oversight

Minority Business: Management Improvements Needed at Minority Business Development Agency

Published by the Government Accountability Office on 1990-01-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO

                      ..-.   --__   ~-_-   -.- -   . -..
.January   1990
                  MINORITY BUSINESS
                  Management
                  Improvements Needed
                  at Minority Business
                  Development Agency
Resources, Community,   and
Economic Development    Division

B-237606
January 19,199O

The Honorable Pete Wilson
United States Senate

The Honorable Ernest F. Hollings
Chairman, Committee on Commerce,Science,
  and Transportation
United States Senate
The Honorable John F. Kerry
United States Senate
This report responds to Senator Wilson’s request of July 13,19SS, and Chairman Hollings
and Senator Kerry’s subsequentrequest of September 19,1988, to review certain aspectsof
the Minority BusinessDevelopment Agency’s operations. Specifically, the report addresses
(1) what problems in the competitive grant processwere causing grant awards to be delayed
and services to be interrupted, (2) the staffing levels and work load at the agency’s
headquarters and regional offices, and (3) client satisfaction with the services received from
the Minority BusinessDevelopment Center Program.

As agreed with your office, unless you publicly announceits contents earlier, we plan no
further distribution of this report until 30 days from the date of this letter. At that time, we
will send copies to the Secretary of Commerce;the Director, Office of Managementand
Budget; and other interested parties. We will also make copies available to others upon
request.
Our work was conducted under the direction of John M. Ols, Jr., Director, Housing and
Community Development Issues,(202) 275-5525.Other major contributors are listed in
appendix VI.




                                       /
J. Dexter Peach
Assistant Comptroller General
Executive Summary


                   The Minority BusinessDevelopment Agency (MBDA) was established to
Purpose            develop the nation’s minority businesses.Becauseof specific congres-
                   sional concernswith the effectiveness and availability of federal assis-
                   tance to minority entrepreneurs, GAO reviewed certain aspectsof MBDA'S
                   operations. These included (1) MBDA'S review and approval of competi-
                   tive grant applications; (2) the staffing levels and work load at MBDA'S
                   offices; and (3) client satisfaction with services received from MBDA'S
                   Minority BusinessDevelopment Center (Center) program, which pro-
                   vides management,marketing, and technical assistanceto clients
                   nationwide.

4
                   MBDA was established in 1969 by the Department of Commerceto
Background         develop and increase opportunities for racial and ethnic minorities to
                   participate in the free enterprise system. MBDA seeksto achieve that goal
                   by assisting the formation and development of minority-owned and
                   minority-managed firms-with emphasis on private sector involvement
                   and entrepreneurial self-reliance.

                   Although MBLM has developed a variety of programs in addition to advo-
                   cacy, research, and information efforts, it has relied primarily upon the
                   Center program to accomplish its goals. In fiscal year 1988, for example,
                   MBDA used about $25 million of its approximately $27 million in program
                   funds for the Center program. Under this program, MBDA funds-
                   through a competitive grant process- a network of over 100 Centers
                   throughout the country in areas with the largest minority populations,
                   For a nominal fee, counselors at the Centers provide management,mar-
                   keting, and technical assistanceto their clients, who are minority indi-
                   viduals wishing to start, expand, or improve their businesses.


                   Management problems related to delays in Center funding and the inef-
Results in Brief   fective use of agency staff have hindered MBDA'S ability to deliver ser-
                   v&es. Despite these problems, GAO'S nationwide client survey found
                   that, for the most part, clients who have received services(1) are gener-
                   ally satisfied, (2) believe the serviceshave been useful, and (3) would
                   seek assistancefrom Centers again if needed.However, GAO believes
                   that if MBDA management is improved through a more timely grant
                   review and approval processand a more effective use of staff, an even
                   larger segment of the minority population could be served.

                   GAO identified eight problems with Center grant applications that
                   delayed their review and approval until the problems were resolved.


                   Page 2           GAO/RcED9069 Improving the Minority Budneaa Development Agency
                           Executive Summary




                           Since Centers cannot be funded without an approved application, some
                           Centers had to suspendoperations from 1 to over 4 months, thus dis-
                           rupting services to clients. Although aware of these delays, MBDA man-
                           agement, until recently, was not successfulin resolving these problems,
                           due in part to an inability among MBDA and other Commerceofficials to
                           agree on necessarycorrections. Over the last year, these officials devel-
                           oped procedures aimed at correcting someof the problems with the
                           applications; however, it is too early to tell if these procedures are effec-
                           tive. In addition, MBDA has not been able to resolve other problems of
                           quality control errors in the application packages.(Seech. 2.)

                           Although MBDA'S program funds, and thus its programs, were reduced by
                           about 43 percent between fiscal years 1980 and 1989, only minimal
                           reductions in staff occurred. As a result, MBDA is currently overstaffed. ’
                           MBDA officials have told GAO that the operation of the Center program,
                           the primary job responsibility of agency personnel, does not keep head-
                           quarters or regional staff fully employed. In addition, in the past, action
                           was not taken to redirect staff to alternative activities such as advocacy
                           and outreach efforts or more comprehensiveprogram monitoring. These
                           alternative serviceswould improve staff utilization and expand ser-
                           vices. (Seech. 3.)

                           MBDA'S new Director, appointed by the administration in April 1989, told
                           GAO that he is aware of the problems the agency has had with the timely
                           processingof grant applications and the effective use of agency staff.
                           He is currently reevaluating ways to improve the agency’sdelivery of
                           services and to better utilize personnel.


Principal Findings

Problems With Grant        Errors and’inadequaciesdiscovered in grant applications during their
Applications Result in     review and approval delayed the approval and funding of 76, or 75 per-
                           cent, of the 102 grants awarded in 1988. GAO reviewed about half (37) of
Delays in Grant Approval   the late awards and found the average processingtime to be 54 days
and Disrupt Client         longer than the 120 days provided for by MENM  procedures. Eight of the
Services                   37 delayed awards resulted in suspendedCenter operations from about
                           1 to over 4 months. Overall, according to MBDAofficials, a total of 32
                           Centers suspendedoperations about 50 times from fiscal years 1986
                           through 1988 becauseof delays in funding resulting from problems with



                           Page 3              GAO/RCED90-59Improving the Minority Business Development Agency
                              Executive Summary




                              grant applications. During periods when operations were suspended,
                              minimal or no service was provided to minority businesses.
                              For late awards, all of the applications GAO reviewed contained one or
                              more of eight problems. Two problems-applicants’ unresolved debt
                              owed to the government and inclusion of unapproved indirect cost rates
                              in grant applications- were present in over 50 percent of the packages
                              reviewed. MBDA and Commerceofficials have recently agreed to proce-
                              dures designedto allow the approval processto proceed while efforts
                              are taken to correct these problems. Specifically, the grant applications
                              will continue to be processed,in the caseof delinquent debts, if appli-
                              cants agree to repayment schedules.Regarding disputed debts, Com-
                              merce officials have established an appeal processintended to reduce
                              the number of late awards. Applications with unapproved indirect costs
                              will now be processedwith a protective clause in the grants. However, it
                              is too early to determine if these procedures will be effective. The
                              remaining problems that delayed the reviewing and awarding of Center
                              grants generally involved quality control errors such as missing docu-
                              ments in the application packagesand miscalculations in budget data.
                              Despite attempts by MBJM managementto correct these problems, they
                              are still occurring, according to agency officials.

                              MBDA'S new Director told GAO he is reevaluating the grant approval pro-
                              cessand is taking action to ensure that grants are prepared, reviewed,
                              processed,and awarded on time and that delivery of services to clients
                              is not disrupted.


Staffing Levels, Roles, and   On the basis of current work load needs,overstaffing exists throughout
                              MBIM,according to headquarters, regional, and Commerce’sOffice of
Responsibilities Should       Inspector General (OIG) officials. Although MBDA'S total program funding
Better Reflect Agency         was reduced by about 43 percent between fiscal years 1980 and 1989,
Mission                       from about $44 million to about $25 million, only minimal reductions in
                              staff have occurred, and MBDA managementdid not reevaluate staffing
                              needs,roles, and responsibilities. During that period, the staff at MBDA
                              was reduced by only 12 positions, or 6 percent. MBDA officials told GAO
                              that staff reductions could be made throughout the agency becausethe
                              current staffing levels are not justified by work load needs.For exam-
                              ple, according to MBDA officials, the current major function of most head-
                              quarters and regional personnel is to implement and monitor the Center
                              program, a responsibility that does not keep the staff fully employed.
                              Although program funding was cut, according to MBDA officials, staff
                              could have been better utilized and clients better served if staff had


                              P8ge 4              GAO/RCEJh904gImpnwing the Minority BuaineaaDevelopment Agency
                               Executive   Summary




                               been given additional duties such as advocacy, outreach, and/or more
                               comprehensiveprogram monitoring.
                               MBDA'S new Director told GAO that he is reevaluating the agency’sstaff-
                               ing and hopes to more fully utilize staff.


Center Clients Satisfied       GAO conducted a nationwide    survey of Center clients to assesstheir
With Services                  opinions of services received. GAO'S survey did not assessthe effective-
                               nessof the Center program. Clients, in general, have been satisfied with
                               the services received; and over 83 percent said they definitely or proba-
                               bly would contact a Center in the future if they would need similar
                               assistance.Lessthan 10 percent said they probably or definitely would
                               not seek assistancein the future. Over 50 percent of all clients found the
                               services useful, and a majority had favorable opinions of Center person-
                               nel and services.

                               GAO believes the  Secretary of Commerceneedsto ensure that MBDA man-
Recommendations                agement is improved to enhanceservicesto minority businessesand
                               entrepreneurs. Toward this end, GAO recommendsthat the Secretary of
                               Commerceinstruct the Director, MBDA, to incorporate the following as
                               part of his redirection of the agency:

                           l Determine, in cooperation with other pertinent Commerceofficials,
                             whether actions taken to correct problems that have delayed the
                             processingof grant applications are effective, and if not, develop alter-
                             native solutions. In addition, develop solutions for other quality control
                             problems that exist with grant applications-problems that continue to
                             contribute to delays in the funding of Centers.
                           . Determine how to either (1) better utilize existing staff resources
                             through the expansion of their roles and responsibilities or (2) reduce
                             staff to realistically reflect the agency’swork load.

                               MBDA officials,including the Director, and other Commerceofficials
Agency Comments                reviewed a copy of GAO'S draft report, and their comments have been
                               incorporated throughout the report where appropriate. They acknowl-
                               edged the existence of problems resulting in grant-processingdelays and
                               in current overstaffing. The Director, MBDA, pointed to efforts underway
                               to correct most of these problems. As requested, GAO did not obtain for-
                               mal written comments on the report.



