COMMITMENT • INTEGRITY • LEADERSHIP	View full PDF report View Selected Abbreviations
Disabled Veteran Business Enterprise Program The Departments of General Services and Veterans Affairs Have Failed to Maximize Participation and to Accurately Measure Program Success Report Number: 2018-114

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• Appendix A
• Appendix B
• Appendix C

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Appendix A

Scope and Methodology

The Joint Legislative Audit Committee (Audit Committee) directed the California State Auditor to review the DVBE program, including following up on issues identified in our February 2014 report. Specifically, the Audit Committee asked, among other things, whether DVBE contracts go to a small number of DVBE certified contractors and whether CalVet has sufficient resources to accomplish its statutory responsibilities. Table A lists the objectives that the Audit Committee approved and the methods we used to address them.

Table A
Audit Objectives and the Methods Used to Address Them

Audit Objective		Method
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed relevant laws, regulations, policies, and procedures.
2	Determine whether conditions identified in State Auditor Report 2013‑115, Disabled Veteran Business Enterprise Program: Meaningful Performance Standards and Better Guidance by the California Departments of General Services and Veterans Affairs Would Strengthen the Program (Report 2013‑115), persist at the California Department of Veterans Affairs (CalVet), the Department of General Services (General Services), the California Department of Transportation (Caltrans), and the California Department of Corrections and Rehabilitation (Corrections), and determine whether similar conditions exist at two additional entities by performing audit procedures similar to those used to address the scope and objectives for Report 2013‑115.	Interviewed staff and reviewed relevant documents from Caltrans, CalVet, Corrections, and General Services to understand actions taken to address recommendations from the 2014 report. Interviewed staff and reviewed relevant documents from DMV and Public Health to understand their processes related to areas of findings from the 2014 report. Reviewed five contracts each from Caltrans, Corrections, DMV, and Public Health to determine if these departments complied with DVBE participation requirements. Assessed the process that Caltrans, DMV, General Services, and Public Health have in place to verify DVBE firms’ certification status before submitting the DVBE activity report to General Services. Interviewed staff and reviewed documentation from CalVet and General Services related to their evaluation of the effectiveness of their respective department’s outreach efforts. Interviewed staff at CalVet, General Services, and selected awarding departments that did not meet their DVBE participation goals in at least one of three fiscal years (2014–15 through 2016–17) to understand the level of engagement CalVet had with underachieving departments. Interviewed staff and reviewed documentation related to CalVet’s work with underachieving departments. Interviewed staff and reviewed documents at General Services to determine whether it has issued any directives or guidance on how to report multiyear contracts on the DVBE activity report.
3	Obtain updated data on the DVBE program and report the same demographic information on the program as in Report 2013‑115. In addition, to the extent possible, report on the following:	Identified the relevant procurement information related to fiscal year 2017–18 purchase orders and contracts data for prime contractors using General Services’ Cal eProcure website. Determined that General Services’ Cal eProcure database does not capture some data, including information on bids and subcontractors. As a result, we focused our analysis of this information on the 30 DVBE firms that received the most money from state contracts (top 30 DVBE firms). For the top 30 DVBE firms, we reviewed the DVBE certification files to identify three‑year average gross revenue, the number of employees, disability ratings, and ownership data. We present various available data for the top 30 DVBE firms in Appendix C.
	a. The percentage of certified DVBEs that bid on state contracts in fiscal year 2017–18.
	b. The percentage of certified DVBEs that won state contracts in fiscal year 2017–18.
	c. The total value of contracts awarded to certified DVBEs in fiscal year 2017–18.
	d. The portion of contracts used to achieve the goals of the DVBE program that come from prime contractors and from subcontractors in fiscal year 2017–18.
	e. If each of the top 30 DVBEs is certified also as a small business or microbusiness.
	f.  The three‑year average gross revenue for each of the top 30 DVBEs.
	g. The number of employees for each of the top 30 DVBEs.
	h. The statistical distribution of disability ratings for all DVBEs and for the top 30 DVBEs.
	i.  The statistical distribution of DVBE ownership percentages for all DVBEs, the top 30 DVBEs, prime contractors, and subcontractors.
