Summary of Report 03-018

February 2003

Report Number 03-018

Nine of the ten entities audited did not fully comply with historically underutilized business (HUB) requirements. Furthermore, three of the ten entities audited did not make a "good-faith effort" to comply with HUB requirements overall (see text box for good-faith effort criteria). The three entities are the Department of Protective and Regulatory Services, the State Board for Educator Certification, and Southwest Texas State University. The two entities at which we conducted follow-up work, the Health and Human Services Commission (HHSC) and the Texas Education Agency (TEA), are still not fully complying with all the requirements. The Texas Education Agency did not make a good-faith effort to comply. (See Table 1 for Summary of Entities' Noncompliance.)

The lack of compliance with HUB requirements may prevent qualified HUBs from competing for the state's business. Although the agencies had significant noncompliance with the requirements, they did spend funds with HUB vendors (see Appendix 2). Notably, the Preservation Board complied with all of the requirements.

In most cases, there is a correlation between the fulfillment of the HUB coordinator's responsibilities (a component of outreach requirements) and the ability to make a good-faith effort to comply with HUB requirements. The entities that did not make a good-faith effort also did not comply with all of the HUB coordinator requirements.

• Entities Did Not Fully Comply with Outreach Requirements Intended to Increase Awareness of HUB Contracting Opportunities
  Seventy percent of the entities (7 of 10) did not fully comply with outreach requirements, which include holding HUB forums, implementing a mentor-protégé program, and fulfilling the HUB coordinator responsibilities.

• Entities Did Not Fully Comply with HUB Subcontracting Requirements
  Seventy percent of the entities audited (7 of 10) did not fully comply with subcontracting requirements. For example, the entities awarded contracts to contractors who did not advertise HUB subcontracting opportunities or notify at least three HUBs of the potential for subcontracted work.
  

• Several Entities Reported Inaccurate Information to the Texas Building and Procurement Commission
  Eighty percent of the entities (8 of 10) did not fully comply with reporting requirements. Consequently, there is a risk that the State does not have reliable information to evaluate the HUB program and to monitor state HUB participation goals. (For HUB program statistics, see Appendix 2.)

• Most Entities Complied with Planning Requirements
  Eighty percent of the entities (8 of 10) complied with planning requirements. Key requirements include developing a written plan for increasing HUB use, internal HUB policies and procedures, and a detailed report within the Legislative Appropriation Request identifying the entity's HUB activity.
  

• Areas of Noncompliance Remain at the Two Follow-Up Agencies
  In fiscal year 2001, the State Auditor's Office determined that HHSC and TEA did not make good-faith efforts to comply with the HUB requirements, as evidenced by their noncompliance with several areas of HUB requirements. (See An Audit Report on 19 Agencies' Compliance with Historically Underutilized Business Requirements, SAO Report No. 01-035, August 2001.)
  
  While both entities implemented some of the recommendations noted in the previous audit, material noncompliance in four categories remained at TEA. As a result, the State Auditor's Office determined that TEA still did not make a good-faith effort for fiscal year 2002 (see Appendix 3). HHSC had areas of noncompliance, but did make a good faith effort.
  

• Inconsistencies Exist in HUB Requirements and Guidelines
  Due to the Texas Building and Procurement Commission's (TBPC) misinterpretation of the Texas Government Code (Government Code), 60 percent of the entities audited (6 of the 10) accepted Statements of Intent from their contractors, allowing them to opt out of the HUB subcontracting process. Statements of Intent allow contractors to perform all the identified subcontracting work themselves instead of making an effort to subcontract with HUBs.
  
  

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