awards, disclosed that $1.9 million in awards were not supported by MBE documentation from the local school boards. These findings by themselves result in a slight overstatement of the Program’s reported MBE participation rate.

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Recommendation 1 We recommend that State agencies maintain documentation to support their self-reported annual MBE participation activity. We also recommend that State agencies prepare their annual reports in accordance with the guidelines issued by the OMA and ensure the propriety of the reported data before submission. Finding 2 The OMA had not established procedures to determine the reasonableness of data contained in the annual Statewide Minority Business Enterprise Report, which for fiscal year 2001, contained significant errors. Analysis The OMA had not established procedures to determine the reasonableness of data contained in annual Statewide Minority Business Enterprise Reports, which served as the primary mechanism to report MBE Program results to governmental leaders. The OMA prepared its annual report based on submissions by State agencies, but had not established procedures to ensure that the information submitted was reasonable. As commented upon in Finding 1, five of the six agencies tested did not report the appropriate information or retain adequate documentation to support the amounts reported to the OMA. Our review of the fiscal year 2001 Statewide MBE report disclosed that the OMA did not detect the following: ! The Maryland Stadium Authority reported actual contract payments

totaling $81.8 million, instead of contract award amounts, as was required by State law.

! The report included an estimated $163 million of MBE participation from

the Department of Budget and Management that was based on 18 open multi-year contracts for statewide information technology (IT) services with a total maximum value of $500 million. These open contracts,

represented a pre-approved list of vendors for State agencies to use in the future for a variety of IT purposes, not actual awards made by agencies to these vendors. For reporting purposes, DBM

simply estimated the $163 million in MBE participation based on the maximum value of the contracts approved by the Board of Public Works.

One agency reported $163 million in MBE participation that was not supported by proper contracts.

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A formal procurement obligation does not actually exist until an agency desiring to use the services enters into a task order with the vendor that describes the services to be provided and the related costs to be paid. In fact, the DBM contracts themselves specify that the task orders will include MBE participation goals that will be monitored. In our opinion, these task orders should serve as the basis for the MBE award data. Furthermore, the inclusion of these blanket contracts in the Statewide report could result in the double reporting of MBE participation since those State agencies using these vendors may also report these contractual obligations to the OMA.

Recommendation 2 We recommend that the OMA establish procedures to ensure the reasonableness of information reported by State agencies and subsequently compiled in its Statewide Report. For example, the OMA could request agencies to submit copies of supporting documentation to allow OMA to perform desk reviews of the reported information. We also recommend that the OMA clarify reporting requirements with State agencies. Finding 3 The OMA did not obtain information on actual payments made to MBE’s on completed contracts to use as an evaluation tool and to provide an additional measure of the success of the MBE program. Analysis While agencies are responsible for comparing intended and actual MBE participation for completed contracts, the OMA did not obtain this data from the agencies, nor include it in the annual report of Statewide activity. As a result, the OMA could not use this information to evaluate agency compliance with program requirements or to identify State agencies that need assistance in meeting these requirements. Including actual payment information in addition to the contract award information currently contained in the Statewide annual report would also assist interested parties and the OMA in determining the success of the State’s MBE Program. For completed contracts, State Procurement Regulations require agencies to compare the dollar value of payments received by certified MBE’s with the amount the MBE’s were intended to have received under the contract participation goals. However, the OMA did not require agencies to report the results of these comparisons. (As commented upon in Finding 7 of this report, only one of the six agencies we reviewed even performed these comparisons.)

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Although State law specifies that MBE Program participation goals are based on contract award amounts, the law authorizes the OMA to collect any information it deems appropriate to monitor the Program and report this information in its Annual Report. In our opinion, including actual payments to MBE’s on completed contracts, when viewed in conjunction with contract award information already reported, would provide a more complete assessment of the success of the MBE program. In testing actual payments to MBE’s for completed contracts, we noted that for five of the agencies actual payments were significantly lower than the amounts intended to be paid under the contract award, as illustrated in Table 3. Furthermore, actual payments made by four of the six agencies for the contracts tested were significantly below the State’s overall 14% participation goal.

Table 3 Test Results -- Contracts Completed During Fiscal Year 2001 (dollars stated in thousands)

Agency

Number of Contracts

Tested (Number of

MBE’s Tested)

Total of Original Contract Awards

Total of MBE Contract Awards

MBE Contract Award %

Total Actual Contract

Payments#

Total Actual Payments to MBE’s

Actual MBE Payment %

Department of Human Resources

10 (11) $ 95,775

$ 23,272

24.0 %

$ 68,417

$ 12,752

18.6 %

Public School Construction Program

8

(32) 66,647 8,635

13.0 %

68,105

5,752

8.5 %

Maryland Port Administration

2 (6)

2,085 363 17.4 %

2,130 176

8.3 %

Maryland Stadium Authority

3

(6)

829 100

12.1 %

1,009

100

9.9 %

State Highway Administration

5

(15) 45,135

6,965

15.4 %

49,650

6,140

12.4 %

Department of General Services

10

(19) 8,247

1,432

17.4 %

8,552

1,606

18.8 %

Total Tested 38

(89) $ 218,719 $ 40,767 18.6 % $ 197,862 $ 26,527 13.4 %

# Total actual payments may exceed the original contract awards as a result of contract change orders. The percentage of actual MBE payments was less than the MBE awards.

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Causes We identified several potential causes for the reduced percentage of actual MBE participation when compared with the contract awards. Specifically, ! When change orders were processed, there did not always appear to be

formal consideration given to including MBE participation in the revised scope of work. Although it is possible that the scope of change orders may not always relate to work intended for MBE contractors; nevertheless, such conditions reduce overall

MBE participation rates. This situation is only compounded when the intended MBE participation rate for the original scope of work was also not achieved.

! In some instances, participating MBE’s withdrew from contracts without

the agency replacing the subcontractor with another MBE. Recommendation 3 We recommend that the OMA obtain from State agencies, a comparison of actual payment amounts with the MBE participation goals. In instances in which the MBE participation, based on actual payment data, is significantly less than the established goals, we recommend that the OMA obtain explanations from the State agencies. Such explanations should be analyzed and, as deemed necessary or practicable, assistance should be provided to increase future MBE participation. In addition, we recommend that actual payments to MBE’s be included in OMA’s annual Statewide summary report of MBE participation to the Board of Public Works and the General Assembly. Finding 4 The OMA did not evaluate agency reported MBE participation data in an effort to assist agencies in developing action plans to increase MBE participation, including enhanced outreach efforts and development of MBE’s. Analysis The OMA did not evaluate agency reported MBE participation information to assist agencies in developing action plans to increase MBE participation, including enhanced outreach efforts and development of MBE’s. Although the OMA’s fiscal year 2001 report of Statewide MBE participation reported a

Example: Contract change orders did not consider MBE participation.

