Denver’s program to give minority- and women-owned businesses access to government contracts has difficulty providing timely support and monitoring, with staff assigned 400 contracts per person to oversee, a new report found.
“The audit found 34% of contracts during the audit period did not meet the program’s goals, and there were no consequences for these contractors,” wrote Denver Auditor Timothy O’Brien, whose office hired accounting consultant BerryDunn for the audit.
The Division of Small Business Opportunity certifies participants in the Minority/Women and/or Disadvantaged Business program. The certification is valid for three years. There are six types of certification, including for small businesses, minority/women-owned businesses, and “disadvantaged business enterprises,” which federal law defines as those managed by African American, Hispanic, Native American, Asian American and women owners.
Federal guidelines stipulate that 10% of work done on applicable government contracts should go to such businesses, which Denver exceeds, according to the report. In addition to certification, the DSBO monitors compliance and liaises with qualified businesses.
During its review of 2018-2019 operations, BerryDunn found a lack of uniformity in processing certification renewals and an unfamiliarity with the breadth of federal reporting rules. The auditors noted in comparison to similar localities, ensuring compliance was a common difficulty. However, in Denver, the tracking of payments via software was less rigorous.
“DSBO does not withhold pay or enforce any sanctions if a prime or subcontractor does not verify the payment amount,” the audit noted. “This lack of enforcement increases control risk of providing inaccurate payment amounts and improper accounting for goal percentages.”
For the two-year period under review, BerryDunn found that 30 contracts out of 89, or 34%, did not meet program goals, noting this was due in part to “gaps in policies and procedures for guidance of staff.” In one instance where a contractor was not on target to meet its goal, “there was no support to show that DSBO communicated in this case to identify a solution prior to the closing of the contract. BerryDunn also learned that contract monitoring staff are assigned over 400 contracts per person. The noncompliance rate could be attributed to workload consisting of too many contracts to adequately monitor each one.”
During two months chosen for review, auditors found that all four of the subcontractors who were ultimately denied a certification had to wait six months for that outcome.
“There are significant impacts related to holding applications and attempting for over six months to contact a firm that does not meet certification criteria,” the report noted. “It consumes time that DSBO staff could be using to assist firms that do meet certification criteria. Additionally, if the firm was applying with a specific project in mind, prime contractors might be waiting for the firm to receive its certification. Procurement activities could be delayed if a prime contractor proposes on a project and then finds out the subcontractor was not certified.”
In four instances, a business’s certification lapsed because of the office’s delay. In 254 instances over the two-year period, DBSO granted a one-year extension so that subcontractors would not lose their eligibility to bid, but BerryDunn noted that this gives DBSO discretion and is not preferable to a timely renewal.
Auditors noted that when the DSBO disbanded three goal-setting committees in February 2019, it did not update its processes to reflect the change. The office further lacked policies for determining when a compliance plan is necessary for contractors using certified businesses. BerryDunn recommended that DSBO revise its guidelines for sanctioning noncompliance.
“The absence of policies and procedures to utilize the sanctioning authority of the ordinance can cause sanctioning to be an underutilized option in enforcing compliance,” the auditors warned.
Eric Hiraga, executive director of Denver Economic Opportunity & Development, responded to the findings by noting that the office’s protocols were changing during the audit due to a new ordinance that took effect this May.
“It was reassuring to see the audit findings were very much in alignment with our findings, and many of the recommended improvements were already well under way,” he wrote. Hiraga noted that there will be a new 90-day period for certifications and that contractors will receive automated notifications beginning at 120 days before their certification is set to expire.
In a statement, Councilwoman Candi CdeBaca said that the city needed to do more to foster minority- and women-owned businesses locally, instead of contracting with companies outside of Denver.
"The audit confirmed an equity concern that we have brought up repeatedly. If the city truly valued contracting with minority- and women-owned businesses, then we would see resource investment and transparency in reporting outcomes," CdeBaca said. "It shouldn't take an audit to tell us that a caseload of 400 contracts for each staff member overseeing this program will lead to a backlog in applications and lack of responsiveness to the disadvantaged businesses this program is meant to serve."
This story has been updated with a statement from Candi CdeBaca.