                               Page S                GAO/RCED-go69Improving
                                                                          the   Minority   Business Developmrn   t Agency
      Contents


      Executive Summary
      Chapter 1                                                                                                 8
      Introduction                  MBDA Organization and Program Activity
                                    Minority BusinessDevelopment Center Program
                                                                                                                8
                                                                                                                9
                                    Objectives, Scope,and Methodology                                          12

      Chapter 2                                                                                                14
      Delays in Minority      Most Center Grants Were Awarded Late in Fiscal Year
                                 1988
                                                                                                               14
      Business Development Delays    in Awarding Funds Force Centers to Shut Down                              18
      Center Grant               Operations
      Approvals Disrupt       Reactionsof New MBDA Director                                                    19
                                                                                                               19
      Delivery Of Services to ~~~&io~                                                                          19
      Clients
      Chapter 3                                                                                                21
      Staffing   Levels   Should    MBDA’s Program Funding Has Been ReducedWithout a                           21
                                        Corresponding Reduction in Staff
      Better Reflect Agency         Personal Differences Between Former Director and                           26
      Mission and Work                  Former Deputy Director and Lack of Communication
      Load                              Cited as Past Problems by MBDA Officials
                                    Current MBDA ManagementViews on Past Problems,                             28
                                        Staffing, and Work Load Needs
                                    Conclusions                                                                28
                                    Recommendations                                                            29

       Chapter 4                                                                                              30
       Minority Business            Center Clients and Assistance Received
                                    Overall Satisfaction
                                                                                                              30
                                                                                                              32
       Development Center           Impact of Assistance on Client Businessand Skills                         34
       Clients Are Satisfied        Client Assessmentof Center Capabilities                                   36
      ‘With Services                Conclusions                                                               38

      Appendixes                    Appendix I: MBDA Funding Levels by Program for Fiscal                     40
                                       Years 1986-1988
                                    Appendix II: Minority BusinessDevelopment Centers in                      41
                                       Operation as of December1988


                                    Page 6          GAO-          Improving the Minority Budnew Development Agency


---
          Content.9




          Appendix III: MBDA’s Application and Review Processfor                      43
             Special Projects
          Appendix IV: Minority BusinessDevelopment Centers                           48
             That SuspendedOperations Becauseof Delays in the
             Grant Process(Fiscal Years 1986-1988)
          Appendix V: Description of MBDA Headquarters Offices’                       49
             Functions
          Appendix VI: Major Contributors to This Report                              52

Tables    Table 2.1: Problems Found in 37 Fiscal Year 1988 Grant                      15
              Applications That Were Awarded Late
          Table 2.2: Number of SuspendedOperations and Days                           18
              SuspendedDuring Fiscal Years 1986-1988
          Table 3.1: Number of Projects Monitored Per Staff Person                    24
          Table III. 1: Special Projects Funded With Discretionary                    45
              Funds From Fiscal Year 1985 Through Fiscal Year
              1988
          Table V.l: Authorized and Actual Staffing Levels as of                      51
              September30,1988

Figures   Figure 4.1: MBDA Regionsand Clients Served in Last 3                        31
              Months of 1988
          Figure 4.2: Clients by Type of Assistance Received                          32
          Figure 4.3: Overall Client Satisfaction                                     33
          Figure 4.4: Clients’ Likelihood to Contact Centers in the                   34
              Future
          Figure 4.5: Usefulness of Assistance in Meeting Business                    35
              Needs
          Figure 4.6: Impact on Client BusinessSkills and                             36
              Knowledge
          Figure 4.7: Client Opinion of Center Expertise                              37
          Figure 4.8: Client Assessmentof Services’Worth                              38



          Abbreviations

          GAO         General Accounting Office
          MBDA        Minority BusinessDevelopment Agency
          OFF'A       Office of Finance and Federal Assistance
          OIG         Office of Inspector General
          OMB         Office of Managementand Budget


          Page7              GAO/RCDW     Improving the Minority BIM~   Development Agency
Chapter 1

Introduction


                           The Department of Commerceestablished the Office of Minority Busi-
                           nessEnterprise in 1969 in responseto Executive Order 11458 to assist
                           in the establishment of new minority enterprises and the expansion of
                           existing ones.The Office was renamed the Minority BusinessDevelop-
                           ment Agency (MBDA) by Executive Order 11625. MBDA'S goal is to
                           increase opportunities for racial and ethnic minorities to participate in
                           the free enterprise system through the formation and development of
                           competitive minority-owned and minority-managed firms-with empha-
                           sis on private sector involvement and entrepreneurial self-reliance. MBDA
                           strives to accomplish this goal primarily by
                       . coordinating the plans, programs, and operations of the federal govern-
                         ment that affect or contribute to the strengthening of minority business
                         enterprises;
                       l promoting the activities and resourcesof state and local governments,
                         businessand trade associations,professional organizations, and other
                         groups that contribute to the growth of minority businessenterprises;
                       l disseminating information that will help the establishment and success-
                         ful operation of minority businessenterprises; and
                       . providing financial assistanceto public and private organizations ren-
                         dering technical and managementassistanceto minority business
                         enterprises.


MBDA Organization          D.C.; six regional offices; and four district offices. As of September 30,
and Program Activity       1988, MBDA had 198 permanent positions: 108 at headquarters and 90 in
                           the regional and district offices. (Seech. 3.)

                           To achieve its goals, MBDA developed a number of programs including the
                           Minority BusinessDevelopment Center (Center) program. This program
                           is designed to promote the creation, existence, and expansion of minor-
                           ity businessesby providing businessdevelopment servicesto minority
                           firms and entrepreneurs. From fiscal year 1986 through fiscal year
                           1988, this program accounted for 83 percent of all of MBDA'S program
                           funds. (Seeapp. I.) In addition, MBDA developed public and private sector
                           businessdevelopment programs; special projects designedto assist
                           minority entrepreneurs; and minority businessadvocacy, research. and
                           information efforts.
                           Public sector programs are targeted to federal, state, and local govcrn-
                           ments and are designedto provide a network of service centers and pro-
                           fessional organizations dedicated to help and promote minority


                           Page 8                        Lmprovins
                                             GAO/RCED-SO-@      the Minority   Bushesa   Development   Agency
                     chapter 1
                     Intzoduction




                     businesses.Private sector programs are designedto help minority busi-
                     nessesthrough public/private partnerships, the development of man-
                     agement techniques, and identification of financial resources.
                     MBDA'S special projects are designedto  provide or improve services to
                     minorities or to assist a particular under-representedminority industry
                     or business.Special projects are funded on a noncompetitive basis for 1
                     year and are approved for funding by the MBDA Director. These projects
                     can be funded by redirecting other program funds from MBDA program
                     costs that were disallowed or appropriated program funds that were not
                     obligated and expended by the end of the fiscal year. Special projects
                     are subject to a detailed review and approval process,and their per-
                     formance is monitored. (Seeapp. III.)
                     MBDA'S advocacy, research, and information    efforts are designedto
                     establish, collect, and maintain data on the characteristics of MBDA cli-
                     ents and the general minority businesscommunity. The purpose of
                     MBDA'S advocacy activities is to raise the level of awarenessof policy-
                     makers and businessleaders regarding minority businessthrough
                     speechesand conferencesand other similar activities. Researchis con-
                     ducted to increase awarenessof trends, characteristics, and problems of
                     minority businessesand to evaluate existing and develop new programs.
                     Information about the minority businesscommunity is analyzed for use
                     by MBDA program staff and interested parties outside the agency.

                     Under the Center program, MBDA funds a network of Centers located
Minority Business    throughout the country and operated by private organizations or state
Development Center   and local governments in areas with the largest minority populations
Program              (see app. II). The grant applications of these public and private entities
                     undergo a 120-day review processdivided between MBDA'S regional and
                     headquarters offices and other offices within Commerce.


The Center Network   As of December 1988, MBLM was funding 101 Centers. Counselorsat the
                     Centers provide management,marketing, and technical assistanceto
                     minority individuals wishing to start, expand, or improve their busi-
                     nesses.The Centers provide assistancein such areas as accounting,
                     inventory control, bid estimation, bonding, personnel management,con-
                     tract negotiations, and marketing. They also assist minority entrepre-
                     neurs with the preparation of financial packagesand plans for
                     submission to lenders for the purposes of financing businessventures.
                     The Centers charge a fee of from $10.00 to $17.50 an hour dependent


                     P8ge 9            GAO/BcEDgo69 Improving the Minorlt~ Btwheea Development Agency
                                    Chapter 1
                                    Introduction




                                    upon the amount of client earnings. Centers can vary their fee structure
                                    depending on an individual client’s ability to pay. Centers cannot make
                                    or underwrite loans becauseMBDA has no loan-making authority. Centers
                                    also try to match minority-owned firms with new businessand contract
                                    opportunities in domestic and foreign markets.


        Centers Are Funded          Centers are funded by MBDA grants, also known as cooperative agree-
        Through Competitive         ments, that are obtained on a competitive basis. Applicants who com-
                                    pete for grants to operate the Centers may be individuals, nonprofit
        Grants                      organizations, private firms, state and local governments, American
                                    Indian tribes, or educational institutions. Grant agreementscover a 3-
                                    year period, but MBDA initially provides funds for only 1 year. If a
                                    grantee’s perfO~~CeiSSatiSfaCtO~,MB~          mayrenewitS~a,Mfora
                                    secondand third year on a noncompetitive basis. MBDA regional staff
                                    perform oversight of the activities of the Centers by monitoring their
                                    performance and reviewing Center reports of accomplishments.The
                                    maximum federal funding each Center can receive is 85 percent of its
                                    total operating cost. Each Center is expected to provide the other 15
                                    percent. The average Center grant for those awards scheduled to be
                                    awarded in fiscal year 1988 was $234,000.


        Competitive Grant           MBDA procedures require   that applications for Center grants be reviewed
        Application and Review      and awarded within 120 days. The first step of the application process
                                    begins 120 days prior to the planned award date, with a 30-day request-
        Process                     for-bid period. MBDA regional offices advertise for applications in the
                                    CommerceBusinessDaily and the Federal Register. Following the 30-
                                    day advertisement for bids, the regional offices review all applications
                                    within 30 days and recommend a single applicant to headquarters for
                                    each Center grant award. MBDA headquarters has 30 days to review
                                    award packagesand forward them to Commerce’sOffice of Finance and
                                    Federal Assistance (OFFA). OFFA has 30 days to review the applications
                                    and award the grants.

        RegionalOffice’s &view of   After the 30-day request-for-bid period, all applications that are
        Grant Applications          received undergo a regional panel review in the second30-day period of
                                    the review process.The panel scoresthe applications using evaluation
                                    criteria established by MBDA. The criteria include (1) the capability and
                                    experience of the firm/staff, (2) techniques of proposed assistance,(3)
                                    resourcesof applicant (such as financial resourcesand available staff),
                                    and (4) the costs of providing the services.Applicants who receive at



                                    Page 10          GAO/RCRLMO4@h~~provingthe Minority Businew Development Agency

.-___
                              Chapter  1
                              Introduction




                              least 70 percent of the points in all four categoriesoverall are consid-
                              ered programmatically acceptable and competitive for the award.
                              On the basis of the panel reviews, an MBDA regional director recommends
                              a single applicant to headquarters for each Center grant award. A
                              regional director usually recommendsthe applicant with the highest
                              numerical ranking unless the applicant is found unacceptablebecauseof
                              factors such as financial instability, unsatisfactory performance under
                              other federal programs, or previous failure to adhere to administrative
                              and programmatic objectives of other MBDA or Commerceprograms.

MBDA Headquarters’Review of   The third 30-day stage of the 120-day review begins in headquarters’
Grant Applications            Office of Operations. A quality control review of the packagesis made
                              to ensure that applicants have complied with MBDA'S procedures and
                              submitted all required documentation in the package.Then the Office
                              performs programmatic reviews of all award packagesand evaluates a
                              Center’s proposed goals and plans for achieving them.

                              Packagesare also forwarded to the Office of Administrative Manage-
                              ment’s Financial ManagementDivision. There, reviewers determine if
                              the proposed Center projects are on MBIIA'S funding plan to ensure that
                              funds will be available upon final grant approval. If so, MBDA'S Office of
                              Chief Counsel performs a legal review of the proposal. Following these
                              reviews, the MBDA Director reviews the recommendedaward packages
                              and approves them for submission to Commerce’sOFFA.

