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- A Small Percentage of Firms Have Benefited From the DVBE Program
- General Services and CalVet Have Not Adequately Overseen the DVBE Program, Hindering Its Success
- The State Lacks Accurate Data to Fully Measure the DVBE Program’s Success
A Small Percentage of Firms Have Benefited From the DVBE Program
- With only 8 percent of the 1,671 certified DVBE firms receiving contracts as prime contractors from awarding departments during fiscal year 2017–18, the DVBE program continues to benefit only a small proportion of DVBE firms. Further, of the $146 million in contract awards made to 133 DVBE firms as prime contractors during that fiscal year, a total of $130 million went to only 30 firms, indicating that an even smaller number of firms are receiving the most revenue.
- Some awarding departments indicated that they often exempt contracts or procurements from DVBE participation because of a lack of qualified DVBE firms. In addition, several departments cited the complexities involved in using General Services’ system—Cal eProcure—to search for and identify DVBE firms that provide the services or products they need.
Only Some Businesses Have Benefited From Contracting Activity Under the DVBE Program
A small percentage of certified DVBE firms have financially benefited from doing business with the State. According to contracting data published on General Services’ website, only 133 (or 8 percent) of the 1,671 certified DVBE firms contracted with awarding departments as prime contractors during fiscal year 2017–18. Although General Services believes that a number of DVBE firms also benefited from subcontracting, it cannot quantify the number that did so. Specifically, before fiscal year 2018–19, FI$Cal recorded only prime contractor information and did not consistently record information on subcontractors. General Services stated that it has made modifications to FI$Cal to start capturing all subcontractor information beginning in fiscal year 2018–19, and it expects to have more robust data on DVBE subcontracting activities by the following fiscal year. Therefore, given the lack of subcontracting information for previous fiscal years, we focused our analysis on DVBE prime contractors.
A December 2018 report (DVBE Program Review report) prepared by an external consulting group and published by General Services further supports our findings. Specifically, the external consulting group reviewed the DVBE program at 10 awarding departments by conducting an analysis of a selection of 298 contracts that included DVBE participation. These contracts included 321 awards to DVBE prime contractors or commitments to DVBE subcontractors, with some contracts having multiple DVBE subcontractors. The report determined that of the 298 contracts reviewed, 256 (or 86 percent) were awarded to DVBE firms serving as prime contractors. These findings suggest that the number of DVBE firms serving as subcontractors is not large.
Further, a handful of DVBE firms have been awarded a disproportionate amount of funds through state contracts. As Figure 1 shows, 30 DVBE firms received 89 percent of the total dollars awarded to DVBE prime contractors during fiscal year 2017–18, with two DVBE firms capturing nearly 30 percent of the total amount. We present the complete list of these 30 DVBE firms in Appendix C. Several of the top 30 DVBE firms in fiscal year 2017–18 have been among the top DVBE firms for multiple years. Specifically, 12 of the top 30 DVBE firms during fiscal year 2017–18 were also among the top 30 DVBE firms in fiscal year 2012–13, the fiscal year we reviewed as part of our 2014 audit report. Moreover, the DVBE firm that was awarded the highest amount as a prime contractor during fiscal year 2017–18 also had the highest amount in fiscal year 2009–10 and the second highest amount in fiscal year 2012–13.
The Top 30 DVBE Firms Received 89 Percent of the Contract Amounts Awarded to DVBE Prime Contractors During Fiscal Year 2017–18
Source: General Services’ contracting data for fiscal year 2017–18, as published on its website.
Thirty‑six percent of the 133 DVBE prime contractors that did business with the State during fiscal year 2017–18 received very small amounts. As Table 1 shows, 48 of the 133 firms were awarded less than $50,000 each by awarding departments. Combined, the awards for these 48 DVBE firms accounted for less than $1 million of the $146 million awarded to all DVBE prime contractors. Given that the legislative intent of the program is to honor California’s disabled veterans, it seems reasonable to expect that the program would aim to benefit as many businesses owned by disabled veterans as possible. The fact that 30 businesses captured nearly 90 percent of the total funds awarded to DVBE firms serving as prime contractors calls into question whether the program is achieving its purpose.
|TOTAL CONTRACT AWARD RANGE||NUMBER OF DVBE PRIME CONTRACTORS||TOTAL NUMBER OF CONTRACTS AWARDED||COMBINED TOTAL DOLLAR VALUE OF CONTRACTS|
|Up to $50,000||48||244||$920,000|
|$50,001 to $200,000||27||839||2,705,000|
|$200,001 to $1,000,000||26||475||10,026,000|
|$1,000,001 to $5,000,000||26||4,383||60,877,000|
|Greater than $5,000,000||6||3,318||71,476,000|
Source: Cal eProcure data available on General Services’ website.
To understand why relatively few DVBE firms are contracting with the State, we interviewed officials at the six awarding departments we visited: General Services, CalVet, Caltrans, the California Department of Public Health (Public Health), the Department of Motor Vehicles (DMV), and the California Department of Corrections and Rehabilitation (Corrections). These awarding departments provided a variety of explanations for the low number of DVBE firms receiving contracts, including that the departments do not control which businesses win contracts. Our review of contracts awarded by these departments to 10 of the top 30 DVBE firms found that they followed the appropriate contracting procedures. In fact, solicitations for several contracts we reviewed received bids from more than one DVBE firm and the lowest bidder generally won the contract. Some awarding departments indicated that they require a significant amount of specialized goods or services that few DVBEs, if any, can provide. Further, some departments stated that many DVBEs do not have the capacity to fulfill large or multiregional contracts, such as by being able to deliver goods or services to different parts of California.
