Couch White, LLP; Harvey Talks MWBE Certification

By: Sarah Hall

Becoming a Minority- or Women-owned Business Enterprise in New York state requires more than just having a woman own a majority share of the business. 

Just ask Jennifer Kavney Harvey, an attorney specializing in construction law at Couch White, LLC, in Albany. About a third of her practice focuses on minority and women-owned business enterprises (MWBEs) from the perspectives of the MWBEs and the contractors that hire them.

MWBEs and certification

“Certification is a very granular task and a company seeking certification must go through an extensive process in order to get certified, including providing a whole host of information,” Harvey said. “It’s a vast amount of data that, I think, a lot of people don’t expect when they consider applying. Once a potential MWBE starts the process, many find it extremely overwhelming. For example, they must prepare detailed resumes for themselves, for the owners, for all the key people in the company and submit those. It’s tax returns. It’s vehicle registrations. It’s leases. It’s really quite an avalanche of paper.”

The process can also be extremely lengthy. State regulations presently say that any applicants are to be provided with notice of any deficiencies in an application within 21 days of submission and that all applications will be processed within 45 days of submission of a final completed application. But in reality, the volume of applications and the apparent lack of adequate staffing are such that it takes as much as two years for a submitted MWBE application to even be assigned an analyst.


From there, the process is no less rigorous. What comes next is an interview, typically by phone, with the business owners where the analyst from the Division of Minority and Women’s Business Development, within Empire State Development, go over the application with a fine-tooth comb.

“For example, I had one WBE applicant that did office supply fitups, and the questions that they were asking her were pretty specific,” Harvey said. “The person from the Division really had a good working knowledge of her industry. ‘What lines do you carry? Are you a distributor?’ Very, very specific questions that were technical and appropriate to understanding whether the applicant had good knowledge of the area in which she was seeking certification.”

Harvey said it’s imperative that applicants have a good understanding of the technical side of their business and the ability to assess cost estimates on projects. She always advises clients to take courses in whatever segment of the industry they’re in, including estimating or blueprint reading, when they are preparing to apply for certification.

Harvey said people often come to her after they’ve had their application denied.

“It gets tricky from there,” she said. “Although a denial can be appealed, you can’t reapply for two years after a denial under the regulations.”

However, if there’s been a change in circumstances since the original application that corrects the issues raised in the denial — for example, one applicant was denied because of an issue with the company’s bylaws, and following the denial the bylaws were amended to address and correct the issue — the applicant can get around the two-year waiting period and resubmit early with the permission of the Division.  

“If the reasons for the denial are address, the Division will typically grant a request to reapply early based on changed circumstances,” Harvey said. “And it’s possible to do that and get approved, too, actually, quite quickly, because they’ve just looked at your application.”

But Harvey said she prefers it when clients come to her when they’re just starting the process.

“I enjoy it when folks come in and they talk to me about, ‘Oh, do you think that my business would work as an MWBE as a certified entity?’ And we talk about it,” she said. “It’s a better approach to start with a strong application from the beginning as opposed to trying to repair it after denial.”

Contractors and MWBEs

Harvey said about a third of her practice centers around MWBEs. About half of those clients are contractors who work with MWBEs and are struggling with subcontractor and supplier goal issues, including waivers. She said this is a very specific and often tricky area of law.

“For example, did you know that contractors are often expected to pay a premium to an MWBE subcontractor over a quote from a non-MWBE?” she said. “That’s one of the challenges. What will happen is that a contractor will get a quote from MWBE that might be, perhaps 30 percent higher than the quote from a non-MWBE, and they have to assess whether that markup is excessive or commercially unreasonable… and if they guess wrong, they could be subject to some extremely severe penalties.”

Harvey’s job is to help contractors create and implement MWBE policies to ensure compliance. She said she’s provided guidance for a number of contractors of varying sizes, as well as training for administrators, estimators and project managers.

“That’s rewarding,” she said. “I enjoy doing that because I feel it’s protective to contractors and avoids issues.”

A changeable industry

One of Harvey’s biggest responsibilities as an attorney is to keep track of changes in legislation, to be able to advise trade associations and individual clients.

“This is really a rapidly changing part of the construction industry,” she said. “There were a number of changes in the statute that went into effect last month. But it’s also changeable because the guidance changes, and once the guidance to the state agencies changes, everything can change, so there’s a lot a lot to watch here.”

In the recent round of changes, New York state is trying to cut some of the red tape in order to streamline the application process. They’ve also changed the recertification process so that MWBEs can go five years between recertifications instead of three, which helps cut down on paperwork and stabilizes the status of MWBEs.

“That doesn’t sound like a big deal, but it’s huge for both MWBEs and the contractors who subcontract with them,” Harvey said.

But in recent months, Harvey said she’s seen more and more businesses that had been certified, in some cases for many years, as WBEs being denied when they go to get that recertification.

“And they’re not being decertified for some new circumstance, they’re being decertified because it looks like the department is like reaching back to their original certification which may have been from many years prior,” she said.