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participation rate of 19.2%, 36 of the 75 agencies included in the report did not individually meet the 14% goal—see Exhibit 1. However, the OMA did not use the reported information to provide agency-specific assistance or to obtain action plans from these agencies to help meet the goal. In addition, there appears to be a lack of qualified MBE’s in certain business segments or geographic areas of the State. For example, despite the State Highway Administration’s efforts to identify and assist MBE’s in obtaining State work, Administration personnel advised us that there was a lack of certified MBE’s for certain types of construction work and in certain geographic areas of the State (such as Western Maryland and the Eastern Shore). In fact, we identified several agencies from these geographic areas that did not meet the 14% goal by significant margins. For example, Frostburg State University and the University System of Maryland, Eastern Shore reported that they awarded only 1.9% and 4.4%, respectively, in MBE participation in fiscal year 2001. The effect of this shortage of MBE contractors for the State Highway Administration is significant because even though the Administration usually established contract goals that met the State’s 14% goal, the actual payments to MBE’s fell short. In fiscal year 2001, of the Administration’s $1 billion in contractor payments, only $80 million (7.8%) was paid to MBE’s. If the Administration had made actual payments in accordance with its goal of 14%, an additional $60 million would have been paid to MBE contractors. Recommendation 4 We recommend that the OMA use the information reported by State agencies to identify those agencies that require assistance in meeting MBE participation goals. We also recommend that the OMA, in conjunction with applicable State agencies (such as the Department of Business and Economic Development), develop additional programs and enhancements to current outreach efforts in order to increase certified MBE participation. Finding 5 The OMA did not submit the fiscal year 2000 and 2001 Annual Statewide Minority Business Enterprise Reports within the time period established by State law. Analysis The OMA did not submit the fiscal year 2000 and 2001 Statewide Reports timely in accordance with the Annotated Code of Maryland. State law requires that the OMA submit a summary report of MBE participation information reported by all

22

State agencies for the fiscal year ended June 30 to the Board of Public Works and to the Legislative Policy Committee of the General Assembly on or before December 31 of each year. However, Committee staff informed us that the fiscal year 2000 report was not received until February 6, 2002 (13 months late). Furthermore, the fiscal year 2001 report was also not submitted timely. Although the OMA submitted

the report to the Board on July 17, 2002, it had not submitted the report to the Committee as of July 29, 2002. The OMA advised us that the delays were due to the volume of hardcopy submissions from the State agencies, which overwhelmed its staff. Recommendation 5 We recommend that the OMA submit the annual Statewide Minority Business Enterprise Report timely as required by State law. In addition, we recommend that the OMA consider collecting and compiling agency report data electronically in order to facilitate a more timely submission. Finding 6 Certain of the OMA’s performance measures do not appear to provide meaningful data regarding the results of its operations or the MBE Program. Analysis Our review of the OMA’s performance measures included in its fiscal years 2002 and 2003 budget submissions disclosed that certain measures did not provide meaningful data regarding the results of its operations or they were not adequately supported. This makes the usefulness of the Managing For Results Initiative (see Exhibit 3 for an overview of the State’s MFR Initiative) for this agency of questionable value as a management tool to both the intended users and the OMA. For example, the following measure, which appeared for the first time in the fiscal year 2003 budget submission, does not provide a true representation of compliance with the MBE participation goal of 25%:

Table 4

OMA Fiscal Year 2003 Performance Measures

Performance Measure

Fiscal Year 2000

Actual

Fiscal Year 2001

Actual

Fiscal Year 2002

Estimated

Fiscal Year 2003

Estimated Number of departments/agencies exceeding 25% goal

15

N/A

19

23

Source: Maryland Operating Budget: Part One, Fiscal Year 2003

Example: Fiscal Year 2000 Statewide report was submitted 13 months late.

23

The performance measure only considers the number of departments/agencies estimated to meet the 25% MBE goal without regard to the value of these agencies’ procurement awards. The 23 agencies estimated to achieve the goal for fiscal year 2003 only accounted for 21% and 13% of the State’s total procurement awards for fiscal years 2000 and 2001, respectively (most recent actual procurement data available). As commented upon in Finding 2, the OMA did not obtain information on actual payments to MBE’s. Since we believe that this is a valid measure of Program achievement, this information, when obtained, could be included as a performance measure in future submissions. We also noted serious documentation problems with the OMA’s performance measure results included in the fiscal year 2002 budget submission. For example, the OMA was unable to provide documentation to support any of the actual or estimated amounts in Table 5. For example, according to the OMA’s fiscal year 1999 and 2000 annual Statewide reports, State contracts with MBE’s totaled approximately $686.8 million and $491.6 million, respectively. The OMA could not provide an explanation as to why it did not use actual numbers.

Table 5 OMA Fiscal Year 2002 Performance Measures

Performance Measure

Fiscal Year 1999

Actual

Fiscal Year 2000

Actual

Fiscal Year

2001 Estimated

Fiscal Year

2002 Estimated

Conferences and Seminars with State Agencies

30

30

30

15

Conferences and Seminars with MBE Advocates

20

20

20

15

Individuals Receiving management and technical assistance

3,000

3,000

2,500

2,500

State Contracts with Minority Business Enterprises (millions of dollars)

$550

$550

$550

$500

Source: Maryland Operating Budget: Part One, Fiscal Year 2002 Finally, we noted that the OMA did not have formal definitions for its reported performance measures as required by the Department of Budget and Management.

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Recommendation 6 We recommend that the OMA, in conjunction with the Department of Budget and Management, develop meaningful measures that provide a useful benchmark for users to ascertain the success of the OMA’s operations and the MBE Program. We also recommend that the OMA define its performance measures and retain documentation to support the calculation of its performance measures.

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Agency Contract Monitoring and Compliance with MBE Program Regulations

Conclusion State agencies need to place greater emphasis on MBE participation in contracts. None of the six agencies we reviewed adequately monitored MBE participation in all of their contracts. For example, with the exception of the State Highway Administration’s construction contracts, none of the agencies upon completion of a contract, compared the actual payments to MBE subcontractors with the amount that the MBE’s were intended to have received under the contract’s participation goal. In addition, four of the six agencies tested did not ensure that MBE subcontractors actually performed contracted work during the course of a contract. We also noted that agencies did not always comply with State Procurement Regulations when issuing waivers to prime contractors exempting them from obtaining MBE participation.

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Finding 7 State agencies tested did not adequately monitor MBE subcontractor participation on State contracts as required by State Regulations. Analysis Our review disclosed that all six agencies reviewed did not adequately monitor MBE subcontractor participation in State contracts. Specifically, we noted that monitoring procedures did not exist for one agency; monitoring procedures existed, but were inadequate for another agency; and monitoring procedures, although adequate, were not followed for four additional agencies. Based on our review of procedures and our test of 38 completed contracts with awards totaling $218.7 million, including $40.7 million awarded to MBE subcontractors, we noted the following:

Table 6 Conditions Related to Inadequate MBE Monitoring

Agency Condition SHA PSCP

$ DHR MPA MSA DGS

Did Not Compare Actual Payments to MBE Subcontractors with Original Contract Award Amounts Nor Explain Significant Discrepancies

%#

%

%

%

%

%

Generally Did Not Obtain Payment Verification from MBE Subcontractors

%

%

%

%

%

%

Did Not Ensure MBE’s Actually Performed the Work

% %

%

%

# We tested construction and architectural/engineering contracts. This exception condition only relates to the State Highway Administrations’ architectural/engineering contracts.

$ Contracts are administered by the local boards of education. The Program is required by Regulations to ensure that the local boards comply with the State’s MBE program.

Although MBE subcontractors were to be awarded work valued at $40.7 million, the actual MBE payments as reported by the prime contractors only totaled $26.5 million. In addition, the six agencies did not obtain independent payment verification from the MBE subcontractors for $18.4 million, which violates State Procurement Regulations.

Agencies did not obtain independent verification for $18.4 million in payments to MBE’s.