Moreover, the leveraged procurement agreement (LPA) program may limit a department’s ability to use DVBE firms. Contracting requirements sometimes mandate that awarding departments award contracts to specific vendors under the State’s LPA program. LPAs allow departments to buy directly from vendors through existing contracts and agreements, thus enabling General Services to streamline state purchases by removing repetitive, costly, and time‑consuming bid processes. General Services maintains a list of available LPAs and the vendors that provide services or products for them. Further, the State Contracting Manual directs awarding departments to refer to the user guide instructions specific to each LPA. When procuring certain types of goods and services, and depending on the type of LPA used, the LPAs’ user guide instructions may require that awarding departments use specific vendors. When the list of vendors for an LPA does not include any DVBE firms, these firms do not have an opportunity to participate in contracts awarded under that LPA.
The DVBE Program Review report concluded that LPAs offer a significant opportunity for DVBE firms to establish an ongoing relationship with the State because awarding departments will direct their purchases to DVBE firms when they are included as vendors in the user guide instructions for LPAs. However, according to General Services, of the almost 3,500 LPAs available, only 137 list DVBE firms as vendors. Given that the LPA program offers an opportunity for DVBE firms to benefit from contracting with the State and that there is currently limited opportunity for awarding departments to contract with DVBE firms under the LPA program, increasing the number of DVBE firms that participate in LPAs could make the DVBE program more successful.
General Services and CalVet have known for years that relatively few DVBEs benefit from the DVBE program. For example, our 2014 report found that in fiscal year 2012–13 that there were roughly 1,400 DVBE firms, yet only 256 (less than 19 percent) did business with the State and only 30 DVBE firms accounted for 83 percent of the total amounts the State awarded to DVBE firms as prime contractors. As a result, for our current audit we expected to find that General Services and CalVet had conducted some analysis to assess why this is the case. However, they had not done so. General Services stated that it has received anecdotal information from DVBE firms that some firms seek DVBE certification only so that they can conduct business with non‑state governmental entities, such as cities and counties, and this possibility could influence the actual number of DVBE firms actively seeking business with the State. However, General Services has not conducted an analysis to determine how many DVBE firms choose to use their certification only to conduct business with non‑state governmental entities. Further, neither General Services nor CalVet has taken the needed steps since our 2014 report to determine what actions are necessary to increase the number of DVBE firms that receive contracts from awarding departments. Without assessing the reasons for this concentration of contract dollars in relatively few firms, General Services and CalVet are hindered from ensuring that the DVBE program provides its intended benefits.
Awarding Departments Say It Can Be Difficult to Find DVBE Firms That Meet Their Contract Needs
Although the six awarding departments we reviewed reported that they exceeded the 3 percent goal for fiscal year 2017–18, some of them explained that they sometimes exempt contracts or procurements from DVBE participation because they cannot always identify DVBE firms to meet their contracting needs. According to state regulations, awarding departments may exempt a contract solicitation from DVBE participation requirements, but they must document the exemption in the contract file if they do so. Even if awarding departments exempt certain contracts from DVBE participation requirements, they are still expected to meet the overall DVBE participation goal each year. Our review of 10 contracts with DVBE participation exemptions awarded by four of the awarding departments we visited—Caltrans, Corrections, DMV, and Public Health—found that the departments had appropriately documented the reasons for the exemptions.
The justifications for exempting these contracts from DVBE participation requirements varied. For example, DMV exempted a printing services contract valued at more than $650,000 from DVBE participation requirements. In its justification for the exemption, DMV stated that it was not feasible for a printing service contractor to hire a DVBE subcontractor to provide equipment and labor, since these printing service contractors own and use specialized equipment that only their trained technicians operate. When we asked DMV why it did not consider any DVBE firms as the prime contractor to provide these services, it explained that it was not aware of any DVBE firm that could be the prime contractor and that was capable of printing the volume of envelopes—more than 51 million—the contract required. Further, DMV asserted that it was not aware of any DVBE contractor that could have directly provided the necessary materials for this type of contract, and that it requires prime contractors on printing contracts to print the requested products to ensure they are in compliance with certain requirements. In fact, when DMV competitively bid the contract, it did not receive any bids from DVBE firms. Some awarding departments indicated that the State needs to increase the number of DVBE firms that can provide the types of services and products that the awarding departments need. We describe the additional efforts General Services and CalVet could undertake to address this issue in the next section.
Some awarding departments also explained that searching for DVBE firms on General Services’ procurement website—Cal eProcure—is difficult and does not always yield useful results. Each of the six awarding departments we visited use Cal eProcure’s search engine as their primary source for finding qualified DVBE firms to meet their contract and procurement needs. The Cal eProcure profiles of DVBE firms contain self‑selected business classification codes and keywords. General Services explained that when applying for certification, a DVBE firm can select from a list of roughly 55,000 codes to describe the services or products it provides. Cal eProcure uses the United Nations Standard Products and Services Code for this purpose, which includes a five‑level hierarchical classification code set. However, the sheer volume of options may inhibit DVBE firms from selecting all of the correct codes for their profiles.
For example, if a DVBE firm sells receipts or receipt books, it would need to filter through multiple levels of the code sets for paper materials and products before finding the precise code for its product. Further, the DVBE firm can also create free‑form keywords to help awarding departments search for it in Cal eProcure. However, the firm derives these keywords at its own discretion without any parameters, which could contribute to the difficulties some departments experience when trying to identify qualified DVBE firms.
Three of our reviewed departments indicated that DVBE firms might not appear in search results unless the codes or keywords the department uses match exactly with those selected by DVBE firms. General Services’ own contracting division stated that it sometimes had trouble finding qualified DVBE firms through Cal eProcure because DVBE firms may not select the appropriate codes. Additionally, CalVet’s Office of Procurement and Contracts told us that the keyword searches are not always intuitive as there are thousands of keywords and the keywords used in searches are not always the keywords in a firm’s profile. DMV described a hypothetical example in which an analyst searching for a janitor might search Cal eProcure for the keyword “custodial” but might not find a qualified DVBE firm that had selected “janitorial” to describe its business, or a firm may have misspelled the keyword.
General Services acknowledged that it hears from awarding departments that they find Cal eProcure difficult to use for several reasons, including problems with DVBE firms using codes and keywords that are inconsistent with DVBE firms’ respective products or services. General Services is developing lists of all the codes commonly used by awarding departments to more precisely identify what the State purchases. It plans to make these lists available online for both DVBE firms and awarding departments to reference. In addition, General Services explained that it advises DVBE firms on how they can update their certification profiles with the most effective codes and keywords.