4	Determine whether DVBE contracts go to a small number of DVBE certified contractors, as noted in Report 2013‑115. Determine what actions General Services, CalVet, or participating departments may take to correct this condition.	Analyzed the data from General Services’ Cal eProcure website for prime contractors to identify the contract number and amounts awarded to all DVBE firms and to the top 30 DVBE firms. Interviewed staff at the six awarding departments to understand their perspectives on why a small number of DVBE contractors are receiving the majority of contract dollars and what actions they have taken to address this condition. Reviewed a total of 10 contracts that the six departments we visited awarded to 10 of the top 30 DVBE firms and determined that the chosen contract method did not unfairly limit participation opportunities for other DVBE firms.
5	Evaluate the effectiveness of General Services’ process for handling complaints and allegations of fraud or waste in the program and for protecting whistleblowers. Also, review the types and resolutions of complaints that General Services receives.	Interviewed staff and reviewed guidance and policies issued by General Services and the awarding departments to determine how each department handles complaints. Obtained, to the extent available, complaint logs from each of the six departments we reviewed to identify the frequency and type of complaints they received during fiscal years 2015–16 through 2017–18. Reviewed the case file for the only complaint received among the six departments during fiscal years 2015–16 through 2017–18 and determined whether the complaint was investigated appropriately.
6	Determine whether departments obtain sufficient assurance regarding the amounts paid to DVBE subcontractors, as noted in Report 2013‑115. To the extent possible, determine whether DVBE prime contractors contracting with General Services, CalVet, or other departments use non‑DVBE subcontractors and determine to what extent those departments have policies or practices to exclude payments from DVBE prime contractors to non‑DVBE subcontractors when calculating whether the departments met the DVBE participation goal. Determine what actions General Services, CalVet, or participating departments may take to monitor and correct this condition.	Interviewed staff at the six departments and reviewed departmental policies and procedures, and determined that although departments do not verify payments to DVBE subcontractors, this lack of verification does not affect their reporting of DVBE partcipation because state law requires awarding departments to report DVBE participation using contract award amounts and not payments. Interviewed staff at the six departments and reviewed appropriate documents, and determined that state law does not require DVBE prime contractors to report payment information about non‑DVBE subcontractors when calculating DVBE participation. Selected five to seven contracts that each of the six departments awarded during fiscal year 2017–18 and determined whether the total amounts and DVBE participation amounts listed on the contracts were accurately recorded in the respective department’s fiscal year 2017–18 tracking system. Recalculated each department’s fiscal year 2017–18 DVBE activity report using its tracking system to evaluate the accuracy of the DVBE participation amounts each department reported to General Services. Haphazardly selected 10 fiscal year 2017–18 contract files from each department and determined whether those contracts were included on the department’s fiscal year 2017–18 tracking system to determine whether the department accounted for all contracts.
7	Identify and evaluate the actions General Services took subsequent to Report 2013‑115 to correct or prevent issues identified in that audit at departments other than the five reviewed in Report 2013‑115.	Interviewed appropriate staff at General Services and reviewed relevant documentation and determined that General Services has taken reasonable steps to monitor other departments for findings similar to the ones we identified in our Report 2013‑115.
8	Evaluate the effectiveness of actions taken by General Services, CalVet, Caltrans, and Corrections in response to recommendations from Report 2013‑115.	See Audit Objective 2 regarding the work we performed to determine the effectiveness of the actions the departments took in response to recommendations from the 2014 report.
9	Determine whether the program addresses the special needs of specific populations of veterans.	Interviewed relevant staff at each awarding department. Determined that state law governing the DVBE program does not differentiate between specific populations of or the specific special needs of disabled veterans. Determined that the departments we reviewed do not treat certified DVBE firms differently.
10	Determine whether CalVet has sufficient resources to accomplish statutory responsibilities, especially regarding program outreach and development, and whether the distribution of funding and workload between General Services and CalVet is effective to accomplish program goals.	Interviewed staff and reviewed available documentation at General Services and CalVet. Assessed whether the statutory responsibilities assigned to these two departments are appropriate given their resources and expertise.
11	Review and assess any other issues that are significant to the audit.	Conducted telephone interviews with a selection of DVBE subcontractors about their experience working with prime contractors and awarding departments. Assessed DVBE subcontractors’ responses to our interview questions to identify any recurring issues.