“To my mind, that’s going to be an industry problem at some point,” she said. “Legally from my standpoint, I think it’s very arbitrary and capricious for the department to reach back, especially to something that doesn’t form a part of the recertification application, and to make a different determination without some sort of change in circumstances or facts that rides along with that.”

Harvey said the trend could discourage people from applying in the first place.

“I’ve spoken with a number people that are qualified to be certified and aren’t being certified because they feel that the program is too much hassle and introduces other risks that they just don’t want any a part of,” she said. “And that’s kind of disappointing in a way because I know of contractors who are struggling to meet their goals and the more folks we have that are in the directory that are available and capable of performing the work, the better it is for everyone.”

Civil rights compliance

Harvey doesn’t just focus on MWBEs. Since a lot of her clients are heavy highway contractors and work with state and municipal agencies, she does a lot of work in civil rights compliance, which is particularly required by the federal government. She said this is an area in which contractors need to keep meticulous records.

“It’s enormously important, because it’s a true audit,” Harvey said. “The representatives from the public letting agency come on the job site.”

And those representatives, she said, will want to see project bulletin boards, subcontracts, hiring notices and records, policies and notices. So that they can ensure that equal employment and affirmative action requirements have been met during the project.

“For example, they may say, ‘You hired six people for this project. And all of them are males,’” Harvey said. “’Did your hiring notices contain proper EEO language?  Did you have any female applicants? And why didn’t you hire them?’ Things like that.’”

Harvey said contractors should be keeping track not only of who they hire, but who they don’t and why.

“It’s really easy if you have the data and compliant policies in place that are being followed. It is really hard, if not impossible, if you don’t,” she said. “Things like that are becoming increasingly more important from a defensive operational standpoint just because it’s strategically necessary to have complete project documentation. You may not need it. But if you do, boy, you’ve saved yourself some time and effort.”

MWBE and small business

 “One of the really interesting things about New York’s procurement policies in general is this longstanding goal of integrating small business and allowing it to participate in the huge amount of government procurement that goes on,” she said. “So it’s not it just these enormous companies. State procurement is supposed to also be inclusive of local, smaller companies, and to my mind the MWBEs, are a special category of those companies to a large extent.”

The use of MWBE goals on a large heavy-highway contract will result in subcontracting and supplier purchases from MWBEs that would not otherwise exist, but for the goals.

While the MWBE program is not perfect, Harvey said it’s a valuable program.

“I think everyone agrees that the program is a good one and it’s helpful for society,” she said. “It’s just a question of how best to implement it, and most effectively to properly implement it to achieve the goals that the program supposed to be achieving.”

Harvey said she hopes some of the changes that went into effect this year will make the application process less cumbersome for businesses. 
“I feel like the program is morphing,” she said. “I’m hopeful that it’s improving. Hopefully we’re going to see improvements in terms of processing time and consistent procedures going forward that will alleviate the frustration that many applicants feel. It just takes time and patience.”

B.R. Johnson, LLC Supports Workforce Development in Local Schools

By: Joel LaPuma

Ask a manager at any construction or manufacturing business in New York State and they’ll tell you that one of the biggest challenges is finding young employees. Attracting new trade graduates is urgent in the face of an aging workforce, but lack of awareness of these industries has created a lack of new students. One of the best ways to create this awareness, and corresponding graduates, is by implementing trade education in high school.

Recognizing this need, businesses like B.R. Johnson, LLC have invested in Career & Technical Education (CTE) Pathways programs at schools, which help students achieve the training and certification needed to begin a trade career. The company’s recent partnership with the Syracuse City School District (SCSD) is the next step in its ongoing commitment to building the next generation of skilled trade employees.

B.R. Johnson is a distributor and installer of commercial windows, doors, and hardware, as well as specialty building products. In its fourth generation of ownership, the company is “always looking for ways to strengthen our business as well as others through creative partnerships,” says Tom Resch, General Manager of the Commercial Door Frame and Hardware Business Line. It was Resch who spotted the opportunities CTE programs could create for B.R. Johnson during a tour of the Onondaga-Cortland-Madison Counties BOCES facility: 

“The welding programs instructor was extremely receptive to the idea of collaborating with us for internships [and] post education job placement, and we were equally excited for them to tour our facility, work on our material in the classroom and let our welders visit the classroom to speak to real world practices.” This relationship proved so beneficial that Resch joined the BOCES CTE advisory committee.

The BOCES CTE Pathways program has already helped B.R. Johnson grow its workforce: the company hired Jordan Simon, a BOCES graduate, as a welder for its Buffalo location, and she has “done well right out of the gate,” according to Resch, which “shows the promise of looking to programs like this for employees.” The experience has been valuable for Jordan, who has even accompanied Resch to classroom visits at BOCES to “share how she’s using what she learned in the workplace.” Of her CTE program experience, Jordan says, “Welding has opened up amazing opportunities for me…  The welding program really helped boost my confidence in my capabilities.”

There’s evidence this is a common experience for students in CTE programs. “[T]hese programs are reducing missed school days and are helping to raise graduation rates,” says Resch. The CTE Pathways programs have been so successful the district has begun introducing them to students as early as the 8th grade. Resch says the company plans on expanding its involvement with the SCSD program by “continuing to sit on advisory committees, sharing with business partners the existence and importance of these programs as well as lending other time and resources.”