General Services stated that its outreach unit advises DVBE firms to include a variety of keywords that accurately depict the services they provide or the products they sell. For example, it would advise a DVBE firm selling environmentally friendly disposable paper goods to use keywords such as napkin, plate, cup, sustainable, and biodegradable. Further, FI$Cal offers online training and information on using the Cal eProcure system, which includes a course on how to search for DVBE firms. Finally, General Services stated that in October 2018 it reached out to each awarding department’s DVBE advocate and asked him or her to identify the department’s contracting needs for the next six to 12 months and to post this information prominently on the department’s website to inform DVBE firms of opportunities. However, as of early January 2019, General Services knew of only two DVBE advocates who had posted this information on their respective department’s website. General Services also told us that it is working with awarding departments to identify additional solutions to streamlining their searches in Cal eProcure. Until General Services does streamline its search criteria in Cal eProcure, some awarding departments will continue to face difficulties in using the system to identify qualified DVBE firms that meet their needs.
To increase the number of DVBE firms that awarding departments can contract with when required to use LPAs, General Services should develop and implement a plan to encourage DVBE firms to participate in LPAs.
To ensure that a greater number of DVBE firms benefit from the DVBE program, General Services should work with awarding departments to understand why only a few DVBE firms receive a large number of contract awards. Based on its findings, General Services should take the necessary steps to remedy this situation.
To ensure that awarding departments can effectively identify DVBE firms that provide needed products and services, General Services should do the following:
- Work with these departments to continue to narrow the codes available to those commonly used by awarding departments to more precisely identify what the State purchases and streamline search criteria in Cal eProcure.
- Ensure that by October 2019 departments identify their contracting needs and then post these needs prominently on their websites as a resource for DVBE firms.
- Continue to provide outreach services to DVBE firms on how to create effective keywords and choose appropriate codes.
- Explore other options for making the Cal eProcure search engine more effective for awarding departments.
General Services and CalVet Have Not Adequately Overseen the DVBE Program, Hindering Its Success
- CalVet and General Services do not know whether their outreach efforts are effective in encouraging more businesses owned by disabled veterans to participate in the DVBE program. Further, until recently neither department had attempted to identify the types of products and services that awarding departments need so as to help inform the two departments’ outreach activities.
- CalVet has not met its statutory responsibility to assist underachieving awarding departments in meeting the required 3 percent goal. General Services is better equipped than CalVet to fulfill this responsibility because it oversees policies and procedures used by all departments in their purchasing and contracting activities.
- General Services has provided minimal guidance to awarding departments on how to process complaints regarding abuse of the DVBE program and on how to prevent abuse from occurring. As a result, it cannot be certain that it is receiving all complaints regarding program abuse.
CalVet and General Services Have Not Assessed the Effectiveness of Their Outreach Efforts
CalVet has still not adequately addressed the recommendation from our 2014 audit report that it develop stronger measures to evaluate its outreach efforts. CalVet’s responsibilities include promoting the DVBE program, which it does by encouraging businesses owned by disabled veterans to apply for certification in the program. In our 2014 report, we found that CalVet conducted outreach to the veteran community to promote the DVBE program and that it recorded some data on the outcomes of these visits—such as the number of interactions with people where DVBE certification was discussed. However, the collected data did not inform CalVet whether the individuals it interacted with subsequently sought and obtained a DVBE certification for their businesses. Without such information, we concluded that CalVet could not demonstrate that it knows whether its promotional efforts have led to an increase in DVBE certifications or if it is maximizing the return on its investment in outreach activities.
CalVet claimed to have fully implemented our recommendation from the 2014 audit; however, we found that the measures it said it had taken do not address the underlying conditions we identified. Specifically, in its six‑month response to the 2014 audit, CalVet stated that it interprets and reports quarterly the results of its survey of DVBE firms to evaluate and improve its DVBE outreach efforts. CalVet also explained that it tracks more metrics on promotional efforts in these quarterly reports than it did previously. Further, it stated that it used its fiscal year 2013–14 annual report to develop and improve the outreach plan for the subsequent fiscal year. However, neither the quarterly report nor the annual report includes an assessment of the effectiveness of CalVet’s outreach activities.
Although state law requires CalVet to establish a system to assess the effectiveness of its efforts to promote the DVBE program, it has not effectively done so. The quarterly reports CalVet produced during fiscal year 2015–16 lacked meaningful analysis or conclusions, and its survey efforts did not focus on evaluating the effectiveness of its outreach activities. Specifically, the quarterly reports CalVet developed regarding its outreach activities generally just presented information, such as the number of welcome packets CalVet sent to newly certified DVBEs, some of the results of its survey of newly certified DVBEs, and a description of the outreach events staff attended, but it did not provide any meaningful analysis regarding the quality, efficiency, and effectiveness of such activities. For example, these reports identified the number of outreach events CalVet attended but did not describe any correlation between a specific outreach event and the resulting DVBE applications that General Services received; thus, CalVet could not determine whether the outreach effort resulted in more businesses owned by disabled veterans participating in the DVBE program.
Similarly, although CalVet’s annual report for fiscal year 2013–14 provided information on its outreach efforts and the data it tracked related to DVBE certification, that report too lacked meaningful analysis and conclusions. For example, CalVet’s annual report identified two recommendations related to how it could improve its outreach efforts by increasing its participation at certain conferences and meetings in the upcoming fiscal year. However, it did not explain how the recommendations, if implemented, would be effective in increasing DVBE participation.
