Office of Inspector General

Audit Report

WEAKNESSES IN THE DEPARTMENT’S 

DISADVANTAGED BUSINESS ENTERPRISE 

PROGRAM LIMIT ACHIEVEMENT OF ITS 

OBJECTIVES

Office of the Secretary

Report Number: ZA-2013-072

Date Issued: April 23, 2013
U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: Weaknesses in the Department’s

Disadvantaged Business Enterprise Program Limit 

Achievement of Its Objectives

Report No. ZA-2013-072

Date: April 23, 2013

From: Calvin L. Scovel III

Inspector General

Reply to 

Attn. of: JA-60

To: Deputy Secretary

The Department of Transportation’s (DOT) Disadvantaged Business Enterprises 

(DBE) program was created to help socially and economically disadvantaged 

individuals1 who own and control small businesses to participate in contracting 

opportunities within DOT financial assistance programs. DOT distributed over 

$4 billion to DBEs via its recipients2

The DBE program’s integrity depends in large part upon the establishment of 

systematic procedures to ensure that only certified firms are eligible to participate 

in the program. DOT’s DBE regulations place this responsibility primarily on 

State transportation agencies. However, the program also requires DOT 

leadership, guidance, and oversight. Accordingly, our objectives were to assess the 

effectiveness of the Department’s management and implementation of its DBE 

program. Specifically, our audit objectives were to determine whether (1) the 

Department

in fiscal year 2009 and almost $3 billion in 

fiscal year 2010. However, during that period, DBE fraud and abuse cases

increased significantly, making up nearly 25 percent of OIG active investigations 

for procurement and grant fraud in fiscal year 2010. Currently, DBE cases 

represent 29 percent of OIG active procurement and grant fraud investigations.

3

 1 49 CFR § 26.5 states a socially and economically disadvantaged individual means any individual who is a citizen (or 

legal, permanent resident) of the United States and who is (1) any individual who a recipient finds to be socially and 

economically disadvantaged on a case-by-case basis; or (2) any individual in the following groups: Black Americans, 

Hispanic Americans, Native Americans, Asian Pacific Americans, Subcontinent Asian Americans, Women, or any 

additional group designated as socially and economically disadvantaged by the Small Business Administration (SBA).

provides adequate DBE program management, (2) DOT’s Operating 

2 DBE program recipients can include State highway agencies, airports, transit authorities, and other State and local 

agencies that receive DOT funds.

3 Our use of the term “Department” in this report refers to the U.S. Department of Transportation, Office of the 

Secretary (OST).
2

Administrations and recipients sufficiently oversee and implement the DBE 

program, and (3) the Department achieves its program objective to help develop 

DBEs to succeed in the marketplace.

We conducted this review between April 2011 and October 2012 in accordance 

with generally accepted Government auditing standards. To conduct our work, we 

interviewed Department representatives from offices that have roles related to the 

DBE program: the Office of Small and Disadvantaged Business Utilization

(OSDBU), the Departmental Office of Civil Rights (DOCR), and the Office of 

General Counsel (OGC). We also interviewed representatives from each of DOT’s 

three Operating Administrations that are required to participate in the program: the 

Federal Transit Administration (FTA), the Federal Aviation Administration 

(FAA), and the Federal Highway Administration (FHWA).

4 Finally, we visited or 

contacted 15 States. We conducted site visits at six randomly selected States5

RESULTS IN BRIEF

and 

surveyed nine additional randomly selected States. As part of this audit, we 

selected a statistical sample of 121 DBE firms working on active federally funded 

projects, which allowed us to project the total amount of fiscal year 2009 DBE 

funds that could have been put to better use and the total amount of fiscal year

2009 DBE funds that was unsupported. Exhibit A further details our scope and 

methodology.

The Department does not provide effective program management for the 

multibillion-dollar DBE program. The Department has not issued comprehensive, 

standardized DBE guidance or provided sufficient training to the recipients 

responsible for implementing the nationwide DBE program. Of the 15 States we 

surveyed, 14 States said they lacked clear DBE guidance from the Department, 

and 12 States said the Department did not provide adequate DBE training. In the 

absence of sufficient guidance or training, it is especially critical that the

Department provide effective program management to help recipients and 

Operating Administrations achieve the goals of the program and comply with 

DBE regulations. Although the Department has strengthened its commitment to 

the program and taken some actions to improve program administration, the 

Department has not established a single line of accountability for the program, 

such as by assigning overarching DBE program management to a single 

Department level entity. Instead, it takes a fragmented approach by assigning only 

limited DBE program management responsibilities to three separate Departmental 

offices. Furthermore, these three offices do not fully implement even the limited 

responsibilities they have been assigned. For example, the DOCR does not fulfill 

 4 FHWA’s awards represented nearly 80 and 65 percent of the Department’s total DBE dollars in 2009 and 2010, 

respectively.

5 One of the six states was the District of Columbia.
3

its delegated responsibility6

Operating Administrations and recipients do not adequately oversee or implement 

the DBE program, partly due to the Department’s lack of integrated program 

management and standardized guidance on DBE practices. Operating 

Administrations’ reviews of recipients’ DBE practices are neither consistent nor 

comprehensive, leaving recipients’ certification and contract compliance 

weaknesses unaddressed. Consequently, the State certifying agencies that we 

reviewed do not always adequately verify that firms applying for DBE 

certification meet the regulatory eligibility requirements. Based on our review, we 

estimate that $124 million of the $4.1 billion in DBE funds distributed across 

52 U.S. States and territories

to perform oversight reviews of the Operating 

Administrations and has mostly limited its DBE involvement to reviewing and 

adjudicating DBE certification appeals cases. DOT’s lack of a single line of 

accountability for the DBE program makes it difficult for the Department to 

(1) track whether the DBE program is achieving its objectives, (2) accurately 

account for billions in annual DBE spending, and (3) ensure adequate 

communication with State and local recipients responsible for program 

implementation.

7 in fiscal year 20098 could have been put to better 

use if DOT and its recipients had implemented better internal controls over their 

certification processes.9

The Department has limited success in achieving its program objective to develop 

DBEs to succeed in the marketplace because recipients place more emphasis on 

getting firms certified as DBEs rather than assisting them to identify opportunities 

and to market themselves for DBE work on federally funded projects. As a result, 

the majority of certified DBE firms from the six States we visited—especially 

smaller firms—have been unsuccessful in obtaining federally funded contracts. 

For example, at the 6 States we visited, less than 20 percent of the 7,689 certified 

firms actually received work on federally funded projects. The recipients 

recognize this issue with DBE utilization; however, recipients have limited 

resources to help DBEs develop and obtain work as DBEs. In addition, the 

Department does not require recipients to actively track or report utilization data 

In addition, most recipients do not provide sufficient 

oversight at project sites to ensure that DBEs complete the work according to 

contract terms.

 6 Organization and Delegation of Powers and Duties, Final Rule, 77 Fed. Reg. 49964, 49974-5 (Aug. 17, 2012) 

(amending 49 CFR § 1).

7 The universe included Puerto Rico but did not include the Virgin Islands because it did not report DBE expenses in 

fiscal year 2009.

8 We based our projections on fiscal year 2009 amounts because these were the most current and complete data the 

Department was able to provide at the onset of our audit.

9 This estimate is based on our determination that 2 firms from our random sample of 121 currently certified firms had 

failed to meet eligibility requirements for continued DBE certification in fiscal year 2009 but collectively received over 

$5.4 million in DBE awards and payments that year. Our estimate has an actual lower limit of $5 million and a 90-

percent upper confidence limit of $329 million, with a best estimate of $124 million.
4

showing the number of DBEs actually receiving work on federally funded DBE 

projects. Moreover, unlike SBA’s 8(a) small business development program, the 

DBE program does not have a term limit on participation, so there is little 

incentive for firms to grow beyond the program.10 In the 6 States we visited, 55 of 

the 121 randomly selected DBEs working on active federally funded contracts

have been certified DBEs for over 10 years.11

We are making recommendations to enhance DOT’s DBE program management, 

improve the implementation and oversight of the program, and help ensure that 

DBE funds are used to meet program objectives.

BACKGROUND

The Department’s DBE program began in 1980 as a minority and women’s 

business enterprise program under the authority of the Civil Rights Act of 1964. 

The Surface Transportation Assistance Act of 1982 contained the first statutory 

provision authorizing a DOT DBE program. Today the program is carried out by 

State and local transportation agencies under the rules and guidelines established 

in Title 49 CFR Part 26.

12 In addition, DOT’s regulatory delegations13 assign 

implementation of all civil rights programs—including the DBE program—to the 

Operating Administrations, and certain elements of program accountability to 

DOCR, OGC, and OSDBU.

14

The DBE program is unique to the transportation sector and covers contracts 

awarded by recipients, which can include State highway agencies, airports, transit 

authorities, and other State and local agencies that receive DOT funds. As required 

by law, each recipient receiving certain types of Federal transportation funding 

from DOT must implement a DBE program and establish an annual DBE 

participation goal.15

The DBE program has seven stated objectives, with DOT identifying three as

primary: (1) providing a level playing field so DBEs can fairly compete for DOTassisted projects, (2) ensuring that only eligible firms become certified as DBEs,

and (3) assisting in the development of DBE firms so that they can compete 

 10 SBA’s 8(a) Business Development Program was created to help small and disadvantaged businesses compete in the 

marketplace by focusing on providing business development support to produce businesses that continue to thrive in a 

competitive environment. Businesses “graduate” from the 8(a) Business Development Program when the program term 

expires after 9 years.

11 The 121 DBEs’ certification files we reviewed were randomly selected out of a total universe of 1,461 DBEs who 

were working on active federally funded contracts in the 6 sample states we visited.

12 FAA also maintains a separate DBE program for airport concessions under 49 CFR Part 23. 13 49 CFR § 1. 14 In August 2012, the Department issued a Final Rule, 77 Fed. Reg. 49964, which amended its regulatory delegations 

to modify the DOCR’s, OGC’s, and OSDBU’s responsibilities pertaining to the DBE program; however, the changes 

do not assign overall program accountability to any one office. 

15 49 CFR § 26.3; 49 CFR § 26.21; and 49 CFR §26.45.
5

outside the DBE program. Once a DBE firm is certified, it can compete for 

contract awards as a DBE, which can provide a competitive advantage over nonDBE firms. DBE work is mostly subcontract work for a non-DBE prime 

contractor that commits to spend an established percentage of funding on DBE 

subcontractors.

DOT, State, and local transportation agencies share unique roles and 

responsibilities in administering the DBE program (see figure 1).

