[author: Paul McGovern]

Jenny Yang announced her departure as Director of the Office of Federal Contract Compliance Programs (OFCCP) effective March 31, 2023. She will become Deputy Assistant to the President for Racial Justice and Equity. Circa’s October 2022 blog stated that OFCCP was at a crossroads. What direction did OFCCP take under Director Yang?

Jenny Yang became OFCCP Director on January 21, 2020, the first day of the Biden administration. For most of her tenure, the Agency has favored aggressive tactics for a pervasive monitoring of federal contractors. Contractors were concerned that OFCCP was wasting resources by performing comprehensive reviews for all audits.

Agency representatives including Director Yang were receptive to federal contractors’ concerns about OFCCP’s practices. A recent spate of audit closures and unofficial comments by Agency representatives suggest that contractors’ concerns are being addressed. OFCCP is now focusing its resources on audits for which an initial review suggests possible discrimination or technical violations. OFCCP intends to close those audits that show few issues on initial “triage” review early in the review process. For this to occur during a Democratic administration may be Director Yang’s most tangible legacy.

Until Recently: Deeper and Deeper Reviews of Fewer and Fewer Audits

Until recently, OFCCP initiatives under Director Yang would increase the complexity of the audit process. Initiatives included:

• In March 2021, OFCCP removed 1,750 short “compliance check” and “focused” audit reviews from previously issued Corporate Scheduling Announcement Lists (CSALs are advance notices of upcoming audits). See Circa’s blog The Saga of the Shrinking CSAL. OFCCP stated it would concentrate on “comprehensive” full-length reviews.
• In March 2022, OFCCP issued Directive 2022-01 which among other things set out significant expansions to contractors’ duty to review their “compensation systems.” See Circa’s blog “A Lot Below the Surface”.
• In March 2022, OFCCP sought permission to rescind the prior administration’s changes to the Supply and Service regulations (41 CFR Parts 60-1, 60-300, and 60-741). Contractors favored this update, commonly referred to as the “Pre-Determination Notice (PDN) rule changes,” as it clarified how OFCCP would undertake audits. See Circa’s blog on the proposed changes. The Office of Management and Budget (OMB) is reviewing the PDN request.
• Also in March 2022, OFCCP issued Directive 2202-02 rescinding Trump-era Directives concerning “certainty,” “transparency,” and “efficiency” in Agency operation. Under Director Yang, OFCCP maintained that the Directives created “rigid evidentiary standards” that deny the Agency the “flexibility” needed for “prompt resolutions.” See Circa’s blog What Does Directive 2022-02 Tell Us About OFCCP’s Intentions?
• In November 2022, OFCCP requested that OMB authorize significant additions to contractors’ initial desk audit submission. Among many other things, the changes would require contractors to detail pro-active steps taken to address “any” compensation problem area, “any” underrepresentation of individuals with disabilities, and “any” personnel process creating an “impediment to equal employment opportunity.” See Circa’s blog OFCCP Proposes Supersizing Contractors’ Initial Audit Response. OMB is reviewing this request.

Director Yang’s OFCCP maintained that the prior administration’s initiatives had slowed audit processing. It stated its new audits regime would be both comprehensive and fast. In FY 2022, however, the monetary relief OFCCP secured for protected groups declined to $11,763,477, less than a third of that secured in the last year of the Trump administration. In FY 2022, OFCCP closed less than a thousand audits. The OFCCP last showed such a low closure rate in 2018.

Both the 2018 and 2022 results decline were a result of changes in audit practice. A bit of background is in order. From 2003 to 2011, OFCCP engaged in a form of desk audit review called “Active Case Management” (ACM). Under ACM, OFCCP performed an abbreviated desk audit of most submissions, performing comprehensive audits only when an initial, summary review identified possible discrimination or a pattern of underutilization apparently disfavoring a protected group. In 2011, OFCCP rejected ACM audit triage in favor of “Active Case Enforcement” (ACE). Under ACE every desk audit was an in-depth review. Under ACM, OFCCP closed more than 4,000 audits per year. Under ACE, OFCCP enforcement metrics plummeted to 866 in 2018. The Trump administration ended ACE in 2019. Under Yang’s tenure, however, the OFCCP appeared to be in effect returning to ACE – with a low audit closure rate to show for it.

Recent Developments: A Return to Audit Triage

In the past few months OFCCP’s case closure rate has increased dramatically, from an average of sixty-three per month at the close of 2022 to over a hundred in January 2023 and almost ninety in February 2023. To better prioritize cases and improve timeliness, the Agency is returning to deciding early in the audit process which reviews to close and which to pursue. Internal standards are in place for hire and compensation review; work on standards for other audit areas is under way.

It is unclear what specific standards OFCCP is using and how communicative it will be about this initiative. After all, this is the same Agency that recently expressed concern that it needs flexibility, not “rigid evidentiary standards” to review contractors’ Affirmative Action Plans. The secret sauce, however, should really not be very secret: close those audits that have a small set of statistical indicators less than 3 standard deviations, small shortfalls, and no pattern of indicators disfavoring a protected group.

Conclusion

For FY 2023, OFCCP requested a 32% budget increase, and received an increase of 5%. For FY 2024, OFCCP requests a 36% budget increase to, among other things, increase its headcount to 620. The current political environment makes receiving the requested increase unlikely. The Agency will have to make do on something resembling its current budget of $110,976,000 and its current headcount, reportedly at 495.

Last year OFCCP closed less than two audits per employee. Audit triage will increase closure rates and, by concentrating resources on reviews likely to merit the attention, increase the Agency’s ability to identify and address non-compliance. This is good for the Agency and for federal contractors trying their level best to be compliant.

This is also an opportunity for OFCCP to rethink the Directives and rules change proposals outlined above. Otherwise, the complex review they lay out could see OFCCP continue to perform few audits, few of which l reveal compliance issues.

In the past, Republican administrations favored audit triage, and Democratic administrations favored reviewing each audit comprehensively. For Director Yang to have instituted a program of audit triage during a Democratic administration is a welcome change of direction. It may be the most intriguing development of her tenure, and perhaps the most productive.
Here is hoping her successor stays on this path for the good of all concerned.