GAO Reports Focus on Minority Businesses

The Defense and Treasury departments are among government entities that have been remiss in granting contracts to disadvantaged and minority-owned advertising agencies.

A Government Accountability Office report (pdf) released Monday found that four federal departments and one agency paid more than $4 billion for advertising from fiscal 2001 to 2005, but did a poor job of directing much of that money to these generally smaller firms.

From fiscal 2001 to 2005 these firms received about 5 percent, or $218 million, of the $4.3 billion for advertising campaigns and related obligations from the departments of Defense, Treasury, Health and Human Services and Interior as well as NASA.

Use of disadvantaged and minority ad agencies varied. For example, the GAO found that Treasury and Defense awarded less than 2 percent of its ad-related dollars to these firms over the five years analyzed, but NASA awarded 89 percent of its contracts to them. The Interior Department offered about 6 percent of its contracts to these businesses.

The Defense Department used 1.8 percent of their contract dollars for minority advertising firms and paid them on average nearly 84 percent less per contract than majority firms, according to the study. The Treasury Department put 1.9 percent of their contract dollars toward minority firms and paid them about 47 percent less per contract than majority firms.

Even before the GAO report was released to the public, Senate and House Democrats released a statement urging federal agencies to take a more active role in increasing the amount of federal advertising contracts awarded to disadvantaged and minority-owned businesses.

"I am deeply concerned that the departments of Defense and Treasury are denying minority advertising firms the opportunity to work with the federal government," said Senate Majority Leader Harry Reid (D-Nev.) "That they may even be discouraging hiring minority firms and paying them nearly 84 percent less than majority firms is even more disturbing."

Reid, Small Business and Entrepreneurship Committee Chairman Sen. John Kerry (D-Mass.), Senate Judiciary Committee member Chuck Schumer (D-N.Y.) and Congressional Black Caucus Chair, Rep. Carolyn Kilpatrick (D-Mich.) sent two letters Monday to the departments of Defense and Treasury expressing concern for their poor record of awarding contracts to minority and disadvantaged businesses. They also requested them to outline steps they are taking to increase contracts with minority advertising firms.

The lawmakers said they requested that the GAO conduct the study because many minority media outlets and advertising firms have said that access to the federal advertising market is "severely limited." They also argued that minorities "have been misrepresented and under- epresented in the media and advertising for years. We believe this problem can be alleviated in part by using minority ad agencies, minority media buyers and minority media outlets in federal advertising campaigns."

The GAO also released a report (pdf) Monday reviewing a government loan program designed to help small businesses obtain credit. The 7(a) program guarantees a portion of each loan, reducing the lender's risk. The GAO noted that determining the program's success is difficult because performance measures only show the number of loans provided, but not the fate of the business loan recipients.

The Small Business Administration said it has plans to develop additional, outcome-based performance measures for the 7(a) program, but is not certain when these measures may be introduced or what they may capture, according to the study.

The GAO found that a higher percentage of 7(a) loans went to minority-owned and start-up businesses compared with conventional loans from 2001 to 2004. But loans guaranteed by the program were more likely to be larger and have variable interest rates, longer maturities and higher interest rates.

By Sharon McLoone |  August 14, 2007; 10:00 AM ET Regulation Legislation
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