Fraud in Chicago's Minority Contracting Program

The City of Chicago's Office of the Inspector General has issued an 80 page report on problems that have riddled the City's minority contracting program, where actual utilization of minority owned businesses is less than what has been reported.

The findings in the Office of the Inspector General's May 2010 report include the following:

• Investigations uncovered pervasive fraud and abuse of the program.  Fraudulent activity has included the participation of "front companies" that assert to be MWBE firms, but which are actually controlled by non-minority males, and the use of "pass-throughs" in which MWBE firms are awarded contracts, but the work is actually subcontracted out to non-MWBEs to perform.

• Actual payments to MWBEs are likely significantly lower than publicly reported statistics.  This is due to reports being based on awarded contracts and not on actual payments made to MWBEs.

• Problems with program administration.  The audit report claims that "the MWBE program is poorly administered and the administration cannot determine whether or not it is achieving its goals."

Recommendations:  The audit report recommends the following seven action steps to improve the MWBE program:

1. Track and report actual payments to MWBEs.
2. Increase cooperation between City departments to properly administer the program.
3. Require more detailed documentation of payments to MWBEs.
4. Consider directly paying subcontractors.
5. Clearly define and consistently apply MWBE regulations.
6. Increase resources for program administration.
7. Increase enforcement of penalties for non-compliance with MWBE commitments.