CalVet also provided a spreadsheet showing that it conducted telephone interviews of nearly 110 DVBE firms in fiscal year 2017–18. When we asked CalVet for documentation of the results of these interviews, it provided high‑level summaries of these conversations indicating that the interviews focused on the DVBE firms’ overall experience with the DVBE program and not necessarily on CalVet’s outreach efforts. Thus, CalVet missed an opportunity to ascertain ways in which it could improve its efforts to increase participation in the program. CalVet also conducted a web‑based survey of more than 300 DVBE firms in 2016; however, almost all of the 32 questions also focused on the DVBE firms’ overall experience with the program after being certified. In fact, only one question, which we describe later in this section, related to CalVet’s outreach. Because it is not assessing the effectiveness of its outreach activities, CalVet has little way of knowing which, if any, of its DVBE outreach activities yield positive results or need revamping.
CalVet stated that it has not had access to the data necessary to conduct a meaningful assessment of its outreach activities. According to information provided by CalVet, it attended 18 outreach events during fiscal year 2017–18, and it estimated that staff interacted with an average of 70 attendees at each event. However, CalVet explained that it has not been able to obtain data from General Services to assess the effectiveness of these outreach activities in increasing the number of certified DVBE firms because several years ago, as part of the transition to FI$Cal, General Services began to automatically recertify DVBEs and at that point it stopped providing monthly data to CalVet regarding newly certified DVBEs. Thus, CalVet indicated that, beginning in October 2017, the data provided by General Services did not differentiate between newly certified DVBE firms and recertified DVBE firms, which prevented CalVet from identifying firms new to the program and performing further analyses of its outreach efforts. Although CalVet asserted that it had requested that General Services provide better data, it could not demonstrate that it had done so. Further, it has not attempted to find alternate ways to assess the effectiveness of its outreach activities. For example, CalVet could track all interactions with businesses owned by disabled veterans at outreach events and subsequently cross‑reference these businesses to certified DVBE firms to determine whether they became certified. CalVet could also survey the veterans who attended outreach events to determine how useful they found the events and use this information to improve its outreach activities.
General Services also promotes the DVBE program primarily by attending events hosted by various entities, including veterans’ organizations, but it has also failed to assess the effectiveness of its DVBE outreach efforts. General Services provided a list of nearly 200 events it claimed to have attended during fiscal year 2017–18 and at which it specifically promoted the DVBE program. It stated that it has observed a correlation between the number of outreach events it attends to promote the DVBE program and the number of businesses owned by disabled veterans that become certified. However, General Services has not performed an analysis to support its observation. Further, General Services stated that its staff prepare evaluations of events it attends. We reviewed one of these evaluations and found that General Services compares its expectations for an event, based on its agreement with the organization hosting the event, with the actual experience at the event. General Services explained that these evaluations help it determine whether the event was worth its resources and whether it should attend again in the future. It also pointed to the numerous awards it has received for its contribution to the DVBE program as an indication of its success in promoting the program. However, we question General Services’ reliance on these awards as a way to gauge the effectiveness of its outreach efforts, particularly since these awards did not explicitly recognize General Services’ outreach efforts for being effective in increasing the success of the DVBE program. In fact, several of the awards simply related to its sponsoring of events and not necessarily to the effectiveness of its outreach. General Services acknowledged that it has not conducted a formal assessment, nor does it have metrics by which it can identify the outreach efforts that have contributed the most to an increase in DVBE firms participating in the program. Without strong metrics and assessment of data on the number of businesses owned by disabled veterans in attendance at an event and the number that applied subsequently for certification, General Services cannot have confidence that its outreach efforts are effective.
Despite the lack of a formal assessment, some evidence suggests that the two departments’ outreach may not be effective. In its 2016 survey of DVBE firms, CalVet asked only one question related to outreach: how the DVBE firms learned about the DVBE program. Of the nearly 300 DVBE firms that responded to this question, only 11 (less than 4 percent) and 38 (13 percent) stated that they learned about it through CalVet’s and General Services’ outreach, respectively. In fact, 99 DVBE firms (more than 34 percent) stated that they learned about the program on their own, while 55 (19 percent) stated that they learned about it through veterans’ service organizations. The responses to this question from CalVet’s survey suggest that the departments’ current outreach efforts are not very effective in making veterans aware of the program.
In addition, in planning their outreach, both CalVet and General Services have failed to consider the types of goods and services that awarding departments have difficulty procuring from DVBE firms. As we discuss in the previous section, some awarding departments could not always identify a DVBE firm that provides the products or services they need. We expected CalVet and General Services to be working with awarding departments to understand why they struggle to find DVBE firms to award their contracts to and to use this information to guide their outreach efforts. However, until recently neither department could demonstrate that they had done so. General Services told us that it attends industry‑focused events; however, based on our review of the names of nearly 200 events it attended in fiscal year 2017–18, just three were industry‑focused. Similarly, CalVet apparently did not consider this information when developing its most recent outreach plan. For example, its fiscal year 2017–18 outreach plan was a spreadsheet that provided only the name, date, location, and type of event that it planned to attend for the year, along with any associated costs. The plan did not demonstrate that CalVet had considered the types of goods or services that state agencies struggle to procure from DVBE firms. Without considering this information, alongside information from awarding departments about their contracting needs, CalVet and General Services are missing opportunities to increase the number of DVBE firms that offer products or services that departments are seeking.
General Services and CalVet stated that they intend to take steps to improve their outreach efforts. In December 2018, General Services completed a case study of 10 awarding departments and reviewed their waivers for exempting contracts from DVBE requirements to, in part, identify potential contract opportunities for DVBE firms. Further, General Services planned to implement an analytics tool in January 2019 to better inform its DVBE outreach. General Services stated that this tool will analyze contracting data and will be able to provide key information on the DVBE program, including how much awarding departments spend on specific goods and services as well as the names of vendors to whom the State awards the most contracts. According to General Services, this analytics tool will allow it to identify goods and services for which there are only a few or no available DVBE firms, and it can use this information to help focus its outreach efforts on those industries that provide the needed products or services.