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State Regulations require procurement agencies to verify, during the course of a contract that certified MBE’s are actually performing work and receiving appropriate compensation. In addition, upon completion of projects, the Regulations require State agencies to compare the dollar value of payments received by certified MBE’s with the amount the MBE’s were intended to have received under the participation goal in the awarded contract and explain significant discrepancies. Finally, these Regulations require that MBE subcontractors report amounts received monthly to the procurement agencies. Recommendation 7 We recommend that State agencies comply with the requirements of the State Procurement Regulations for monitoring MBE subcontractor participation in State contracts. Specifically, we recommend that State agencies ensure and document, at least on a test basis, that MBE’s are actually performing work and receiving compensation as set forth in the contract. In addition, we recommend that State agencies obtain periodic reports of payments from MBE subcontractors, and, upon completion of each contract, prepare a report comparing the dollar value of the payments received by MBE’s with the dollar value of the amount the MBE’s were intended to have received under the contract’s MBE participation goal. State agencies should also explain any significant discrepancies and report this information to OMA. Finding 8 Approved waivers of MBE contract participation were not always obtained when MBE participation goals were not established or met. Analysis Waivers of MBE contract participation were not always retained or approved as required by State Regulations. This is a critical documentation element of the State’s MBE Program enabling an agency to justify an exemption from MBE participation. These waivers are to be approved by the agency head or designee. Specifically, our test of 35 contracts from three agencies disclosed 15 contracts that lacked approved waivers even though MBE participation goals were either not established in the contracts or the stated goals were not met. For these 15 contracts, based on the State’s 14% MBE participation goal, the potential value of the MBE work for which waivers should have been prepared was $4.7 million. (This amount represents the total procurement value of the 15 contracts multiplied by the 14% goal, while deducting the MBE participation, if any, actually identified in the contracts.) For example, our review disclosed the following:

28

! Waivers were not on file for two Department of Human Resources’

contracts with payments totaling $9.3 million for which no MBE participation goals were established.

! For the Public School Construction Program and the Department of

General Services, approved waivers were not on file for four contracts they awarded that did not meet the agencies’ predetermined MBE participation goals.

! For two other contracts awarded by the Department of General Services

that did not meet the MBE participation goal, although the contract file noted that the Department granted a waiver, there was no documentation of the reason(s) the Department granted the wavier as required by State Procurement Regulations.

State Procurement Regulations require procurement agencies to assess the potential for certified MBE participation in each contract and the amount of participation expected. These Regulations also allow procurement agencies to grant MBE participation waivers under certain justifiable circumstances (such as the contractor demonstrating that it was unable to obtain MBE participation). Recommendation 8 We recommend that State agencies comply with the State Procurement Regulations and ensure that waivers are granted and documented in accordance with the Regulations. We also recommend that the State agencies assess the potential for certified MBE participation in each contract or properly grant a waiver. Finding 9 The Maryland Stadium Authority did not follow established MBE Regulations when procuring guaranteed maximum price contracts. Analysis The Maryland Stadium Authority did not follow established MBE Regulations when procuring guaranteed maximum price contracts. The Authority awards guaranteed maximum price contracts (which essentially represent costs not-to-exceed contracts) to general contractors for large construction contracts to ensure that the total project cost does not exceed the stated price. As a means of controlling costs, the Authority delegates broad authority to the general contractor

29

for all aspects of the project including identifying and subcontracting with MBE’s after the contract award. We reviewed two guaranteed maximum price contracts totaling $54.6 million awarded in fiscal year 2001 and determined the following: ! The Authority did not identify, prior to bid solicitation, portions of the

contracted work that would be appropriate for MBE participation. In addition, the Authority did not establish MBE participation goals prior to awarding the contracts. Rather, the bidders were required to indicate MBE participation goals. We were informed that the Authority meets with the general contractor to identify these areas after the contract has been awarded.

! The Authority did not require the general contractors to identify specific

MBE subcontractors who would perform the intended work. Specifically, the contractor was not required to complete schedules identifying MBE’s who would participate in the contracts or MBE participation statements signed by the contractor and MBE’s. These participation statements are used to document contractual obligations between the contractor and MBE regarding the work to be completed and the amount to be paid for that work. The Authority stated that it obtains periodic documentation from the general contractors regarding the status of MBE participation.

As a result, there is a lack of assurance of MBE participation in the Authority’s contracts because the contractor has complete control over the participation. State Procurement Regulations require that procurement agencies assess the potential for MBE participation in each contract and identify specific categories of the procurement appropriate for subcontracting prior to awarding the contract. The Regulations also require agencies to obtain from the successful bidder an acknowledgement of the MBE participation goal and a complete schedule of participation listing each MBE who will participate in the project. Although the Authority is legally authorized to enter into guaranteed maximum price contracts, the Regulations do not provide for any exemptions from MBE participation. The Authority contends that the Regulations do not specifically address these types of contracts since the Authority does not develop detailed plans and specifications prior to putting the project out for bid. Rather, the Authority, in conjunction with the successful bidder, will develop the design and project specifications after contract award.

30

Recommendation 9 We recommend that the Authority comply with existing State Procurement Regulations, or if deemed appropriate, seek to amend the Regulations to reflect the procedures to be followed to ensure appropriate MBE participation in guaranteed maximum price contracts. We also recommend that the Authority ensure that general contractors and MBE’s complete appropriate documentation to provide a contractual obligation regarding the work to be completed and the amount to be paid to MBE’s.

MBE SUB $ = MBE Subcontractor Dollars Page 1 of 3 MBE PRIME $ = MBE Prime Contractor Dollars Total MBE $ = MBE Prime Contractor Dollars + MBE Subcontractor Dollars Amounts highlighted indicate agencies (36 total) that did not meet the 14% MBE participation goal for fiscal year 2001. Agencies highlighted were subject to audit.

Source: Office of Minority Affairs Exhibit 1

Fiscal Year 2001 – Total MBE Combined, Prime and Subcontractor Figures by Agency

TOTAL TOTAL TOTAL MBE MBE MBE STATE AGENCY PROCUREMENTS MBE $ MBE % PRIME $ PRIME % SUB $

AGING $ 45,741 $ 39,787 87.0 $ 39,787 87.0 $ - AGRICULTURE 2,879,698 307,404 10.7 307,404 10.7 - ARCHIVES 1,212,136 74,690 6.2 74,690 6.2 - ASSESSMENTS & TAXATION 1,825,801 551,676 30.2 551,676 30.2 - ATTORNEY GENERAL'S OFFICE 48,350 17,500 36.2 17,500 36.2 - AUTOMOBILE INSUR. FUND 382,908 172,113 44.9 172,113 44.9 - BALT. CITY COMM. COLLEGE 7,815,455 929,430 11.9 929,430 11.9 - CONTRACT APPEALS 6,601 6,601 100.0 6,601 100.0 - ELECTIONS 61,544 - 0.0 - 0.0 - BOARDS, OFFICES & COMMISSIONS 820,663 73,344 8.9 73,344 8.9 - BUDGET & MANAGEMENT 572,020,929 187,496,409 32.8 117,349,080 20.5 70,147,329 BUSINESS & ECONOMIC DEVELOPMENT 18,053,715 2,563,280 14.2 1,509,325 8.4 1,053,955 CANAL PLACE PRESERVATION 802,416 150,130 18.7 125,141 15.6 24,989 CHILDREN YOUTH AND FAMILIES 541,753 123,216 22.7 25,216 4.7 98,000 COMPTROLLER 5,201,095 508,099 9.8 244,461 4.7 263,638 DEAF, SCHOOL 1,252,928 85,234 6.8 85,234 6.8 - EDUCATION 44,652,275 6,539,583 14.6 641,616 1.4 5,897,968 EMERGENCY MANAGEMENT AGENCY 1,175,881 75,971 6.5 75,971 6.5 - ENERGY ADMINISTRATION 347,659 2,738 0.8 2,738 0.8 - ENVIRONMENT 3,806,681 1,122,971 29.5 1,122,971 29.5 - ENVIRONMENTAL SERVICES 23,312,362 3,716,044 15.9 1,845,521 7.9 1,870,523 EXECUTIVE DEPARTMENT 154,024 47,290 30.7 47,290 30.7 - FOOD CENTER AUTHORITY 245,633 3,521 1.4 3,521 1.4 - GENERAL SERVICES 225,719,319 33,106,404 14.7 17,452,416 7.7 15,653,988 HEALTH & MENTAL HYGIENE 336,814,943 146,889,908 43.6 141,258,753 41.9 5,631,155 HIGHER EDUCATION COMMISSION 3,545,504 44,453 1.3 44,453 1.3 - HOUSING & COMMUNITY DEVELOPMENT 4,682,117 949,730 20.3 835,884 17.9 113,846