Commerce’sReview of Grant     OFFA performs   the last stage of the review process-financial reviews of
Applications                  Center grant applications-and assumesgrant administrative oversight
                              responsibilities. Reviews by OFFA are made in conjunction with Com-
                              merce’s Office of Inspector General (OIG), which provides assistance
                              with resolution of any past audit findings that may have been directed
                              to the applicant and with closeout activities on existing Center grants.
                              (OIG audits the financial and programmatic performance of about 10 per-
                              cent of the Centers each year. However, in 1987, OIG reviewed the opera-
                              tions of all Centers.) A final review of the package is made by
                              Commerce’sFinancial Assistance Review Board, which, at the time of
                              GAO'S review of MBDA, was made up of the Department’s Associate Dep-
                              uty Secretary, Assistant Secretary for Administration, and Deputy Gen-
                              eral Counsel. The Board considers the agency’s proposed grant award to
                              ensure that no administrative issuesare unresolved; and following the
                              Board’s review and clearance,OFFA's grants office makes the actual
                              award.



                              Page 11           GAO/RCED90-68Improving the Minority Business Development Agency
                            Chapter 1
                            Introduction




                            On July 13, 1988, Senator Pete Wilson requested that we conduct an
Objectives, Scope,and       evaluation of certain aspectsof MBDA'S operations. On September 19,
Methodology                 1988, Senators Ernest F. Hollings and John F. Kerry notified us that
                            they also supported Senator Wilson’s request. On the basis of subse-
                            quent discussionswith the requesters’ staffs, we agreedto
                        l   determine what problems in the competitive grant processwere causing
                            grant awards to be delayed and review how special projects are funded
                            and approved;
                        l   review current staffing levels and work load at MBDA'S headquarters and
                            regional offices with appropriate MBDA officials and discussprevious
                            problems that resulted from staff conflicts; and
                        l   determine whether Center clients were satisfied with the servicesthey
                            had received.

                            To accomplish our objectives regarding the competitive grant process
                            and special project proposals, we interviewed MBDA headquarters and
                            regional officials in each of the six MBDA regions and officials of the
                            Department of Commerce’sOFFA. At MBDA headquarters and at OFFA, we
                            reviewed the competitive grant award processby examining the records
                            and files on grants awarded in fiscal year 1988 becausethat was the
                            most recent available data. To determine why grant applications were
                            delayed, we reviewed 37, or about one-half, of the 76 late awards. The
                            grant packageswe reviewed contained both new and renewal awards.
                            To determine how special projects are funded and approved, we
                            reviewed MBDA files on a selectednumber of projects that MBDA had
                            funded, and we examined MB&I'S processfor reviewing, approving, and
                            monitoring such projects at headquarters and regional offices. We also
                            visited 11 Centers and reviewed Center records and files. Our discussion
                            of MBDA'S application and review processfor special projects is discussed
                            in appendix III.
                              In reviewing MBDA’S  staffing levels, we did not assessthe specific work
                            ’ load requirements a.ndstaffing needsof MBDAstaff. However, we dis-
                              cussedthe adequacy of staffing with officials knowledgeable of MBDA, its
                              programs, and staff qualifications. Those individuals included manage-
                              ment officials in MBDA headquarters, the directors of the six MBDA
                              regional offices, and various membersof the headquarters and regional
                              office professional staffs. To determine regional work load requirements
                              for the Center program, we compared the number of Centers monitored
                              per professional staff member for fiscal years 1986 through 1988 to the
                              criteria MBDA established for the Center program. We also discussed



                            P&ge 12           GAO/RcEDgoBb) Improving the Minority RuedneseDevelopment Agency
Chapter 1
Introduction




alleged conflicts among MBDA staff with both current and former head-
quarters and regional office officials. In April 1989, MBDA’S new Director,
Deputy Director, and other top managementofficials were appointed. As
a result, the managementproblems discussedin chapter 3 pertain to
MBDA’S former Director and former Deputy Director.

To determine client satisfaction with services and assistancereceived at
the Centers, we selecteda random sample of 197 Center clients to inter-
view by telephone. This sample was selected from a universe of 4,140
clients that MBDA reported had been assistednationally during the period
October-December1988. We selectedthese 3 months becausethey were
the most current for which client data were available. We were able to
contact and interview 156 of the 197 clients. Of these, seven did not
meet our criteria for type of service received, leaving 149 clients in our
interviewed sample. We were unable to contact 18 clients because
neither the Center that assistedthem nor the telephone company could
provide their telephone numbers. We were unable to contact an addi-
tional 18 clients despite at least six attempts over a 2-week period.
Three clients were unavailable becauseof illness or extended absence.
Two refused to be interviewed.

The 149 interviewed clients-76 percent of our sample-received assis-
tance typical of that provided and received nationally, that is manage-
ment/technical, financial, and contractual. As a result of using random
sampling techniques, we can state with 95-percent confidence that the
survey results we cite in the report represent the views of 3,130 clients
in the universe who would have answered our questions had we tried to
call everyone. Sampling errors for the proportions we report never
exceeded9.79 percent. All reported proportions are greater than 0 per-
cent. Our survey was limited to client opinions of the services received
and did not assessthe effectiveness of the Center program.
We coordinated our review with Commerce’sOIG and reviewed its
reports on MBDA. OIG has reported on many of the issuesdiscussedin this
report, including the grants review processand staffing. We have
included findings from OIG work in appropriate sections of our report.
We conducted our review between September 1988 and September 1989.
Our work was done in accordancewith generally acceptedgovernment
auditing standards.




Page 13          GAO/RcEDw)69 Improving the Minority Business Development Agency
     Delays in Minority BusinessDevelopment
     Center Grant Approvals Disrupt Delivery of
     Servicesto Clients
                              The Minority BusinessDevelopment Center program is MBDA'S primary
                              program for developing minority businesses.However, problems found
                              during MBDA'S review of grant applications have delayed the funding for
                              someCenters. These delays have resulted in someCenters’ suspending
                              operations from 1 to over 4 months, which disrupts servicesto minority
                              clients. Specifically, 76 of the 102 grants, or 75 percent, scheduled to be
                              awarded in fiscal year 1988 were awarded late. We reviewed 37 of the
                              packagesthat were awarded late and identified eight problems; each
                              grant application contained one or more of these problems. (Seetable
                              2.1.) Two frequently identified problems were unresolved debts owed to
                              the government by the applicants and unapproved indirect cost rates.
                              The six others ranged from missing documents to mathematical miscal-
                              culations. These problems necessitatedMBRA’S delaying review of such
                              grant applications until the problems were resolved.

                              Although somecorrective actions have been taken, problems still
                              remain. MBDA'S new Director told us he is giving top managementprior-
                              ity to ensuring that applications for Center grants are prepared,
                              reviewed, processed,and awarded on time so that the delivery of ser-
                              vices to clients is not disrupted.

                              To determine why 76 grant applications were delayed in fiscal year
     Most Center Grants       1988, we reviewed 37, or about one-half, of the late awards and found
     were Awarded Late in     t he average processingtime was 174 days, 54 days longer than that
     Fiscal Year 1988         allowed by MBDA procedures. The grant packageswe reviewed involved
                              both new and renewal awards from all six regional offices. During our
                              review, we identified eight problems in the application packagesthat
                              slowed MB&I’S review of the applications. All of the late awards in our
                              review contained one or more of these problems. Two-applicant’s
                              debts owed to the government and inclusion of unapproved indirect cost
                              rates in the applications- were present in most late awards. Over the
                              past year, MBLM, OFFA, and OIG agreedon grant processingprocedures
                              related to these two problems. At the time of our review, these proce-
                              dures had just been instituted and, thus, their effectiveness could not be
                              determined. The remaining problems, which at the time of our review
                              were still unresolved, included such errors as documents missing from
                              the application package or miscalculations.


     Grant Package Problems   We reviewed 37 grant packagesto determine what factors contributed
                              to their delays. Although existing records were inconclusive as to which
                              specific MBJIA office was responsible for delaying the grant application


                              Page 14           GAO/ltCBD90-69 Improving the Minority Budneea Development Agency

-   _.
                                         Chapter 2
                                         Delays in Minority Business Development
                                         Center Grant Approvals Disrupt Delivery of
                                         Services to Clients




                                         review process,we were able to determine the problems that neededres-
                                         olution before the review of the application could continue. Those prob-
                                         lems involved (1) unresolved debts owed to the government, (2)
                                         unapproved indirect cost rates, (3) programmatic problems, (4) missing
                                         documents, (5) revisions to applications due to budget cuts, (6) failure to
                                         adequately justify budget costs,(7) mathematical miscalculations, and
                                         (8) miscellaneousproblems. Table 2.1 shows the frequency of problems
                                         found in each category.
Table 2.1: Problems Found in 37 Fiscal
Year 1868 Grant Application8 That Were                                                                                   Frequency
Awarded Late                             Problem                                                                        of problem’
                                         Debts owed to the government                                                             21
                                         Unapproved indirect cost rates                                                           19
                                         Programmatic problems                                                                     7
                                         Missing documents                                                                        16
                                         Revisions due to budget cuts                                                              7
                                         Budget cost questions                                                                    13
                                         Miscalculations                                                                           5
                                         Miscellaneous                                                                            12
                                         aAn award package may involve more than one type of problem.


                                         We spoke with MBDA, OFFA, and OIG officials to discussour findings and to
                                         obtain their opinion on what were the major causesof delays in the
                                         Center grant application review process.These officials agreed that two
                                         major recurring problems-unresolved debts owed to the government
                                         and disallowed indirect cost rates-were present in most late grant
                                         awards. According to the officials, the remaining problems we identified,
                                         such as missing documents and miscalculations, usually resulted from
                                         MBDA’S poor quality control over the review of grant packages.In addi-
                                         tion, these quality control problems are still occurring and, in most
                                         cases,the grant review processis stopped until the problems are
                                         resolved.

DebtsOwedto the Government               Commerce’sdebt managementprocedures task MBDA with the primary
                                         responsibility for resolving questions involving debts owed to the gov-
                                         ernment. Once a debt to the government has been established, OFFA must
                                         notify the applicant that a debt is owed and payment is required within
                                         30 days of receipt of the billing date. If the debt is not paid after 30
                                         days, it is considered delinquent. OF'FAis to forward unresolved debts to
                                         a workout group within MBDA for further action. If MBIM and the appli-
                                         cant agree a debt is owed, MBDA must obtain written assurancethat pay-
                                         ment of the debt has been or is being made. If the applicant disputes a


                                         Page 15                GAO/IKXBM          Improving the Minority Business Development Agency
Ckpter 2
Delryr in Minority Budnesa Development
Center OMt Approval Disrupt Delivery of
Servlceato Clienta




debt, which is established by Commerceas a result of an OIG audit
report, MBDA can recommendthat a protective clause be included in the
special terms and conditions of the grant award to either withhold the
amount in question, terminate or suspendpayment, or propose making
the award in spite of the debt becauseof special circumstances.

Of the 37 awards we reviewed, 21 involved problems with unresolved
debts owed to the government. Most of the debts in question were
incurred under previous MBDA grant awards and were found by OIG in
financial audits of the Centers. Several applicants in our sample dis-
puted the debts found by OIG. However, in accordancewith Commerce
and Office of Managementand Budget (OMB)policy, new awards were
not made until the debt problems, as well as other problems we identi-
fied, were resolved satisfactorily. According to OFTA officials, Commerce
policy is basically that once a debt has been established, no further
awards will be made to the indebted organization until the debt is paid, a
repayment schedule has been agreed to, or other arrangements satisfac-
tory to Commercehave been made. In addition, organizations such as
nationwide accounting firms can operate a number of Centers through-
out the country. However, if it is determined that the grantee has
incurred debts at one Center, MBDA has delayed funding to all Centers
operated by the firm.
In April 1988, MBIX and Commerce’sFinancial Assistance Review Board
agreed on a temporary measure, constituting an exception to depart-
mental policy, to allow MBIM officials to review and make determina-
tions on a backlog of disputed debts. This one-time agreement allowed a
limited number of awards to be made where debts were owed. However,
a special condition specifying how MBM will resolve the disputed debt
was added to the grant. These officials also agreed that in the caseof
delinquent debts, however, awards would not be made unless recipients
would agree to repayment schedules.According to an MBDA official,
these procedures were implemented around June 1988.
In addition, according to OFTA officials, in December1988, Commerce
published in the Federal Register a policy statement announcing the
establishment of a formal appeals procedure for disputed debts result-
ing from audits. The formal appeals procedure, developed by OIG, OFFA,
and other Commerceofficials, should, according to OlTA officials, clarify
any questions related to potential legal concernson handling disputed
debts. OFFA officials told us that these procedures should alleviate cer-
tain delays causedin the past as a result of legal questions related to
disputed debts.


