We’ve talked about how Supplier Diversity has its roots in Civil Rights and Affirmative Action legislation before. Long story short, President Johnson amended President Kennedy’s E.O. 11246, which established the Office of Federal Contract Compliance. This required companies with federal contracts to make good-faith efforts to expand employment opportunities for both women and minorities. Once large corporations were required to comply with EEOC, and the rules established as a result of legal actions taken throughout the country, supplier diversity became the next logical step. And, in fact, President Nixon used E.O. 11458 to create a federal Office of Minority Business Enterprise (OMBE). In 1971, President Nixon issued E.O. 11625, directing federal agencies to develop comprehensive plans and specific program goals for a national Minority Business Enterprise (MBE) contracting program. Then, in 1983, President Ronald Reagan issued E.O. 12432, which directed each federal agency with substantial procurement or grant making authority to develop a Minority Business Enterprise (MBE) development plan. During 1979, the agency was renamed the Minority Business Development Agency (MBDA), a part of the U.S. Department of Commerce. The actions of Presidents Kennedy, Johnson, Nixon and Reagan led to the formal process of identifying and vetting the credentials of businesses that claim to be owned and operated by qualified members of diverse ethnicity, veteran, women or disabled groups. The initial program was run by the U. S. Department of Transportation, which remains the primary engine of Disadvantaged Business Enterprise (DBE) certification as it is deployed by states and U.S. territories.
Recently we’ve been intrigued by how the program started with an application of a page or two grew to eleven pages plus a ton of supporting documents. We believe, at the root of the issue, each new iteration of required proof stems from an attempt to prevent fraud.
Fraud in the program likely began immediately. DOT’s Office of the Inspector General (OIG) investigated 89 allegations of fraud nationally between 1983 and 1988. A detailed review was conducted by the Government Accounting Office (GAO) and resulted in a fifty-eight page report to Senator Daniel P. Moynihan who was then Chairman of the Subcommittee on Water Resources, Transportation and Infrastructure, Committee on Environment and Public Works of the US Senate in November 1988. They closed 70 of the cases:
- 53 were closed administratively, 21 of which resulted in actions against the contractors
- 17 involved litigation
- 12 convictions
- 5 acquittals
- $1,040,434 in restitutions
Another 90 cases were investigated in New York and Pennsylvania, with 61 cases resolved administratively by taking action against the contractors or closed due to lack of evidence. One Pennsylvania case, however, led to four convictions. Twenty-one years later, the GAO reported that ten firms received approximately $100 million from service disabled veteran owned small business (SDVOSB) contracts through fraud or abuse of the program, or both. DBE fraud can even occur over decades. In 2011, one corporate officer pled guilty to criminal charges of money laundering and conspiracy defrauding the government between 1988 and 2009. And his company paid several million dollars to settle the civil suit against it stemming from the fraud.
DOT’s Office of the Inspector General reported on its DBE fraud investigations in March 2016. DOT spends about $50 billion per year on construction programs, with 10% to DBES, or $5 billion. Between January 2011 and 2016, DOT OIG’s DBE fraud investigations resulted in:
- Over $245 million in financial recoveries, restitution, and forfeitures
- 425 months of incarceration
- 1,161 months of probation and supervised release
- 1,340 hours of community service
Two years later, in June of 2018, Small Business Administration’s (SBA) Office of the Inspector General (OIG) “found that Federal agencies’ contracting officers and firms did not comply with Federal regulations for 50 of the 56 Program sole-source contracts, valued at $52.2 million. As a result, there was no assurance that these contracts were awarded to firms that were eligible to receive sole-source awards under the Program.” (emphasis, ours)
So each time we SDMWVLGBTBE (Small Disadvantaged or Disabled, Minority, Women, Veteran, Lesbian, Gay, Bisexual or Transgendered Business Enterprise) owners are asked to prove in yet another way that we do, in fact, own, operated, control and govern our businesses we can thank those who tried to cheat the system. Yes, they made it more difficult for us. Ultimately, however, they made our vetted certifications even more legitimate.