Figure 1. DOT’s DBE Program Oversight Structure

The Department (Office of the Secretary)

Office of Small and 

Disadvantaged Business 

Utilization (OSDBU)

Office of Civil Rights 

(OCR)

Office of General Counsel 

(OGC)

Federal Aviation 

Administration (FAA)

Federal Highway 

Administration (FHWA)

Federal Transit 

Administration (FTA)

FAA regional offices FHWA division offices FTA regional offices

State and local recipients

(typically aviation agencies)

State and local recipients

(typically State DOTs or 

highway administrations)

State and local recipients

(typically transit agencies)

• DOT’s Office of the Secretary’s role includes developing the rules and 

regulations for the DBE program, providing guidance to ensure compliance, 

and considering appeals from State certification decisions.
6

• FHWA, FTA, and FAA—along with their regional or division offices—are 

responsible for providing oversight to ensure recipients follow the regulations. 

Oversight includes performing compliance reviews, tracking recipients’ DBE 

participation reports, approving recipients’ DBE goals, and enforcing sanctions 

for DBE noncompliance.

• State and local transportation agencies, the recipients, implement their DBE 

programs pursuant to the DBE regulations. This includes certifying the 

eligibility of DBE firms,

16

On January 28, 2011, DOT issued a Final Rule, with the intent to improve DBE 

program oversight and increase accountability for meeting DBE participation 

goals.

overseeing DBE contract performance, and 

establishing contract-specific DBE goals.

17

THE DEPARTMENT DOES NOT PROVIDE EFFECTIVE DBE 

PROGRAM MANAGEMENT

Some revisions did not become effective until 2012.

The Department does not provide effective program management for its 

multibillion-dollar DBE program. The Department has not issued comprehensive, 

standardized DBE guidance or provided sufficient training to the recipients 

responsible for implementing the nationwide DBE program. In the absence of 

sufficient guidance or training, it is especially critical that the Department provide 

effective program management to help recipients and Operating Administrations 

achieve the goals of the program and comply with DBE regulations. Although the 

Department has strengthened its commitment to the program and taken some 

actions to improve program administration, the Department has not established a 

single line of accountability for the program and instead takes a fragmented 

approach by assigning only limited DBE program management responsibilities to 

three separate Departmental offices. DOT’s lack of a single line of accountability 

for the DBE program makes it difficult for the Department to (1) track whether the 

DBE program is achieving its objectives, (2) accurately account for billions in 

annual DBE spending, and (3) ensure adequate communication with State and 

local recipients responsible for program implementation.

 16 49 CFR Parts 23 and 26 place primary responsibility for the certification process upon State transportation agencies, 

which are to ensure only bona fide small firms, owned and controlled by a socially and economically disadvantaged 

individual(s), are certified.

17 These revisions included increasing a DBE owners’ personal net worth threshold, adding new post-award oversight 

duties, and expediting out-of-state DBE certifications.
7

The Department Lacks Comprehensive, Standardized DBE Program 

Guidance and Sufficient Training

The Department offers limited standardized guidance and training to the recipients 

responsible for implementing the nationwide DBE program. DBE officials for 

14 of the 15 States we contacted stated that they lack clear and comprehensive 

guidance from the Department for the DBE program. For example:

• Officials for five of the six States we visited said they needed more guidance 

on verifying personal net worth when determining certification eligibility. DBE 

regulations require that a DBE firm owner must not have a personal net worth 

that exceeds $1.32 million. Adequate guidance is essential since certification 

staffs are not required to have financial training. Without guidance or training, 

certification staff could miscalculate firm owners’ net worth, allowing 

unqualified DBEs to participate in the program.

• Officials from 11 of the 15 States we contacted said they needed overall 

guidance on implementing the DBE Final Rule, which DOT issued in January 

2011. According to State officials, the only available training on the Final Rule 

has been limited to either webinars or training at regional symposiums. In 

addition, the training has not provided comprehensive guidance on all changes 

included in the Final Rule.

The Department’s guidance currently consists of the DBE regulations coupled 

with a list of “Q&As” posted on its DBE Web site. A senior official in OGC stated 

that the regulations and “Q&As” provide the information needed to implement the 

program. This senior official stated that the Department also provides guidance on 

a case-by-case basis in response to direct questions—through emails18 or 

conference calls to individual recipients. However, officials at the States we 

contacted reported that the Department can be slow to respond, and hesitant to 

provide definitive answers or issue written guidance. Furthermore, individual 

conference calls and emails do not provide for standardized documented guidance 

or training, a concern the Government Accountability Office (GAO) has identified 

with respect to this program several times starting in 1992.19

In the absence of departmentwide best practices or guidance, Operating 

Administrations occasionally issue informal, internal DBE guidance to their 

recipients. While the Operating Administrations are responsible for the oversight 

of their recipients’ DBE program implementation, DBE regulations do not permit 

 18 OGC stated these emails are “not readily retrievable,” so we could not verify whether guidance given was 

comprehensive.

19 GAO/RCED-92-148, Highway Contracting: Disadvantaged Business Eligibility Guidance and Oversight are 

Ineffective, September 1992; GAO/RCED-94-168, Highway Contracting: Disadvantaged Business Program Meets 

Contract Goal, but Refinements are Needed, August 1994; and GAO-01-586, Disadvantaged Business Enterprises: 

Critical Information Is Needed to Understand Program Impact, June 2001.
8

the Operating Administrations to issue official program guidance without the 

Secretary’s or OGC’s approval. For example, FAA reports it is developing a Best 

Practices in Monitoring and Enforcement tool for its recipients. However, this 

guidance is informal, specific to FAA, and lacks OGC approval. Accordingly, this 

guidance may not express the official views of the Department and could conflict 

with the Department’s interpretations of the rules.

Additionally, 12 of the 15 State DBE officials we spoke to stated the Department 

does not provide adequate training for the DBE program. Although Department 

officials state that they provide training to recipients, we found it was infrequent 

and not comprehensive. For example, in fiscal years 2010 and 2011, the 

Department hosted 7 “in-person” training events, totaling 58 hours. However, the 

majority of those hours (83 percent) was limited to certification staff at just 

5 States and only covered certification topics.

Although the Department’s training has been limited, the Operating 

Administrations have conducted a significant number of training sessions for their 

individual recipients. For example, in 2010 and 2011, FAA conducted 

35 DBE training events, and FTA conducted or participated in 41 events such as 

panel discussions, conferences, and webinars. FHWA holds multiple in-person 

training events in each of the States annually for its recipients. For example, in 

2010 and 2011, FHWA’s Florida Division Office conducted 34 DBE training 

events for its recipients, and the Michigan Division Office conducted 11 events for 

its recipients. 

While Operating Administration training tools are good efforts, these events are 

often limited to specific Operating Administration recipients and require 

significant resources. In addition, the Department does not review or approve the 

Operating Administrations’ training efforts and resources, so it cannot assure the 

accuracy and consistency of the training. Recipients have stated that they would 

prefer standardized Departmental training. According to the recipients, each 

Operating Administration has its own unique requirements and interpretations of 

the DBE program. Additionally, 10 out of the 15 States we contacted reported a 

critical need for more consistency among recipient DBE practices.

The Department Has Not Established a Single Line of Accountability

To Manage Its Multibillion-Dollar DBE Program

In the absence of sufficient guidance or training, it is especially critical that the 

Department provide effective program management to help recipients and 

Operating Administrations achieve the goals of the program and comply with 

DBE regulations. According to DOT offices and individuals involved in the DBE 

program, the current administration has focused on the program more than past 

administrations. The Department has stated its commitment to the program in 
9

testimony before Congress as well as through letters from the Secretary and 

Deputy Secretary to each governor and State DOT administrator. The Operating 

Administrations have also stressed to recipients the importance of setting and 

meeting DBE participation goals and indicated they will closely monitor recipients 

that do not meet goals. Additionally, the Department created a high-level DBE 

Task Force20 in March 2010 that meets monthly to discuss the program and 

develop long- and short-term recommendations to improve its administration. In 

January 2012, DOCR implemented a web-based DBE certification and decertification tracking system that is accessible to all States and may prove 

beneficial to the DBE program.21

Despite these actions, the Department has not established a single line of 

accountability for the program, such as assigning overarching DBE program 

management to a single Department level entity. Instead, it takes a fragmented 

approach by assigning only limited DBE program management responsibilities to 

three separate Departmental offices.

22

The Office of Management and Budget (OMB) and GAO emphasize that 

organizational structure, leadership, accountability, and communication are 

essential for effective management of major programs and can enable staff across 

an agency to work together in an integrated fashion.

Furthermore, these three offices do not fully 

implement even the limited responsibilities they have been assigned.

23

However, the Department does not provide effective program management

because it has not assigned a single line of program accountability to any 

Department level entity. Instead, the Department’s regulatory delegations assign 

limited aspects of DBE program responsibility to three separate offices—OSDBU, 

DOCR, and OGC.

In particular, effective 

departmental program management will provide direction and vision, facilitate the 

development of common processes and approaches, and identify and assess the 

risk that program objectives will not be met. 

24

 20 The DBE Task Force is chaired by the Director of OSDBU and composed of the heads of the OGC, Government 

Affairs, DOCR, FHWA, FAA, FTA, Federal Railroad Administration, and their respective DBE program directors.

For example, OSDBU has been delegated responsibility for 

ensuring that the DBE program and its policies are developed in a fair, efficient, 

and effective manner. However, DOCR is delegated responsibility for providing 

policy guidance and oversight to the Operating Administrations on the 

21 We did not validate the functionality of this tracking system. As of the end of January 2012, the DOCR reported that 

the system was operational but still experiencing problems that needed to be corrected.

22 Organization and Delegation of Powers and Duties, 49 CFR § 1. 23 GAO/AIMD-00-21.3.1, Standards for Internal Control in the Federal Government, November 1999; GAO-01-

1008G. Internal Control Management and Evaluation Tool, August 2001; GAO-05-218G. Framework for Assessing 

the Acquisition Function at Federal Agencies, September 2005; OMB Circular A-123 Management Accountability and 

Controls, Revised June 21, 1995; OMB Memorandum Conducting Acquisition Assessments under OMB Circular A123, May 21, 2008. 24 Organization and Delegation of Powers and Duties, Final Rule, 77 Fed. Reg. 49964, 49975 (Aug. 17, 2012) 

(amending 49 CFR § 1).
10

implementation and enforcement of program requirements. As a result, the 

program’s management structure is fragmented without ultimate accountability for 

overall program management assigned to one entity.

In addition, not all of the delegated responsibilities are being carried out in 

practice (see table 1). For example, the Department’s delegations assign OSDBU 

with ensuring that the Department’s small and disadvantaged policies and 

programs, including the DBE program, are developed in fair, efficient, and 

effective manner. However, OSDBU officials stated that they have limited 

involvement with the DBE program and mainly give technical assistance, provide 

financial services, and conduct outreach to stakeholders and Congress. In addition, 

OSDBU did not provide primary policy direction for the DBE program, which 

was a delegated responsibility in the regulation prior to the August 2012 

revisions.25

 25 Organization and Delegation of Powers and Duties to the Director of the OSDBU, Final Rule, 60 Fed. Reg. 2889-01, 

2890 (January 12, 1995).