Similarly, CalVet’s deputy secretary of minority veterans, who began overseeing the DVBE program in July 2018, stated that she intends to make significant changes to CalVet’s outreach efforts. She explained that since assuming the responsibility for the DVBE program, she has been proactively working with General Services to enhance the CalVet’s statewide DVBE advocate role. However, although she is developing a plan to guide the improvements CalVet expects to make, the only item in the plan as of November 2018 for outreach improvement was to engage with other entities, such as veteran services organizations and DVBE‑participating state agencies. Although CalVet and General Services have begun to improve their outreach efforts, until they implement outreach improvement plans to better understand the impediments that awarding departments face in increasing DVBE participation, outreach efforts will not be as effective as they could be.
General Services Is Better Suited Than CalVet to Help Underachieving Departments Meet the DVBE Participation Goal
CalVet has not fulfilled its responsibility to assist underachieving departments in meeting the 3 percent goal. State law requires CalVet’s statewide DVBE advocate to coordinate with awarding departments to help them meet this goal. In addition, our 2014 report recommended that CalVet work more closely with awarding departments to help them meet the goal and to promote DVBE contracting opportunities. As such, we expected CalVet to be able to demonstrate that it had identified underperforming departments and to provide us with specific examples of the advice and assistance it has offered to such agencies, but that was not the case. We selected five awarding departments that had not met the 3 percent goal during at least one year between fiscal years 2014–15 and 2016–17: the Department of State Hospitals, the California Department of Resources Recycling and Recovery, the Office of Systems Integration, the Office of the Attorney General, and the California Department of Fish and Wildlife. CalVet could not demonstrate that it helped any of these five departments meet the 3 percent goal.
Although CalVet is required to assist awarding departments in meeting the 3 percent goal, it indicated that its approach to helping underachieving departments has been to rely on General Services to identify and schedule meetings with such departments. Until fiscal year 2017–18, CalVet had an interagency agreement with General Services for several years that funded certain positions within CalVet, primarily to perform outreach activities. In fiscal year 2017–18, this agreement provided nearly $270,000 to fund two positions within CalVet. The interagency agreement also stated that CalVet would work in partnership with General Services to meet with and provide recommendations and additional resources to assist awarding departments that failed to meet the 3 percent goal.
However, according to CalVet, it believed that General Services was responsible for taking the lead in identifying the underachieving departments and scheduling meetings with them before CalVet developed a plan to assist those departments. For example, General Services listed awarding departments’ DVBE participation rates, which indicated whether they met the 3 percent goal, in its Statewide Consolidated Annual Report for fiscal year 2016–17. Yet CalVet cited only one instance in which it attempted to assist a department that did not meet the 3 percent goal in fiscal year 2016–17, and it stated that General Services had scheduled a meeting with the underachieving department. In advance of that meeting, CalVet prepared a report, which included proposed solutions to help that awarding department meet the participation goal, but it did not provide the report to the department because General Services canceled the meeting. However, given that CalVet has a statutory responsibility to assist underachieving departments, we expected CalVet to have taken the needed actions independently of General Services’ activities. By relying on General Services to take the lead, CalVet missed an opportunity to improve the success of the DVBE program.
CalVet’s passive role in assisting awarding departments was also evident when we spoke with the DVBE advocates at selected departments. CalVet claimed that it mainly focuses on assisting DVBE advocates at awarding departments. We interviewed advocates at the five departments that did not meet the DVBE goal and two additional departments that had failed to meet the 3 percent goal during at least one year between fiscal years 2014–15 through 2016–17. In general, each of the seven advocates we interviewed stated that CalVet has never initiated contact with them to offer help. Moreover, five of the seven advocates either were unaware of or were unclear as to CalVet’s role in the DVBE program. These responses indicate that CalVet has not taken an active role in improving the success of the DVBE program.
CalVet also lacks the necessary resources to meet its statutory responsibility to help underachieving departments meet the DVBE participation goal. CalVet explained that it has relied on funding from General Services to fund the two positions mentioned earlier. In fact, CalVet told us that the only other position within the department that worked on the DVBE program was a manager who had many other duties besides the DVBE program. As we noted earlier, the interagency agreement between CalVet and General Services is no longer in place, as the two departments reached a mutual agreement that it no longer best served their interests or needs. Therefore, CalVet told us that as of fiscal year 2018–19, it approved temporary internal funding for the two positions in August 2018. It has since filled one position as of January 2019 and is in the process of filling the other position. CalVet plans to seek additional resources in the near future to ensure that these two positions become permanent when the temporary funding expires in fiscal year 2020–21. However, even with two positions CalVet may not be able to meet its responsibilities. Specifically, CalVet provided us with a document describing a workload analysis that it conducted in March 2018, which concluded that it needs three positions to carry out its responsibilities for the DVBE program. CalVet explained that it plans to perform another workload analysis and request additional resources in the near future.
Even if CalVet were fulfilling its statutory responsibility, we believe that General Services is in a better position to assist underachieving departments in meeting the 3 percent goal. Specifically, as stated in its 2018 strategic plan, General Services serves as the State of California’s business manager. As such, its Procurement Division oversees policies and procedures used by state agencies in their purchasing and contracting activities. The Procurement Division also has the strategic direction of developing innovative and effective procurement solutions that will benefit state departments and DVBE firms. Further, General Services maintains contracting data and prepares the annual report compiling the data reported on the awarding departments’ DVBE activity reports, giving it immediate access to the necessary information to identify underachieving departments and the number and types of contracts they awarded. In fact, General Services provided us with documentation that it had assessed a couple of departments that did not meet the DVBE goal in fiscal year 2016–17 to identify if there was any assistance it could offer. In each case it concluded that the awarding departments did not need its assistance, as they were using best practices or had reasonable processes in place. Considering its expertise, resources, and role in the DVBE program, General Services is better suited than CalVet to assist underachieving departments. General Services agreed with this assessment. Such a shift in the departments’ responsibilities would also allow CalVet to focus primarily on outreach activities.