P8ge 16             GAO/EED-W8g Imptwing the Minority BvleineeeDevelopment Agency
                                 Ch4pter 2
                                 DdW9iIllbiiBOti~-          Development
                                 Center Grant Approvals Disrupt Delivery of
                                 Service8 to Client.43




Unapproved Indirect Cost Rates   Indirect costs are those not directly related to delivering servicesto
                                 minority businesses,such as administrative costs. OMB Circulars A-21,
                                 A-87, and A-122 and the award terms and conditions of a Center grant
                                 prescribe, however, which of these indirect costs are allowable under
                                 grant agreements.These documents state that such costs must be rea-
                                 sonable, allocable, allowable, and approved by the recipient’s cognizant
                                 audit agency. According to OFFA officials, the cognizant audit agency for
                                 most MJDAawards is Commerce’sOIG. If grant applicants do not have
                                 approved indirect cost rates, OMB guidelines allow them 90 days from
                                 the date of the award to submit documents necessaryto establish indi-
                                 rect cost rates.
                                 Nineteen of the award packageswe reviewed involved problems of
                                 unapproved indirect cost rates. According to OFFA officials, OIG delayed
                                 several awards during fiscal year 1988 as a result of its findings on
                                 audits of Center operations conducted in 1987. OIG found that a number
                                 of recipients of MBDA awards had been recovering costs through rates
                                 not approved by Commerce.OIG also found somerates were unreason-
                                 ably high. At the recommendation of OIG, MB~A withheld awarding new
                                 grants until MBDA and OIG resolved the problem. OIG agreed to let MBDA
                                 use special award conditions for those applicants where OIG had not
                                 established an indirect cost rate.

Other ProblemsDelaying the       Although MEWofficials have taken action to resolve someof the prob-
Grant Approval procesS           lems in the grant approval processregarding unresolved debts owed to
                                 the government and indirect costs, other problems still are occurring.
                                 According to MBDAand OFFA officials, grant reviews are still being
                                 delayed becauseof problems such as grant justifications not properly
                                 addressing programmatic goaIs, documents missing from the grant pack-
                                 ages,and budget data having mathematical and other errors/problems.
                                 Headquarters officials told us that they believe these errors/problems
                                 generally resulted from poor quality control in the preparation of the
                                 grant packagesby staff in the regional offices. Despite careful instruc-
                                 tions from headquarters and numerous training sessions,according to
                                 the officials, the grant packagesstill contain errors. According to MBLH
                                 headquarters officials, if the grant applications submitted to headquar-
                                 ters for review were prepared more carefully, the review processcould
                                 be completed in a timely manner. MBI~A   regional officials we talked with
                                 stated that grant application packagesare thoroughly checked before
                                 being submitted to headquarters.




                                 Page 17               GAO/m            Impnovins the Minority Business Development Agency
                                      Chapter 2
                                      Delay0 ln Minority Bu14he66Development
                                      Center Grant Approvda LbisruptDelivery of
                                      Services to Client49




                                      Becausethe records we reviewed were inconclusive, we could not deter-
                                      mine if headquarters or regional office staff were responsible for the
                                      quality control errors/problems.


                                      Failure to award Center grants in a timely manner resulted in lapses of
Delays in Awarding                    service to minority businessenterprises. For example, in fiscal year
Funds Force Centers                   1988,8 of the 37 Center grantees in our sample whose awards had been
to Shut Down                          late suspendedoperations while waiting for funding from MBDA. During
                                      fiscal years 1986-1988,32 Centers, located throughout all six MBDA
Operations                            regions, suspendedoperations 60 times (see app. IV). Twenty-four of the
                                      50 suspendedoperations lasted for a period of 1 month; someCenters
                                      did not provide services for over 4 months. During such periods minor-
                                      ity entrepreneurs are not being assisted by the Centers. Table 2.2 shows
                                      the number of suspendedoperations and days suspendedduring fiscal
                                      years 1986-1988.
Table 2.2: Number of Suspended
Dpemtions and Days Surpanded During                                                Number of ruaPended operations
FiscalYearalgW19(uI                                                                                                                   Total
                                      Day8 surpended                   FY1986           FY 1987         FY1988               suspenrions~
                                      01-31 days                               7               6               11                         24
                                      32-62davs                                2               0                   4                       6
                                      63-93davs                                2               2                2                          6
                                      94124days                                3               1                0                          4
                                      Over 125 davs                            6               0                4                         10
                                      Total                                   20               9               21                         50
                                      BThe suspensions total more than 32 because a number of the Centers suspended operations In more
                                      than 1 year.


                                      When Centers shut down operations becauseof funding delays, many
                                      negative impacts, such as reduced operations, can occur. At the end of a
                                      grant period, MEJDA advises operators that if funding is delayed, the
                                      agency will not be responsible for costs incurred if the Center remains
                                      open. As a result, someoperators have reduced operations by laying off
                                      staff and/or have cut back the number of clients they served. However,
                                      MBINoften recommendsto OFFA that pre-award costs be approved to
                                      make up for the delayed funding. As a result, someCenters continue
                                      operating becausethey believe funding will be forthcoming. According
                                      to one Center operator connectedwith a large accounting firm, it would
                                      be difficult for a small to medium-sized company to operate a Center




                                      Page 18                GAO/BtXlSgo6s Improving the Minority        B4uhwaa       Development   Agency
                       Chapter 2
                       Delays in Minority Business Development
                       Center Grant Approvala Disrupt LIelivery of
                       Services to Client5




                       without a continuing inflow of MBDA funds becausesuch operators can-
                       not absorb operating costs, whereas, larger firms, which might have
                       more resourcesavailable, can often incur such costs and remain open.


                       In June and in October 1989 the new Director of MBDA told us he is giv-
Reactions of New       ing the Center grant application review processtop managementprior-
MBDA Director          ity. Preventing Centers from providing services to clients becauseof
                       funding delays, according to the new Director, is the most discrediting
                       action the agency can take. He is meeting with top officials in both MBDA
                       and OFFA weekly to ensure grants are awarded on time and delivery of
                       servicesto minorities is maintained. He also said he is evaluating the
                       entire grant review processto assesswhere modifications are needed.



                       mation of competitive minority-owned and minority-managed firms.
                       MBDA has tried  to achieve it goals primarily through its Center program,
                       designedto assist minority entrepreneurs. However, during the past sev-
                       eral years, Center operations have been hampered by funding delays
                       causedby problems in MBDA'S grant approval process.Specifically, we
                       identified eight types of problems in the processingof grant applications
                       and the awarding of operating funds that resulted in Centers’ reducing
                       or stopping services to clients for periods of 1 to over 4 months.

                       MBDA, OFFA, and OIG officialshave recently taken action related to two of
                       the most frequently occurring problems with the Center grant process.
                       However, at the time of our review, it was too early to determine their
                       effectiveness in solving the problems. Other problems related to quality
                       control in processinggrant applications and awarding grants still
                       remain. MBDA'S current Director told us that he is reevaluating the
                       Center grant approval processto identify ways it can be streamlined
                       and improved.


Recommendations        MBDA, toincorporate the following actions in his reevaluation of the
                       grant process:
                   l   Determine, in cooperation with other pertinent Commerceofficials,
                       whether actions taken to correct problems that have delayed the



                       Page 19               GAO/RCED-9088Improving the Minority Bushesa Development Agency
chapter 2
Delay0 in Minority Budnwe Development
Center Gmnt Approvd8 Diampt Delivery of
Service8   to clients




processingof grant applications are effective, and if not, develop alter-
native solutions. In addition, develop solutions for other quality control
problems that exist with grant applications-problems that continue to
contribute to delays in the funding of Centers.




P8ge 20                 GAO/RcEDgoB6) lmpmvlne the Mlnorlty Baulxme DewelopmentAgency
Chapter 3

Staffing Levels Should Better Reflect Agency
Mission and Work Load

                         Although the work load has decreasedin MBDA’S headquarters, regional,
                         and district offices, only a minimal reduction in staff has occurred. MBDA
                         officials told us that the entire agency is overstaffed basedon its cur-
                         rent work load. In addition, MBDA has had problems making adequate use
                         of all personnel. MBDA’S former Deputy Director told us that becauseof
                         personal differences with the then Director, he was relieved of most of
                         his job responsibilities and as a result performed only minor tasks that
                         contributed very little to minority businessdevelopment between 1985
                         and 1989.
                         MBDA’S current  Director, appointed in April 1989, told us that he was
                         aware of the agency’sstaffing problems as well as the former Deputy
                         Director’s lack of job responsibilities. He stated that he is reviewing not
                         only MBRA’S staffing needs,but also attempting to find ways to utilize
                         the staff more fully by having them perform activities such as outreach
                         and advocacy, which are pertinent to MBDA’S goals.


MBDA’s Program           cent, from fiscal years 1980 to 1989, from about $44 million to about
Funding Has Been         $25 million, funding for MBDA staffing and staffing levels changed little.
                         MBDA employed 198 permanent staff at the end of fiscal year 1988.
ReducedWithout a         About one-half of the staff were located in MBDA’S headquarters office,
Corresponding            with the remaining staff located in its six regional offices and four dis-
Reduction in Staff       trict offices.’ (Seetable V.1 in app. V.)


MBDA Funding             Although MBDA’S total program funding of $44 million in fiscal year 1980
                         had been reduced by $19 million, or 43 percent, by fiscal year 1989,
                         funding for salaries and expensesfor the entire agency remained fairly
                         constant, dropping by about 1 percent. Specifically, for fiscal years 1986
                         through 1988 (see app. I), the time covered by our review,
                     . funding for the Center program was reduced by about $3.7 million, or
                       about 13 percent;
                     . funding for the public sector programs was reduced by about $1 million,
                       or 82 percent;
                     . funding for the private sector programs was reduced by about $4 mil-
                       lion, or 64 percent; and

                         ‘MBDA’ssix regional offices are locatedin Washington,DC.; New York, New York; Atlanta, Georgia;
                         Chicago,Illinois; Dallas,Texas;and SanFrancisco,California. MBDA’sfour district offices are located
                         in Boston,Massachusetts;Philadelphia, Pennsylvania;Miami, Florida; and Los Angeles,California.



                         Page 21                GAO/ICED9069 Inqroving the Minority Bdness Development Agency
                                       chapter 3
                                       Staffing Levels Should Better Reflect Agency
                                       Mlssion and Work Load




                                   l   funding for advocacy, research, and information efforts decreasedby
                                       about $570,000, or 92 percent. Further, in fiscal year 1988, no funding
                                       was made available for research activities.

                                       From fiscal year 1986 through fiscal year 1988, headquarters’ staffing
                                       levels fell by only 4 staff positions, and regional staffing levels fell by
                                       only 8 staff positions for a total of 12 positions, or about 6 percent of
                                       MBDA'S September 1988 staffing level.