Furthermore, while DOCR has been delegated responsibility for 

providing guidance to and reviewing Operating Administrations’ DBE 

implementation and enforcement practices, DOCR’s only DBE-related activities 

involve reviewing and adjudicating certification appeals cases. DOCR has recently 

been working with the Operating Administrations to develop a plan to document 

the basic monitoring and enforcement responsibilities of the Operating 

Administrations and recipients. However, the outcome of these recent planning 

efforts and DOCR’s actual role in providing oversight of the Operating

Administrations’ program enforcement has yet to be determined.
11

Table 1. Department’s Office of the Secretary’s DBE Roles

Secretary’s 

Office (OST)

Delegated Authority and DBE 

Regulatory Role(s) Current Role(s) in Practice

Office of Small and 

Disadvantaged 

Business Utilization 

(OSDBU)

• Ensures the Department’s small and 

disadvantaged policies and programs 

are developed in fair, efficient, and 

effective manner

• Provides opportunities, technical 

assistance, and financial services to 

the small and disadvantaged business 

community

• The “face” of the DBE 

program: provides technical 

and financial assistance and 

conducts program outreach 

to stakeholders and 

Congress

• Hosts DOT’s DBE Web site

Department Office of 

Civil Rights (DOCR)

• Conducts all stages of the formal 

certification appeals process

• Provides guidance to the Operating 

Administrations on the implementation 

and enforcement of DBE regulations

• Periodically evaluates the Operating 

Administrations’ enforcement of the

program

• Reviews and decides on 

DBE certification appeals

• Develops a document 

outlining monitoring and 

enforcement responsibilities

for Operating Administrations 

and recipients

Office of General 

Counsel (OGC)

• Is responsible for DBE legislation and 

regulations

• Conducts all rulemaking proceedings

• Review legal aspects of legislative 

matters

• Reviews and approves all guidance 

issued by the Department

• Reviews and approves all 

guidance and interpretations 

of DBE regulations

• Drafts and issues rules that 

amend DBE regulations

• Defends DOT in DBE-related 

court proceedings

Source: OIG analysis

GAO first identified DOT’s lack of centralized DBE program management and 

accountability in 199226

Although the DBE program is unique to DOT, other Federal agencies with unique,

small and disadvantaged business programs demonstrate the best practice of 

assigning explicit, overall accountability and leadership to a central office. For 

example, the Environmental Protection Agency (EPA) manages its own DBE 

program established under 40 CFR Part 33. The EPA delegated central 

management of its DBE program to its Office of Small Business Programs, which 

is part of the Office of the Administrator. EPA’s Office of Small Business 

Programs is accountable for carrying out explicit responsibilities as part of its 

overall management of the program. Some of these responsibilities include

developing and monitoring program policy and procedures; providing outreach 

and training to internal and external program stakeholders; providing technical and 

and recommended that DOT designate a lead office for 

the program to improve communication and coordination. GAO emphasized the 

need for a lead office to develop, update, and coordinate the dissemination of 

policy and guidance, which the Department has not accomplished. 

 26 GAO/RCED-92-148, Highway Contracting: Disadvantaged Business Eligibility Guidance and Oversight are 

Ineffective, September 1992.
12

programmatic assistance to disadvantaged businesses; and collecting, compiling, 

and analyzing data on the utilization of disadvantaged businesses under the 

Agency’s DBE program.

Although the Department has not established formal overall program management 

accountability, until recently one senior official in the Department’s OGC

assumed an unofficial leadership role over the program. This senior official had

over 30 years experience working on the program and drafting its regulations, and 

was considered the unofficial “go-to” person for answers to DBE-related 

questions. However, the DBE program comprised a fraction of this individual’s 

responsibility because it was not his main job function. In August 2012, this 

official retired from the Department with no clear candidate to immediately 

assume the unofficial leadership role for the program. This loss of institutional 

knowledge and self-initiated leadership for the DBE program underscores the need 

for DOT to ensure the program has established accountability and leadership, and 

sufficient resources to provide adequate guidance, internal controls, and program 

management.

The Department Does Not Assess Its Achievement of Significant DBE 

Objectives

The Department does not use program assessment methods, such as performance 

measures, to manage and improve the DBE program and determine whether the 

overall program is meeting its stated objectives. GAO identifies good internal 

control management as having effective procedures in place to monitor the results 

of an agency’s programs.27 According to GAO, meaningful metrics are an 

important tool for an agency to assess the effectiveness of a program and provide a

foundation for continuous improvement. While the Operating Administrations

assess some objectives specifically for their recipients, such as their progress 

toward meeting DBE goals, there is no overall assessment at the Department level 

for the success of the program as a whole. For example, the Department cannot be 

sure that the program meets a key objective to assist in developing DBEs to 

compete successfully outside the program because it does not track how many 

DBE firms graduate from the program. In 1994, GAO reported on this issue, 

recommending to the Secretary that DOT develop performance measures to 

evaluate the progress of the DBE program in helping to develop firms to compete 

outside the program.28

 27 GAO/AIMD-00-21.3.1, Standards for Internal Control in the Federal Government, November 1999. 28 GAO/RCED-94-168, Highway Contracting: Disadvantaged Business Program Meets Contract Goal, but 

Refinements are Needed, August 1994.
13

The Department Lacks Accurate Spending and Award Data for the DBE 

Program

The Department does not track and, therefore, cannot account for its billions of 

dollars in annual DBE awards and payments. For example, when we requested 

DBE award and payment data for fiscal years 2007 through 2010, the Department 

spent several weeks contacting FHWA, FAA, and FTA to obtain this information. 

Transparency in how Federal dollars are spent in the DBE program is critical for 

ensuring accountability in the program and ensuring the effective and efficient 

performance and management of the program. In addition, the Operating 

Administrations’ annual DBE awards and payments data, which the Department 

relies upon, are not verified for accuracy. For example, FHWA’s National Review 

Team29

The Department Has Limited Communication With Recipients

found that New York State DOT’s 2010 Uniform Report of DBE 

Commitment/Awards and Payments submitted to FHWA had math errors for 

dollar amounts and the number of contractors reported. Further, not all recipients 

have fully functioning systems in place to track payments and awards 

electronically, elevating the risk of human error with manual entry systems. A

senior Department official also reported that the Operating Administrations are not 

collecting the same payment and award data or reporting them in the same 

manner. For example, FTA started collecting payment and award data 

electronically in 2011 and admitted that past data were not validated or of “sound 

quality.” Without accurate data on its DBE outlays, the Department cannot 

determine whether it achieves its DBE goals.

The Department has limited communication with State and local recipients

regarding the DBE program. According to Federal internal control standards, 

effective communication ensures adequate means of information exchange with 

external stakeholders that may have significant impact on the agency’s ability to 

achieve its goals.

30

 29 FHWA established the National Review Team to help its Division Offices provide the level of accountability and 

transparency called for under the American Recovery and Reinvestment Act of 2009 (ARRA). The team conducts 

independent assessments of states’ management of ARRA funds, reviewing state processes and compliance with 

Federal requirements in six key risk areas, one of which is DBE.

However, officials for all 15 States we spoke to say that they 

have limited or no communication with DOT Headquarters about the DBE 

program. The States’ contact with the Department was mostly limited to the senior 

official in OGC, who was until recently the Department’s unoffical DBE expert, or 

to officials from DOCR on matters related to certification.

30 GAO/AIMD-00-21.3.1, Standards for Internal Control in the Federal Government, November 1999.
14

OPERATING ADMINSTRATIONS AND RECIPIENTS DO NOT 

ADEQUATELY OVERSEE OR IMPLEMENT THE DBE PROGRAM

Although the Operating Administrations are responsible for oversight of DBE 

recipients’ programs, the Department does not regularly assess the effectiveness of 

the Operating Administrations’ oversight practices. Operating Administration 

oversight responsibilities are carried out inconsistently, and most divisions and 

regions do not perform reviews of DBE certification practices and project sites. 

We identified weak DBE certification and contract oversight practices at States, 

which increase the risk that ineligible firms will be certified as DBEs and allowed 

to work on DBE contracts and subcontracts. 

Operating Administrations Do Not Ensure Effective Program 

Implementation

The Operating Administrations do not ensure that their recipients effectively 

implement the DBE program. Each Operating Administration uses different 

practices to oversee its recipients’ DBE programs (see table 2), such as 

compliance and Unified Certification Programs (UCP)31

Table 2. Operating Administrations’ Oversight of DBE Recipients

reviews. These varying

oversight practices and reviews are limited in scope and not performed 

consistently.

FAA

Current Oversight Actions or Practices Weaknesses in Actions or Practices

Has four managers and staff at Headquarters 

(HQ) who spend at least half their time on the 

DBE program and eight full-time DBE staff 

mainly based in Los Angeles.

FAA’s resources to provide DBE oversight are 

limited given that it has about 1,000 recipients.

Los Angeles team performed seven 

compliance reviews in 2011 to identify 

recipient practices and collect data to develop 

future guidance. These are fact-finding reviews 

rather than assessments.

Only 7 compliance reviews in 2011 even 

though FAA has about 1,000 DBE recipients. 

These reviews omit certification file reviews 

and project worksite visits.

Currently developing a DBE Toolkit and best 

practices document for its recipients.

This effort will offer future benefits, but is not 

yet complete.

 31 49 CFR Part 26 requires each State to establish and submit a UCP to the Secretary of Transportation for approval. A 

UCP is a signed agreement among a State’s recipient agencies that provides “one-stop shopping” to applicants for 

certification, requiring an applicant to apply only once for a DBE certification that must be honored by all recipients in 

the State. A State’s UCP agreement may consist of one or multiple DBE certification agencies; however, if multiple 

agencies are involved, certification granted by one State UCP agency must be honored by all agencies in the State.
15

FHWA

Current Oversight Actions or Practices Weaknesses in Actions or Practices

Has 1 full-time DBE Manager at HQ, who 

coordinates with civil rights officers at FHWA’s 

52 State Division Offices.

Only one civil rights officer per Division Office

oversees the State’s implementation of its civil 

rights programs, including DBE. Competing 

duties limit time available for DBE oversight.

Began requiring Division Offices to submit 

annual DBE oversight plans in 2010.

No minimum oversight requirements or 

evaluation of oversight implementation. Each 

Division Office determines its own oversight 

practices based, in part, on its risk analysis.32

Division Offices conduct triennial reviews of 

five major Federal-aid civil rights programs, 

which include DBE.

Therefore, some Division Offices do not review 

certification files or visit project worksites.

The triennial reviews are not compliance 

reviews; rather, these assessments collect 

data to more accurately determine State

transportation agencies’ civil rights program 

implementation and to allocate resources.

These assessments are not comprehensive 

and omit certification file reviews.

Each Division Office completes an annual risk 

assessment of its internal controls and 

business activities to identify its top risks.

