Audit of Contractor Compliance with the Chicago Base Wage Ordinance

The Office of the Inspector General (OIG) conducted an audit to determine if contractors and subcontractors complied with the Chicago Base Wage Ordinance. Similar to living wage laws adopted by cities nationwide, the purpose of the Ordinance is to ensure that City contractors and related subcontractors pay their employees in excess of poverty-level wages, both as a matter of principle and as a means of stimulating the local economy.

Our original report in November 2017 inaccurately reported that three subcontractors were not compliant with the Chicago Base Wage Ordinance. In June 2018, the Department of Procurement Services (DPS) provided documentation that identified an error in OIG’s analysis and showed the subcontractors were in virtually complete compliance with the Ordinance. The contractors and subcontractors had provided OIG a set of employee data, some of which related to City of Chicago contracts and some of which did not. OIG inadvertently included both categories of data in our original analysis. We regret that our existing quality control procedures did not discover and address this error. Although we are confident that this situation is an outlier, and that our reports are otherwise accurate and reliable, OIG is taking steps to implement an additional, mandatory review of source data by management in order to reduce the risk of similar errors in the future.

Upon re-conducting the analysis, OIG found that while four prime contractors and three subcontractors reviewed in the audit had paid the hourly base wage rate required by the ordinance, one subcontractor paid 12 employees between $0.02 and $0.03 less per hour. Those underpayments, however, were retroactively paid. Pursuant to the original audit, DPS had requested proof from the contractors that their subcontractors had paid the correct wage to all covered employees throughout the life of the contract. The contractors found some minor underpayments by subcontractors in time periods outside the scope of OIG’s analysis, and provided proof to DPS that the affected employees had been made whole.

OIG had also recommended that DPS implement procedures to prevent and detect future wage violations. The errors described above notwithstanding, OIG found that the City lacked a standardized process with sufficient controls to provide reasonable assurance that prime contractors and subcontractors comply with the Chicago Base Wage Ordinance. DPS stated it relies on contracting departments to ensure base wage compliance as part of their contract management and monitoring practices. DPS acknowledged, however, that managing departments do not generally collect certified payroll records from contractors and that, in fact, information collected varies widely from department to department.  DPS also acknowledged that managing departments may approve annual price increase requests without inquiring about wages or receiving confirmation that the contractor is in compliance with the Ordinance. Therefore, in our original report OIG recommended that DPS move the City to adopt a more proactive approach to promoting wage rate compliance and that DPS provide guidance on monitoring wage rate compliance to all departments that manage contracts with wage requirements. Such guidance should include specific procedures that departments should use to confirm proper base, overtime, and training wages paid by both prime contractors and subcontractors. Finally, OIG recommended that DPS should implement procedures to determine whether departments are effectively monitoring wage rate compliance.

In response, DPS promptly sent a memorandum to City department heads reminding them of their role in monitoring contractor compliance and requesting that departments alert DPS to any irregularities discovered. DPS also met with the Mayor’s Office, Department of Finance, Department of Law, and user departments to discuss methods for actively monitoring contractors’ wage rate compliance from which DPS advanced a recommendation to standardize invoicing requirements and review procedures across user departments.