MBDA Officials Be1ieve                 Although we did not assessthe specific work load requirements and
                                       staffing needsof MBJM headquarters’ staff, we did ask the top manage-
Headquarters Is                        ment officials for their views on headquarters’ staffing needsbasedon
Overstaffed                            the agency’s work load. According to several MBI~A officials-including
                                       the former Deputy Director, the former Assistant Director for External
                                       Affairs, the current Chief of the Operations Division, and OIG’S Director
                                       of Economic Affairs Division-significant staff reductions could be
                                       made in MBDA'S headquarters operations.
                                       These officials believed staff reductions were neededbecausethe head-
                                       quarters work load had decreased.At the time of our review, headquar-
                                       ters work load essentially entailed reviewing and processing
                                       applications for the Center program and other special projects (seeapp.
                                       V). They said that since MBDA'S public and private sector programs were
                                       being phased out, more effort should have been devoted to other activi-
                                       ties designedto advance minority businessdevelopment, such as advo-
                                       cacy and outreach efforts and more effective Center monitoring. In
                                       addition, four of the six regional directors told us that they believe
                                       headquarters is overstaffed.


Work Load in MBDA                      Although the work load, primarily activities dealing with the Center
                                       program, of MBLIA'S regional offices dropped by about 27 percent from
Regional Offices Has Also              fiscal year 1986 through fiscal year 1988, regional staffing has been
DecreasedOver the Years                reduced by only 8 percent. Further, someregional directors have not
                                       filled vacant staff positions becausethey believe the positions were not
                                       needed.The current major function of the regional staff is to implement
                                       and monitor the Center program. According to two of MBDA'S regional
                                       directors, that job responsibility alone does not keep the staff fully
                                       employed.

Role and Responsibilities of the       During the 3-year period covered by our review, we determined that the
Regional Staff                         role of the approximately 47 regional professional staff-the Business


                                       Pyle22                GAO/RCED3048 Imp~vbg the Minority Bubem Development Agency
Chapter 3
Staffing Levels Should Better Reflect Agency
Mission and Work Load




Development Specialists-consists primarily of serving on Center grant
award evaluation panels and then monitoring each Center’s performance
under such awards.?Although the specialists are also responsible for
engaging in advocacy work and outreach efforts, regional staff we spoke
with generally told us that they spend a minimal amount of their work-
day on these activities.

Center grant evaluation panels are established by the regional offices as
neededto evaluate grant award applications. During the evaluation pro-
cesseach panel member reviews all applications for the grant under con-
sideration. Generally, at least three specialists sit on a panel, and each
takes 5 days to 2 weeks to complete the review and evaluation. The
regional offices did not maintain records of the number of panels on
which each staff member has served. However, many specialists told us
that they generally serve on about 3 to 6 panels in a year’s time.
After grants are awarded, the specialists are responsible for monitoring
the grantees’ performance. Grantees are required to submit quarterly
performance reports to MBDA. Regional staff are required to verify the
information reported by the grantees and prepare an evaluation report
on the performance. Regional staff monitoring consists essentially of
desk reviews with a limited number of on-site visits to the Centers. The
specialists are supposedto conduct an on-site review at the beginning of
the 3-year grant award cycle if the grantee had not previously received
an MBDA grant. The purpose of these initial visits is to check the
grantee’s office facilities and confirm that the Center has begun opera-
tions. Another on-site review is required at the end of the secondquar-
ter of a Center’s operations. Additional on-site reviews may be
conducted if a grantee’s performance is unsatisfactory.

According to most of the specialists we interviewed, they generally
made an initial on-site visit to new grantees within 30 days after the
project start date and a mandatory visit at the end of the secondquarter
to all new and renewed grantees. According to the staff interviewed,
most on-site reviews do not last more than a week. The specialists told
us that during their on-site visits they verify reported accomplishments,
help grantees resolve performance problems, and conduct advocacy
activities. They did not usually perform any other on-site visits during


?Asof September30, 1988,out of the 90 regionaloffice staff, 47 were BusinessDevelopmentSpecial-
ists, 11 were regional directors and deputy directors(the SanFranciscoregionaldeputy director posi-
tion was vacant), and 32 were administrative support staff.



Page 23                GAO/RCRD-9989Improving the’hfinority Business Development Agency
                                                                                                                              -
                                         Chapter 3
                                         Staffhag Levels Shodd Better Reflect Agency
                                         Mbdon and Work Load




                                         the 3-year grant period unless a Center’s performance becomes
                                         unsatisfactory.
                                         When the Center program was implemented, MBDA determined that one
                                         specialist was neededto monitor five funded Centers. Using this crite-
                                         rion, we compared the regional work loads and actual professional staff
                                         levels and found that the number of Centers per staff person during fis-
                                         cal years 1986 through 1988 was below that standard in all six regions.
                                         Overall, the work load of the regions from fiscal year 1986 through fis-
                                         cal year 1988 fell by 27 percent. However, only a 4 percent reduction in
                                         regional professional staff occurred during the sameperiod. Table 3.1
                                         shows how the number of projects per specialist changed from fiscal
                                         years 1986 through 1988.
TaMa 3.1: Number of Projrcta Monitored
Per 8taff Penon                                                                              Proiwtahtaff    for Noal year
                                         Region                                               1986             1987          1988
                                         I New York                                        3.57 to 1        3.67 to1     2.00 to 1
                                         II Washington, D.C.                               4.00 to 1        3.00 to1     1.71 to I
                                         III Atlanta                                       2.60 to 1        3.22 to1     2.44 to 1
                                         IV Chicago                                        3.50 to 1        3.00 to1     2.33 to 1
                                         V Dallas                                          2.80 to 1        2.66 to1     2.67 to 1
                                         VI San Francisco                                  3.30 to 1        3.33 to1     3.25 toi


Regional Directors Believe Their         Dallas, New York, and Washington, D.C., regional directors told us that
Offices Are Overstaffed                  their regions are overstaffed. According to the Dallas Regional Director,
                                         the number of professional staff in Dallas could be reduced, although
                                         she did not specify by how many. The New York Regional Director said
                                         that overstaffing has resulted from a decreasein the number of Centers
                                         monitored while the number of staff has remained about the same.

                                         In addition, the regional offices of San Francisco, Chicago, New York,
                                         and Washington, DC., remain below their authorized professional and
                                         clerical staffing levels, in part, becausethe additional positions are
                                         deemedunnecessaryby the regional directors. (Seetable V.1 in app. V
                                         for authorized and actual staffing levels.) According to the San Fran-
                                         cisco Regional Director, the managementto professional staff ratio was
                                         too high, and the Deputy Director’s work was only duplicative of the
                                         Regional Director’s work. In that region the deputy’s position has been
                                         vacant since September 1988. The San Francisco Regional Director said
                                         he believed the positions of Deputy Director and Chief of Business
                                         Development should be merged.


                                         Page 24               GAO-             Improvingthe   bfinorky Bumine~ Development &encY
Chapter 3
Staffing Levels Should Better Refkt Agency
Mission and Work Load




Not only have over half of the regions remained below their authorized
staffing levels, but the Washington Regional Director recommendedthat
the Washington Regional Office be eliminated. In 1982 he recommended
to MBDA’S Director that the Washington Regional Office be abolished
becausethe work load had continued to decreaseand it could be handled
by the New York and Atlanta regional offices. In addition, in his opinion,
no need existed to maintain any of MBDA’S four district offices.
The New York Regional Director said that she had recommendedthat
the Boston District Office be eliminated. She noted that although only
one staff person was in the district office, the regional office had to send
work to the staff person becausenot enough work was generated within
the district. Currently, in the Boston District Office, the staff member is
responsible for monitoring one Center and serving on evaluation panels
in the regional office. The Regional Director said the work load at the
Boston District Office has always been minimal, and there has never
been more than one staff member assignedto the office. According to
the Regional Director, neither the minority businesscommunity nor the
Center would be affected if the Boston District Office were eliminated.
The Center in the area would continue to provide services and could be
monitored just as effectively from the New York Regional Office.
Commerce’sOIG reported3 a similar overstaffing situation when in Janu-
ary 1989 it stated that the regional staff levels were significantly higher
than the work load justified. OIG reported that MBDA officials in both
headquarters and regions confirmed that the MBDAwork load did not jus-
tify the number of MBDA staff. OIG concluded that the work load available
for the regional staff did not constitute a full-time job. OIG recommended
that the regional staff be reduced by 16 positions and that MBDA deter-
mine the need for existing vacant positions. MB&%officials did not
respond to OIG concerning this recommendation.




‘Final Reporton Inspectionof the Minority BusinessDevelopmentAgency’sDistrict Offlw   tkport
  0.    - , an. 1989>.



Page 25               GAO/RCEiD-9949Improving the lKIno&y Business Development Agency
                               Chapter 3
                               Stafllng Levels Should Better Refkct Agency
                               Mimion and Work Load




                               From 1984, when first appointed, until his replacement, the former
        Personal Differences   Director, becauseof personal differences, relieved his Deputy Director
        Between Former         of most responsibilities of the position. This resulted, according to
        Director and Former    another former MBDA official, in no clear delegation of authority or
                               responsibility throughout the agency. Agency officials also cited the
        Deputy Director and    lack of communication between the former Director and the rest of the
        Lack of                agency as a managementproblem.
        Communication Cited    We asked MBDA officials to describe the type of staff problems that
        as Past Problems by    existed within the agency and asked them their opinion regarding the
        MBDA Officials         impact of these problems on the operation of the agency. We determined
                               that a major problem existed between the former Director and the for-
                               mer Deputy Director. According to the former Deputy Director, the for-
                               mer Director relieved him of most of his job responsibilities, and as a
                               result, he performed only minor tasks after the former Director’s
                               appointment in 1984. The former Director’s action, according to the for-
                               mer Deputy Director, was the result of personal differences that had
                               developed between the two after they had both competed for the posi-
                               tion of Director in 1984.4According to the former Deputy Director, one
                               of the former Director’s first actions after being appointed was to try to
                               fire him. However, since they were both political appointees, the Direc-
                               tor was unsuccessful.The former Deputy Director said he was told by
                               the former Director that he could do anything he wanted as long as it
                               had nothing to do with the day-to-day operations of the agency. Further,
                               the former Deputy Director told us that only once in 4 years did the
                               former Director give him written instructions to do something.
                               In a February 10, 1986, memorandum to MBDA’S Assistant Directors and
                               Staff Office Chiefs, the Director restated the role of the Deputy Director:

                               “The day-to-day direction and management of the Minority Business Development
                               Agency operations will continue to be administered by me. . . . [The] Deputy Director
                               . . . has been directed not to request, inquire, or demand from any MBDA employee
                               the status of or any information relating to personnel actions, financial and budget
                               matters, public affairs, grants and cooperative agreements, statistical data, and
                               other operational activities without my prior approval.”

                               As a result of the former Director’s actions, according to the former Dep-
                               uty Director, he was excluded from the day-to-day managementopera-
                               tions and often had no knowledge of what was going on in the agency.
                               He said that he kept himself busy by traveling to various parts of the

                               41nOctober1988the Deputy Director had held that position for 7 years and was a memberof the
                               SeniorExecutive Serviceat the 05 level.



                               Page 26               GAO/RCEDBO-tI@
                                                                  Improving the Minority BueinecwDevelopment Agency


.--_.
                            Chapter 3
                            Staffing Levels Should Better Reflect Agency
                            Mission and Work Load




                            country promoting MBDA at various meetings and conferencesrelated to
                            minority businesses.He told us that at one conferencehe was presented
                            with an award for promoting minority businessesbut felt so guilty
                            about accepting it becauseof his lack of meaningful duties and responsi-
                            bilities that he returned the award.
                            According to the former Deputy Director, the dispute between him and
                            the former Director was widely known inside and outside of the agency,
                            and the infighting had negatively affected employee morale and per-
                            formance. In addition, the former Deputy Director told us infighting was
                            so bad at one point in 1984 that a member of the White Housepersonnel
                            staff met with both him and the Director and told them to “get their act
                            together.” Although both men agreed at that meeting to resolve their
                            differences, the dispute continued.