The Division Offices’ risk assessments are 

intended to comply with OMB A-123 internal 

controls requirements and are not a function of 

the OCR. The assessments can identify a 

division’s DBE program as high-risk, but do not 

require reviews or follow ups.

FTA

Current Oversight Actions or Practices Weaknesses in Actions or Practices

Has one full-time DBE staff member at HQ with 

a dedicated contractor for compliance, UCP, 

and triennial reviews.

Only one civil rights specialist per regional 

office oversees all of the region’s civil rights 

programs, limiting time available for DBE 

oversight. Recipients report limited contact with

FTA regional offices nationwide.

Contractor performed 13 compliance reviews

in fiscal year 2011.

Only 13 reviews even though FTA has about 

600 DBE recipients. Of the 13 reviews, only 

4 were finalized. The reviews also omit project 

worksite visits. 

Only Operating Administration that conducts 

UCP reviews. FTA also performs triennial 

reviews of grantee performance and 

adherence to current FTA requirements.

Only three of the six UCP reviews conducted in 

fiscal year 2011 were finalized. DBE is also 

just 1 of 24 areas that FTA’s triennial reviews 

examine. The triennials do not require 

certification file reviews.

Source: OIG analysis

 32 FHWA Headquarters and each Division Office conduct and submit annual risk profiles to OST to support the 

Department’s compliance with OMB A-123 internal controls requirements. The Risk Profile provides an assessment of 

internal controls, business activities, and top risks.
16

The Department’s DBE regulations and limited guidance do not clearly define the 

Operating Administrations’ oversight responsibilities. For example, the DBE 

regulations do not require the Operating Administrations to review recipients’ 

certification practices, such as reviewing certification files to verify that State

certifying agencies obtain sufficient supporting information or are performing

required on-site reviews of a firm’s business to ensure DBEs’ eligibility. We also 

found Operating Administrations’ program compliance reviews excluded on-site 

project visits and frequently involved few or no certification file reviews. 

For example, FAA’s Office of Civil Rights performed a compliance review of a 

$4.2-million New York DBE subcontract33 but did not review the associated DBE 

certification files. As a result, FAA’s review failed to detect that the subcontractor 

was no longer an eligible DBE when the contract was awarded. Prior to award, the 

original owner had died, and the firm had not been certified under its new owner. 

Additionally, the firm had not submitted over 6 years of annual no change 

affidavits, which DBE regulations require to remain in good standing with the 

program.34

Since much of the Operating Administrations’ DBE oversight is carried out at the 

regional and division level, the Department’s lack of clear guidance on Operating 

Administrations’ responsibilities results in inconsistent oversight of recipients’ 

DBE implementation—both among the Operating Administrations and from State 

to State. For example, the civil rights officer at FHWA’s Louisiana Division 

Office has continual communication with Louisiana State’s highway 

administration office and actively participates in both on-site compliance reviews 

and certification reviews. In contrast, the civil rights officer at FHWA’s Maryland

Division Office has little contact with Maryland State’s highway administration

office and has not participated in on-site compliance reviews or certification 

reviews.

Despite these circumstances affecting the firm’s eligibility, the firm 

was never removed from the State’s DBE directory. Certification file reviews 

would have been the only way to detect that the firm was no longer DBE-eligible.

Weak Recipient DBE Practices Increase Risk of Fraud and Improper 

Payments for the DBE Program

The lack of standard Departmental guidance and training, and inconsistent 

oversight by the Operating Administrations, has contributed to weaknesses in 

 33 FY 2011 ARRA DBE Compliance Review Final Report of the Teterboro Airport, August 16, 2011. 34 49 CFR Part 26.83(j) requires a DBE to provide annually, on the anniversary of its certification date, an affidavit 

sworn to by the firm’s owner affirming that there have been no changes in the firm’s circumstances affecting its ability 

to meet size, disadvantaged status, ownership, or control requirements of the regulation; and no material changes in the 

information provided in its application form. Under 49 CFR Part 26.109(c), failure to provide this affidavit in a timely 

manner will result in a determination of failure to cooperate.
17

recipient DBE certification practices and oversight. As a result, the DBE program 

is exposed to significant risk of fraud, waste, and abuse.

Weak State Certification Practices Increase the Risk That Ineligible Firms 

Will Be Certified as DBEs

States’ weak certification practices increase the risk that ineligible firms will be 

certified or granted continued DBE certification. The States we visited do not 

adequately verify that firms applying for DBE certification meet program 

eligibility requirements or continue to meet these requirements to maintain 

certification (see table 3).

Table 3. Summary of Key DBE Eligibility Requirements

A DBE firm owner 

must:

• be a socially and economically disadvantaged individual

• have a personal net worth that does not exceed $1.32 million

• possess the power to control the firm’s management and policies

A DBE firm must be: • at least 51-percent majority owned by the socially and 

economically disadvantaged individual(s)

• an independent business and cannot depend on its relationship 

with other firms

• an existing small business and have average annual gross 

receipts that do not exceed certain size caps35

Source: 49 CFR Part 26, Subpart D

Recipients did not always adequately verify DBE ownership or control eligibility. 

From a sample of 121 statistically selected DBEs’ certification files, we identified 

2 instances in which the firms were not eligible DBEs.36 In our sample, which was 

selected using a stratified probability proportional to size sampling methodology, 

any instance in which a firm does not meet DBE eligibility requirements is 

significant. In one instance, the DBE owner was deceased,

37 and the new owner’s 

majority ownership and control was not established and ultimately denied. These

ineligible firms received a total of $5.4 million in DBE awards and payments.

38

 35 For example, firms may not exceed an overall DOT-specific cap, which is currently $22.41 million.

Because the firms did not meet DBE eligibility requirements, the $5.4 million in 

fiscal year 2009 awards and payments may have been improper payments. Based 

on these findings, we estimate that $124 million of the $4.1 billion in DBE funds 

36 We reviewed a statistical sample of 121 out of 1,461 certification files from our 6 statistically selected sample States. 

The 1,461 certification files represent the universe of all DBEs working on active federally funded contracts in the 6 

sample States during the time of our audit.

37 A firm’s original owner died, and the firm was never recertified under the new owner due to questions surrounding 

her control and expertise. However, the firm was never removed from the State’s certified DBE directory. 38 The $5.4 million was out of a total of $45 million in awards and payments made to the 121 firms included in our 

sample for fiscal year 2009. 
18

distributed across 52 U.S. States and territories39 in fiscal year 200940 could have 

been put to better use if DOT and its recipients had implemented better internal 

controls over their certification processes.

41

Personal Net Worth (PNW): Certification staff in five of the six States we 

visited reported that they are unsure how to accurately calculate or verify a firm

owner’s PNW. As a result, staff could certify unqualified firms. For example, we 

found that New York State granted DBE certification to a firm even though the 

owner’s PNW exceeded the DBE eligibility threshold by $570,000. However, the 

owner claimed a $600,000 unpaid tax liability, lowering her PNW to $30,000 

below the PNW eligibility threshold.

We found several specific weaknesses 

in recipients’ certification practices, as follows:

42 The State continued to recertify the firm 

even though the DBE did not consistently submit required annual affidavits of no 

change. In addition, we question whether significant unpaid taxes are valid 

liabilities when computing PNW.

43

Majority-Owned by Socially or Economically Disadvantaged Individual: State 

certification staff did not always perform third-party checks for related affiliates, 

duties of key controlling officials, and financial capabilities to verify ownership 

and control information reported by firms seeking DBE certification. These checks 

could help detect whether a firm is fraudulently alleging to be a qualified DBE. 

OIG investigators have convicted DBE owners of falsifying documentation to gain 

DBE certification.44

 39 The universe included Puerto Rico but did not include the Virgin Islands because it did not report DBE expenses in 

fiscal year 2009.

In addition, we identified a DBE applicant in the District of 

Columbia who claimed to be a firm president but actually was the vice president 

who owned only 5 percent of the company. The firm did not meet the eligibility 

requirements according to the DBE regulations, yet was certified as a DBE.

Certification staff could have detected this misrepresentation of ownership if they 

had verified firms’ ownership and key controlling official information using 

commercial databases.

40 We based our projections on fiscal year 2009 amounts because these were the most current and complete data the 

Department was able to provide at the onset of our audit.

41 Our estimate has an actual lower limit of $5 million and a 90-percent upper confidence limit of $329 million, with a 

best estimate of $124 million.

42 49 CFR Part 26.67(2)(i) states the PNW cap for DBE eligibility was $750,000 for firms seeking eligibility prior to 

the January 2011 Final Rule, which increase the PNW to $1.32 million. 43 In September 2012, the Department issued a Notice of Proposed Rulemaking proposing a new PNW statement along 

with an accompanying instruction sheet for program application and continued certification.

44 In 2006, a New York DBE owner pled guilty to obtaining DBE certification by submitting false corporate tax returns 

and other phony documentation, which allowed the firm to win a $7.8 million DBE subcontract that her husband’s nonDBE companies actually completed. The owner and the husband were sentenced to 15 months in prison and ordered to 

pay $12,500. In another case, a Massachusetts DBE firm owner that had worked on five federally funded contracts, 

valued at approximately $42 million, pled guilty to falsifying corporate tax returns to maintain DBE eligibility. The 

DBE firm was debarred from Federal contracting for 3 years.
19

Independence From Related Non-DBE Firms: To ensure eligibility, DBE 

regulations require State certifying agencies to scrutinize firms’ relationships with 

non-DBE firms to verify independent control. In addition, the regulations state that 

certification staff evaluating a firm’s independence may consider whether a firm’s 

pattern of conduct indicates attempts to evade or subvert the program. However, 

certification staff did not always perform these verifications or did not perform 

them sufficiently to verify independence and control. We identified five instances 

in which the DBE did not appear to have clear control of its operations due to a 

potential lack of independence. Two of the five instances included:

• A Louisiana agency ultimately certified a DBE firm that had a history of 

switching names on key business documents from the father, a non-DBE, to 

the daughter, who was DBE-eligible. OIG investigations have led to 

convictions of firm owners for similar attempts to defraud the DBE program.45

• One New York certification manager did not respond to an anonymous letter 

alleging that a DBE firm owner was not the actual majority owner and that the 

DBE has common ownership with two other firms using different names to 

skirt DBE size standards. The certification manager said there was no way he 

could follow up on it because the letter was anonymous and simply placed the 

letter in the certification file. The firm remains a certified DBE.

No-Change Affidavits: States’ certification staff frequently do not enforce the 

requirement that certified DBE firms submit annual affidavits of no change, which 

disclose whether there have been any changes that would affect firms’ ability to 

continue to meet DBE eligibility requirements.46

From our statistical sample of 121 DBEs’ certification files, we identified 20 firms 

that did not submit required annual affidavits in fiscal year 2009. Yet these firms

received DBE contract awards and payments totaling nearly $4.4 million during 

that year. Based on these results, we estimate that $101 million of the $4.1 billion 

We determined that 74 of the 

121 DBE firms’ certification files in our 6 sample States were missing some or all 

of these required annual affidavits. For example, a certification file for a District 

of Columbia DBE certified since 1996 included only one affidavit for fiscal year 

2010.

