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The Washington state agency that decides which small businesses qualify for special access to potentially lucrative highway contracts violated federal regulations in its push to move firms through the certification process.

Under pressure from Gov. Christine Gregoire, the Washington State Department of Transportation, and the U.S. Department of Transportation, the small agency cut corners as it tried to clear a backlog of applications for the program that reserves millions in taxpayer money for disadvantaged contracting businesses owned by women and minorities.

As recently as last month, Gov. Gregoire chastised the head of the Office of Women and Minority Business Enterprises about the need to certify more women and minority owned businesses - making them eligible for federally funded transportation projects.

Time is up. Time is up. Change has to be made, Gregoire told OMWBE chief Cathy Canorro on April 18 at a public meeting in Olympia (Watch the TVW video.)

This can't go on any longer. I agree with you governor. Thank you, thank you, Canorro replied at that meeting.

A continuing series of reports by the KING 5 Investigators catalogues numerous problems at OMWBE. Agency officials approved companies for the minority contracting program that should not have qualified, and at least one employee was pushed out after she refused to sign off on an investigation of one contractor.

KING 5 News has learned that the FBI and the inspector general of the U.S. Department of Transportation are looking into companies that benefited from OMWBE actions. One additional federal investigator has been assigned since KING 5 began airing its reports late last month.

Small player with big workload

OMWBE's key responsibility is to police which contractors qualify as disadvantaged business enterprises, or DBEs. Washington state's share of federal highway funds comes with some strings attached, including a requirement that a certain percentage of money spent on transportation projects be reserved for small firms owned by women or minorities.

These contractors apply to OMWBE for DBE status, and once they land it that status is renewed every three years. If a company grows its business past a certain threshold, it may no longer qualify as a DBE. And contractors must prove that they have expertise and equipment needed to perform jobs that they bid on -- the goal being to prevent smaller firms from passing along work to larger contractors that are not in the DBE program.

You don't want firms in the program who aren't eligible, that defeats the purpose for everybody who is, said Camy Naasz, a former OMWBE investigator.

If OMWBE can t process DBE applications and renewals, then the state s compliance with federal transportation funding rules is at risk, making the agency a gatekeeper to millions in spending.

Approve without review

OMWBE has felt the pressure for years to certify firms faster. KING 5 News found the effort to get rid of the backlog led to sloppy work, mistakes, and federal regulations being skirted.

In 2008, Naasz was told by her supervisor, Jean Wheat, that a backlog of applications needed to be cleared.

Naasz said she objected and, at the time, documented her concerns about being pressured to carry out unethical, and in her mind, potentially illegal activities.

I said no and they still said you have to do it, there's nobody else, there's a backlog of files and these have to go out, she said.

Under duress, Naasz said she signed off on 30 recertifications.

I knew it wasn't the right thing to do, but I didn't want to lose my job, she said.

The KING 5 Investigators also found that OMWBE told DBE-certified minority contractors that they could bid on jobs that involved work they had not already been certified to do -- a violation of federal law that requires firms to prove expertise in advance.

Specifically, the Code of Federal Regulations instructs states: You must grant certification to a firm only for specific types of work in which the socially and economically disadvantaged owners have the ability to (do) ... you must verify the disadvantaged owner's control of the firm in the additional type of work.

Case in point: In February, Arlington-based Penny Lee Trucking, a woman-owned business, indicated its interest in bidding on dump trucking work. The company was already certified for work including excavation and demolition. But KING 5 learned the investigator assigned to the case was pressured by the agency director to sign off on the new scope of work without a proper, mandatory investigation.

Per Cathy (Canorro's) request on Monday, I added the code for Dump Trucking and a letter has been prepared to notify the firm of this change, wrote the investigator in an internal OMWBE email on February 29.

The KING 5 Investigators learned that another investigator in the office heard Canorro give this directive as well. But later on February 29, Canorro denied that happened.

For clarification, I did not request that you add the (code) for dump trucking to this firm's certification status, wrote Canorro to the inspector. You, as the analyst assigned to handle this file, are solely responsible for conducting a complete review and thereafter making a recommendation to your supervisor concerning any (code) changes or certification status determinations.

Canorro declined KING 5's request for an on-camera interview. When confronted at her office parking lot about the Penny Lee case, Canorro said she wasn t in an position to answer questions about it.

I'm not familiar with the information that you have, so I can't comment on it, she said.

Canorro also denied that her superiors had pressured her to speed up DBE application reviews.

Well, first of all the governor has not told me that, Canorro said.

She deflected further questions from a KING 5 reporter by saying, We cannot follow due process by playing it out in the media.

On May 9, Canorro submitted her resignation, effective June 1 - a move that came after KING 5 ran three pieces detailing problems at OMWBE.

State Sen. Mary Margaret Haugen (D-Camano Island), chair of the Transportation Committee, said the OMWBE practices uncovered by KING 5 are unacceptable.

Haugen's concern is to make sure the billions of dollars that flow into Washington state for transportation projects continue. She wants to make sure that missteps at OMWBE aren't putting that funding in jeopardy.

(Federal dollars) are essential. They re essential. All of our major projects, we call them mega-projects, they all have federal dollars, said Haugen. Managers should be gone. That's not acceptable.

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