General Services Needs to Provide Additional Direction to Ensure That Abuse in the DVBE Program Is Consistently Identified and Addressed
Most awarding departments lack a formalized process for identifying and addressing allegations of abuse in the DVBE program. As a result, such abuse is likely underreported. Program abuse is any fraudulent use of the DVBE program, such as knowingly and intentionally representing false participation by a non‑DVBE firm in order to receive preference in a contract bid. Members of the public, including DVBE firms, can report alleged program abuse to the relevant awarding department or to General Services’ DVBE office.
To learn about the experiences DVBE firms have had with program abuse, we interviewed 24 DVBE firms that were listed as subcontractors on the winning bids of selected contracts awarded by the six departments that we reviewed. As Figure 2 shows, 12 of the DVBE firms, or 50 percent, informed us that a prime contractor had listed them as a subcontractor but had never used their services. Similarly, in a 2016 survey of DVBE firms that CalVet conducted, 37 of the 78 respondents, or 47 percent, stated that they had been listed as a subcontractor on a bid that had been awarded but they had not received the specified work. More than half of these 37 firms stated that they had experienced this type of program abuse at least three times in the preceding five years.
However, of the six departments we reviewed, only one reported receiving a program abuse allegation regarding one of its contracts during our review period. Specifically, in June 2018 a DVBE firm reached out to the awarding department—General Services—expressing concern that it had not been used on an awarded contract although the prime contractor’s bid had listed the DVBE firm as a subcontractor. The DVBE firm explained that it had reached out to the prime contractor to coordinate the work in October 2017, the same month the contract was executed, and again in March 2018, but the prime contractor had not used it. In June 2018, when the DVBE firm contacted General Services, the project had been completed. The contracting division reviewed the complaint and submitted its conclusions to General Services’ DVBE office in August 2018 and requested assistance in further investigating the suspected abuse. As of November 2018, this complaint is under review by the DVBE office.
Interviews With 24 DVBE Firms Identified as Subcontractors Indicate That Awarding Departments Are Not Doing Enough to Protect the Interests of DVBE Firms and to Reduce Program Abuse
Source: Interviews with 24 DVBE firms listed as subcontractors on a selection of contracts awarded by six departments we reviewed.
Until recently, General Services’ DVBE office had provided inadequate guidance to departments on how to identify and address allegations of program abuse. In fact, the guidance General Services included in its February 2012 DVBE Advocate Toolkit (toolkit), which was available on its website as of January 2019, did not specify the types of allegations that constitute program abuse. It also did not explain that awarding departments must provide a written report to General Services with recommended actions against the contractor investigated. Rather, the toolkit only described steps awarding departments should take to address just one type of program abuse. Although the DVBE office posted additional information on its website regarding the roles and responsibilities of awarding departments and the DVBE office in investigating complaints, the information does not adequately explain what constitutes program abuse. Without clearly defining program abuse, awarding departments may not recognize program abuse when it receives an inquiry or concern. In November 2018, to help ensure that awarding departments know how to identify DVBE program abuse, the DVBE office offered its first comprehensive training on the types of violations that constitute abuse. General Services stated that it plans to continue to develop this training and offer it periodically in the future.
Although these are steps in the right direction, they are recent, and the limited guidance General Services has historically provided to awarding departments may have contributed to their inconsistent approaches to handling complaints. To ensure potential allegations of abuse are handled appropriately, we expect departments to have a formalized process for identifying and documenting complaints, such as a standardized complaint form, as well as procedures for investigating and tracking these complaints. Only Caltrans has procedures such as these in place. Of the five remaining awarding departments we reviewed, only General Services could demonstrate that it tracks complaints that it receives. For the one complaint that General Services’ contracting office received during our audit period, for which the investigation is still ongoing, we found that it processed the complaint in accordance with requirements in state law and regulations. However, General Services’ contracting office and the other four awarding departments lack adequate procedures, if any, for addressing complaints. The lack of procedures at these five departments is of concern, particularly given that all four DVBE firms we interviewed that had filed a complaint that had subsequently been closed told us that they were not satisfied with the final outcome. Unless departments consistently document and track complaints received from DVBE firms, they cannot be certain that they have properly identified and addressed allegations of program abuse.
Further, awarding departments have not always been proactive in taking steps to identify one particular type of DVBE program abuse. Specifically, several of the awarding departments we reviewed do not have procedures in place that require staff to notify a DVBE firm that a business that was awarded a contract has named the DVBE firm as a subcontractor. Without such notification, a DVBE subcontractor may not be aware that it should receive work from the prime contractor. General Services’ DVBE office has issued guidance suggesting that awarding departments notify DVBE firms of their role as subcontractors on awarded contracts. However, Caltrans, CalVet, Corrections, and one of the three contracting offices of DMV stated that they do not require staff to notify DVBE subcontractors of awarded contracts. As Figure 2 shows, only eight of the 24 DVBE firms we interviewed that had been named as subcontractors on the contracts we reviewed stated that they had been notified by the awarding department. In fact, four of the remaining 16 DVBE firms told us that they were not aware that the prime contractor had listed them as a subcontractor on the contracts we selected until we asked about them.
When we asked CalVet and General Services about the frequency of this potential abuse, in which a prime contractor lists a subcontractor in order to receive the DVBE incentive without any intention of using the subcontractor’s services, both departments acknowledged that this abuse can occur but they do not know exactly how often it happens. In fact, the six awarding departments we reviewed told us that they do not have a direct relationship with subcontractors. Therefore, awarding departments may not become aware of this abuse unless DVBE subcontractors file a complaint. However, two of the 24 DVBE firms we interviewed indicated that they were not aware of who to contact to file a complaint, and one said it was not even aware that filing a complaint was an option. If an awarding department does not notify the DVBE firm that it has awarded a contract that lists the firm as a subcontractor, along with basic contract details and information on how to file a complaint, program abuse may go unreported and unaddressed.
