Beverley K. Swaim-Staley, Secretary Zenita Wickham Hurley, Director

1. Maryland Department of Transportation Office of Minority Business Enterprise Issues Involving the Certification of MBE/DBEFirms and Trends in the MBE/DBE ProgramNational Fraud Awareness ConferenceJuly 27, 2010 Beverley K. Swaim-Staley, Secretary Zenita Wickham Hurley, Director Harold M. Bartlett, Deputy Secretary Richelle Thomas, Deputy Director Karen Gooden Williams, Assistant Secretary

2. Maryland’s MBE Program • Oldest Minority Business Enterprise (MBE) Program in the country. • Established in 1978

3. Maryland’s DBE Program • Applies to three Modes: • Maryland Transit Administration • State Highway Administration • Maryland Aviation Administration • Multi-jurisdictional certifications facilitated by Modified Reciprocity Certification Program

4. American Recovery & Reinvestment Act (ARRA) • Maryland received nearly $70M in ARRA funds • Increase in outreach to contractor community • Maryland was home to the first shovel-ready project on the ground in the nation

5. 2009 Certification Trends • 742 firms certified in 2009 • 6.5% increase • 130 days (average) from investigation to certification in 2009 • 14.5% decrease • 4,719 firms listed in MDOT’s MBE/DBE online directory (on 12/31/2009) • 10.4% increase

6. 2009 Certification Trends • 88% increase in the number of firms requesting an expansion of services from 109 in 2008 to 206 in 2009. • 226 Maryland firms participated in the Modified Certification Reciprocity Program by requesting certification in Virginia and/or the District of Columbia. • Nearly 60 firms from these neighboring jurisdictions have sought certification in Maryland.

7. 2009Maryland Legislative Actions • Addressing fraud complaints: • The 2009 Maryland General Assembly created an MBE Fraud Hotline • Penalties for several common abuses against certified MBEs were also expressly stated in law • Five years in prison • $20,000 fine

8. 2009 Maryland Legislative Actions • Reevaluating PNW caps: • Dollar amount of the cap is adjusted annually for inflation as indicated by the Consumer Price Index • The first $500,000 of qualified retirement savings is excluded from the calculation

9. 2010 Maryland Legislative Actions • Equity Investment • Established a Task Force to research and make recommendations on ways to increase the flow of equity investment dollars into MBEs • Reciprocity • Create procedures to streamline the MBE certification process for firms that are already certified by a race-conscious affirmative action contracting program run by the SBA or Maryland county governments

10. Trends

11. Trends • Applications • Increase is most attributable to the economy and ARRA • Nearly 50% increase in the number of out-of-state applicants over two years • Denials • 120 denials issued in 2009 • 53 issued in 2008 • 126% increase

12. Trends • In 2010, we remain on track to repeat last year’s increased in: • Applications Received • Certifications Issued • Denials • We also remain on pace to show continued decrease in the number of days from investigation to certification.

13. Case Study Establishing Ownership by a Disadvantaged Individual

14. Example • Sally H., a S&EDI, has worked for ABC Corporation for 10 years as V.P. of sales. ABC Corp., an IT firm with assets of $10 million, agrees to sell its company assets to Sally H. Sally H. creates XYZ Corporation, and assigns herself 100% ownership with minimal financial investment. XYZ Corp. then buys ABC Corp. for $10 million. The purchase agreement indicates that XYZ will repay ABC over time with proceeds from the purchased assets at 0% interest. XYZ Corp. applies for DBE certification. • Should XYZ Corp. be certified?

15. Case Study False Statements in the Application & False Documentation

16. Example • ENG Corp., an engineering firm, is owned 49% and 51%, respectively, by Mr. and Mrs. Smith, who are both Hispanic American. Mr. and Mrs. Smith are both engineers. ENG Corp. applies for DBE certification. After the onsite interview, Mrs. Smith calls MDOT and states that, despite what was in the application, she does not control the affairs of ENG. Rather, Mr. Smith is the true manager of the firm. Additional information submitted reveals that both Mr. and Mrs. Smith meet all of the financial requirements of the Program and there are no other issues regarding the firm’s eligibility for certification. • Should ENG Corp. be certified?

17. Case Study Group Membership v. Individual Determinations of Disadvantage

18. Examples • Egyptians and South Africans as African-Americans • Iranians as Subcontinent Asian Americans • A bi-racial great grandparent as evidence of group membership

19. Case Study Ethics Law Issues Involving Certification Staff

20. Examples Questionable activities include, but are not limited to: • applicant/certified firms performing work on staff’s personal residence; • certification staff forming outside businesses that help companies apply for certification; • certification staff starting businesses with owners of applicant/certified firms • certification staff establishing personal or romantic relationships with owners of applicant/certified firms;