Overview
While SDO did determine through its indirect spending validation process that 8 statewide contractors out of the 60 in our sample overstated their indirect SDP spending with SDP partners, it did not resolve these discrepancies. Specifically, of these 8 statewide contractors, SDO only reached out to 5 to attempt to resolve these discrepancies.
As a result of not resolving overstated indirect SDP spending, SDO’s Compliance Unit could not confirm indirect spending by SDP partners against the reported amounts by statewide contractors. If SDO does not confirm SDP indirect spending, then opportunities for diverse and small businesses in the Commonwealth may not be met and SDP-participating agencies may not be meeting spending benchmarks to which they agreed.
Authoritative Guidance
According to Section VI (Discrepancies) of SDO’s “Supplier Diversity Program (SDP) Indirect Spend Validation” policy,
If [an SDP] Partner reports a discrepancy more than 10% less than what was reported by the [statewide contractor], then an email should be sent to the [statewide contractor] to explain the difference. . . .
Send an email to the [statewide contractor] explaining the discrepancy and request to validate the original amount they reported.
Section 61(m) of Chapter 7 of the General Laws states,
The SDO shall establish and maintain a compliance unit for the purposes of ensuring certification, contract and program compliance. SDO shall, after notice and an opportunity to be heard, impose administrative penalties on an applicant for certification or recertification that knowingly provides false or misleading information on its application or in support of its application for certification or recertification as a diverse business, or on a person who fails to comply with any provision of any regulation or approval issued or adopted by the agency or of any law which the agency has the authority or responsibility to enforce.
The SDO shall also, after notice and an opportunity to be heard, impose administrative penalties on contractors for knowingly misreporting spending with or the identity of diverse business partners. For agency contracts that are determined by the SDO to be non-compliant with the applicable diversity program, the SDO shall make a recommendation to the agency to take corrective action against the contractor. The agency shall make the determination as to whether to suspend or terminate the contract or take other corrective actions in order to bring the contractor into compliance.
Reasons for Issues
SDO did not reach out to two of the statewide contractors that overstated their SDP indirect spending in fiscal year 2021 because the two discrepancies in question predated the creation of the Compliance Unit, which was not fully staffed until February 2022.
Recommendation
SDO should implement penalties to statewide contractors that are not accurately reporting their SDP spending and always resolve overstated indirect SDP spending.
Auditee’s Response
Auditee’s Response to Finding #2:
The SDO agrees that regulations that impose penalties on statewide contractors who falsify Supplier Diversity spending should be explored. The SDO will continue to work with statewide contract managers at [the Operational Services Division (OSD)] to resolve any overstated indirect SDP spending. All statewide contracts and the Vendor Report Management software (used by statewide contractors to report their diverse spend) are owned and managed by OSD.
Auditor’s Reply
SDO agrees with our recommendation, and we will follow up on this issue in approximately six months as part of our post-audit review.
| Date published: | December 23, 2024 |
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