                            Our discussionswith the former Director and other agency officials con-
                            firmed that this dispute did occur and was widely known. The former
                            Director told us that he relieved the Deputy Director of his responsibili-
                            ties becausethey were unable to establish a relationship basedon trust.


Former Officials Cited      According to the former Deputy Director and several other headquar-
Lack of Communication       ters officials and one regional official we spoke with, including the
                            Assistant Director for Program Support, State and Local Programs, and
and Delegation of           the San Francisco Regional Director, a lack of communication also ham-
Responsibilities as Major   pered staff operations under the former Director. For example, the for-
Problems                    mer Deputy Director told us that the former Director held only two
                            executive staff meetings in 4 years. The former Assistant Director for
                            Program Support, State and Local Programs, also told us that becauseof
                            the poor relationship between the former Director and Deputy Director,
                            there was no clear delegation of authority or responsibility throughout
                            the agency.
                            The former Director told us that he thought staff meetings were a waste
                            of time and usually only served as a forum for complaints. He said he
                            knew what was going on in the agency and therefore did not feel the
                            need for more staff meetings.

                            In a 1986 report, OIG also found that key executive positions were not
                            being utilized effectively and that poor communication existed between




                            Page 27               GAO/RCED-9049Improving the Minority Business Development Agency
                          Chapter 3
                          Staffhg Levels ShouId Better RefIeet Agency
                          Midon   and Work Load




                          the Director and his key operating managers in headquarters.” OIG rec-
                          ommendedthat the Director take steps to utilize key staff positions and
                          improve communication with all assistant directors and regional direc-
                          tors to ensure effective agency operations. Although MBLU agreed with
                          the OIG findings and stated in its responseto the report that it had taken
                          actions to correct the problems, these problems still existed at the time
                          of our review.



Management views     on   that both the headquarters and regional offices were overstaffed in the
Past Problems,            past when compared to work load requirements. However, he told us
                          that he is taking action to correct the problem. Specifically, he and his
Staffing, and Work        staff are developing a “redirection plan” that will evaluate staffing
Load Needs                needsand roles and responsibilities. He said that if MBDA’S  staff both at
                          headquarters and the regional offices were involved more actively in
                          outreach-type activities, such as developing contacts with corporations
                          and financial institutions to promote minority businessgrowth, they
                          would be fully employed and MBM would not be considered overstaffed.

                          The new Director was aware of the previous managementproblems
                          between the former Director and the former Deputy Director, and he
                          believes that the situation negatively affected employee morale and pro-
                          ductivity. He also told us that he will not allow such a situation to occur
                          under his leadership and plans to use effectively all key executive staff
                          positions. In addition, according to the Director, since his appointment in
                          April 1989, he has improved communication throughout the agency
                          through regularly scheduledstaff meetings with headquarters’ officials
                          and conferencecalls with regional management.


Conclusions               officials and an assessmentof the agency’s current work load, MBDA is
                          overstaffed both at headquarters and at the regional and district office
                          levels. While funding for MBDAprograms has been reduced or eliminated,
                          commensurate increasesin other duties or staffing reductions have not
                          occurred. As a result, MBIX’S present staffing levels exceedthat required
                          by its present work load. However, the current Director of MBDA told us
                          he is developing a “redirection plan” that will evaluate staffing needs

                                      Neededin the Minority BusinessDevelopmentAgency’sSupport Activities (Report
                          51mprovements
                           0. - -6-001,J-an.1986).



                          Page 28               GAO/WED4WM I.mprovfng the Mimrity Buhew Development Agency
                    Chapter 3
                    Staffing Levels Should Better Reflect Agency
                    Mission and Work Load




                    and roles and responsibilities, and he hopes to use more fully             MBDA staff
                    through increased outreach efforts.
                    In addition, on the basis of comments of current and former MBDA offi-
                    cials, we believe that an executive position, that of the former Deputy
                    Director, was underutilized and that the situation was allowed to con-
                    tinue for a number of years without corrective action. The former Dep-
                    uty Director told us that this problem contributed to a lowering of
                    employee morale and productivity throughout the agency. This situation
                    appears to be corrected as a result of the appointment of the new Direc-
                    tor in April 1989 and, if good managementpractices are followed,
                    should not be allowed to recur.

                    We recommend that the Secretary of Commercedirect the Director,
  Recommendations   MBDA, as part of his effort to examine agency staffing, to determine how
                    to either (1) better utilize existing staff resourcesthrough the expansion
                    of their roles and responsibilities or (2) reduce staff to realistically
                    reflect the agency’swork load.




                    Page 29               GAO/RCmW          Improving the Minority BusineaaDevelopment Agency



-..,.
Minority BusinessDevelopmentCenter Clients
Are Satisfied With Services

                      Generally, Center clients have been satisfied with the assistanceand
                      services they have received, and about 83 percent would seek similar
                      assistancein the future. Over 50 percent of all clients found the services
                      to be useful in meeting their businessneedsand developing or improving
                      their businessskills. In addition, a majority of Center clients expressed
                      favorable opinions of Center personnel and the worth of the services
                      received.


                      To determine client satisfaction, we interviewed 149 clients randomly
Center Clients and    selected from clients in the six regions who MBCIAreported were served
Assistance Received   during the last 3 months of 1988. Cur survey results represent the views
                      of 76 percent of all MBDA clients for that time period. Our survey was
                      limited to an assessmentof client opinion. We did not assessprogram
                      effectiveness. MBDA reported that it provided assistanceto a total of
                      4,140 clients during those 3 months through 101 Centers located
                      throughout the United States. Figure 4.1 shows the geographic coverage
                      of MBDA’S six regions and the number of clients served within those
                      regions during October-December1988.




                      P8ge 30          GAWmf@gg      bplpvine the Miaorfty Badnew Development Agency
                                         Chapter 4
                                         Minority Budnew Development Center
                                         Client8 Are !SatisfiedWith Services




Figure 4.1: MBDA Regions and Clients Sewed in Last 3 Months of 1988




                                                                                                                      Number of
                                          MBDA ragion                                                                    clients
                                          I New York                                                                         506
                                          II Washinaton. D.C.
                                                    ”
                                                                                                                             234
                                          III Atlanta                                                                        979
                                          IV Chicago                                                                         625
                                          V Dallas                                                                           714
                                          VI San Francisco                                                                 1,082
                                          Total                                                                            4,140




                                          Page 31               GAO/RCRD-0     Improving the Minority Business Development Agency
                                            Ch8pter 4
                                            Minority BusineeaDevelopment Center
                                            Clienta Are Satidled With Service9




                                            Basedon our random sample, the assistancereceived by 3,477 of the
                                            4,140 clients was in the form of managementor technical assistance
                                            only. That is, clients were given advice on various businessactivities,
                                            such as, on how to develop computer programs or obtain a contractor’s
                                            license. Assistance in obtaining financial help (loans from lending insti-
                                            tutions) was given to 68 clients. Help in obtaining procurement contracts
                                            was given to 128 clients. The other 467 clients received a combination of
                                            these three types of assistance.Our sample mirrored the total clients in
                                            the types of assistancereceived and consistedof clients from all six
                                            regions.

Figure 4.2: Clients by Type Of Assistance
Received




                                                                                       Combination




                                                                                       Management8 Technical




                                            Over 55 percent of the clients receiving management and technical assis-
                                            tance received 5 or fewer hours of assistance.About 20 percent received
                                            only 1 hour. About 29 percent received 6 to 20 hours, and 16 percent
                                            received over 20 hours.

Overall Satisfaction                        received and would seek assistancein the future. According to our sam-
                                            ple, about 72 percent of MBDA clients have a high or generalsatisfaction
                                            with the assistancethey received from a Center. Fourteen percent were


                                            Page 32             GAO/RCED-3O+Ub
                                                                            Improving the Minority Business Development Agency
                                          Chapter 4
                                          Minority Business Development Center
                                          Clientu Are Sntidied With Services




                                          “generally” or “very unsatisfied.” We did not determine the basis for
                                          their satisfaction or unsatisfaction.

Figure 4.3: Overall Client Satisfaction
                                          loo   hMant
                                          90’
                                           00
                                           70
                                           so
                                           so
                                           a
                                           30
                                           20
                                           10
                                            0




                                          Over 83 percent of MBDA clients indicated a definite or probable likeli-
                                          hood of contacting a Center in the future if they would need similar
                                          assistance.Less than 10 percent “probably” or “definitely” would not
                                          seek assistancefrom a Center in the future. We did not determine why
                                          the clients would or would not contact the Centers in the future.




                                          P8ge 33              GAO/RCED-90-33Improving the Minority Business Development Agency
                                             Chapter 4
                                             Minor&y BusineeaDevelopment Center
                                             Clients Are Satisfied With Services




Figure 4.4: Clienta’ Likelihood to Contect
Centers in the Future
                                             loo   hwm




Impact of Assistance                         management and technical assistance,i.e., businessadvice. Accordingly,
on Client Business and                       we asked the clients how beneficial the services thev received were to
                                                                                                          ”


                                             their businessneedsand to themselves-to their skills-as business
                                             entrepreneurs.
                                             About 53 percent of MEWclients believed that the services they received
                                             were “very” or “extremely” useful in meeting their businessneeds.
                                             Roughly, another 30 percent believed that the services were “some-
                                             what” or “moderately” useful. The remainder believed that the services
                                             were “hardly” or “not at all useful.”




                                             P8ge 34             GAO/~W            Jmproving the Minority B8dnew Development Agency
                                                   chapter 4
                                                   Minority Bushesa Development Center
                                                   Clienta Are S&idled With !Sewices




         Figure 4.5: Usefulness of Assistance in
         Meeting Business Needs
                                                   loo   hlcalt
                                                   90
                                                   so
                                                   70




                                                   Impact on the clients’ individual entrepreneurial skills was viewed as
                                                   somewhat less but nevertheless substantial. About 36 percent of the cli-
                                                   ents believed that their businessskills or knowledge had “greatly” or
                                                   “very greatly” increased as a result of the assistance received from the
                                                   Centers. About 36 percent indicated that their businessskills or knowl-
                                                   edge had increased at least “somewhat” or “moderately.” The remaining
                                                   28 percent believed that their skills/knowledge increased little, if at all,
                                                   as a result of a Center’s assistance.




                                                   P83t?33             GAO/RcEDgo69 Improving the Minority Business kvelopmrnt   Aww




                                                                                                                                       --
---.--
                                        cbpter 4
                                        Minority Blldnes Development Center
                                        Clienta   Are Satisfied   With Services




Figure 4.6: Impact on Client Business
Skills and Knowledge




                                        During our client interviews, we also elicited opinions and assessments
Client Assessment of                    of the capabilities of Center personnel and of the value or monetary
Center Capabilities                     worth of the servicesor assistancereceived. Most clients regarded the
                                        capabilities of Center personnel quite favorably. About half of those
                                        who paid for the services received believed that those services were
                                        worth “somewhat more” or “a lot more” than the fees paid.

                                        In our survey, 66 percent of MEXNclients rated the expertise of Center
                                        personnel as “above average” or “excellent.” Eight percent described
                                        the expertise as “poor” or “below average.” These ratings were based
                                        on clients’ experienceswith Center personnel.




