Highway Contracting:

Assessing Fraud and Abuse in FHwA's Disadvantaged Business Enterprise Program

RCED-89-26: Published: Nov 30, 1988. Publicly Released: Jan 5, 1989.

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Pursuant to a congressional request, GAO reviewed the Federal Highway Administration's (FHwA) Disadvantaged Business Enterprise (DBE) Program, focusing on the: (1) nature and extent of program fraud and abuse; (2) results of FHwA investigations of DBE fraud and abuse cases; and (3) approaches FHwA and states used to minimize fraud and abuse.

GAO found that: (1) FHwA established the DBE program to expand highway-related contracting opportunities for disadvantaged small businesses; (2) FHwA did not collect nationwide data relating to key program activities, disadvantaged business investigation results, contractor eligibility assessment and reassessment results, and program monitoring reviews; (3) contractor irregularities primarily involved ineligible businesses using inaccurate or misleading information to obtain contracts or eligible businesses engaging in questionable activities; (4) the Department of Transportation investigated 89 disadvantaged businesses in the program nationwide and resolved 53 cases administratively and 17 cases with legal action; (5) contractors in the resolved cases paid a total of over $1 million to federal and state governments; (6) New York and Pennsylvania investigated 90 additional disadvantaged businesses, resulting in 60 administratively resolved cases; (7) FHwA encouraged states to administratively resolve cases, citing the difficulty in getting cases prosecuted; (8) to minimize program fraud and abuse, most states initially assessed and annually reassessed contractors' eligibility, and FHwA monitored states' and contractors' compliance with program requirements; and (9) New York did not have a program for annually reassessing contractors' eligibility.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Transportation should direct the Administrator, FHwA, to expand its information system to annually obtain and compile pertinent summary information on the results of key program activities. The data could include the results of all investigations, certification and reassessment actions, and FHwA and states' monitoring reviews.

    Agency Affected: Department of Transportation

    Status: Closed - Not Implemented

    Comments: FHwA disagrees with this recommendation. FHwA believes that this expanded system would place a tremendous administrative burden (cost and personnel resources) on FHwA and the states. Jointly with the Inspector General, GAO reported its finding as an internal control weakness to the FHwA Administrator.

    Recommendation: The Secretary of Transportation should direct the Administrator, FHwA, to assist New York's Department of Transportation (DOT) in the development of a plan for annually reassessing the eligibility of certified businesses. Until the state agency can reduce the large number of certified businesses due reassessments and begin adhering to the required annual cycle, FHwA should require that the state give reassessment priority to examining the eligibility of businesses at the time they are actually awarded contracts.

    Agency Affected: Department of Transportation

    Status: Closed - Implemented

    Comments: FHwA helped New York DOT develop a more effective recertification program.

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