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MBE SUB $ = MBE Subcontractor Dollars Page 2 of 3 MBE PRIME $ = MBE Prime Contractor Dollars Total MBE $ = MBE Prime Contractor Dollars + MBE Subcontractor Dollars Amounts highlighted indicate agencies (36 total) that did not meet the 14% MBE participation goal for fiscal year 2001. Agencies highlighted were subject to audit.

Source: Office of Minority Affairs Exhibit 1

Fiscal Year 2001 – Total MBE Combined, Prime and Subcontractor Figures by Agency

TOTAL TOTAL TOTAL MBE MBE MBE STATE AGENCY PROCUREMENTS MBE $ MBE % PRIME $ PRIME % SUB $

HUMAN RELATIONS COMMISSION 143,927 53,574 37.2 53,574 37.2 - HUMAN RESOURCES 143,914,557 17,024,411 11.8 5,646,808 3.9 11,377,603 INDIVIDUALS W/DISABILITIES 112,485 1,327 1.1 1,327 1.1 - INSURANCE ADMINISTRATION 2,605,683 32,772 1.3 32,772 1.3 - JUVENILE JUSTICE 35,089,748 4,256,118 12.1 4,139,978 11.8 116,140 LABOR, LICENSING & REGULATIONS 5,754,234 1,667,418 29.0 1,488,480 25.9 178,938 LOTTERY 31,865,685 6,151,983 19.3 204,650 0.6 5,947,333 MILITARY 2,270,921 128,670 5.7 128,670 5.7 - MORGAN STATE UNIVERSITY 41,145,713 10,112,814 24.6 1,251,017 3.0 8,861,797 NATURAL RESOURCES 5,764,588 598,269 10.4 361,769 6.3 236,500 PEOPLE'S COUNSEL 55,061 10,203 18.5 10,203 18.5 - PLANNING 976,823 118,197 12.1 118,197 12.1 - POLICE 19,294,784 660,282 3.4 660,282 3.4 - PROSECUTOR'S OFFICE 12,051 1,657 13.7 1,657 13.7 - PUBLIC BROADCASTING COMMISSION 6,803,003 510,566 7.5 455,459 6.7 55,107 PUBLIC DEFENDERS OFFICE 616,715 172,874 28.0 172,874 28.0 - PUBLIC SAFETY & CORRECTIONS 318,799,749 34,276,235 10.8 6,260,836 2.0 28,015,399 PUBLIC SERVICE COMMISSION 2,912,727 329,571 11.3 4,625 0.2 324,946 PUBLIC SCHOOL CONSTRUCTION 691,496,716 102,497,890 14.8 32,313,815 4.7 70,184,075 PUBLIC WORKS 26,651 8,601 32.3 8,601 32.3 - RETIREMENT 8,988,309 846,490 9.4 476,297 5.3 370,193 ST. MARY'S COLLEGE 13,906,260 574,116 4.1 182,649 1.3 391,467 SECRETARY OF STATE 80,232 17,594 21.9 17,594 21.9 - STADIUM AUTHORITY 81,790,768 12,679,553 15.5 1,768,398 2.2 10,911,155 SUBSEQUENT INJURY FUND 3,566 - 0.0 - 0.0 - SUPPLEMENTAL RETIREMENT 216,853 24,943 11.5 17,321 8.0 7,622

32

MBE SUB $ = MBE Subcontractor $ Page 3 of 3 Total MBE $ = MBE Prime $ + MBE Subcontractor $ Amounts highlighted indicate agencies (36 total) that did not meet the 14% MBE participation goal for fiscal year 2001. Agencies highlighted were subject to audit.

Source: Office of Minority Affairs Exhibit 1

Fiscal Year 2001 – Total MBE Combined, Prime and Subcontractor Figures by Agency

TOTAL TOTAL TOTAL MBE MBE MBE STATE AGENCY PROCUREMENTS MBE $ MBE % PRIME $ PRIME % SUB $

TAX COURT 24,351 4,803 19.7 4,803 19.7 - TRANSPORTATION AVIATION 151,247,536 32,787,032 21.7 11,679,334 7.7 21,107,697 MOTOR VEHICLE 33,265,268 9,359,928 28.1 9,344,928 28.1 15,000 OFFICE OF THE SECRETARY 1,050,566 270,315 25.7 270,315 25.7 - PORT 48,724,119 8,858,238 18.2 571,090 1.2 8,287,148 TRANSIT 130,928,257 29,604,248 22.6 13,574,560 10.4 16,029,689 TRANSPORTATION AUTHORITY 25,651,345 5,942,077 23.2 2,316,479 9.0 3,625,598 STATE HIGHWAY 756,957,545 93,631,896 12.4 21,158,801 2.8 72,473,095 TREASURER'S OFFICE 308,610 278,840 90.4 247,517 80.2 31,323 UNIVERSITY SYSTEM OF MARYLAND BOWIE STATE UNIVERSITY 11,536,857 2,464,143 21.4 2,464,143 21.4 - COPPIN STATE COLLEGE 4,204,611 1,483,339 35.3 1,483,339 35.3 - FROSTBURG STATE UNIVERSITY 10,810,818 206,712 1.9 74,980 0.7 131,732 SALISBURY STATE UNIVERSITY 10,320,412 212,381 2.1 73,406 0.7 138,975 TOWSON UNIVERSITY 35,899,771 4,207,433 11.7 2,547,672 7.1 1,659,761 UNIVERSITY OF BALTIMORE 4,252,713 493,883 11.6 455,883 10.7 38,000 UM BALTIMORE 129,838,521 18,631,598 14.3 6,188,387 4.8 12,443,211 UM BALTIMORE COUNTY 43,591,928 10,269,225 23.6 7,822,635 17.9 2,446,590 UM COLLEGE PARK 246,161,518 34,154,208 13.9 5,400,972 2.2 28,753,236 UM EASTERN SHORE 11,340,843 497,790 4.4 497,790 4.4 - UM UNIVERSITY COLLEGE 13,787,001 998,344 7.2 782,730 5.7 215,614 VETERANS AFFAIRS 8,041,143 332,297 4.1 332,297 4.1 - WORKERS’ COMPENSATION 49,967 29,689 59.4 29,689 59.4 -

Total $ 4,350,069,637 $ 833,072,072 19.2 $ 427,941,738 9.8 $ 405,130,335 Note: Column totals may not foot due to the rounding of numbers.

33

34

Exhibit 2 OMA’s Mandated Responsibilities

• Carry out each State or federal program that is created to promote

the growth of or participation in MBE’s.

