The organizations that certify DBEs may include  the state DOT, local airport authorities, state and local transit agencies,  and city and county governments. FHWA’s Oversight of State DOT DBE Programs

		FHWA Uses a Risk-Based Approach to Oversee State DOT DBE Programs and Has Identified the DBE Program as a Risk Area

Federal agencies should perform a number of oversight activities to  safeguard against fraud and to ensure that federal programs meet their  objectives and comply with federal regulations. Division office risk assessments. FHWA Has Recently Increased Its Oversight to Help Ensure State DOTs’ Compliance with DBE Regulations

In response to the current administration’s focus on small business  programs (such as the DBE program), U.S. DOT’s interest in increasing  accountability in DBE program implementation, and FHWA’s continued  designation of the DBE program as an agencywide high risk area, FHWA  and U.S. FHWA hired a full-time National DBE  Program Manager in 2010 to help oversee state DOTs’  implementation of the DBE program. FHWA Faces Fundamental Problems in Its Use of DBE Data

FHWA faces two fundamental problems with the DBE data it collects from  state DOTs to assess whether state DOTs have met their DBE goals. Second, the proxy data that FHWA uses to measure  whether goals were met—data on committed spending on DBEs—may or  may not be a reasonable proxy of state DOTs’ actual spending on DBEs. According to U.S. Based on  the committed spending data in the Uniform Reports, about half of the  state DOTs met their DBE goals each fiscal year from fiscal years 2006  through 2010. FHWA has not conducted a nationwide analysis comparing committed  spending to actual spending to know whether it is a reasonable proxy for  actual spending. Without a nationwide analysis comparing committed spending to actual  spending, FHWA cannot be certain whether committed spending reflects  actual spending for DBEs in all state DOTs. Therefore, FHWA does not  know whether its data on committed spending can be relied on to  evaluate state DOTs’ progress in meeting goals; hold state DOTs  accountable for meeting their DBE goals, as emphasized in U.S. DOT’s  update to its regulations; make program decisions based on whether  state DOTs are meeting their DBE goals on an annual basis; or provide  assistance to state DOTs that are not meeting their goals. However, FHWA’s reporting of data on committed spending to describe  progress towards DBE goals does not include statements about potential  limitations of the data—namely that the data on committed spending on  DBEs might not reflect actual spending. FHWA Oversight of Certifying Organizations

U.S. For example, FHWA is responsible for  overseeing the certification activities of state DOTs—which primarily  certify DBEs that work on highway projects—because these state DOTs  receive federal-aid highway funds. U.S. DOT’s  working group that considers various improvements to the administration  of the DBE program provides FHWA with an opportunity to identify  options it can use to evaluate whether the committed spending data it  uses to determine if state DOTs have met their DBE goals is a  reasonable proxy for actual spending and whether this data can be relied  on to measure progress towards goals. 2. In the information it provides to decision makers, including Congress,  include statements about potential limitations of the data it uses to  determine state DOTs’ progress towards goals. DOT agreed to consider our  modified recommendation. Specifically, the objectives of this report were to  examine how FHWA (1) oversees state DOTs to ensure that they are  implementing their DBE programs in accordance with applicable  regulations, (2) assesses whether state DOTs have met their DBE goals,  and (3) oversees organizations that certify DBEs that work on federal-aid  highway projects. To determine how FHWA assesses whether state DOTs have met their  DBE goals, we reviewed and analyzed FHWA’s national data on state  DOTs’ committed and actual spending and how FHWA determined  whether state DOTs achieved their DBE goals over a 5-year period (fiscal  years 2006 through 2010) for state DOTs in all 50 states, the District of  Columbia, and Puerto Rico. Finally, to determine how FHWA oversees organizations that certify  DBEs, we obtained information or interviewed officials from U.S. DOT’s  and FHWA’s Offices of Civil Rights, and the Federal Aviation  Administration’s (FAA) and Federal Transit Administration’s (FTA) Offices  of Civil Rights. DBE Goals Based on Committed Spending Data from

