The first outside audit found that state agencies do not fully comply with equal-opportunity laws, resulting in missed job and contract opportunities for people of color, women and people with disabilities.

The audit, ordered by Gov. Mark Dayton, concludes that state agencies do not follow the affirmative action, procurement and human rights laws already on the books to recruit, hire and protect a diverse pool of employees and contractors.

One example: Minority contractors got about 1 percent of the $2.4 billion in federal transportation dollars administered by MnDOT from 2012 to 2014, according to the report.

The 114-page audit, still in draft form, also found that the state has dramatically slashed the budget and staff at the Human Rights Department, which has the job of investigating discrimination allegations and reviewing departmental affirmative action plans.

Problems detected were not always fixed, according to the report. The state Department of Administration failed to correct disparities when found, even though the commissioner had authority to "use set-asides and percentage preferences … to increase contracting with targeted groups."

Although Administration increased its spending with certified businesses owned by people of color from $12.3 million in 2015 to $13.3 million in 2016, that was still less than a fraction of 1 percent of the more than $2.7 billion the department spends each year. Certified Asian businesses received $10.2 million, Hispanics $1.7 million, blacks $888,000 and American Indians $357,000.

"There is a lot of work that needs to be done," said Minneapolis attorney Michael Fondungallah, who wrote the audit with law partner Pamela Kigham and Milwaukee attorney James Hall. "People were signing off and were not following the law and not making the effort to recruit protected-class people."

Social justice advocates say that a lack of opportunity and deep-seated institutional biases play a big role in the state's dismal record of income and educational disparities, and that the report proves it.

"It's hard for minorities to get into certain areas. It's a good old boys club. If you don't know someone or have a relationship with someone, it's not passed down to you," said Dwayne Etheridge, a contractor and president of the regional Association of Minority Contractors.

The audit points to some successes and recent efforts. For instance, a MnDOT program called SEEDS has helped recruit minorities. Partnerships with the Right Track program in St. Paul and STEP-UP in Minneapolis work with the state to develop a pipeline of young talent to help diversify the state's workforce.

Recent strides

At the urging of the NAACP, Dayton ordered the $250,000 outside audit in April with the aim of finding and fixing problems in the system. The governor also established the Diversity and Inclusion Council to work toward the same goal.

People of color make up about 15 percent of Minnesota's population, but only 10 percent of the 34,000 people employed by state executive branch agencies identify as minorities. State employees of color report higher resignation rates and lower promotion rates than their white counterparts.

Dayton wants to double the number of minority employees before he leaves office in 2019. The governor has intentionally given the auditors breathing room to complete their work, said chief of staff Jaime Tincher, who co-chaired the audit working group.

"It's important to look back, but let's look at these numbers and use them to move forward to change the behaviors, and the strategies, and the tactics that are happening, with a focus on what we want to achieve," Tincher said in a statement.

She added that the state is already making strides. Since January 2015, of the nearly 170 people hired for top-level management jobs in state government, 23.4 percent were people of color, 8.2 percent were people with disabilities and 51 percent were women. Since 2015, the number of businesses owned by state-certified groups has increased from 898 to 1,115.

Curt Yoakum, a spokesman for Administration Commissioner Matt Massman, said the department is working to contract with more targeted groups such as women, people of color, people with disabilities and veterans, and it has established mandatory diversity training for its purchasing staffers.

Areas for improvement

In 2013, the Washington Post listed Minnesota as the second-worst state in the nation for African-Americans, who had median household incomes of less than half those of white families. It prompted the NAACP to demand an audit.

"There is a facade going on that we are doing very well here," said Hattie Bonds, a retired Minneapolis schools administrator who founded the nonprofit Women United. "I worked a lot with trying to diversify Minneapolis Public Schools. As soon as they moved me to something else, people started to dismantle what I set up."

The audit methodically assesses compliance with a number of statutes. Some of the problems uncovered:

• State job openings often are buried on a few websites and not routinely advertised among communities of color.

• Departments track the progress of "racial/ethnic minorities" as one category in affirmative action reports, rather than that of individual protected groups.

• "Unnecessary" job and education criteria could be screening out candidates. One example: Many Indians in the Bemidji area "have knowledge and could be extraordinary in fisheries" run by the Department of Natural Resources, but they can't apply if they don't have a bachelor's degree.

• The hiring process lacks oversight, especially in departments where there are few women and minorities. In one instance in 2014, three women and five people of color were among 38 who applied for several open positions with the State Patrol. No women or minorities were hired, and the hiring manager indicated that "no members of disparate groups were in the applicant pool."

• Counties, cities and school districts are not required to have affirmative action plans under state law. When state and federal dollars flow downstream, there's no guarantee that women or people or color are getting a fair shake.

Hall, who co-authored the audit, characterized the report as a mixed bag.

"There are many activities that the state is engaged in to promote inclusion. There are areas that could see improvement," he said. "There are areas of less than compliance."

Shannon Prather • 612-673-4804