December 2, 2016
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Chicago's Minority Business Program Failing, Report Says

 Chicago - Following numerous investigations uncovering fraud, abuse, and mismanagement in the City's Minority and Women-owned Business Enterprise (MWBE) program, the Inspector General's Office (IGO) conducted a program review to analyze the effectiveness of program administration and how actual participation in the program compares to statistics reported to the City Council and the public.

 

OFFICE OF THE INSPECTOR GENERAL

City of Chicago

Joseph M. Ferguson

Inspector General

May 20,2010

180 N. Michigan Avenue, Suite 2000

Chicago, Illinois 60601

Telephone: (773) 478-7799

Fax: (773) 478-3949


To the Mayor, Members of the City Council, the City Clerk, the City Treasurer, and the residents

of the City of Chicago:

Enclosed is a review of the City's minority and women-owned business enterprise program.

1. Background

Mayor Harold Washington began an affirmative action program for City contracts in 1985 by

executive order. The minority and women-owned business enterprise (MWBE)! program was

continued through successive mayoral administrations and an ordinance codifying the City's

program into law was ' passed in 1990. The scope of the MWBE program is extremely large.

Since 1991, the City has reported over $9.5 billion in awarded contracts to MWBEs, an average

of over $500 million a year.

2. Summary of Findings

Over the past several years, the IGO has conducted numerous investigations examining fraud,

abuse, and mismanagement in the MWBE program. Recently, the IGO conducted a program

review to analyze how actual participation in the program compares to the participation statistics

that are reported to the City Council and the public.

Our investigations and analysis have revealed broad and pervasive deficiencies in the

administration of the City's MWBE program and that the City cannot determine whether or not

the program is achieving its goals. As a result, the program has been beset by fraud and unlawful

brokers, and MWBE participation is likely far less than the publicly reported participation

statistics. Specifically, the IGO found that:

• Fraud, abuse, and mismanagement are widespread in the MWBE program. Recent

sustained or soon to be sustained IGO investigations into the MWBE program have

involved contractors that have been awarded over $1 billion in City contracts since 2003.

I In the review we use the term "MWBE program" to refer to the City's afftrmative action contracting program and

the term "MWBE(s)" to refer to all firms that participate in the program.

Website: wWw.chicagoinspectorgeneral.org Hotline: 866-IG-TIPLINE (866-448-4754)

• Our analysis of construction contracts that ended in 2008 found that actual payments to

MWBEs and Disadvantaged Business Enterprises (DBEsi were over 15 percent less

(more than $19 million) than the City's publicly reported statistics for the contracts we

reviewed. Were the over-reporting for 2008 applied to the over $2.5 billion in

construction contracts reportedly awarded to MWBEs and DBEs since 1995/ actual

participation in all the City's construction contracts, between 1995 and 2008, has been

$400 million less than the City'S publicly reported participation statistics.

• Non construction contracts comprise the majority (70% of the dollar value) of reported

MWBE participation awarded since 1995. For these contracts, due to the historical lack

of auditing of non-construction participation, the lack of rigor in the auditing process that

was recently put in place, and the prevalence of fraud and abuse in the program, it is

likely that actual participation is also significantly lower in non-construction than the

publicly reported participation.

• Many of the problems in the MWBE program are attributable to the City'S poor

administration of the program. Specifically, the administrative deficiencies include:

o Not collecting, analyzing, or reporting data on actual payments to MWBEs.

o Lack of cooperation between City departments in administering the program.

o Failure to track payments to MWBEs as contracts are performed.

o Mistakes in assessing actual MWBE participation.

o Laxness in determining eligibility for the program.

o Insufficient resources devoted to the program's administration.

The City'S failure to collect all relevant data, its inconsistent application of the program's rules

and regulations, and a lack of cooperation between the user departments and the Department of

Procurement Services (DPS)4 have all contributed to the program's poor administration. Despite

a lawsuit challenging the program's constitutionality and several high-profile scandals involving

the program, these failings have not been corrected. The MWBE program requires continuous

oversight and analysis, yet the City has failed to successfully address the program's problems as

they have arisen.

3. Summary of Recommendations

The failings of the program cannot and should not be blamed on a single person or a single

department, and therefore no single policy change can fix the program. First and foremost, the

City must collect and report data on actual payments to MWBEs. While better data reporting will

help the program better accomplish its goals, the City must also improve the administration of

2 Disadvantaged Business Enterprises (DBEs) refers to a federal affirmative action contracting program and is only

applicable on certain federally-funded contracts.

3 From 1995 through 2004 this figure includes DBE awards. From 2005 through 2008 DBE awards are excluded.

4 DPS was the principal program administrator for much of its history. In October 2009, the Mayor transferred most

aspects of the program administration and oversight to the Office of Compliance. The analysis period for this report

precedes the transfer. However, the problems detailed have not abated since the transfer and, if anything, have

grown worse.

the program. The administration needs to rigorously enforce the program's rules and regulations

and ensure that participants act in good faith. Specifically, the City must:

• Track and report actual payments to MWBEs.

• Increase cooperation between City departments to properly administer the program.

• Require more detailed documentation of payments to MWBEs.

• Consider directly paying subcontractors.

• Clearly define and consistently apply MWBE regulations.

• Increase resources for program administration.

• Increase enforcement of penalties for non-compliance with MWBE commitments.

Going forward, the City must confront the longstanding problems that plague the program,

which is a cornerstone of City economic and social policy. To do this, the City must engage in

rigorous, continuous analysis of how the program is administered and of the program's

effectiveness and there must be a commitment from all parts of City government to the

program's goals, including, most notably, from the user departments that execute the City's

contracts. By doing so, the City will ensure that the program is run effectively and efficiently and

that MWBE participants are receiving all the benefits of the program to which they are entitled.

Respectfully,


Joseph M. Ferguson

Inspector General

City of Chicago

 

Read Full Report Here



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