Resch views this involvement as not only an investment in B.R. Johnson, but in the community. “Being a resident of the City of Syracuse I see great opportunity for both the community and the students,” he says. “After all, the students are our community… If we really want Syracuse to flourish, we need to pay attention to the workforce needs and how to best set up our students for success three, four and five years down the road. That is exactly what this program aims to do.”

Taking Command of Your Internal Controls

By: Benjamin A. Sumner, CPA, Partner, Dannible & McKee, LLP

Internal controls are an essential part of every business to help reduce misstatements in finances due to fraud or error.  Construction companies are vulnerable to this threat because they are often reactive to incidents that occur, as opposed to proactive in putting controls in place to prevent incidents from taking place.  It can also be very difficult to implement internal controls without a management team with expertise in the area.  The factors that can lead to fraud are opportunity, incentive, rationalization, and capability.  The only factor that a company can control is opportunity.  Good internal control implementation will lead to minimal opportunity for fraud to occur.

There Are Several Important Internal Controls That Every Company Should Have in Place

  • Monthly review of financial activity– Monthly review allows for the identification of significant errors or other issues in a timely manner. An example would be comparing the balance sheet and income statement from the prior month to the current month, budgeted amounts or to the same month in the prior year.
  • Use of checks and balances– Dividing responsibility of sensitive tasks between multiple individuals can preserve the integrity of the information. An example would be having a bank reconciliation performed by someone who isn’t normally responsible for the bank account transactions.  Also, rotating responsibility can achieve the same result.
  • Limitations on user access– Requiring the use of strong passwords and regularly changing passwords, restricting user access (both physically and logically) to only those that need access to perform their regular work duties, and installation of security cameras can help to protect sensitive information and assets.
  • Segregation of duties– The three duties that should always be segregated are: recording transactions, authorizing transactions, and custody of cash/signed checks. Although this can be difficult with limited staff, it is an area that needs continuous attention as circumstances within a company change over time.  Poor segregation of duties creates opportunity for rationalization leading to fraud.

What Are Some Steps to Implementing Great Internal Controls?

  • Tone at the top – Top level management and ownership should take implementation seriously and stress the importance to employees.
  • Document current policies and procedures for every significant transaction cycle. Examples are revenue recognition and cash receipts, expenses and cash disbursements, payroll process, etc. Use of checklists and user control matrices can be helpful.
  • Identify current control weaknesses, gaps and incompatible duties. Think critically about how someone might try to manipulate financial data or steal assets and implement changes to the current policies to address those issues.

How Can Your Accountant Help?

Accounting Services:

Transaction level or higher‑level services like regular meetings, outsourcing accounting services can help smaller companies to produce timely financial information. This is especially helpful for companies that lack management expertise or the resources to hire someone who does.

Financial Statement Engagements:

Audit– Provides “reasonable assurance” whether the financial statements are free from material misstatements through various procedures such as observing physical inventory counts, gaining an understanding of internal controls in place, confirmation of balances with outside parties and testing of transactions to source documents.  A management letter will provide recommendations about internal controls that can be implemented.

Review– Provides “limited assurance” through the inquiry of management and analytical procedures on your financial data.  This type of engagement is less in scope than an audit but will provide a closer look through your finances than a compilation engagement.

Compilation– Provides no assurance on the accuracy of financial data, however, will organize management’s financial information into a standard format under Generally Accepted Accounting Principles in the US (GAAP).  Significant errors may be recognized and corrected during a compilation engagement, but generally this type of engagement shouldn’t be relied on to find errors or fraud.

Other Services or Engagements:

Agreed-Upon Procedures– Specific procedures are performed on an account, class of transactions, or internal controls that are agreed upon in advance by management or a third‑party requesting these procedures.  An example is if a construction company only wants to test their work‑in‑progress accounts.  Agreed‑upon procedures provide a more cost‑effective way to gain comfort on a specific account balance without having an entire financial statement audit performed.

Internal Control Consulting– Consulting engagement where the organization’s internal controls are documented, and limited testing is performed to provide recommendations on improvement to management.  This can be a great way to develop better procedures and to objectively reassign duties.

Service Organization Control (SOC) Audit– SOC for Service Organizations audit reports are designed to help service organizations that provide services to other entities, build trust and confidence in the service performed and controls related to the services through a report by an independent CPA.  Each type of SOC for Service Organizations report is designed to help service organizations meet specific user needs whether it be reporting on internal controls surrounding financial reporting or internal controls related to security, availability, and processing integrity of the systems the service organization uses to process users’ data and the confidentiality and privacy of the information processed by these systems.

Protecting your company’s assets should be among the highest priorities for organizations of all sizes and stages.  While internal controls may not be able to completely prevent errors and fraud from occurring, a strong system of controls will reduce the opportunity for these issues to transpire.

Benjamin Sumner, CPA, is an audit partner and has over ten years of experience providing auditing, accounting and consulting services to a wide variety of privately-held businesses. Ben concentrates in the construction industry and specializes in providing audits of employee benefit plans.