
Many established businesses have articulated goals for procurement of goods and services from disadvantaged or diverse businesses. This practice is recognized as a viable means to support and encourage development of minority-owned and women-owned businesses, as well as other businesses like disabled-veteran-owned companies. The practice has benefited these disadvantaged enterprises, while also providing economic benefits more broadly to underserved communities. However, these goals are sometimes circumvented when seemingly eligible companies pass through much of the money they have received under these programs to purchase goods and/or services from firms that would otherwise be ineligible.
Under common practice, companies that intend to circumvent the requirements of these programs put eligible persons nominally in charge of the business, though they are actually fronts that are owned, managed and controlled by noneligible persons.
The problem is being increasingly addressed through third-party certifications that can effectively root out ethnic or racial minority front companies. However, there are still questions about legitimacy and certification of women-owned businesses, where a woman serves as owner and principal officer but the husband is actively involved. In these instances, it is nearly impossible to ascertain if these firms are legitimate or are fronts.