• Promote and coordinate the plans, programs, and operations of the State government that promote or otherwise affect the establishment, preservation, and strengthening of MBE’s.

• Promote activities and the use of the resources of the State

government, local governments, and private entities for the growth of MBE’s.

• Coordinate the effort of private entities and public agencies to

develop MBE’s.

• Establish a system to develop, collect, summarize and give out information that would help a person to establish and operate an MBE successfully, and promote the establishment and successful operation of MBE’s.

• Subject to the limitations of the law and availability of funds:

provide technical and managerial assistance to MBE’s; provide the managerial and organizational framework for private

entities and units of State government to plan and carry out joint undertakings that relate to MBE’s; and

pay, wholly or partly, the costs of a pilot or demonstration project

that is intended to overcome the special problems of MBE’s.

Source: Section 9-305 of the State Government Article of the Annotated Code of Maryland.

35

Exhibit 3 Overview of Managing for Results Program (MFR)

In July 1997, the Governor’s initiative Managing for Results (MFR) was implemented to increase governmental accountability by using resources more effectively and efficiently to meet the needs of the State’s customers and stakeholders (such as the citizens of Maryland). MFR is a future-oriented strategic planning process that establishes direction and priorities for State programs to achieve meaningful results. The success of a program in achieving desired results is determined through the development and monitoring of program performance measures. MFR was implemented over a three-year period beginning with the fiscal year 1999 budget submission and is linked to the budget and decision making process. Specifically, State agencies are required to submit missions, goals, objectives and performance measures for each program to the Department of Budget and Management as part of their annual budget submissions. This information may then be considered in determining Statewide spending priorities and the allocation of resources in agency budgets. Furthermore, MFR was intended as an accountability tool that enables both the Legislature and the agencies themselves to monitor their operations and the impact of decisions made and program priorities established throughout the year. The Department of Budget and Management oversees the MFR program and has established guidelines governing the implementation and operation of the program. These requirements include the need to document certain attributes for each measure (for example, definitions and data collection methodology) and the proper reporting format.

1

MBE Participation Program Audit

Office of Minority Affairs

Response to Draft Audit Report The Office of Minority Affairs welcomes the opportunity to enhance its performance based on the recommendations of the first audit since the Minority Business Enterprise (MBE) Program’s inception in 1978. The Agency’s professional staff of three has statewide oversight responsibilities, which include reporting the MBE participation rate of State government based on the self-reports of each agency. The Program encompasses over 500,000 contracts let by 75 State agencies. Maryland is leading the nation in promoting diversity in government contracting. During fiscal year 2001, the State awarded $833,072,071 (19.2%) in contracts to minority and women owned business almost doubled from fiscal year 1995, when it awarded $466,609,997 (15.6%). The State of Maryland has a longstanding commitment to including minority and women owned businesses in its contracting and procurement activities. The State first adopted its Minority Business Enterprise (MBE) Program in1978, based upon the General Assembly’s determination that the underutilization of minorities and women in State procurement was due to the effects of past and present discrimination. Moreover, prejudice in the awarding or letting of contracts for the purchase of materials, supplies, equipment and services for the benefit of the State was found to have impeded the economic development and expansion of minority business. The first law required that 10% of the dollar value procurements for certain agencies be awarded to MBE primes and subcontractors. In 1995, the goal was raised from 10% to 14%. Upon the sunset of the MBE legislation in 2001, a review was conducted to assess whether statistical and anecdotal evidence showed past and/or continuing discrimination against MBEs. The Utilization Study of Minority Business Enterprises by the State documented continuing marketplace discrimination, prompting the legislature to raise the annual aspirational goal from 14% to 25% to remedy the effects of bias in State contracting. This legislation makes Maryland one of the most aggressive states promoting minority contracting in the country, going against the national trend of backing away from affirmative action goals. The Office of Minority Affairs is committed to working with the auditors to ensure the continued success of Maryland’s MBE program. ACCURACY OF REPORTED MBE PARTICIPATION AND ADEQUACY OF THE OFFICE OF MINORITY AFFAIRS OVERSIGHT RESPONSIBILITIES FINDING (1) Five Agencies could not adequately support the procurement award activity included in their Minority Business Enterprise Procurement Report submitted to OMA.

2

RECOMMENDATION We recommend that State agencies maintain documentation to support their self-reported annual MBE participation activity. We also recommend that State agencies prepare their annual reports in accordance with the guidelines issued by the OMA and ensure the propriety of the reported data before submission. RESPONSE INDIVIDUAL AGENCY RESPONSES FINDING (2) The OMA had not established procedures to determine the reasonableness of data contained in the annual Statewide Minority Business Enterprise Report, which for fiscal year 2001, contained significant errors. RECOMMENDATION We recommend that OMA establish procedures to ensure the reasonableness of information reported by State agencies and subsequently compiled in its Statewide Report. For example, the OMA could request agencies to submit copies of supporting documentation to allow OMA to perform desk reviews of the reported information. We also recommend that the OMA clarify reporting requirements with State Agencies. RESPONSE The Office of Minority Affairs (OMA) disagrees with the finding. OMA prepares its summary Annual Report based on the self-reports of each State agency. With three program staff, OMA has insufficient resources to audit a statistically significant sample of the approximately 500,000 contracts let by over 75 agencies. However, at least two OMA staff members conduct a review of each agency’s report to ensure arithmetical and statistical accuracy. OMA also has developed a comprehensive set of reporting guidelines and procedures. In the event that OMA detects a discrepancy it notifies the agency and requests an amended report. Once all agency reports have been reviewed and if necessary amended, OMA completes its analysis and summary report. With respect to the specific instances noted in the draft report:

• Had the Maryland Stadium Authority reported actual figures instead of contract award figures on its annual MBE report, this would have been in clear contradiction to the issued guidelines and procedures.1

Auditor’s Comments:

1 Authority data reported was actual, not award-based.

3

• With respect to DBM's statewide contracts, such as for the Technical Service

Providers (TSP), blanket purchase orders are created through the Automated Data Processing Inventory Control System (ADPICS). Although other state agencies utilize these DBM statewide contracts, those agencies must process releases from DBM's blanket purchase order. Note that in some cases, such as TSP, DBM actually processes the releases for all agencies. MBE participation is reported monthly to DBM by the contractors, not to the various agencies using the contracts, and is entered into ADPICS by DBM. The Financial Management Information System (FMIS) tracks and reports MBE participation by blanket purchase order - not by releases.2

Thus when annual FMIS MBE reports are done, the MBE participation for DBM contracts, including its statewide contracts, which are used by other agencies, is reflected in the DBM report, not in the reports for other agencies. The only way duplicate counting of MBE participation could take place by agencies would be if those other agencies were manually adding the data to their annual MBE reports, prohibited by the Agency’s prescribed guidelines. The Agency was advised that the Office of Legislative Audit did not issue any discussion notes to DBM regarding this matter, however it is committed to ensuring that duplicate counting does not occur.