In addition, we found that General Services’ DVBE office could make better use of its tracking of program abuse allegations from all awarding departments to reduce future abuse. State law requires General Services to monitor the status of all reported violations statewide. General Services’ compliance manager explained that he tracks and manages program abuse cases using spreadsheets. However, he acknowledged that General Services has not taken advantage of the potential benefits of program abuse tracking and instead has focused on case management of the abuse allegations it receives. Tracking the main elements of program abuse allegations, such as the type of program abuse and how it was reported or discovered, would allow General Services to identify and address trends in program abuse that otherwise may go unnoticed. For example, if General Services identifies one common type of abuse, it can add safeguards to prevent this type of abuse from occurring and implement procedures for detecting future incidents of such abuse. General Services agreed that this tracking would be beneficial.
To ensure that awarding departments that fail to meet the 3 percent goal receive the assistance necessary to achieve the goal, the Legislature should amend state law to transfer the responsibility for monitoring and assisting underachieving departments from CalVet to General Services.
To minimize the occurrence of program abuse involving DVBE subcontractors, the Legislature should amend state law to require awarding departments to notify those DVBE subcontractors when they are named on an awarded contract.
CalVet and General Services as Oversight Entities
To ensure that their outreach efforts are effective and result in a greater number of DVBE firms available that can provide the necessary goods and services awarding departments are seeking, CalVet and General Services should do the following:
- Assess, at least annually, the effectiveness of their past outreach efforts in increasing the number of DVBE firms that become certified.
- Work with awarding departments to identify the types of goods and services for which they struggle to find a DVBE contractor or subcontractor.
- Develop an outreach plan to include outreach activities found to be effective in the past based on their assessment. This plan should also emphasize outreach to increase the number of DVBE firms that provide the types of goods and services that awarding departments struggle to obtain from DVBE firms.
- Develop better tracking of the businesses owned by disabled veterans that attend their outreach events and review certification data to determine whether these businesses obtained their certifications.
- Conduct periodic surveys of businesses owned by disabled veterans that attended their outreach events but chose not to become DVBE certified to determine the reasons for not applying for the certification. The departments should use this information to improve both their outreach and any other areas of the program.
Until the Legislature amends the law to transfer its responsibility for assisting underachieving departments to General Services, CalVet should develop and follow policies and procedures to identify and assist awarding departments that fail to meet, or are at risk of not meeting, the 3 percent DVBE participation goal.
To minimize the occurrence of program abuse and ensure that program abuse cases are handled appropriately and consistently, General Services should do the following:
- Remind the awarding departments about preventive measures, including contract award notification to all subcontractors listed on the winning contractor’s bid and providing the subcontractors with the name of the prime contractor, the role of the DVBE firm in the contract, the amount of the contract dollars designated for each subcontractor, and contact information that subcontractors can use if they encounter any issues on the project.
- Develop procedures for awarding departments to help them identify whether a complaint constitutes program abuse, document and track all complaints, and take appropriate steps when investigating program abuse complaints.
To strengthen the enforcement of DVBE laws, regulations, and guidelines, General Services should track program abuse complaints, including the type of program abuse, how it was reported or discovered, and the dates specific actions were taken on the case. This tracking will enable the awarding departments to identify weaknesses within their processes and provide insight into how to address these issues, improving the DVBE program overall.
The State Lacks Accurate Data to Fully Measure the DVBE Program’s Success
- None of the six awarding departments we reviewed could fully support their fiscal year 2017–18 DVBE activity reports. As a result, users of these reports could draw incorrect conclusions about the departments’ success in meeting the 3 percent goal.
- General Services may not be correctly reporting DVBE participation because of inaccurate data that state departments entered into FI$Cal.
Awarding Departments Inaccurately Reported DVBE Participation Amounts
None of the six departments we reviewed could fully support their reported fiscal year 2017–18 DVBE contracting activity, as shown in Figure 3. These unsupported reports raise concerns about whether awarding departments maintain sufficient documentation to accurately report and assess their DVBE participation.
None of the Six Departments Accurately Reported All DVBE Participation Data
Source: DVBE activity reports for fiscal year 2017–18 and contracting data provided by Caltrans, CalVet, Corrections, DMV, General Services, and Public Health.
State law requires General Services to publish an annual report of statewide contracting activity that consolidates data on departments’ DVBE usage. To assist General Services in publishing this report, departments are required by state law to report annually to General Services the value of certain contracts they awarded during the fiscal year, the level of DVBE participation in those contracts, and whether they achieved the DVBE participation goal. Further, General Services requires each awarding department to maintain records, which should include documentation such as a list of contracts and the associated dollar amounts, to support the amounts included on their DVBE activity reports. Each of the departments we reviewed maintains an electronic listing of contracts (data system), along with the respective hard‑copy contract files, to support the amounts reported in their activity reports. General Services specifies that the supporting documentation should allow a person viewing it to find the connection between an individual contract and the department’s activity report.
Five of the six departments overstated DVBE participation amounts in their data systems for a selection of contracts we reviewed. We selected five to seven contracts at each of the six departments to identify whether they accurately recorded DVBE participation amounts in the data systems they use to complete their DVBE activity reports. Only one department, CalVet, accurately reported all of the contracts we reviewed. The remaining five departments recorded at least one of the contracts we reviewed incorrectly in their data systems, causing us to question whether departments are using accurate information to complete their activity reports. For example, as shown in Table 2, Caltrans inaccurately recorded a contract as having $10.5 million in DVBE participation in its data system, when the contract included only $110,000 for a DVBE subcontractor. Further, DMV’s data system reflected an overstatement of $631,000 in DVBE participation for one contract. Similarly, Public Health’s supporting documentation reflected $24,000 in DVBE participation for a contract amendment that did not change the value of the contract and it recorded another contract as having $5,000 in DVBE participation when in fact it did not include any. These discrepancies, which the awarding departments generally attributed to clerical errors, are of concern. In particular, when awarding departments record DVBE participation amounts for contracts that have no such participation or overstate DVBE participation amounts, the total DVBE participation amounts they ultimately report to General Services could be significantly inflated. As a result, users of these reports could be relying on misleading information about departments’ success in meeting the 3 percent goal.
|Department||Number of Selected Contracts Reported Incorrectly||Amount in Data System||Actual Amount||Amount overreported (underreported)|
Source: Departments’ supporting documentation for amounts reported on their fiscal year 2017–18 DVBE activity reports. We found no reporting errors for the CalVet contracts we reviewed.