 45 In 2012, an OIG investigation resulted in the conviction of an Illinois firm owner on a mail fraud charge in 

connection with a scheme to use a front DBE on Government contracts. From about 1999 until about May 2006, the 

firm owner operated and controlled the operations of another company, a false front DBE company. The owner used 

the front company to wrongly obtain more than $2.3 million in Government contracts where a DBE was required. 46 The affidavit affirms that there have been no changes in the firm’s circumstances affecting its ability to meet size, 

disadvantaged status, ownership, or control requirements; and no material changes in the information provided in its 

application form. The affidavit specifically affirms that the firm continues to meet SBA business size criteria and the 

overall gross receipts cap, documenting this affirmation with supporting documentation of the firm’s size and gross 

receipts.
20

in DBE funds distributed in fiscal year 2009 were unsupported.

47

On-Site Certification Reviews: State certification staffs do not always conduct 

updated on-site certification reviews at regular intervals to verify DBEs’ continued 

eligibility. During an on-site review, certification staff will perform steps such as 

visit the office of the applicant firm, interview the principal officers, review the 

equipment and licenses of the firm, and visit an actual job site to ensure the firm 

can perform the work it seeks to do in the DBE program. The regulations require 

certification staff to perform on-site certification reviews to determine firms’

eligibility but do not specify definitive intervals for how often to conduct these 

reviews. For example, Utah DOT certification staff only conducts on-site 

certification reviews for initial applicants, while Illinois DOT certification staff 

conducts on-site certification reviews every 5 years. In our review of 106 DBE 

certification files,

These 

unsupported funds occurred because DOT and recipients allowed firms to remain 

certified without enforcing the requirement that firms must submit the annual 

affidavits ensuring continued good standing with regulatory requirements.

48

Recipients Do Not Conduct Sufficient Oversight of DBEs at Job Sites

we found 43 cases in which the State certification staff 

performed their most recent on-site certification visits over 5 years ago—9 of 

which performed their most recent on-site visit over 10 years ago. In the January 

2011 Final Rule, the Department asserted that regular on-site certification reviews 

are an extremely important tool to help recipients prevent fraudulent firms or firms 

that no longer meet eligibility requirements from participating in the DBE 

program. However, the Department did not establish definitive time intervals for 

conducting on-site certification reviews.

Job site monitoring is necessary to ensure that a DBE is performing the work 

identified in the contract, rather than acting as a “front company” for an ineligible 

firm performing the work. However, most of the recipients at the six States we 

visited did not effectively monitor or document DBE contractual performance at 

project sites. In addition, OIG investigative results provide examples of lack of 

effective job site monitoring and oversight, such as in April 2012 when a co-owner 

of a large concrete pre-cast company was convicted of conspiracy, mail fraud, 

wire fraud, and money laundering. The company had used a certified DBE as a 

front company to obtain DBE subcontracts. The concrete company performed the 

work but allowed the certified DBE to keep a cut of the payments. The DBE fraud 

was conducted over a 15-year period and allowed the company to win over 

$136 million in fraudulent DBE subcontracts on 340 federally funded highway 

and transit construction projects performed throughout Pennsylvania.

 47 Our estimate has an actual lower limit of $4 million and a 90-percent upper confidence limit of $231 million, with a 

best estimate of $101 million.

48 For our statistical sample of 121 DBE certification files, we did not document site review dates for the 15 files we 

reviewed at our first sample state visit at the District of Columbia.
21

In an effort to improve recipient monitoring, the Department added additional 

post-award oversight requirements in its January 2011 Final Rule. Recipients must 

now perform job site compliance monitoring for all ongoing DBE projects. One 

way recipients can implement the new job site compliance rule is to increase 

coordination between DBE compliance staff and job site district engineers. To 

varying degrees, State DBE compliance officers already rely on staff located at 

construction sites for DBE oversight. However, construction employees do not 

necessarily focus—and in some cases are not fully trained—on DBE compliance 

because of their other responsibilities. Compliance officers from only 3 of 

1449

Weaknesses in State certification and project oversight are evident in the results of 

our DBE fraud investigations. In fiscal years 2010 and 2011 alone, OIG 

investigators uncovered a significant amount of DBE fraud, leading to over

$88 million in recoveries, restitutions, and fines—along with 10 indictments and

8 criminal convictions.

States reported regular interaction with job site construction staff. This lack of 

oversight at DBEs’ job sites can allow fraud to go undetected for years.

Recipients’ Staffing Issues Contribute to Certification and Compliance 

Monitoring Weaknesses

Many recipient agencies are understaffed. While DBE regulations require that 

each recipient have “adequate staff” to administer their program, 10 of the 15

States we randomly sampled reported that they do not have enough staff to 

perform all duties adequately. For example, due to staffing limitations, New York 

completes formal compliance reviews for only 20 of its approximately 500 active 

DBE highway projects. The District of Columbia DOT did not have any DBE staff 

to monitor DBE compliance until it hired a contractor in 2010. As a result, the 

agency did not perform compliance checks or monitoring prior to hiring the 

contractor in 2010.

In addition, recipients’ DBE liaison officers do not oversee complete program 

implementation. The DBE regulations require each recipient agency to have a 

DBE liaison officer who is responsible for implementing all aspects of the 

program.50

 49 One out of the 15 states we contacted did not respond to this question.

We found that 9 of the 15 States reported that their DBE liaisons do 

not directly oversee all aspects of their programs. For example, Oregon DOT’s 

DBE liaison does not directly oversee the compliance staff, who report to the 

construction office. In addition, Oregon’s sole certification office for the entire 

State is located in a completely different agency from that of the DBE liaison, 

making it difficult for the DBE liaison to be aware of certification issues.

50 What is the requirement for a liaison officer, 49 CFR § 26.25.
22

THE DEPARTMENT HAS LIMITED SUCCESS IN ACHIEVING ITS 

PROGRAM OBJECTIVE TO DEVELOP DBE FIRMS 

The Department has limited success in achieving its program objective to develop 

DBEs to succeed in the marketplace because recipients place more emphasis on

getting firms certified as DBEs rather than assisting them to identify opportunities 

and market themselves for DBE work on federally funded projects. In addition, the 

Department does not require recipients to actively track or report utilization data 

showing the number of DBEs actually receiving work on federally funded DBE 

projects. As a result, the Department has no way to measure achievement of this 

program objective. Moreover, unlike SBA’s 8(a) small business development 

program, the DBE program does not have a term limit on participation, so there is 

little incentive for firms to grow beyond the program.

Recipients Do Not Adequately Develop DBE Firms To Succeed in the 

Marketplace

One of the Department’s DBE program objectives is to help DBE firms succeed in 

the marketplace. The responsibility to develop DBE firms lies with the recipients 

who implement the DBE programs in each State. However, recipients focus most 

of their efforts on helping firms complete the lengthy DBE certification process, 

leaving few resources in place to help certified firms obtain DBE work on 

federally funded projects. As a result, State DBE officials stated that certified DBE 

firms are not sure how to market themselves or identify work opportunities. 

Without contract work, DBEs cannot grow and develop their businesses to be able 

to compete outside the program. For example, Maryland has a large database of 

almost 5,000 eligible DBE firms, but only 560 firms (12 percent) have ever 

received work as a subcontractor or prime contractor of a federally funded project.

In addition, even though the DBE program has been in place for over 30 years, the 

Department does not require its recipients to track or report on DBE utilization—

that is, how many certified firms actually receive DBE work on federally funded 

contracts. Tracking and monitoring DBE utilization data could help the 

Department regularly assess the program’s performance toward achieving its goals 

and motivate recipients to allocate resources toward developing DBE firms to 

succeed in the marketplace.

The majority of DBE firms in the six sample States we visited have not 

successfully obtained federally funded contracts. Less than 20 percent of certified 

DBEs in the 6 sample States have received DBE work on a federally funded 

project (see table 4).
23

Table 4. DBE Utilization Rates for Six Sample States51

Sample States

DBE That Have 

Received DBE Work 

Number Of 

Certified DBEs 

DBE Federal 

Utilization Rate

1 Maryland 560 4,863 11.5%

2 New York 514 1,370 37.5%

3 Oregon* 166 480 34.6%

4 Kansas* 62 205 30.2%

5 Louisiana 219 771 28.4%

6 District of Columbia** - - -

Total Utilization 1,521 7,689 19.8%

* The aviation agencies in Oregon and Kansas were unable to provide utilization data because they do not have a 

system in place to track this information.

** The District of Columbia could not provide utilization data because it had only recently begun to track this data.

Source: OIG analysis of DBE utilization data submitted by the six sampled States

Smaller DBE firms often have difficulty competing for contracts. Larger DBE 

firms win more contracts because they tend to develop relationships with prime 

contractors when they demonstrate they can perform the work. For example, of 

Maryland’s 560 DBEs that received awards through the DBE program, 4 firms 

consistently win the most contracts—over 100 contracts each, for a total of 

609 contracts. In contrast, 202 of those 560 Maryland DBEs have won only 1 DBE 

contract since becoming certified.

The regulations state that a recipient may or, if an Operating Administration 

directs it to, must establish a DBE business development program (BDP)52

Due to the competitive advantages a successful DBE gains from the program, 

there is little incentive for firms to grow beyond the DBE program. Unlike the 

SBA’s 8(a) small business development program, DOT’s DBE program does not 

have a term limit on participation. For example, 59 of the 121 DBEs we reviewed 

to 

assist firms in learning to compete successfully outside the DBE program. 

However, due in part to limited resources, recipients place less priority on BDPs

because they are optional program elements. In addition, the Operating 

Administrations and recipients would find it difficult to know when a firm needs a 

BDP because the Department does not require them to collect data on DBE

utilization. 

 51 We did not factor in State and locally funded contracts when determining utilization. 52 The purpose of a BDP is to further the development of DBEs, including but not limited to assisting them to move 

into nontraditional areas of work and/or compete in the marketplace outside the DBE program, via the provision of 

training and assistance from the recipient.
24

were first certified over 10 years ago. State officials reported that some DBE firms 

deliberately limit the amount of new contract dollars they receive in order to stay 

below the average annual gross receipt cap of $22.41 million required for DBE 

eligibility.53

Some DBEs that have been in the program for over 10 years have received little to 

no DBE contract work since being certified. For example, in Oregon, 53 out of the 

96 currently certified highway DBE firms (55 percent) were first certified over 

10 years ago—13 have been certified since the 1980s. Yet, 24 of those 53 firms

(45 percent) have received 5 or fewer contracting opportunities as a DBE.