Source: Analysis of the Audit Committee’s audit request number 2018‑114, as well as information and documentation identified in the column titled Method.

Assessment of Data Reliability

In performing this audit, we relied on electronic data we obtained from General Services’ Cal eProcure website to calculate the number and dollar amount of contracts and procurements awarded to DVBE firms. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of any computer‑processed information we use to support our findings, conclusions, or recommendations. We did not perform any assessment of these data because the supporting documentation is maintained by various state agencies, making accuracy or completeness testing impractical. As a result, we found that these data are of undetermined reliability for audit purposes. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations.

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Appendix B

Implementation of Recommendations From Our Previous Audit

In our February 2014 report, we evaluated, among other items, General Services’ and CalVet’s policies, procedures, and practices for administering and overseeing the DVBE program, assisting departments and agencies in reaching the program goals and fulfilling the intent of the program, and reporting on program performance. The report identified several shortcomings. For example, it found that the five departments we reviewed could not fully support their reported DVBE contracting activity. It also found that a sixth department—CalVet—needed to take a more active role in the DVBE program. The report included several recommendations to four of the six departments we reviewed. Table B shows these recommendations and whether the departments have addressed them. Three of the four departments have fully addressed our recommendations from the 2014 report. However, as we discuss earlier in this report, CalVet has not implemented any of the recommendations we made in our previous report.

Table B
Implementation Status of the Recommendations From Our 2014 Report

Awarding Department	Summary of Recommendation	Implemented?
Caltrans	Ensure that it applies the DVBE incentive to all applicable contracts and procurements	Yes
Caltrans	Verify the certification status of the DVBE firms on a sample basis for high‑value contracts	Yes
CalVet	Develop stronger measures to evaluate outreach efforts	No
CalVet	Help awarding departments meet DVBE participation goals and promote DVBE contracting opportunities	No
Corrections	Document policies and procedures for applying the DVBE the incentive to all applicable contracts and procurements	Yes
General Services	Extract a reliable copy of all of the State’s procurement data from BidSync	Yes
General Services	Verify the certification status of the DVBE firms on a sample basis for high‑value contracts	Yes

Source: Review of available documentation provided by the four departments.

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Appendix C

Selected Data Related to the 30 DVBE Firms That Received the Most Money From State Contracts

The Audit Committee asked us to identify certain data related to DVBE firms. Specifically, it asked for the percentage of certified DVBE firms that bid on state contracts in fiscal year 2017–18 and the percentage of certified DVBE firms that won state contracts in fiscal year 2017–18. The Audit Committee also asked that we identify specific information, such as the number of employees and average gross revenue, for the 30 DVBE firms that received the highest amounts in state contracts during fiscal year 2017–18. We used General Services’ data related to DVBE prime contractors—those DVBE firms that entered into contracts directly with awarding departments—to identify the top 30 DVBE firms. However, limitations in General Services’ data prevented us from identifying certain information that the Audit Committee requested. For example, General Services’ statewide contracting database does not capture bid information. Further, as we discuss earlier in this report, General Services’ statewide database does not identify DVBE subcontractors. As a result, we could not report data related to DVBE bids and DVBE subcontractors. Moreover, under state and federal law, a veteran’s disability rating constitutes private information. As a result, we do not present this information. However, our review found that the top 30 DVBE firms had a wide range of disability ratings, each of which met the legal requirement for participation in the program. Similarly, we do not present information related to average revenue for the top 30 DVBE firms because the revenue information provided to General Services constitutes confidential federal tax information. Table C shows the information related to the 30 DVBE firms that received the highest dollar amounts in state contracts as prime contractors during fiscal year 2017–18.

Table C
Top 30 DVBE Firms Participating in State Contracting as Prime Contractors During Fiscal Year 2017–18

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