An Audit Report on the Historically Underutilized Business Program at the Texas Building and Procurement Commission
August 2006
Report Number 06-056
Overall Conclusion
The Texas Building and Procurement Commission (Commission) generally administers the Historically Underutilized Business (HUB) program in accordance with statutory requirements. However, it should improve its administration of the HUB program by doing the following:
- The Commission should improve the assistance it provides to HUBs regarding state procurement procedures and the availability of state contracts. Sixty percent of the HUBs and 82 percent of the state agencies and higher education institutions the State Auditor's Office surveyed reported overall satisfaction with the HUB program.
However, only 44 percent of the HUBs surveyed rated the assistance the Commission provides regarding state procurement procedures as satisfactory or better than satisfactory. In addition, only 45 percent of the HUBs surveyed rated the assistance the Commission provides regarding the availability of state contracts as satisfactory or better than satisfactory.
- The Commission should monitor third-party entities that review businesses' eligibility for HUB certification to ensure they meet and maintain the Commission's HUB standards. Auditors reviewed files for a random sample of 70 of the 1,509 HUBs that were determined to be eligible for HUB certification by three third-party entities since September 2004. Thirteen (19 percent) of the 70 files did not have complete documentation required to support HUB certification.
The Commission has agreements with seven third-party entities to review businesses' eligibility for HUB certification. These third-party entities do not apply the same standards the Commission applies when they determine that businesses are eligible for HUB certification and do not always retain complete support for their decisions regarding HUB certification eligibility. As a result, the Commission does not have assurances that the businesses identified by third parties as eligible for HUB certification meet the criteria for this certification.
- The Commission should ensure that it certifies only qualified HUBs. For 7 (10 percent) of the 71 certified HUBs we tested, the Commission did not have complete documentation required to qualify these businesses for HUB certification. Examples of missing supporting documentation included documentation required to substantiate ethnicity, citizenship, or Texas residency; ownership or interest and participation in the business's control, operation, and management; or principal place of business.
The Commission issues semi-annual and annual HUB reports that summarize statewide information regarding the HUB program. In its fiscal year 2004 and 2005 annual HUB reports, the Commission over-reported the number of certified HUBs by as much as 10.5 percent because it counted some HUBs more than once. The Commission reported there were 15,051 certified HUBs in its annual HUB report for fiscal year 2005, but data provided by the Commission supported that there were only 13,626 unique certified HUBs.
To prepare its semi-annual and annual HUB reports, the Commission also relies on information that agencies and higher education institutions self-report regarding the amount of expenditures made to HUBs. Prior State Auditor's Office audits have found that this information was not always accurate. For example, our last two audits at 21 state agencies and higher education institutions determined that 17 (81 percent) of these entities did not fully comply with HUB reporting requirements.
In fiscal year 2005, agencies and higher education institutions self-reported that they paid approximately $1.6 billion to 4,833 HUBs, which represented 13.9 percent of the approximately $11.3 billion in total state expenditures for fiscal year 2005.
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