CONCLUSION

DOT has spent billions of dollars through its DBE program to remedy past and 

current discrimination against socially and economically disadvantaged 

individuals competing for federally assisted projects. However, weaknesses in 

DBE program management and implementation have allowed ineligible firms to 

win DBE contracts and have left the majority of DBE firms without work. The 

Department’s fragmented DBE program management structure can only be 

effective if Operating Administrations and recipients are offered clear DBE 

guidance and training with which to implement the program. Because the 

Department’s DBE guidance and training is not sufficiently comprehensive, it

must take a more proactive oversight approach to ensure that recipients comply 

with DBE regulations and make progress toward achieving DBE program goals. If 

the Department does not provide more comprehensive guidance and training or 

strengthen its program management, the DBE program may continue to be 

exposed to billions of dollars in fraud, waste, and abuse.

 53 What rules govern business size determinations, 49 CFR § 26.65.
25

RECOMMENDATIONS

We recommend that the Office of the Secretary:

1. Develop comprehensive guidance and best practices for DBE program 

implementation by involving DBE stakeholders from all levels. The guidance 

should provide direction for conducting certification processes, certification 

reviews, and on-site project reviews.

2. Formally assign one Department office the responsibility and accountability 

for integrating and managing the DBE program.

We recommend that the accountable DBE lead program office or the Office of the 

Secretary:

3. Develop program performance measures to regularly assess the DBE program 

and evaluate whether it is achieving its objectives;

4. Establish a centralized Departmental data system for collecting and tracking 

DBE commitment and award information and require that the Operating 

Administrations implement procedures to ensure that recipients are accurately 

reporting DBE award and other financial information.

5. Maintain the Department’s DBE Web site to ensure it contains current 

information and includes accurate DBE program contact information;

6. Develop an oversight and compliance plan with the Operating Administrations 

to identify specific, required oversight processes and reviews and ensure that a 

sufficient number of reviews are performed based on assessed risk;

7. Require that recipients track and regularly report utilization data to the 

Operating Administrations, including each DBE’s number of years in the 

program and the number of DBE subcontracts or prime contracts received 

since first becoming certified; and

8. Require that the Operating Administrations work with recipients to develop 

ways to improve utilization rates and require the establishment of Business 

Development Programs for firms that have not received DBE work for several 

years.
26

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE

We provided OST with our draft report on November 2, 2012, and received its 

response on March 18, 2013. OST’s complete response is included as an appendix 

to this report. While OST either concurred or partially concurred with all eight of 

our recommendations, it raised concerns that our findings are based primarily on 

the opinions of State officials without detailed or causal analysis. We disagree. 

Our findings are based on evidence from multiple sources including extensive data 

collection and analysis from State and local recipients, as well as interviews with 

multiple stakeholders. For example, we analyzed data from 15 statistically selected 

States, which received $2.4 billion in DBE participation amounts—or 59 percent 

of the total universe for fiscal year 2009. We also analyzed the certification files 

for 121 randomly selected DBE firms and 18 randomly selected DBE contracts 

including aviation, transit, and highways. Further, we collaborated with OIG 

investigators who have recovered millions of dollars in Federal funding lost to 

DBE fraud and who shared their first-hand knowledge of the DBE oversight 

weaknesses that allow such fraud to occur. 

For recommendations 4 and 5, OST either concurred or partially concurred, and 

presented reasonable timeframes and planned actions that meet the intent of our 

recommendations. Accordingly, we consider these recommendations resolved but 

open pending completion of the planned actions. 

For recommendation 2, OST concurred stating that it plans to issue a departmental 

order designating the Secretary and Deputy Secretary with overall accountability 

and decision-making responsibility for the DBE program. OST also stated that the 

order will build upon the existing approach to program management but that it will 

specify the roles, relationships, and functions among the OST offices leading the 

program. However, our audit findings indicate that the current management 

approach is ineffective and that the OST offices leading the program are not fully 

carrying out their delegated responsibilities. The proposed actions meet the intent 

of our recommendation, and we consider this recommendation resolved. However, 

the recommendation remains open pending completion of the planned 

departmental order that establishes a decision-making framework for day-to-day

management along with controls for holding lead offices accountable for fulfilling 

their delegated responsibilities. Since the Department does not plan to issue the 

order until March 1, 2014, we request that the Department provide us with an 

interim plan for implementing a decision process for the program.

For recommendations 1, 3, and 6, OST either concurred or partially concurred. 

However, we are requesting additional information before we can determine if the 

actions planned address the intent of these recommendations. Specifically:
27

For recommendation 1, OST partially concurred, stating that its DBE regulations 

in 49 CFR 26 are the definitive and primary source of guidance for the program. 

However, in defining what constitutes guidance, DOT has clarified that 

“guidance” refers to non-legislative rules (not legally binding regulations) 

intended to provide interpretations or policy statements.54

For recommendation 3, OST concurred but stated that performance measures have 

been in place for some time. However, OST’s response refers to measures that 

address whether recipients meet the Department’s goal to allocate 10 percent of 

authorized funds to DBEs. The intent of our recommendation is for OST to 

evaluate its progress against the seven DBE program objectives established in 49 

CFR 26.1, which are separate from the 10-percent goal. Accordingly, we are 

requesting that OST specify what performance measures it plans to develop that 

will link to the seven DBE program objectives. Until we receive this information, 

we consider recommendation 3 open and unresolved. 

OST also stated that the 

Q&As posted on OSDBU’s Web site provide useful supplemental guidance. Our 

review, however, determined that neither the DBE regulations nor the Q&As 

provide recipients with the full guidance they need, particularly when certifying 

DBE firms and conducting oversight at project sites. OST stated that DOT 

initiated a new training program in February 2013 that provides guidance on the 

DBE certification process. We agree that the new program focuses on certification 

guidance, but it does not provide comprehensive guidance for other program 

elements, such as on-site project compliance reviews, which we also determined 

was needed. In addition, the training program is targeted to certification staff, not 

all staff responsible for implementing the DBE program. Further, OST has not 

made the training materials available on the Department’s Web site. Accordingly, 

we are requesting that OST provide us with additional information clarifying 

whether it will (1) create training guidance for on-site project compliance reviews, 

(2) offer training programs for all staff involved in the DBE program, and (3) post 

training materials on the Department’s Web site. Until we receive this 

information, we consider recommendation 1 open and unresolved.

For recommendation 6, OST partially concurred, stating that it is incumbent on 

each Operating Administration to determine the appropriate DBE oversight 

activities and to focus their limited resources on the greatest risk areas. While we 

agree that Operating Administrations should have the flexibility to tailor oversight 

to the unique risks of each State, the intent of our recommendation is to ensure that 

their oversight is sufficient. OST states that the DBE Task Force will “seek to”

identify oversight minimum requirements and document specific actions needed to 

ensure each Operating Administration is providing adequate oversight and will 

determine whether DOCR needs to enhance or modify its practices in this regard. 

 54 DOT Web site, “Background on Guidance” <http://www.dot.gov/regulations/background-guidance>, and “Types of 

DOT Guidance” <http://www.dot.gov/regulations/types-dot-guidance>. 
28

However, the Department’s delegation of powers and duties in 49 CFR 1 

specifically assigns DOCR responsibility to provide guidance and periodically 

evaluate the Operating Administrations’ enforcement and implementation of the 

program. Since our audit determined that DOCR was not carrying out these

delegated responsibilities, the Department needs to clarify how DOCR will do so. 

Accordingly, we are requesting that OST (1) require that the DBE Task Force 

identify and document the minimum oversight requirements and specific actions 

the Operating Administrations must take when overseeing the program and (2) 

specify the required actions DOCR must take to fulfill its delegated responsibility 

to provide guidance and periodically evaluate the Operating Administrations’

enforcement and implementation of the program. Until we receive this 

information, we consider recommendation 6 open and unresolved.

For recommendations 7 and 8, OST partially concurred, but its planned actions do 

not meet the intent of our recommendations. Specifically: 

For recommendation 7, OST partially concurred, stating that it is updating its data 

gathering requirements in its recent Notice of Public Rulemaking (NPRM). OST 

acknowledges that the NPRM does not address DBE utilization data but states that 

it is considering requiring utilization tracking in future rulemakings. Without 

utilization data, however, OST cannot evaluate whether it is achieving its 

regulatory DBE program objectives to create a level playing field on which DBEs 

can compete fairly or assist in the development of DBE firms to compete 

successfully in the marketplace.55 We found that, while recipients spend 

considerable resources to certify DBE firms, most certified DBEs never receive 

work on Federal projects. Additionally, Congress has recently raised concerns 

about DBE utilization.56

For recommendation 8, OST partially concurred, stating that it is not at the point 

where it can agree to require the establishment of BDPs. Instead, OST plans to 

task the DBE working group to determine whether efforts to improve utilization 

warrant attention, and if so, if there are existing approaches to encourage 

Accordingly, we request that OST reconsider its position 

and either (1) commit to adding the requirement for DBE utilization data 

collection in a future NPRM or (2) clarify how it measures whether the 

Department is meeting its stated program objectives to create a level playing field 

and develop DBEs to compete outside the program. OST also proposed a target 

date of December 31, 2014, to determine whether to require utilization tracking in 

future rulemakings; since this date is only a date to make a determination, it is not 

a timely completion date to address our recommendation. We consider 

recommendation 7 open and unresolved.

 55 49 CFR § 26.1(b) & (f). 56 As part of the FAA Modernization and Reform Act of 2012, Congress has directed OIG to report on new DBE 

participation at the Nation’s airports.
29

recipients to expand utilization. However, the DBE regulations already grant 

Operating Administrations the authority to require that recipients establish BDPs 

and encourage other mentor-protégé programs. Furthermore, a key DBE program 

objective is to help develop DBEs so they can compete outside the program. We 

request that OST clarify how it will require the Operating Administrations to work 

with recipients to develop ways to improve utilization rates for firms that have not 

received DBE work for several years. OST proposed a target date of December 31, 

2014, to determine whether and how to proceed in this area; since this date is only 

a date to make a determination, it is not a timely completion date to address our 

recommendation. We consider recommendation 8 open and unresolved.

ACTIONS REQUIRED

OST’s planned actions and timeframes for recommendations 2, 4, and 5 are 

responsive, and we consider them resolved but open pending completion of the 

planned actions. We consider recommendations 1, 3, 6, 7, and 8 open and 

unresolved. In accordance with Department of Transportation Order 8000.1C, we 

request that OST provide additional information regarding their planned actions 

for recommendations 1, 3, 6, 7, and 8, as described above, within 30 days of this 

report. We also request that OST submit revised completion dates for 

recommendations 7 and 8. In addition, we request that OST, within 30 days, 

provide us with an interim plan for implementing a decision process for the 

program until its planned Departmental order is completed. We appreciate the 

courtesies and cooperation of DOT representatives during this audit. If you have 

any questions concerning this report, please call me at (202) 366-1959; Mary Kay 

Langan-Feirson, Assistant Inspector General for Acquisition and Procurement 

Audits, at (202) 366-5225; or Terry Letko, Program Director, at (202) 366-1478.