                                        Pyre 36                    GAO/BCED-30-33Improving the Minority Business Development Agency
                                       Chapter 4
                                       Minority Business Development Center
                                       Client.9Are !SatisfiedWith !kvices




Figure 4.7: Client Opinion of Center
Expertlse

                                       90

                                       so
                                       70




                                       Becausewhat individuals pay for a service is important in their assess-
                                       ment of the value of that service, we asked the clients in our sample to
                                       assessthe services that they received relative to the nominal fees that
                                       they had to pay. About 73 percent of our sample had paid fees for ser-
                                       vices. About 27 percent of our sample paid nothing. (Seech. 1.) The ser-
                                       vices were worth “somewhat more” to “a lot more” than the amounts
                                       paid, according to about 54 percent of the paying clients. They were
                                       worth “about what was paid,” according to about 32 percent of the pay-
                                       ing clients, and worth “somewhat less” or “a lot less” to the remaining
                                       14 percent.




                                       Page 37             GAO/IWED~          Improving the Minority Business Development Agency
                                   Chapter 4
                                   Minority Budneaa Development Center
                                   Clients Are s&idled With services




Figure 4.8: Client Assessment of
Wrvices’ Worth
                                   loo   hmaa
                                    so
                                    30




                                   Despite MBDA’S problems with delayed grants and staff utilization,
Conclusions                        Center clients generally appeared satisfied with the servicesthey
                                   received and would seek assistancefrom MBIMCenters again. However,
                                   if MBLIA management is improved through a more timely grant review
                                   and approval processand fuller staff utilization, perhaps an even larger
                                   segment of the minority population could be served.




                                   Page 33             GAO/RCBLbW Improving the Mhorky Bueine!w Development Agency
Page 39   GAO/RCED-90439
                       Improving the Minority Business Development Agency
MBDA F’unding Levels by Program for Fiscal
Yem 1986-1988


               Dollars in thousands
                                                                                      Propram funds
                                                                           FYI996           FY1997            FY1998
               Minority Business Development Center                         $28,452          $27,609           $24,728
                 Program
               Public/private sector programs                                 7,552            5,499             2,513
               Advocacv. research. and information                              617              456                48
               Total                                                       $26,621          $33,564           $27,289
               Note: Funding information by program activity was available for only fiscal years 1986 through 1988.




               Page 40                  GAO/lKEB30-33 Improving the Minority BusineesDevelopment Agency
Appendix II

Minority BusinessDevelopmentCentersin
Operation as of December1988

              New York MBDA region                         Washington MBDA region
              i3;3;;ly&NY                                  Baltimore, MD
                                                           Pittsburgh, PA
              Nassau/Suffolk, NY                           Philadelphia, PA
              Manhattan, NY                                Norfolk, VA
              Queens, NY                                   Newport News, VA
              Rochester, NY                                Washington, D.C.
              Williamsbur    NY
              San Juan, PR
              Mayaguez, PR
              Ponce, PR
              Newark, NJ
              New Brunswick, NJ
              Hartford, CT
              St. Thomas, VI

              Atlanta MBDA region                          Chicago MBDA region
              Birmingham, AL                               ;$yl,   IL (2)
              Montgomery, AL
              Mobile, AL                                  Indianapolis, IN
              Cherokee Indian, NC                         Minneapolis, MN
              Charlotte, NC                               Minnesota Chippewa Tribe, MN
              Fayetteville, NC                            Cleveland, OH
              Raleigh/Durham, NC                          Cincinnati, OH
              Atlanta, GA                                 Akron/Canton, OH
              Savannah, GA                                Kansas City, MO
              Augusta, GA                                 St. Louis, MO
              Columbus, GA                                Detroit, Ml
              Greenville, SC                              Milwaukee, WI
              Charleston, SC
              Columbia, SC
              Orlando, FL
              Jacksonville, FL
              Tampa. FL
              Miami, FL
              West Palm Beach, FL
              Memphis, TN
              Louisville, KY
              Jackson, MS
              Dallas MBDA region                           San Francisco MBDA region
              Corpus Christi, TX                           Los Angeles (South), CA
              Corpus Christi (Rural), TX                   Los Angeles, CA (2)
              Houston, TX                                  Anaheim, CA
              McAllen, TX                                  Oxnard, CA
              Beaumont, TX                                 Riverside, CA
              Austin, TX                                   El Monte, CA
              Laredo, TX                                   San Jose, CA
              San Antonio, TX                              Stockton, CA
              El Paso, TX                                  Fresno, CA
              Dallas, TX                                   Bakersfield, CA
              Brownsville, TX                              Salinas, CA
              Albuquerque, NM                              San Francisco, CA
              Baton Rouge, LA                              San Diego, CA
              Shreveport, LA                               Sacramento, CA
              New Orleans, LA                              Santa Barbara, CA
              Little Rock, AR                              Anchorage, AK
              Oklahoma City, OK                            Phoenix, AZ
              Tulsa, OK (2)                                Tucson, AZ
              Salt Lake City, UT                           Tempe, AZ




              Page 41               GAO/ItCED-9069 Improving the Minority Business Development Agency
AQQendixII
Minority RualneesDevelopment Centers in
Operation aa of December19W




Dallas MBDA region (continued)                San Francisco MBDA region (continued)
Bismarck, ND                                  Portland, OR
                                              Las Vegas, NV
                                              Seattle, WA
                                              Honolulu, HI




Page 42              GAO/RCED9069 lmprovlng      the Minority Rushsa Development Agency
Appendix III

MBDA’s Application and Review Processfor
SpecialProjects

                      In addition to funding its Center program, MBDA funds special projects
                      that are pilot and demonstration projects. The primary purposes of spe-
                      cial projects are to (1) provide special servicesthat are not available
                      through existing programs, (2) demonstrate or test unique.or innovative
                      approaches and methods for helping minority entrepreneurs, and (3)
                      promote minority businessformation. These awards are made to educa-
                      tional institutions, various private organizations, minority businessand
                      industry associations,and chambers of commerce.
                      The purpose of special projects is to provide or improve services to
                      minorities or to assist a particular industry or segmentof the minority
                      businesspopulation that is underrepresented. Special project grants are
                      awarded noncompetitively for a l-year period and should be original in
                      concept and should not duplicate servicesof other MBDA programs. The
                      types and purposes of special projects funded by MBDA vary. For
                      example:
                  l The Latin American Manufacturers Association, which has received
                    funding for several years, has attempted to involve minority business
                    enterprises in the construction of McDonnell-Douglasaircraft and identi-
                    fication of subcontracting opportunities.
                  . The National Association of Black and Minority Chambers of Commerce
                    has received several grants to collect, evaluate, and disseminate rele-
                    vant businessconvention, travel, and tourism information to minority
                    businesses.
                  . The Texas Association of Mexican-American Chambers of Commerce
                    has received grants to motivate youth toward completion of education
                    and encourageyouth toward entrepreneurship.

                      Special project proposals are submitted either to regional offices, which
Application and       forward them to headquarters, or directly to headquarters by individu-
Review Process        als or organizations who believe they have an idea for promoting minor-
                      ity businessdevelopment that is worthy of funding. The Office of
                      Program Development and the appropriate regional office review and
                      rate proposals to determine if they duplicate any other MBDA program
                      and are consistent with MBDA'S minority businessdevelopment philoso-
                      phy. According to the Chief of the BusinessDevelopment Division in the
                      Office of Program Development, the office tries to assign special project
                      proposals to programs that already exist. At this point in the review
                      process,staff in the Office of Program Development sign off on the pro-
                      posals and indicate whether or not they agree with the concept of the
                      proposals. They do not review the scopeof work or the methodology


                      Page 43          GAO/RCED-9989Improving the Minority Business Development .4gency
                            becausethe proposals have not yet been developed into formal applica-
                            tions, and in many cases,they are only ideas. According to MBDA policy
                            and procedures, proposals are rated individually on their own merit.
                            The proposals are then forwarded to the Director, MBDA, who makes the
                            final decision whether the proposals should be developed into formal
                            applications that will be processedfor funding. If any or all of the
                            offices in the review and rating processrecommend a proposal not be
                            funded, the Director can disregard the recommendations and decide to
                            fund a proposal. If the Director decidesto fund a proposal, it is for-
                            warded to the appropriate regional office for processing.
                            The regional office works with proposers to develop formal application
                            packages.After the regional director is satisfied that the package meets
                            all MBDA requirements, the regional director prepares a memorandum
                            stating whether or not the project is recommendedfor funding. Head-
                            quarters officials stated that it is unusual for a regional director not to
                            recommend a project at this point. The package is then forwarded to
                            headquarters and is subjected to the samereview procedures as the
                            competitive grants packagesunder the Center program.


Special Project Proposals   The former MB&I Director approved the expenditure of about $8.9 mil-
Funded With                 lion of discretionary funds for 66 special projects during fiscal years
                            1985 through 1988. These funds were obtained by redirecting either
Discretionary Funds         other program funds from MBDA program costs that had been disallowed
                            or appropriated program funds that had not been obligated and
                            expended by the end of the fiscal year.
                            Table III.1 lists the special projects funded with discretionary funds dur-
                            ing fiscal years 1985 through 1988. Forty-four grantees received discre-
                            tionary funds to carry out the 66 projects.
                            We reviewed 8 of the 66 project files to ensure that other MBDA officials
                            besidesthe Director had been involved in the review and approval of
                            the projects and to ensure that the projects were being monitored after
                            funding. We found that although only the Director can approve funding,
                            several offices, such as the Office of Operations, the Office of Program
                            Support, and the Office of Chief Counsel,reviewed the proposals and
                            submitted their recommendations regarding funding. After funding was
                            approved, MBDA'S Office of Counsel and Commerce’sOFFA conducted
                            additional reviews. Our review of the special project files showed that



                            Page44            GAO/RCED-9069hn~roving the Minority Bttsimsr, Development Agency
                                           MBM’r     AQQkation   and Review Prom68for
                                           Specify




                                           these projects received the samekind of monitoring as the grants under
                                           the Center program. (Seediscussion in ch. 2.)
Table 111.1:Special Projects Funded With
Discretionary Funds From Fiscal Year       Grantee                                Purpose                                            Amount
1gO5 Through Fiscal Year 1988              Golden State Business League,          Develop small business incubator                   $525,000
                                           Oakland, CA
                                           Chinatown Neighborhood,                Promote minority use of public sector               500,000
                                           New York, NY
                                           Asian-Pacific American Chamber of      Stimulate/coordinate   private sector               275,934
                                           Commerce,                              initiatives
                                           Washinaton. D.C.
                                           National Council of Hispanic Women,    Stimulate/coordinate    private sector               20,000
                                           Washington, DC.                        initiatives
                                           Texas Association of Mexican-          Motivate youth toward completion of                 490,000
                                           American Chambers of Commerce,         education, encourage youth toward
                                           Austin, TX                             entrepreneurship
                                           National Association of Black and      Collect, evaluate, and disseminate                  528,725
                                           Minority Chambers of Commerce,         relevant business, convention, travel,
                                           Oakland, CA                            and tourism information
                                           Mexican-American Foundation,           Conduct seven forums for networking                 520,347
                                           San Dieao. CA                          and five procurement conferences
                                           University of Texas,                   Develop pilot training model                        416,320
                                           Austin, TX                             incorporating uniqueness of
                                                                                  entrepreneur characters
                                           National Minority Suppliers            Assist in providing affordable working              692,249
                                           Development Council,                   capital to minorities in securing
                                           New York, NY                           contracts
                                           DYMA Associates, Inc.,                 Develop export trading company/                     243,049
                                           Washington, DC.                        merchant bank
                                           Florida A&M University,                Develop, implement, coordinate                      943,750
                                           Tallahassee, FL                        national program for establishing,
                                                                                  expanding, and saving minority
                                                                                  business
                                           Oklahoma University,                   Assess problems of Indian-owned                      30,397
                                           Norman, OK                             businesses
                                           Interracial Council for Business       Conduct in-depth broadcast training                 200,000
                                           Opportunity,                            program for Center staff
                                           New York, NY
                                           ;;im; Veeture Corporation,             Educate minorities to identify                      216,450
                                                                                  revitalization and financial assistance
                                                                                  resources
                                                                                  Disseminate bid opportunities, assist               200,000
                                                                                  state/local procurement goals
                                           Coalition of Minority Women,           Develop/implement entrepreneurship                  150,000
                                           Washington, D.C.                       network for minority women                           --
                                           National Association of Minority       Develop a system to obtain, store,                  223,459
                                           Contractors,                           retrieve, and disseminate
                                           Washington, DC.                        construction industry data
                                                                                                                                   (continued)