To enhance the reliability and credibility of its data, OMA will explore the feasibility of obtaining auditor services to verify the accuracy of a test sample of agencies. OMA will also continue to host meetings and training seminars with agency MBE Liaison Officers and State procurement professionals to provide guidance on the reporting process and to share best practices in contract compliance administration. FINDING (3) The OMA did not obtain information on actual payments made to MBE’s on completed contracts to use as an evaluation tool and to provide an additional measure of the success of the MBE program. RECOMMENDATION We recommend that the OMA obtain from State agencies, a comparison of actual payment amounts with the MBE participation goals. In instances in which the MBE participation, based on actual payment data is significantly less than the established goals, we recommend that the OMA obtain explanations from the State agencies. Such explanations should be analyzed and, as deemed necessary of practicable, assistance should be provided to increase future MBE participation. In addition, we recommend that actual payments to MBE’s be included in OMA’s annual statewide summary report of MBE participation to the Board of Public Works and the General Assembly. Auditor’s Comments:

2 Reported MBE participation from DBM included on the Statewide report was not based on FMIS, but on potential MBE activity as described in our audit report.

4

RESPONSE The Agency disagrees with the finding. Currently the Agency requires this information as a part of its annual reporting process. Agencies report all amounts paid to both MBE prime contractors and MBE subcontractors on Form 3 - Payment Verification of Minority Contractors. Specifically, agencies are requested to document:

• the name of the prime contractor • total contract dollar value • contract number • date awarded • name(s) of the subcontractor(s) • dollar amount of the subcontract(s) • completion date • date paid and • actual amount paid

However, Form 3 has been revised to include fields for:

• the MBE contract award percentage • actual MBE payment percentage and • an explanation of any discrepancies between the amount received and the amount

intended to be received (see attachment A). Moreover, the Agency disagrees with the recommendation to include actual payment figures as an appropriate measure of program success, given that a comparative analysis of contract award data versus actual dollars paid during a given fiscal year may inaccurately depict the MBE participation rate due to the prevalent use of multi-year contracts and indefinite quantity contracts.3 However, the Agency acknowledges the value of this concept and will convene a workgroup of senior state procurement officials to examine this issue and implement recommendations consistent with the legislative intent of ensuring that MBE's receive the amount intended. FINDING (4) The OMA did not evaluate agency reported MBE participation data in an effort to assist agencies in developing action plans to increase MBE participation, including enhanced outreach efforts and development of MBE’s. Auditor’s Comments:

3 We agree that the described process would not provide an appropriate measure of Program success. Therefore, we recommended that the comparative analysis be performed using the total payments from completed contracts and the original contract award amounts.

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RECOMMENDATION We recommend that the OMA use the information reported by State agencies to identify those agencies that require assistance in meeting MBE participation goals. We also recommend that the OMA in conjunction with applicable State agencies (such as the Department of Business and Economic Development), develop additional programs and enhancements to current outreach efforts in order to increase certified MBE participation. RESPONSE The Agency disagrees with this finding. Pursuant to COMAR 21.11.03.17, agencies are required to include as a part of its MBE report to OMA, “an evaluation by the procurement agency of the success of its MBE program”. This strategic plan is utilized by OMA to assist agencies that do not meet the annual aspirational goal. OMA has participated in numerous outreach activities in various geographical parts of the State and for specific underrepresented minority groups. For example, OMA co-sponsors the MEGA Success Small and Minority Business Conference with the Maryland Departments of Transportation, Business and Economic Development and General Services. The conference is designed to take the State’s procurement system on the road to educate the vending community on the types of goods and services the State is engaged in buying. Vendors learn about how to access contracting opportunities and navigate the State’s procurement process. Additionally, OMA has participated in specific outreach efforts organized by agencies that have not been able to meet the annual MBE goal due to unique market conditions; most recently, OMA partnered with the Department of Human Resources to conduct outreach events for vendors in Baltimore City, Prince George’s County and the Eastern Shore. Due to the prevalent use of non-profit entities in human service contracting, the Department experienced challenges in meeting the goal and designed this series of outreach activities to enhance their participation rates. In an effort to assist the growing Hispanic business community, OMA worked with the Maryland Department of Transportation in hosting a series of bilingual seminars across the State in Baltimore City, Prince George’s County, Anne Arundel County and Montgomery County.4 FINDING (5) The OMA did not submit the fiscal year 2000 and 2001 Annual Statewide Minority Business Enterprise Reports within the time period established by State law. Auditor’s Comments:

4 While we acknowledge that the OMA participates in outreach activities, these activities were not targeted based on an analysis of each agency’s reported MBE participation.

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RECOMMENDATION We recommend that the OMA submit the annual Statewide Minority Business Enterprise Report timely as required by State law. In addition, we recommend that the OMA consider collecting and compiling agency report data electronically in order to facilitate a more timely submission. RESPONSE The Agency agrees with the finding. The Agency is committed to submitting the report on time to the Board of Public Works and the General Assembly. The Agency prepares its summary annual report based on submissions by each State agency. The Agency will examine the feasibility of collecting and compiling agency report data electronically to facilitate a more timely submission. In addition the Agency has put the following procedures in place to ensure the timelines of the report:

& Agencies not submitting reports two weeks prior to the deadline will receive a phone call from the Agency’s Executive Director reminding them of the deadline.

& Agencies not submitting reports one week prior to deadline will receive a

letter from the Executive Director of the Office of Minority Affairs reminding them of the deadline.

& Agencies not submitting reports by the deadline will receive a letter from

the Governor’s Chief of Staff. FINDING (6) Certain of OMA’s performance measures do not appear to provide meaningful data regarding the results of its operations or the MBE program. RECOMMENDATION We recommend that the OMA, in conjunction with the Department of Budget and Management, develop meaningful measures that provide a useful benchmark for users to ascertain the success of the OMA’s operations and the MBE program. We also recommend that the OMA define its performance measures and retain documentation to support the calculation of its performance measures. RESPONSE The Agency agrees with the finding. In 2001, the Agency conducted a review of its Managing for Results (MFR) strategic plan with its budget analyst and MFR consultants to assess its performance measures and goals. Agency staff also completed coursework at the MFR Training Institute at the University of Baltimore. Consequently, the Agency reengineered its MFR submission to reflect recommended changes to its goals and measures, making it more consist with the Agency’s core mission. In an effort to enhance continuity and accountability, the Agency has prepared a “Definition of Performance

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Measures” document that clearly defines its MFR performance measures and goals, as well as explains how data is collected, calculated and stored (Attachment B). FINDING (7) State agencies tested did not adequately monitor MBE subcontractor participation on State contracts as required by State regulations. RECOMMENDATION We recommend that State agencies comply with the requirements of the State procurement regulations for monitoring MBE subcontractor participation in State contracts. Specifically, we recommend that State agencies ensure and document, at least on a test basis, that MBE’s are actually performing work and receiving compensation as set forth in the contract. In addition, we recommend that State agencies obtain periodic reports of payments from MBE subcontractors, and upon the completion of each contract, prepare a report comparing the dollar value of the payments received by MBE’s with the dollar value of the amount the MBE’s were intended to have received under the contract’s MBE participation goal. State agencies should also explain any significant discrepancies and report this information to OMA RESPONSE INDIVIDUAL AGENCY RESPONSES FINDING (8) Approved waivers of MBE contract participation were not always obtained when MBE participation goals were not established or met. RECOMMENDATION We recommend that the State agencies comply with the State procurement Regulations and ensure that waivers are granted and documented in accordance with the Regulations. We also recommend that the State agencies assess the potential for certified MBE participation in each contract or properly grant a waiver. RESPONSE INDIVIDUAL AGENCY RESPONSES FINDING (9) The Maryland Stadium Authority did not follow established MBE regulations when procuring maximum price contracts.