#

cc: DOT Audit Liaison, M-1

FAA Audit Liaison, AAE-100

FHWA Audit Liaison, HAIM-13

FTA Audit Liaison, TBP-30
30

Exhibit A. Scope and Methodology

EXHIBIT A. SCOPE AND METHODOLOGY

We conducted our work from April 2011 through October 2012 in accordance 

with 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. We believe that the evidence obtained provides a reasonable basis for 

our findings and conclusions based on our audit objectives.

Our audit scope included (1) the Department’s Office of the Secretary’s OSDBU, 

OCR, and OGC; (2) FHWA, FAA, and FTA (the three primary Operating 

Administrations that participate in the DBE program), including their division and 

regional offices; and (3) 15 randomly selected U.S. States using 2 distinct samples. 

We assessed each organization level’s implementation of the DBE program to 

determine whether program management, oversight practices, and internal controls 

were adequate to ensure effective utilization of DBE funds to meet the program’s 

objectives. This assessment included interviewing DBE managers and employees, 

reviewing written DBE policies and guidance, and determining the extent of 

interaction with other organizational levels involved in the DBE program. We 

based our assessment on DBE regulations contained in 49 CFR Part 26—but not 

on the January 2011 Final Rule, which came into effect after the scope of our 

review, nor on 49 CFR Part 23, which focuses on airport concessions. 

Our statistical sampling plan relied on DBE participation amounts reported for 

fiscal year 2009, as these were the most current and complete data that the 

Department could provide at the beginning of the audit. We deemed these data 

sufficiently accurate for the purpose of our audit. We drew 2 distinct statistical 

samples to randomly select 15 out of the 52 U.S. States and territories1

We used a stratified probability proportional to size sample to randomly select 

6 States. To select this type of sample, we first stratified the universe of 52 States 

and territories into three tiers—“good,” “bad,” or “unknown”—based on OIG 

investigators’ assessments of the States’ DBE programs. We then selected two 

States from each tier using probability proportional to size, where the probability 

of selection was proportionate to the State’s total fiscal year 2009 DBE 

participation amount. This type of sample gave States with larger total DBE 

participation dollars a greater chance of selection, while giving every dollar in the 

universe an equal chance. The six selected States and territories were the District 

of Columbia, Maryland, New York, Oregon, Louisiana, and Kansas. The States’

that 

participated in the DBE program: (1) a random sample of 6 States we visited and 

(2) a random sample of 9 additional States that we surveyed. 

 1 The universe included Puerto Rico but did not include the Virgin Islands because it reported no DBE funds expended 

in fiscal year 2009.
31

Exhibit A. Scope and Methodology

fiscal year 2009 DBE participation amounts add up to $1,079,192,875—or 

27 percent of the $4,068,125,337 nationwide total.

At each of these six States, we interviewed State officials, reviewed randomly 

selected DBEs’ compliance files, and reviewed randomly selected DBE contracts 

to assess States’ DBE oversight practices. Specifically, we reviewed a sample of 

121 DBEs’ certification files randomly selected from a universe of all 1,461 DBEs 

working on active, federally funded contracts for the 6 States during our audit.2

Based on the results of our review, we projected the amount of unsupported funds 

and funds that could have been put to better use.3

To capture a broader scope of State DBE practices nationwide, we surveyed

9 States randomly selected from the remaining 46 U.S. States and territories in our 

universe. We used the same stratified probability proportional to size sampling 

method used to select the six-State sample. The nine data call States include 

Washington, Utah, Florida, California, Illinois, Wisconsin, Pennsylvania, Texas, 

and Arkansas. The States’ fiscal year 2009 DBE participation amounts add up to 

$1,321,999,218—or 33 percent of the $4,068,125,337 nationwide total. With these 

2 State samples, our audit work covered $2,401,192,092—or 59 percent of the 

total DBE participation amount for fiscal year 2009.

In addition, at each of the six 

sample States, we reviewed a transit contract, highway contract, and aviation 

contract with either a DBE subcontractor or DBE prime contractor that we 

randomly selected from the State’s universe of active, federally funded DBE 

contracts. 

Throughout the audit, we collaborated with OIG investigators who have worked 

extensively with DBE fraud cases. We also reviewed recently closed DBE fraud 

cases and DOT OIG hotline complaints for potential fraud in our sample States. 

These investigative reviews helped us to determine DBE process weaknesses that 

allowed fraud to occur.

 2 The number of DBEs’ certification files selected from each State was determined by the State’s proportion of the total 

universe.

3 We projected with 90-percent confidence and a precision no greater than 5 percent of the fiscal year 2009 DBE 

distribution to all 52 U.S. States and territories in our universe. The precision for the projections is so large because the 

unsupported funds or funds that could have been put to better use varied widely by firm, from $0 to $5 million. Sixtysix of the 121 sampled firms (55 percent) had $0 amounts because they did not receive any DBE payments or awards in 

fiscal year 2009.
32

Exhibit B. Activities Visited or Contacted

EXHIBIT B. ACTIVITIES VISITED OR CONTACTED

Office of Small and Disadvantaged Business Utilization

Office of Civil Rights

Office of General Counsel

Federal Highway Administration

Federal Transit Administration

Federal Aviation Administration

Contact through site visits:

Office of Civil Rights, District of Columbia

Maryland Department of Transportation, Hanover, Maryland

State Highway Administration, Baltimore, Maryland

Maryland Transit Administration, Hanover, Maryland

Maryland Aviation Administration, Hanover, Maryland

Oregon Department of Transportation, Salem, Oregon

Oregon Tri-Met, Salem, Oregon

Oregon Aviation Administration, Salem, Oregon

New York State Department of Transportation, Albany, New York

Port Authority New York and New Jersey, Manhattan, New York

Metropolitan Transit Authority, Manhattan, New York

Department of Transportation and Development, Baton Rouge, Louisiana

Louis Armstrong New Orleans International Airport, New Orleans, Louisiana

Regional Transit Authority, New Orleans, Louisiana

Kansas Department of Transportation, Topeka, Kansas

Contact through DBE Liaisons for data call:

Department of Transportation, Washington

Department of Transportation, Utah

Department of Transportation, Florida

Department of Transportation, California

Department of Transportation, Illinois

Department of Transportation, Wisconsin

Department of Transportation, Pennsylvania

Department of Transportation, Texas

State Highway and Transportation Department, Arkansas
33

Exhibit C. Major Contributors to This Report

EXHIBIT C. MAJOR CONTRIBUTORS TO THIS REPORT

Name Title

Terrence Letko Program Director

Anthony Wysocki Program Director

Ann Wright Project Manager

Jill Cottonaro Senior Analyst

Meredith Howell Analyst

Patti Lehman Auditor

Christina Lee Writer-Editor

Nick Coates Legal Counsel

Petra Swartzlander Senior Statistician

Megha Joshipura Statistician
34

Appendix. Agency Comments

APPENDIX. AGENCY COMMENTS

THE DEPUTY SECRETARY OF TRANSPORTATION

WASHINGTON, D.C. 20590

March 18, 2013

MEMORANDUM TO: Calvin L. Scovel III

Inspector General

FROM: John D. Porcari

Deputy Secretary

SUBJECT: Office of Inspector General Draft Report on the 

Department’s Disadvantaged Business Enterprise Program

The Disadvantaged Business Enterprise (DBE) Program Serves a Vital Need

The DBE program was designed as a vehicle to combat discrimination and its continuing effects 

by providing opportunities for small businesses owned and controlled by socially and 

economically disadvantaged individuals to fairly compete for federally-assisted state and local 

transportation-related contracts. Within the Department, under the leadership of the Secretary and 

the Deputy Secretary, three entities in the Office of the Secretary (OST) – the Office of General 

Counsel (OGC), the Office of Civil Rights (OCR), and the Office of Small and Disadvantaged 

Business Utilization (OSDBU) -- provide leadership and direction to the three primary DOT 

operating administrations – the Federal Highway Administration (FHWA), the Federal Transit 

Administration (FTA), and the Federal Aviation Administration (FAA) -- involved in overseeing 

administration of the DBE program by state and local entities that are the recipients of federal 

funding. One primary measure used to assess the extent to which the program objective has been 

achieved is the proportion of federally-assisted contract funding awarded to DBEs. In fiscal year 

2011, DOT grant and formula funds resulted in over $41.6 billion in contracting and 

subcontracting opportunities. Thanks to the DBE program, small and disadvantaged businesses 

were able to successfully compete for contracting valued at more than $4.4 billion, exceeding the 

10 percent national aspirational goal for total DOT assisted contracting.

This Administration has striven to ensure that the DBE program effectively fulfills its statutory 

mandate. In 2011, the Department made substantial changes to the DBE program to improve 

program administration. Specific changes increased accountability for recipients with respect to 

meeting overall goals, modified and updated certification requirements, expedited interstate 

certification, and added new provisions to foster small business participation. The Department 

increased the Personal Net Worth (PNW) limitation for DBE owners from $750,000, which was

set in 1989, to $1.32 million to account for the effect of inflation. The Department continues to
35

Appendix. Agency Comments

listen closely to stakeholders and maintains an ongoing dialogue intended to assure the continued 

effectiveness of the program. This includes addressing a number of technical and program 

administration issues in a pending Notice of Proposed Rulemaking that was issued within the last 

few months. 

Comprehensive Guidance and Training are Available for the DBE Program

The primary source of comprehensive guidance for the DBE program is 49 CFR Part 26. The 

regulation covers all aspects of program administration and is revised and updated as necessary to 

strengthen, clarify, and improve program implementation based on experience acquired over the 

years and input sought from the program’s many stakeholders. The rules are regularly 

supplemented with official guidance in the form of questions and answers (Q&As) that address 

practical application of the rules to real world situations and other issues raised by practitioners in 

the field. The most recent revision to the rule published on January 28, 2011, resulted from a 

series of roundtable discussions with stakeholders. Those discussions also led to the issuance of 

additional Q&As. In September 2012, the Department issued a Notice of Proposed Rulemaking 

that proposes further refinements in multiple areas, including certification related requirements 

and performance measures. The Department will continue to engage in similar discussions with 

stakeholders as one of many vehicles for identifying areas where additional guidance may be 

appropriate. 

Since the DBE program rule was substantially revised in 1999 to respond to constitutional 

standards set by the courts, the DBE work group lead by the OGC, with representatives from 

OCR, OSDBU, FHWA, FTA, and FAA, has developed, and continues to develop, additional 

guidance as needed. There is a formal process within DOT to construct, review and approve this 

supplemental guidance before it is published on the OSDBU DBE website. The DBE work group 

coordinates the review of proposed Q&A guidance to ensure that it is consistent with applicable 

statutes and regulations before the final version is submitted to the General Counsel. 

