In 1979, the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP) issued Policy Letter No. 79-1 to guide federal agencies in implementing Public Law 95-507. The letter provides uniform policy guidance to federal agencies regarding the organization and functions of OSDBUs. In September 1994, the President signed Executive Order No. 12928, entitled “Promoting Procurement With Small Businesses Owned and Controlled by Socially and Economically Disadvantaged Individuals, Historically Black Colleges and Universities, and Minority Institutions.” The order mandates that, unless prohibited by law, the OSDBU director should be responsible to and report directly to the agency head or the agency’s deputy as required by the Small Business Act. The order also mandates that federal agencies comply with the requirements of OFPP’s policy letter, unless prohibited by law. Of the eight federal agencies we reviewed, only DLA’s and DOE’s OSDBU heads do not report to the appropriate agency official. The conference report accompanying Public Law 95-507 states that each federal agency having procurement powers must establish an Office of Small Business Utilization to be directed by an employee of that agency, who would report directly to the head of the agency or the agency’s second-ranking official. Also, OFPP’s policy letter defines the agency’s deputy as the second-ranking official within the agency. Furthermore, in a June 1994 memorandum to federal agencies, the OMB Director defines the agency’s deputy as the second-in-command. The OSDBU directors in the Departments of the Army, the Navy, and the Air Force; NASA; and GSA report to either the agency head or the agency’s deputy. The Army OSDBU director reports to the Secretary of the Army (the agency head), while the Navy and Air Force OSDBU directors report to the Under Secretary of the Air Force and the Under Secretary of the Navy, respectively (the agencies’ second-ranking officials). The NASA OSDBU director reports to the NASA Administrator (the agency head). At GSA, the OSDBU director reports directly to the GSA Deputy Administrator (the agency’s second-in-command). In 1988, Public Law 100-656 amended the Small Business Act, allowing the Secretary of Defense to designate the official to whom the OSDBU director should report. Currently, DOD’s OSDBU director reports to the Under Secretary of Defense for Acquisition and Technology, who is the Secretary’s designee. The OSDBU directors at DLA and DOE report to officials other than the agency head or agency’s deputy. While each agency explained its rationale, we do not believe that in either agency the OSDBU director reports to the appropriate official, as defined by Public Law 95-507. DLA’s OSDBU director reports to the agency’s Deputy Director for Acquisition. As shown in figure 1, the Deputy Director for Acquisition is neither the agency head nor the agency’s deputy. According to DLA’s Deputy General Counsel (Acquisition), the agency’s rationale for the above reporting arrangement is that the Deputy Director for Acquisition is considered to be the agency’s deputy for all matters relating to acquisition. We do not agree with DLA’s rationale. In our view and as shown by the agency’s organizational chart, the Principal Deputy Director is the agency’s second-in-command. In addition, the existing reporting arrangement at DLA could potentially impair the achievement of the act’s objectives. As the House Committee on Small Business observed in a 1987 report, having the OSDBU director report to an individual who has responsibility for the functions that the director is intended to monitor (procurement) could lessen the director’s effectiveness. DLA officials neither agreed nor disagreed with our position that the OSDBU’s reporting level was not in compliance with Public Law 95-507. However, in March 1995, on the basis of questions raised during our review, DLA’s Deputy General Counsel (Acquisition) said that DLA will take steps to reorganize so that the OSDBU director reports to either the agency head or the agency’s deputy. As shown in figure 2, the head of Energy’s OSDBU, whose title is Deputy Director, reports to the Director of the Office of Economic Impact and Diversity. The Director reports directly to the Secretary of Energy but is neither the agency head nor the agency’s second-in-command. Figure 2 reflects DOE’s January 1995 reorganization. Prior to the reorganization, the title of the head of the OSDBU was Director, and that official reported to the Director of Economic Impact and Diversity. In response to our inquiry concerning the rationale for that arrangement, DOE said that the Department of Energy Organization Act (42 U.S.C. 7253) gives the Secretary broad authority to organize the Department and that Public Law 95-507 was not intended to supersede or amend the Organization Act. In response to a congressional request, in 1993 OMB surveyed federal