We also found that five of the six departments submitted DVBE activity reports that were not fully supported by their data systems. Although Caltrans’ DVBE activity report matched its data system, we determined that the department could not fully support its DVBE activity report because its data system is incomplete, as we discuss later. As Table 3 shows, the other four departments overreported or underreported their contracting activity by as much as approximately $26 million. CalVet stated that it chose not to report a category of contracts for one of its divisions because the division had not certified the total amount before CalVet submitted its activity report. The remaining three departments attributed the inaccurate reports primarily to clerical errors. For instance, Corrections double‑counted DVBE participation for one category of subcontracts, causing it to overreport its DVBE contracting activity by $36,000. Likewise, Public Health overreported its DVBE contracting activity by $187,000 and underreported its total contracting activity by $25.7 million—causing it to overstate its DVBE participation. By contrast, General Services’ reported DVBE participation matched the amounts in its data system, but the department failed to include all reportable contracts in its system and listed several hundred thousand dollars in the wrong contracting activity categories of the report. These discrepancies had little effect on the departments’ reported DVBE participation; however, we question whether departments’ DVBE data, and DVBE activity reports generated from these data, can be relied upon, given the inaccurate amounts in the five departments’ data systems that we noted in Table 2, as well as some cases of missing data discussed in Table 3.
||TOTAL CONTRACTING||TOTAL DVBE PARTICIPATION|
|Department||DVBE Activity Report||Data System||Amount underreported||DVBE Activity Report||Data System||Amount overreported|
Source: DVBE activity reports for fiscal year 2017–18 and supporting documents provided by the six departments.
* Caltrans told us that its data system is unable to quantify the amount of subcontracting for contracts that were collectively worth roughly $290 million. Therefore, it may have underreported some DVBE participation.
Three of the six departments’ data systems did not contain complete contracting data, which also raises questions about the reliability of their DVBE activity reports. We selected 10 contracts from every department we visited to identify whether each department included all reportable contracts in its data system. Two departments, General Services and Corrections, failed to include all of the reportable contracts we reviewed. General Services stated that it did not include two contracts due to human error. For example, a contract worth $350,000 was omitted from its data system because the contracting office thought a different division had already included it. Corrections also failed to include an amended contract. When we asked Corrections why the amended contract was missing from its data system, the department disclosed that its data system does not track amendments to the value of contracts or the full value of some multiyear contracts. As a result, the department may be underreporting a significant amount of its contracting activity, including DVBE participation. Further, although Caltrans included in its DVBE activity report all 10 contracts we selected, it told us that its data system is unable to quantify the amount of subcontracting for roughly $290 million in contracting activity, meaning that it may have underreported some DVBE participation.
Beginning with fiscal year 2018–19, General Services plans to use FI$Cal to automatically generate DVBE activity reports on behalf of other awarding departments that use FI$Cal, which may alleviate some DVBE reporting issues. For instance, General Services indicated that FI$Cal is able to track all subcontractors, which should resolve the issue faced by those departments whose data systems are unable to quantify amounts designated to all DVBE subcontractors. Nonetheless, the transition to reporting through FI$Cal does not fully eliminate the risk of inaccurate reporting. Specifically, the reliability of each department’s DVBE activity report will depend on whether staff accurately enter contract information into FI$Cal. For this reason, awarding departments’ efforts to mitigate the risks of clerical errors is important.
General Services May Not Be Able to Rely on FI$Cal Data to Track DVBE Program Success
General Services does not have reliable contracting data to measure the DVBE program’s success. In our February 2014 report and in our June 2017 report titled Department of General Services and California Department of Technology: Neither Entity Has Provided the Oversight Necessary to Ensure That State Agencies Consistently Use the Competitive Bidding Process (Report 2016‑124), we noted that General Services’ contracting data contained inaccurate or incomplete information. Specifically, its data did not include contracts valued under $5,000, some agencies were not consistently recording contracts in General Services’ system, and the data did not fully track DVBE subcontractors.
To begin addressing these issues, General Services subsequently revised its reporting instructions to require awarding departments to record all contracts in its data system, regardless of dollar value. Additionally, for the more than 135 entities that actively use FI$Cal to record contracting data as of January 2019, the relevant DVBE contracting data are automatically collected and made available to General Services, reducing the likelihood of input error. General Services also asserted that FI$Cal started recording subcontractor information in January 2016, and this information should be available for fiscal year 2018–19 DVBE reporting. However, as of December 2018, General Services has not completed the programming necessary to generate the annual reports using this information.
Despite these improvements, General Services’ data have an additional problem. As noted in our June 2017 report, any agency that does not primarily use FI$Cal for contracts must instead enter contracting data into it manually, which creates a risk of data entry errors. In fact, some of the departments discussed previously that could not fully support the figures included in their DVBE participation reports do not use the FI$Cal system to record accounting and contracting transactions. Instead, they are entering their contracting data manually, resulting in a greater risk of data entry errors and inaccurate reporting.
To ensure that DVBE participation data are reported accurately and consistently, Caltrans, Corrections, DMV, General Services, and Public Health should implement or strengthen a review process to ensure that DVBE participation amounts entered into their data systems or FI$Cal are accurate. This review process should include verification, on a sample basis, of the amounts awarded to, and the certification status of, the DVBE contractor or subcontractor for high‑value contracts that include DVBE participation.
General Services as Oversight Entity
Until it begins generating DVBE activity reports using FI$Cal, General Services should issue a policy to require awarding departments to implement or strengthen a secondary review process to ensure that the DVBE activity reports are accurate and supported by departments’ data systems.
To ensure that it can create accurate annual DVBE participation reports, General Services should complete the programming necessary to include DVBE subcontractor information by June 30, 2019.
We conducted this audit under the authority vested in the California State Auditor by section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
ELAINE M. HOWLE, CPA
California State Auditor
February 14, 2019