Our analysis of this OIG draft report indicates that its findings with regard to the adequacy of 

departmental guidance are based primarily on the opinion of a handful of state officials, without 

apparent detailed causal analysis linking guidance and programmatic issues. While these opinions 

are useful indicators of user community perceptions, they are not necessarily dispositive evidence 

of specific deficiencies. However in response to the issues discussed in the OIG report the 

Department will continue to review existing guidance and program implementation to determine 

whether there are useful and cost effective means to make further improvements.

The Department recognizes that effective training is critical to the success of the DBE program. 

Most of that training is conducted by the operating administrations responsible for ensuring 

compliance with DBE program requirements and is often appropriately tailored to respond to the 

specific needs of their respective recipients. The training provided is an important tool to help 

ensure guidance is clear and well understood, and facilitates consistency among recipients in the 

administration of the program.
36

Appendix. Agency Comments

DOT Committed to Existing DBE Program Management Approach

The established OST management structure provides the leadership and oversight at the 

departmental level necessary to assist the operating administrations and their recipients in 

meeting the stated objectives of the DBE program delineated at 49 CFR § 26.1. However, we 

recognize that continued success for the DBE program requires thoughtful innovation, clarity, and 

good communication, and we are taking the steps necessary to achieve these objectives.

The Department has long been committed to a collaborative approach that makes the best use of 

limited resources and assigns those with the greatest expertise to address key areas of the 

program. Thus, individuals from the OSDBU focus on aspects of the program supporting DBE 

development of business acumen. OGC provides leadership in the development of national DBE 

program policy and in the provision of regulatory guidance. OCR, with its expertise in 

investigations and compliance, focuses on certification appeals and internal oversight. This type 

of structure enables the Department to avoid the necessity of hiring additional specialized staff 

that could be required under alternative management approaches. In addition, the Secretary has 

created a high-level DBE Task Force headed by my office to emphasize the importance of the 

program and to facilitate greater collaboration, communication, and accountability among the 

various DOT components responsible for discrete aspects of DBE program implementation and 

oversight.

Moving forward, the Department intends to reinforce the management structure for the DBE 

program by issuing a departmental order for the program clarifying that the Secretary and Deputy 

Secretary have overall accountability and decision making responsibility for the DBE program. 

Further, the order will clarify the roles and responsibilities of each of the OST offices with 

management responsibility for the DBE program and the operating administrations. 

 

Recommendations and Responses

Recommendation 1: Develop comprehensive guidance and best practices for DBE program 

implementation by involving DBE stakeholders from all levels. The guidance should provide 

direction for conducting certification processes, certification reviews, and on-site project reviews. 

Response: Concur in part. The Department is committed to providing sufficient guidance to 

ensure grantees implement the DBE program consistent with regulatory requirements. The 

primary source of comprehensive guidance for the DBE program is 49 CFR 26, as updated 

through the rulemaking process. As stated above, the regulation is the definitive source of 

guidance for the DBE program including Certification Standards in Subpart D and Certification 

Procedures in Subpart E. Based on continuing experience with the regulation, and input received 

from various sources, the Department will continue to update the regulation to ensure its guidance 

for recipients on DBE requirements is comprehensive and up-to-date. The updates to the CFR are 

intended to build upon guidance and incorporate best practices in the specific requirements and in 

the preamble to each rule.
37

Appendix. Agency Comments

The Department also maintains useful supplemental guidance in the form of Questions and 

Answers (Q&A’s) on the OSDBU DBE website to assist recipients and contractors in their efforts 

to comply with the Department’s DBE requirements. As described above, there is a formal 

process within DOT to construct, review and approve this supplemental guidance before it is 

published. The Department is continuing to develop guidance in the form of additional Questions 

and Answers (Q&As) that will assist recipients in understanding and applying the DBE program 

rules, particularly with respect to the new rules that took effect in 2011, such as the rule 

establishing a streamlined process for obtaining interstate certification, and other certification and 

oversight issues including those identified in the OIG report. 

Finally, the Department seeks to build upon best practices through enhanced certification training. 

On February 15, 2013, DOT initiated a new training program that addresses all elements of the 

certification process, including areas specifically mentioned in the OIG report, like evaluating 

personal net worth information, conducting on-site certification reviews, detecting and preventing 

fraud, and identifying best practices. This training helps to ensure guidance is clear and well 

understood to assist recipients in the proper application of certification requirements. The process 

used to develop this training included input from certifying entities in all 50 states and the District 

of Columbia and has been reviewed by OST and the operating administrations. The training will 

be delivered on-line and in-person. A refresher course, advanced training, and webinars are 

planned for the future. To date, 168 individuals are taking the online training, representing 40 

states, the District of Columbia, and Puerto Rico. In addition, FTA has posted on its website 

training videos on basic DBE program requirements for those new to the program. We are 

confident that the totality of existing guidance provided by the Department addresses the need 

identified by the OIG in its report and request this recommendation be closed.

Recommendation 2: Formally assign one Department office the responsibility and 

accountability for integrating and managing the DBE program. 

Response: Concur. The Department will improve clarity and understanding of roles and 

responsibilities by issuing a departmental order for the program by March 1, 2014. This order will 

expressly state that the Secretary and Deputy Secretary maintain overall accountability and 

decision making responsibility for the DBE program. Further the directive will specify the roles, 

relationships and functions among the OST offices leading this program and the operating 

administrations that are overseeing its implementation by recipients. The order will be structured 

to recognize and build upon the synergies of the existing approach to program management. 

Recommendation 3: Develop program performance measures to regularly assess the DBE 

program and evaluate whether it is achieving its objectives. 

Response: Concur. Performance measures have been in place for some time that address the 

overall extent to which state goals are met. For example, the statutory 10 percent aspirational goal 

at the national level is the quintessential performance measure for the DBE program. Overall, the 

Department seeks to make use of the best available data to provide information on the extent to 

which the program is achieving its goal of providing a level playing field on which DBEs can 

complete fairly for DOT-assisted contracts. These measures were critiqued by the 
38

Appendix. Agency Comments

Government Accountability Office (GAO) in 2011, and the Department, in its September 2012 

Notice of Proposed Rulemaking (NPRM), proposed modifications to the data collection that may 

address the issues raised by the GAO and improve performance measures for the program. As the 

subject of ongoing rulemaking activity, the Department is working through this issue, with a goal 

of issuing a final rule once our review is complete. The Department intends to identify, by March 

1, 2014, other appropriate performance measures to gauge the overall effectiveness of the DBE 

program recognizing the objectives set out in the rule. 

Recommendation 4: Establish a centralized Departmental data system for collecting and 

tracking DBE commitment and award information and require that the Operating Administrations 

implement procedures to ensure that recipients are accurately reporting DBE award and other 

financial information. 

Response: Concur in Part. Each operating administration currently maintains information 

relating to its implementation of the program to determine the extent to which recipients are 

achieving the goals established in each state. Since the establishment of the DBE Task Force, the 

operating administrations report monthly to the OSDBU on DBE participation data, enabling the 

Department to gauge its performance in meeting the national, aspirational DBE participation goal. 

Thus, the tracking and centralization of that data is already underway and the ongoing NPRM 

contains efforts to further refine and improve that data. I intend to direct the DBE Task Force to 

review existing data collection systems within the Department to determine whether they may be 

used to track DBE data. As part of this review, the task force will assess whether operating

administrations have adequate systems in place to reasonably assure the accuracy of the data 

reported, and whether additional guidance is needed in this regard. We anticipate completing this 

action by March 1, 2014.

Recommendation 5: Maintain the Department’s DBE Web site to ensure it contains current 

information and includes accurate DBE program contact information.

Response: Concur. OSDBU’s website hosts a DBE webpage that includes program background 

information, official departmental guidance; and US DOT and state DOTs contact information. 

OSDBU will ensure the DBE webpage is up-to-date and organized in a user friendly manner by 

August 30, 2013, and review the information subsequently every 6 months to ensure it remains up 

to date.

Recommendation 6: Develop an oversight and compliance plan with the Operating 

Administrations to identify specific, required oversight processes and reviews and ensure that a 

sufficient number of reviews are performed based on assessed risk.

Response: Concur in part. It is incumbent on each of the operating administrations to determine 

the appropriate specific oversight activities commensurate with their implementation of the DBE 

program. It is important that the operating administrations maintain sufficient flexibility in 

program oversight to focus their limited resources on DBE program issues that each state has 

identified as posing the greatest risk. For example, in any given year, DBE program concerns in 

Alabama may differ significantly from program concerns in Minnesota. Any departmentwide 

requirements for oversight must carefully balance the need for flexibility by operating 
39

Appendix. Agency Comments

administrations with the potential benefit to be achieved through greater conformity. However, 

we recognize the potential utility of examining the oversight activities performed by each of the 

operating administrations, the type of risk assessment used, and issues surrounding 

implementation to ensure that actions are consistent, effective and coordinated. The DBE task 

force will seek to identify oversight minimum requirements, best practices, and document specific 

actions needed to ensure each operating administration is providing adequate oversight. It will 

also determine whether DOCR needs to enhance or modify its practices in this regard. We 

anticipate completing this action by March 1, 2014.

Recommendation 7: Require that recipients track and regularly report utilization data to the 

Operating Administrations, including each DBE’s number of years in the program and the 

number of DBE subcontracts or prime contracts received since first becoming certified.

Response: Concur in part. The Department is in the process of updating its data gathering 

requirements for recipients, as described in the pending NPRM. The proposed changes in the 

NPRM offer the potential to improve the Department’s awareness of DBE achievements. 

Tracking the number of years an entity is in the program and the number of subcontracts they 

receive as a result of their participation is not a part of the NPRM. Nonetheless, the Department 

will consider including the recommended action as a proposal in a subsequent rulemaking and 

will make a determination prior to December 31, 2014, as to whether to move forward with this 

proposal.

Recommendation 8: Require that the operating administrations work with recipients to develop 

ways to improve utilization rates and require the establishment of Business Development 

Programs for firms that have not received DBE work for several years.

Response: Concur in part. Although operating administrations work closely with recipients to 

increase DBE participation in contract opportunities at the state level by providing training, 

outreach events, and webinars, not all recipients have been able to meet their DBE goals. 

Certainly, the Department would like as many DBEs as possible to benefit from the program by 

providing capable and reliable services to the states. We note that some of the operating 

administrations have been innovative in their attempts to improve the effectiveness of the DBE 

program. For example, FHWA has a DBE Supportive Services (DBE/SS) Program in which 

funds are apportioned to state departments of transportation to provide training, assistance, and 

services to certified DBE firms for the purpose of improving their capacity and business acumen. 

While we are not at the point where we can agree to require the establishment of business 

development programs, we agree that it is important to ensure there is a sharing of best practices 

in effectively implementing the DBE program across the Department. I intend to task the DBE 

working group to determine whether this is an activity that warrants attention, and if so, whether 

there are approaches available to encourage recipients to expand utilization to cast the widest 

possible net with regard to the DBE program that would be appropriately implemented from a 

departmental perspective. We intend to make a determination as to whether and how to proceed 

in this area by December 31, 2014.