	Uniform Reports, Fiscal Years 2006 through 2010

The U.S. Department of Transportation’s (DOT) Disadvantaged Business  Enterprise (DBE) regulations require that each state DOT set an annual  goal for DBE participation in federal-aid highway projects, expressed as  the percent of federal-aid highway funds it will expect to spend on DBEs  for contracts that are awarded or committed in a fiscal year.
Why GAO Did This Study

The U.S. Department of Transportation's (DOT) Disadvantaged Business Enterprise (DBE) program aims to increase the participation of small businesses owned and controlled by socially and economically disadvantaged individuals--known as DBEs--in highway contracting. In 2009, U.S. DOT awarded, through state and local governments, about $4 billion to DBEs nationwide. State DOTs are required to establish DBE programs and implement them on federal-aid highway projects. This report responds to a congressional request to examine U.S. DOT's Federal Highway Administration's (FHWA) oversight of state DOT DBE programs. It examines how FHWA (1) oversees state DOTs to ensure they implement their DBE programs according to applicable regulations, (2) assesses whether state DOTs have met their DBE goals, and (3) oversees organizations that certify businesses as DBEs. GAO analyzed FHWA data; reviewed relevant laws and regulations; and interviewed FHWA, and state DOT officials from five states, selected to obtain variation in, among other things, the methods state DOTs use to meet DBE goals..

What GAO Found

FHWA uses a risk-based approach, which includes conducting risk assessments and day-to-day monitoring, to oversee DBE programs that state DOTs implement. In response to FHWA's designation of the DBE program as an agencywide high-risk area from 2007 through 2010 and other reasons, FHWA recently increased its oversight of state DOT DBE programs. For example, in 2010, FHWA hired a full-time DBE Program Manager and required FHWA division offices in each state to explain to FHWA headquarters how they oversee their state DOTs' DBE programs. While these steps could help FHWA ensure state DOT compliance with regulations, it is too early to assess their effectiveness. Although FHWA has increased its oversight, FHWA faces two fundamental problems with the DBE data it collects from state DOTs to assess whether state DOTs have met their DBE goals. First, the data that FHWA collects from state DOTs on actual spending on DBEs can cover multiple fiscal years and cannot be meaningfully compared to state DOTs' DBE goals, which reflect the percent of federal-aid highway funds state DOTs will expect to spend on DBEs for one fiscal year. Thus, FHWA may not be able to effectively track whether state DOTs have met their goals as required by federal internal control standards. Second, data on committed spending on DBEs--the proxy measure that FHWA uses instead to measure whether goals were met--shows that about half of the state DOTs met their DBE goals each fiscal year from fiscal years 2006 through 2010; however, FHWA has not conducted a nationwide analysis comparing committed to actual spending to know whether committed spending reflects actual spending for DBEs in all state DOTs. Thus, FHWA does not know whether its data on committed spending can be relied on to evaluate a state DOT's progress in meeting DBE goals. Ensuring that committed spending data are a reasonable proxy is important because state DOTs and FHWA make program decisions based on this information. U.S. DOT's working group that considers various improvements to the administration of the DBE program could provide FHWA with an opportunity to identify options it can use to evaluate its proxy data. Also, while FHWA uses committed spending data to facilitate timely reporting of whether state DOTs have met their goals, FHWA's reporting of data on committed spending to describe progress towards DBE goals does not include statements about potential limitations of the data--namely that the data on committed spending on DBEs might not reflect actual spending. FHWA oversees the certification activities of state DOTs, which certify that DBEs primarily working on federal-aid highway projects meet federal eligibility requirements. Other U.S. DOT administrations--the Federal Aviation Administration and the Federal Transit Administration--oversee other certifying organizations, such as local airport authorities and state transit agencies, that certify DBEs for work primarily in those areas; such DBEs might also have the skills required (e.g., paving) to work on highway projects. FHWA divisions use their discretion to determine how much and how often to oversee state DOT DBE certification activities.

What GAO Recommends

GAO recommends that FHWA (1) evaluate its committed spending data to determine if it is a reasonable proxy and (2) include statements in information provided to decision makers about potential data limitations. U.S. DOT provided comments on the draft recommendations; GAO clarified the recommendations based on U.S. DOT's comments. U.S. DOT agreed to consider the recommendations.