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RECOMMENDATION We recommend that the Authority comply with existing State Procurement Regulations, or if deemed appropriate, seek to amend the Regulations to reflect the procedures to be followed to ensure appropriate MBE participation in guaranteed maximum price contracts. We also recommend that the Authority ensure that general contractors and MBE’s complete appropriate documentation to provide a contractual obligation regarding the work to be completed and the amount to be paid to MBE’s. RESPONSE INDIVIDUAL AGENCY RESPONSE

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Maryland Department of Transportation State Highway Administration (SHA)

Audit Report Response Minority Business Enterprise (MBE) Participation Program Inadequate MBE Monitoring Finding: State agencies tested did not adequately monitor MBE subcontractor participation on state contracts as required by state regulations. ! Did not Compare Actual Payments to MBE Subcontractors with Original Contract

Award Amounts nor Explain Significant Discrepancies. Response: The SHA concurs with the auditor’s recommendation. The SHA will implement procedures to correct this deficiency by January 2003. Also effective January 2003, SHA will submit reports of significant final payment discrepancies to the Office of Minority Business Enterprise at the Maryland Department of Transportation. ! Generally Did Not Obtain Payment Verification from MBE Subcontractors. Response: The SHA concurs, in part, with the auditor’s recommendation. However, SHA has used alternative sources of information to monitor MBE participation on its contracts. State procurement regulations require that contractors and certified MBE subcontractors submit certain documentation on a monthly basis. Although SHA did not comply with the requirement, SHA’s Office of Equal Opportunity (OEO) reviews, on a monthly basis, reports maintained by SHA that capture the same information that is required by the regulations. The SHA used this alternative in an effort to reduce the amount of paperwork that OEO would otherwise receive as a result of the requirement. However, effective immediately, SHA will implement a new process to capture this information in the manner required by the regulations. This process will require the notification of approximately 125 subcontractors involved in Architectural and Engineering (A&E) contracts. The SHA anticipates having this process in place by January 1, 2003.

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Maryland Department of Transportation Maryland Port Administration (MPA)

Audit Report Response Minority Business Enterprise (MBE) Participation Program Accuracy of Reported MBE Participation Data and Adequacy of the Office of Minority Affairs’ Oversight Responsibilities Finding: The Department could not adequately support the procurement award activity included in their Minority Business Enterprise Procurement Report submitted to the Office of Minority Affairs (OMA). Response: The Administration concurs with the auditor’s recommendation. The support for contracts awarded and related MBE participation reported in the fiscal 2001 MBE Annual Procurement Report, was noted on each contract file reviewed for this report. The details for this report was retrieved manually due to the following reasons: ! Information stored in a computer database was lost when the Department’s ISD

department upgraded the computer system. This upgrade failed to configure the entire database and much of the 2001 statistics stored was lost. ISD is currently working to redesign and edit the Department’s database, which is anticipated to be completed by September 2003.

As a result, the Department resorted to a manual statistical count of MBE contract activity, which was deemed a more accurate assessment of the level of MBE activity on MPA contracts. The manual notations placed on each contract file remain as verification of the department’s efforts in this area, however manual worksheets were not retained for audit verification. In the future any statistical documentation on MBE participation will be maintained for audit verification.

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Agency Contract Monitoring and Compliance with MBE Program Regulations Finding: The Administration did not adequately monitor MBE subcontractor participation on its contracts in accordance with its established procedures. Response: The Administration concurs with the auditor’s recommendation. It is the practice of this Administration to request from the Prime Contractor monthly reports of MBE contract activity on each contract on which an MBE goal has been set. Often this payment information is not timely received from Prime contractor or MBE subcontractor as requested, verification may be hindered by the inability to timely obtain cancelled checks and hence the file will bear limited payment verification information. We acknowledge this as an area of weakness that prevents the substantial verification of payments to MBEs. The Administration will now request payment verification on a monthly basis from the MBE subcontractor rather than wait for the Primes’ monthly document figures to do so. The comparison of actual payments to certified MBEs in relation to the amount intended is made when monthly reports from the Prime Contractor are received. To demonstrate that this action occurs a copy of the MBEs payment verification document will be attached to the Prime Contractor’s monthly payment report. Any discrepancy at contracts end will be explained in the close out summary. The Administration makes periodic random site visits to ensure that MBEs are actually performing on contracts. While the current Staffing level does not allow site visits to be performed on all MPA projects, the Administration has recently dedicated a position to enable on site monitoring of MBE participation. Presently, MBE Compliance monitoring is not the primary responsibility of field engineers and department project managers; however, the Administration will now rely on their on-site assistance to monitor MBE compliance. The close out summary report will be revised to indicate the MBE dollar value achieved as well as the initial value stated on the Schedule for participation of Minority Business Enterprises (D-EEO-003).

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The Department agrees with Recommendation 1 to maintain documentation to support the annual MBE participation activity; and will reaffirm that the annual report will be prepared in accordance with the guidelines issued by the OMA and will verify reported data before submission. Department’s Corrective Action Plan:

1. The Department will continue to monitor the statistical information contained in the FMIS/ADPICS data base for accuracy. We are currently exploring the use of the auditable information available from eMarylandMarketplace (eMM) to provide more complete MBE participation data. If adjustments are required, specific justification will be documented and retained and any corrections will be made by the Office of Procurement and Contracting.

2. The Department will utilize the FMIS/ADPICS database to monitor the payments

received from prime contractors to subcontractors through the completion of each project. This database will be used to produce the required MBE Procurement Reports that are submitted to the Office of Minority Affairs, and the Department will maintain documentation to support the amounts reported in the annual report.

Finding #7 State agencies tested did not adequately monitor MBE subcontractor participation

on State contracts as required by State Regulations. Legislative Audit Recommendation:

We recommend that State agencies comply with the requirements of the State Procurement Regulations for monitoring MBE subcontractors participation in State contracts. Specifically, we recommend that State agencies ensure and document, at least on a test basis, that MBE’s are actually performing work and receiving compensation as set forth in the contract. In addition, we recommend that State agencies obtain periodic reports of payments from MBE subcontractors, and, upon completion of each contract, prepare a report comparing the dollar value of the payments received by MBE’s with the dollar value of the amount the MBE’s were intended to have received under the contract’s MBE participation goal. State agencies should also explain any significant discrepancies and report this information to OMA.

Department’s Response:

While it has been shown that, in accordance with State Procurement Regulations, the MBE Program Office did not always obtain documentation of the amounts paid to the certified MBE subcontractors, it should also be noted that, through the DGS Office of Procurement and Contracting (OPC), prime contractors are routinely notified in accordance with OPC operating procedures that they shall:

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“Include in its agreements with its certified MBE subcontractors a requirement that the certified MBE subcontractors submit monthly to the procurement agency a report identifying the prime contract, and listing:

(a) Payments received from the contractor in the preceding 30 days, and (b) Invoices for which the subcontractor has not been paid.”

Therefore, the recommendation that DGS require certified MBE subcontractors to

submit reports of payments is already a component of the overall contract solicitation process and included in the MBE portion of all qualifying bid packages. Furthermore, the MBE Program Office, as standard practice, sends a letter to directly notify MBE subcontractors of this requirement.

While DGS has doubled its efforts to make sure MBE subcontractors are aware of

their requirement, inconsistent and incomplete reporting may continue due to the limited resources of the small minority businesses.

Department’s Corrective Action Plan:

1. DGS is currently evaluating a web-enabled option available through eMM to facilitate reporting by both primes and subcontractors. The Department’s MBE Office will work with its sister agencies toward a statewide MBE-specific database, and how, statewide, such a database will be used to track payments made from prime contractors to subcontractors through the completion of each project along with other relevant data. The database will be used in conjunction with the ADPICS and/or eMM reports to produce the MBE Performance Reports.

