In 2012, the Portland City Council decided to direct spending to construction contracting firms owned by women and people of color.

"Evidence shows these initiatives reduced disparities, but they also suffered from design flaws and mismanagement, and were vulnerable to gamesmanship," City Auditor Mary Hull Caballero's team found. "The result is dissatisfaction from top to bottom, inside and outside the government."

One example: the so-called prime contractor program, which was aimed at contracts of $1 million or less. The idea was to provide small firms with experience so they could grow into larger firms.

But auditors found that most of the $56 million awarded under such contracts went to companies run by white people.

"This happened even though Council designed the program to expressly benefit minority- and women-owned businesses," auditors noted. "The authorizing ordinance said the program was intended to 'remedy' the 'evidence of disparities' in the use of women- and minority-owned firms as prime contractors on city construction projects."

In addition, although contracts under $1 million were supposed to be set aside for women- and minority-owned firms except in exceptional circumstances, auditors found that city bureaus awarded $33 million in such contracts to firms outside the prime contractor pool, often with no justification.

"This violated city rules," auditors found. "It also potentially withheld opportunities for wealth generation from program participants."

In other areas, such as goals for who got hired for certain jobs, the results were better.

But that was a rare success.

Auditors found that a city program to provide technical assistance to contracting firms was inconsistently applied and ineffective. They also questioned whether the certification process for firms seeking to qualify for preferential treatment was sufficiently rigorous:

City staff described observing questionable activities with certifications such as:

-Women-owned firms where the woman owner was never present, or a man, usually the certified owner's husband, managed the company.

-White-male contractors who would create second companies, get them certified as emerging small businesses, and subcontract with themselves because it was cheaper than subcontracting with outside companies.

-Indications that a certified firm was not actually performing city work, such as the presence of equipment at job sites that belonged to another contractor.

The audit provided examples, without names, of firms that appeared to game certification rules, and dinged the city's procurement staff for keeping poor track of equity goals and appearing at times to play favorites when awarding contracts.

Auditors made 16 recommendations for how the city could better meet its equity goals for contractors, most of them involving clearer rules, better communication, and thorough tracking and evaluation of expenditures.

"The city can and did improve equity through procurement policy, but programs must be well-designed and managed," auditors concluded. "Procurement also must maintain neutrality, engage in effective monitoring, and communicate clearly, regularly, and publicly about its work."

The city's chief administrative officer, Tom Rinehart, provided a response to the findings, generally agreeing with the recommendations.

"Rebuilding public systems to prioritize equity is difficult and complex work; however, it is work that we are committed to performing," Rinehart wrote. "We want to acknowledge this moment in our country's history and utilize this audit as an opportunity for increased transparency and accountability. Our goal is to ensure that staffing, policies and practices are designed to maximize both results and relationships in the city's equity in contracting programs."