                                           Page 46                 GAO/RCRD99-69Improvins the Minority Ruhese        Development       Agency
                                                                                    --
MBM’r Application and Review Procew for
speeuprojecte




Gmntee                                Purpose                                       Amount
National Association of Hispanic      Increase Hispanic construction                $225,000
Contractors,                          enterprise participation in the Surface
Washington, D.C.                      Transportation Assistance Act
                                      Proaram
U.S. Conference of Mayors,            Develop profiles of USCM member                178,740
Washington, D.C.                      cities, minority business development
Latin American Manufacturers          Identify subcontracting opportunities          342,388
Association,                          in construction of McDonnell-Douglas
Washington, DC.                       Cl 7 aircraft
phw;r 7: Grande Municipalities,       Provide training for elected officials to      200,000
                                      develop economic development
                                      plans .
San Juan, PR                          Assist San Juan in establishing an                 95,000
                                      Economic Development Department
National Hispanic University,         Promote awareness of business                  300,000
Oakland, CA                           opportunities to Hispanic youth
Fulton County, GA,                    Create and expand minority                         50,oocl
Atlanta, GA                           businesses
International Consultant Services,    Identify information/product needs                 75,000
Inc.,                                 with foreign companies
McLean, VA
American Association of Community     Support MBDA’s Partnership                     840,000
and Junior Colleges,                  Program by establishing alliance
Washington, DC.                       between education, business, and
                                      government through the community
                                      colleae network
Albuquerque Hispanic Chamber of       Expand small business membership               157,500
Commerce,                             in the Chamber and assist in the
Albuquerque, NM                       development of business
Federal Procurement Data,             Publish a list of small and large                     500
Arlington, VA                         minority-owned firms and 8(a)
                                      contractors
Corliss. Inc.,                        Conduct debt collection services                    4995
Washington, D.C.
Multnomah County,                     Description not available                           2,512
Portland. OR
Nevada Economic Development,          Conduct 3rd annual private sector/                 38,898
Las Vegas, NV                         federal procurement conference
Greater Washington Ibero-American     Conduct membership expansion                   139200
Chamber of Commerce,                  drives and provide business
Washington, DC.                       information to members
Chicago Economic Development          Description not available                           1,473
Corporation,
Chicago, IL
Uptown Chamber of Commerce,           Conduct a conference to promote                     9,100
Phoenix. AZ                           tourism obportunities
Federal Marketplace Services,         Determine federal procurement                       8,500
Washington, DC.                       information needs and capabilities
International Trade Administration,   Publish a handbook of franchise                    12,130
Washinoton, DC.                       opportunities
                                                                                  (continued)




Page 46               GAO-            Improving the hiinorhy Bnsinem Development Agency
Appendix Ill
MBM’s Application and Review Processfor
special Pmjecta




Grantee                                Purpose                                  Amount
Social Policy Corporation,             Cosponsor a planning assembly to          $5,000
Washington, D.C.                       produce a publication on business
                                       development
National Economrc Association,         Conduct a review of the black               3,000
New York, NY                           political economy
The Maxima Corporation,                Description not available                  9,000
Washinaton, D.C.
E. H. White and Company,               Provide operations and technical         119,610
San Francisco, CA                      support for MBDA information
                                       proaram
U.S. Hispanic Chambers of              Conduct four minority learning            38,000
Commerce,                              seminars
Kansas Citv. KS
EVKO Productions,                      Conduct public relations activities       22,233
Washington, DC.
Garcia Lopez Consulting Agency,        Conduct workshops                           3,000
Washington, DC.
Norfolk State University,              Conduct a minority business               30,000
Norfolk, VA                            development conference
TOM                                                                          S8,886,45?




Page 47                 GAO/RcEDgo69 improving the Mlnorlty Business Development Agency
Appendix IV

Minority BusinessDevelopmentCentersThat I-
SuspendedOperationsBecauseof Delays in the
Grant Process@‘iscalYears 19864988)
                                                                         Dow sustmded
              Center location                                        1906        1987                    1988
              Anaheim, CA                                                                                   30
              Baltimore, MD                                                                 23              30
              Brownsville, TX                                          214                  31              30
              El Monte, CA                                              30
              Chicago, IL                                               51
              Cincinnati/Dayton,   OH                                   28
              Hartford, CT                                                                                  61
              Denver, CO                                               245                  31             243
              El Paso, TX                                              214                  31              30
              Honolulu, HI                                              92                  31             274
              Laredo, TX                                                                    30              61
              Little Rock, AR                                                                               92
              Manhattan, NY                                                                                182
              McAllen , TX                                                                  30              92
              Minneapolis/St. Paul, MN                                                                      62
              Mobile, AL                                                                                    30
              Montgomery, AL                                                                                30
              Newport News, VA                                             12                7              57
              Oklahoma City, OK                                                                             31
              Philadelphia, PA                                             18                9              30
              Phoenix, AZ                                                  31                               30
              Pittsburgh, PA                                                                13              33
              Richmond, VA                                               8                                  92
              Riverside, CA                                             91
              Sacramento, CA                                           151
              San Francisco, CA                                        122
              San Jose, CA                                              31                  92
              Seattle, WA                                               61
              Shreveport, LA                                           123                                  30
              Tucson, AZ                                               212
              Tulsa, OK                                                183                 212        -___ 153
              Washington, D.C.                                          91                  20              31




              Page 48               GAO/BcEDI)oBQ Improving the Minority        BusinesaDevelopment    Agency
Appendix V

Description of MESDAHeadquarters
Offices’ ITunctions

              The Office of the Director includes the Director’s Office and the Deputy
              Director’s Office. The Director’s Office provides overall direction to the
              agency in developing and implementing agency policies, goals, objec-
              tives, and programs. The Director’s Office also determines the agency’s
              organizational structure and is responsible for financial and personnel
              resources.The Deputy Director’s Office provides assistanceto the Direc-
              tor and acts for the Director in his absence.

              The Office of Chief Counselprovides legal services and support to the
              Director and all componentsof the agency. Someof the principal respon-
              sibilities of this office are to prepare and review legislative proposals,
              executive orders, and legislative reports; identify and review legislation
              related to minority enterprise development; and review and recommend
              agency statements and testimony for congressionalor public hearings on
              legislation.
              The Office of External Affairs is responsible for coordinating activities
              relating to the advocacy of minority businessdevelopment. This office is
              divided into three divisions: CongressionalAffairs, Communications,
              and Advocacy.

              The CongressionalAffairs Division develops and maintains sound and
              effective relations with membersof the Congress,congressionalcommit-
              tees, and their staffs. The Communications Division serves as the focal
              point for all agency public affairs and public information activities. The
              Advocacy Division plays a leadership role in developing and implement-
              ing a program that effectively represents the concernsof minority busi-
              nessregarding minority businessdevelopment and MBDA.
              The Office of Administrative Managementis responsible for the man-
              agementof the agency’sbudget, managementsystems, and administra-
              tive support. This office includes the F’inancial Management Division
              and the ManagementDivision. The Financial ManagementDivision
              develops and maintains a comprehensivebudget and financial manage-
              ment service for the agency. The ManagementDivision functions as the
              agency advisor on all matters relating to managementsystems.

              The Office of Operations is responsible for grants administration and the
              financial review process.This office establishespriorities for the alloca-
              tion of program resourcesamong the regional offices. The office ensures
              that special and demonstration projects are logged and submitted to the
              Office of Program Development for review and funding. The office also
              coordinates policy objectives with Commerce’sOffice of Finance and


              P8ge 49          GAO/IK%MWW Improvlne the Minority v     Development Agency
Appendix V
becrlption of MBM Headquarters
ofnces’ Punctlons




Federal Assistance to ensure the processingof grants and cooperative
agreementsin a timely manner. The Office of Operations includes two
divisions within headquarters: the Operations Division and the Field
Coordination Division. In addition, all regional offices report to the
Associate Director for Operations.
The Office of Program Development is responsible for designing and
developing all MBDA programs and identifying and coordinating private
and public sector resources.The Program Development Office is divided
into three divisions: Private Sector Division, Public Sector Division, and
BusinessDevelopment Division.

The Private Sector Division develops programs to encouragethe crea-
tion and growth of minority businessopportunities within the private
sector. The private sector delivery system provides management and
technical assistanceto eligible firms and increasesminority-firm partici-
pation in growth sectors of the economy and in emerging technologies.
The Public Sector Division is responsible for program development,
oversight, and implementation of federal, state, and local programs. The
Business Development Division identifies the need for, develops, and
maintains programs, policies, and priorities for the delivery of manage-
ment and technical assistanceand other businessdevelopment services
to client minority firms.

The Office of Program Support is responsible for the operation and
maintenance of the agency’sinformation support systems. The office
operates the PROFILE National Minority Data Base and strategic sys-
tems that support program and managementoperations. This office also
managesagency-sponsoredresearch programs and analyzes research
studies of economicconditions affecting minority businessdevelopment.
The Office of Program Support is divided into three divisions: Research
Division, Data ResourcesDivision, and Planning and Evaluation
Division.
The ResearchDivision gathers data and research information, sponsors
research studies, and makes recommendationsfor future agency policy
decisions.The Data ResourcesDivision is responsible for the collection
and processingof data on agency performance and maintenance of
agency information systems. The Planning and Evaluation Division
interacts with agency units to develop strategies to meet goals and
objectives.




Page 50           GAO/RCEDgMB Improving the Minor&y Business Development Agency


                                                                             _-
                                            Appe*     V
                                            Description of MBDA Headquartera
                                            omces’ Fbnctlons




Table V.l: Authorized and Actual Staffing
Levels a8 of September 30,1988                                                                                Authorized
                                                                                                              permanent           Permanent
                                                                                                                                        rtaff
                                            Headquarters                                                            stir3!         on board’
                                            Office    of   the Director                                                       9              5
                                            Office    of   Chief Counsel                                                     6               5
                                            Office    of   External Affairs                                                  19            16
                                            Office    of   Administrative Manaaement                                         21            21
                                            Off ice   of   Operations                                                        19            19
                                            Office    of   Program Development                                               21            19
                                            Office    of   Program Support                                                26               23
                                              Subtotal                                                                   121              108

                                            Reaional offices
                                            New York (I)                                                                     16            15
                                            Washington (II)                                                                  15            14
                                            Atlanta (III)                                                                    17            16
                                            Chicaao (IV)                                                                     14            13
                                            Dallas (V)                                                                       16            16
                                            San Francisco (VI)                                                               17            16
                                               subtotal                                                                      95            90
                                            TOM                                                                          216              198
                                            Turrent permanent on-board numbers do not include temporary employees




                                            Page 51                    GAO/RCED-904gImproving the Minority Business Development Agency
Appendix VI

Major Contributors tg This Report


   -
Resources,                EugeneAloise, Assignment Manager
Community, and            Jacqueline Bell, Evaluator
                          M. Jane Hunt, Reports Analyst
Economic
Development Division,
Washington, DC.

Detroit Regional Office   Lawrence Charron, Site Senior
                          Patricia Carlucci, Evaluator
                          Pamela Brown, Evaluator

                          Susan Mak, Site Senior
San Francisco             Amer Kayani, Evaluator
Regional Office




(077071)                  Page 52         GAO/RCED4O8B    Improving the Minority BuelnessDevelopment Agency
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