2. The Department will continue to maintain a separate file on every contract that is

awarded under construction, maintenance, service and architect & engineering. Each file will contain the name of the prime contractor and every MBE subcontractor as well as other pertinent information relating to the project (dollar value, percentages, waivers, compliance, site visits etc.). The files will be reviewed on a quarterly basis to ensure the appropriate information has been included.

This process will document the steps taken to monitor the contract for compliance with the State procurement regulations for MBE subcontractor participation. The file will contain all the attempts that were taken to obtain information from the prime and subcontractors, including payment verification notices as well as all telephone calls and site visits that were made during the project.

3. The MBE Payment Verification Report will continue to be sent to subcontractors, on

a quarterly basis, requesting that the dollar amount received from the prime contractor to date be verified. In addition, they will be required to identify any outstanding invoices that have not been paid during the prior month.

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If the subcontractor fails to submit the required payment verification reports, then the Department will continue to: a) verify that they are a certified MBE subcontractor with MDOT; b) conduct site visits and inspect the prime contractor’s records to verify that the subcontractor was actually working on the project; and c) send the subcontractor a final notice, along with a self addressed stamped envelope, stating the amount the prime contractor has paid them and request the subcontractor verify the payment, or state the amount they believe is correct, then sign and date the letter and return it to the MBE Office.

4. The MBE Office will continue to work with the project inspectors to confirm that all

change orders or contract modifications are posted to the appropriate contract file. When a project is completed, the MBE Office will continue to compare the dollar value of the payments received and actual participation percentages as compared to the intended dollars and participation percentage to verify that the intended MBE goals were met. Any differences will be noted and reported to OMA.

Finding #8 Approved waivers of MBE contract participation were not always obtained when

MBE participation goals were not established or met.

Legislative Audit Recommendations:

We recommend that State agencies comply with the State Procurement Regulations and ensure that waivers are granted and documented in accordance with the Regulations. We also recommend that the State agencies assess the potential for certified MBE participation in each contract or properly grant a waiver.

Department’s Response:

While in Fiscal Year 2001 waivers to prime contractors were not always on file, the MBE Program Office has been diligent in filing waivers for every applicable case since January 2002, when a new management structure was put in place, to strengthen the Program.

Also, in accordance with BPW Advisory No. 2001-02, dated October 24, 2001,

the Department established the MBE Procurement Review Group (PRG) for reviewing contract solicitations, proposed sole-source contracts, and contract renewal options in order to maximize MBE opportunities. As part of the process, the MBE PRG documents the cases where a 25% MBE goal is not placed on a contract. The prime contractor’s reasons for requesting a waiver are noted whenever a goal lower than 25% is established.

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Response to Performance Audit Report on the Minority Business Enterprise Participation Program

Department of Human Resources

Finding 1 The Department did not retain detailed documentation (that is, a listing of contracts) to support reported MBE participation. Instead, the Department used a procurement activity report from the State’s accounting system as the basis for their reporting without determining its accuracy. In addition, the Department’s reported amount reflected an unsupported adjustment of $4.2 million. Recommendation 1 We recommend that State agencies maintain documentation to support their self-reported annual MBE participation activity. We also recommend that State agencies prepare their annual reports in accordance with the guidelines issued by the OMA and ensure the propriety of the reported data before submission. Agency Response 1 The Department concurs with the recommendation and is currently in the process of reviewing, revising and implementing updated procedures to ensure compliance. Finding 7 State agencies tested did not adequately monitor MBE subcontractor participation on State contracts as required by State Regulations. Recommendation 7 We recommend that State agencies comply with the requirements of the State Procurement Regulations for monitoring MBE subcontractor participation in State contracts. Specifically, we recommend that State agencies ensure and document, at least on a test basis, that MBE’s are actually performing work and receiving compensation as set forth in the contract. In addition, we recommend that State agencies obtain periodic reports of payments from MBE subcontractors, and, upon completion of each contract, prepare a report comparing the dollar value of the payments received by MBE’s with the dollar value of the amount the MBE’s were intended to have received under the contract’s MBE participation goal. State agencies should also explain any significant discrepancies and report this information to OMA.

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Agency Response 7 The Department concurs with the recommendation and has established standardized contract monitoring procedures and instructions to be used by all contract monitors for the duration of the contract. The Department will provide in-house training to staff regarding the implementation of these procedures and forms. The Department’s Office of Employment and Program Equity will randomly monitor all programs on a quarterly basis for overall MBE compliance. Finding 8 Approved waivers of MBE contract participation were not always obtained when MBE participation goals were not established or met. Recommendation 8 We recommend that State agencies comply with the State Procurement Regulations and ensure that waivers are granted and documented in accordance with the Regulations. We also recommend that the State agencies assess the potential for certified MBE participation in each contract or properly grant a waiver. Agency Response 8 The Department disagrees with this finding as it relates specifically to the Department. While regulations do require that agencies assess the potential for MBE participation in each contract, a waiver is only required when an MBE goal has been established and a vendor determines after making a good faith effort that they are not able to meet the established goal. Prior to Regulations that became effective on July 1, 2002, if an MBE was selected as the prime contractor then they could meet the goal with their own workforce and no waiver was needed. The Department, in accordance with regulations, has consistently required a waiver only if a goal has been established after appropriate assessment, and the prime contractor is not able to meet all or a portion of the goal and can document their good faith effort to meet the goal. If it is deemed inappropriate to set a goal for a specific contract then no waiver is required.

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The Authority provided information to your office on contracts awarded for the Hippodrome Theater (20 percent participation) and University of Maryland College Park (21 percent participation). The documentation was the actual contract signed by the contractor and the Authority. Recommendation 7

Project Managers employed by the Stadium Authority are on the construction site daily. These same individuals approve contractor payment requests and would not approve a payment to a subcontractor unless they were on-site and performing work. It is the Authority’s procedure to also require a monthly notarized lien release signed by the MBE subcontractor to verify that compensation is received. Recommendation 9

The audit report has not suggested a way to resolve the apparent conflict between the Authority’s “Guaranteed Maximum Price” (GMP) procurement method and certain specific requirements of MBE regulations.

MSA’s projects are one of a kind in function and by definition are subject to completion dates that are not flexible. When we are working with our clients to procure project funding, we must provide hard construction and development budgets and schedules in the infancy stage of our projects. Once the initial funding budgets and schedules are approved, we must work with our Architects and Construction Managers to design and build a facility within the established limits for time and funding. As such we generally bring in a Construction Manager early in the process and enter into a contract with the CM that establishes a Guaranteed Maximum Price, project schedule, and establishes (based upon Title 21, Subtitle 11, Chapter 03, Minority Business Enterprise Polices) the MBE goals for the project. We believe it is critical to MSA and the State to establish the cap on the price at the earliest stage possible. This can only be done using the expertise of the CM and its historical cost data bank at this early stage. Generally there is insufficient documentation available for any subcontractor, MBE or not, to become involved at this stage. As bid packages are developed as the design progresses, the CM and MSA regularly look at the MBE subcontracting opportunities for each trade. MSA and the CM are constantly mindful of the MBE subcontract participation goal that has been established under Paragraph 21.11.03.09, Procurement Solicitations, B. MBE Procurement Methods, (2) MBE Subcontract Method.

AUDIT TEAM

Edward L. Shulder, CPA Audit Manager

Bekana Edossa, CPA Senior Auditor

Shekisha R. Gillespie Brian K. Roberts

Staff Auditors