agencies to determine the organizational reporting levels of their OSDBU directors. The OMB survey included four of the agencies we reviewed: DOD, DOE, GSA, and NASA. According to the OFPP Deputy Administrator for Procurement Law and Legislation, DOE was not in compliance with the statute because the OSDBU director did not report to the agency head or the agency’s deputy. In a June 9, 1994, memorandum, OMB’s Director emphasized that federal agencies must comply with the law and policy regarding the OSDBU’s organizational reporting level. Furthermore, in a 1987 report, we stated that DOE’s rationale based on the Organization Act does not give the Secretary the authority to alter or abridge the requirements of the Small Business Act. We recommended that the Secretary of Energy require the head of the OSDBU to be responsible only to, and report directly to, the Secretary or Deputy Secretary of Energy. DOE officials neither agreed nor disagreed with our position that the OSDBU’s reporting level was not in compliance with Public Law 95-507. However, in March 1995, DOE officials—including the Director, Office of Economic Impact and Diversity, and the Assistant General Counsel for General Law—told us that the agency recognizes that it must comply with Executive Order 12928 (which mandates that, unless prohibited by law, the OSDBU director should be responsible to and report directly to the agency head or the agency’s deputy). DOE officials told us that they are currently developing a reorganization plan. DOE’s Assistant General Counsel for General Law said that it is uncertain when or how the reorganization will be accomplished because of a need to reconcile the responsibilities of the OSDBU with DOE’s statutorily mandated Office of Minority Economic Impact. All eight OSDBUs we examined conduct activities consistent with the requirements of Public Law 95-507 and OFPP’s Policy Letter 79-1 for assisting small and disadvantaged businesses in obtaining federal contracts. These activities include (1) developing the agency’s small business contracting and subcontracting goals, (2) sponsoring and/or participating in small business outreach efforts, (3) serving as an interagency liaison for procurement activities relating to small businesses and small disadvantaged businesses, and (4) supervising and training employees involved with the agency’s small business activities. Officials at several OSDBUs also cited examples of special initiatives undertaken to help meet their agency’s contracting goals. As noted above, the Energy OSDBU head reports to the Director of the Office of Economic Impact and Diversity. Because the Diversity Office has broad responsibility for formulating and monitoring the implementation of policies for the agency’s small business, disadvantaged business, and women-owned business programs, many activities are conducted jointly with the OSDBU. For simplicity, in the following sections, we characterize these as the OSDBU’s activities. The Small Business Act and OFPP’s Policy Letter require OSDBU directors to consult with the Small Business Administration (SBA) on establishing contracting goals for small and small disadvantaged businesses. At GSA and NASA, the OSDBU directors and SBA establish goals setting out the percentage of prime contracts and subcontracts that will be awarded to small businesses, small disadvantaged businesses, and women-owned businesses. For DOD, the OSDBU director negotiates DOD-wide prime contracting and subcontracting goals, which incorporate the goals for the component agencies such as DLA and the Departments of the Army, Navy, and Air Force. For DOE, the Office of Economic Impact and Diversity has assumed the responsibility for negotiating the agency’s contracting and subcontracting goals. The process of setting goals begins with OSDBU representatives providing SBA officials with estimates of the total dollar amounts of (1) all prime contracts the agencies anticipate awarding during the forthcoming fiscal year and (2) subcontracts to be awarded by the agencies’ prime contractors. The agencies express the goals in terms of the percentages of the total contract and subcontract dollars to be awarded to small and small disadvantaged businesses. In formulating goals and tracking the agencies’ progress or achievement toward the goals, the OSDBUs also look at the number of contracts awarded and their dollar values. OFPP’s policy letter requires OSDBUs to conduct outreach efforts to provide information to small and disadvantaged businesses. For example, OSDBU’s outreach may consist of sponsoring or participating in seminars or conferences on contracting opportunities and providing materials describing how to do business with the agencies. OSDBU officials at each of the eight agencies told us that they had sponsored or cosponsored conferences or seminars for small businesses during fiscal years 1993 and 1994.