Department of Health and Human Services 
OFFICE OF 
   
INSPECTOR GENERAL 
 
 
 
 
 
V
  ULNERABILITIES IN THE 
 
HHS S B
  MALL  USINESS 
 
 
I R
NNOVATION  ESEARCH 
 
 
P  
ROGRAM 
 
 
 
 
 
 
 
 
 
Daniel R. Levinson   
Inspector General  
 
April 2014 
OEI-04-11-00530   
   
EXECUTIVE SUMMARY:  VULNERABILITIES IN THE HHS SMALL BUSINESS 
INNOVATION RESEARCH PROGRAM, OEI-04-11-00530 
 
WHY WE DID THIS STUDY 
 
The Small Business Innovation Research (SBIR) program awards funds to small businesses to 
pursue innovative research and development ideas that have potential for commercial and that meet 
research and development needs of the Federal Government.  Since the implementation of the SBIR 
program in 1982, the Department of Health and Human Services (HHS) has funded more than $8 
billion in awards to small businesses that self-certify that they meet program requirements.  However, 
unlike most other SBIR awarding agencies, HHS does not have a single office responsible for 
overseeing its SBIR program.  In 1999, the Office  of Inspector General reported that HHS had not 
evaluated the success of the program.  Further, other Federal agencies have identified fraud in their 
respective SBIR programs, including awardees that falsely certify eligibility and receive duplicative 
funding from multiple agencies.   
 
HOW WE DID THIS STUDY  
 
We reviewed fiscal year 2011 data from the four HHS Operating Divisions (OpDivs) that participate 
in the SBIR program to determine the extent to which they ensured that awardees were eligible and 
that awards were meeting program guidelines and goals.  We also verified awardees eligibility using 
data sources commonly used by other Federal agencies to identify potentially ineligible awardees.  
   
WHAT WE FOUND 
 
HHS awarded $360 million in SBIR funds to nearly 1,000 awardees in 2011 and had the highest  
average SBIR award amount of any participating agency.  Although it was not required to do so, HHS 
did not consistently collect information on or assess the commercial success of SBIR awards and 
therefore cannot determine whether the program is meeting one of its primary goals.  Although all 
awardees self-certified that they intended to meet SBIR eligibility requirements, we found that 
31 percent of awardees had questionable or unverified eligibility for at least one requirement.  
Although they are not required to do so, HHS OpDivs did not take any steps to independently verify 
that these awardees met eligibility requirements.  Furthermore, although one OpDiv checked for 
duplicative funding within HHS, none of the four OpDivs completed a required check for duplicative 
awards across other Federal agencies. 
 
WHAT WE RECOMMEND 
 
Our findings raise concerns about vulnerabilities in the SBIR program.  To address these 
vulnerabilities, HHS should create a central office to oversee the SBIR program.  HHS OpDivs 
should track and assess the commercial success of SBIR projects, ensure compliance with eligibility 
requirements, and improve procedures to check for duplicative awards.  The Office of the Assistant 
Secretary for Financial Resources (ASFR) did not indicate whether it concurred with each of our 
recommendations.  However, ASFR concurred that additional coordination and oversight across 
participating OpDivs is warranted and agreed that HHS must ensure that applicants meet SBIR 
eligibility requirements. 
   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................8 

Findings......................................................................................................12 

HHS awarded $360 million in SBIR funds to nearly 
1,000 awardees in 2011 ..................................................................12 

Although HHS OpDivs are not required to collect information on 

the commercial success of SBIR awards, one of the four OpDivs 

did so..............................................................................................13 

Although all SBIR awardees certified their eligibility, 31 percent 

of awardees had questionable or unverified eligibility for at least 

one requirement  .............................................................................14 

HHS OpDivs did not perform a required check for duplicative 

awards across other Federal agencies ............................................18 

Conclusion and Recommendations ............................................................19 

Agency Comments and Office of Inspector General Response .....21 

Appendixes ................................................................................................22 

A: Differences in the 2011  and 2012 Small Business Innovation 

and Research Program Policy Directives .......................................22 

B: Detailed Methodology for Verifying Awardee Eligibility ........23 

C: Estimate Descriptions, Sample Sizes, Point Estimates, and 

Confidence Intervals ......................................................................25 

D: Agency Comments  ...................................................................26 

Acknowledgments......................................................................................27 

 
   
   
OBJECTIVES 
1. 	  To describe the Department of Health and Human Services (HHS) 
Operating Divisions (OpDivs) expenditures on the Small Business 
Innovation Research (SBIR) program in 2011. 
2. 	  To determine the extent to which, in 2011, HHS OpDivs: 
   collected information on the commerical success of SBIR products 
and services;  
   ensured that SBIR awardees met eligibility requirements; and  
   performed required checks to ensure that SBIR awardees did not 
receive duplicative funding for grants and contracts (i.e., awards). 
BACKGROUND 
The SBIR program is a competitive awards program created by the Small 
Business Innovation Development Act of 1982.1   These awards are 
intended to provide Federal funding to small businesses pursuing research 
and development ideas that have potential for commercialization and that 
meet research and development needs of the Federal Government.2, 3  
Federal agencies with research and development budgets of over 
$100 million for nongovernment groups are required to participate in the 
SBIR program and in 2011, were required to allocate 2.5  percent of their 
budgets to SBIR awards.4  SBA is the Federal agency that coordinates the 
 
1 P.L. 97-219, 96 Stat. 217 1982), 15 U.S.C.  638.  Congress reauthorized  this statute in 
2011.  This statute also created the Small Business Technology  Transfer  (STTR)  
program, which shares the goals of the SBIR program and also reserves a specific 
percentage of  Federal research and development funding to award to small businesses.    
2 Small Business Administration (SBA),  Small Business Innovation Research Program:  
2011 Policy Directive (2011 SBIR Program Policy Directive), p. 3.  Accessed at 
http://documents.scribd.com.s3.amazonaws.com/docs/4nxkhpa8hs11bk8f.pdf?t=1310401 
127 on August 9, 2011.   
3 Commercialization is the process of developing marketable products or services and  
producing and delivering those products or services for sale to  Government or  
commercial  markets.  SBIR awards can be distributed to awardees through grants  or  
contracts. 
4 This budget is known as an agencys extramural budget, or the sum  of  the total 
obligations minus amounts obligated for such activities by Government-owned, 
Government-operated facilities.  15 U.S.C.    638(e)(1).  The 2011  SBIR reauthorization 
specified that the percentage  of the extramural research and development budget that  
agencies must allocate to SBIR awards would increase to  2.6 percent in 2012 and to  
2.7 percent in 2013.  15 U.S.C.  638(f)(1)(C-E).  
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  1 
   
   
SBIR program across the 11 participating Federal agencies.5, 6  SBA issues 
Policy Directives to guide agency implementation of the program, 
monitors agency implementation of the program, and reports program  
results to Congress annually.7  Federal law and SBA establish general 
standards for the SBIR program, and agencies have flexibility in managing 
their individual programs within these standards.8    
Since the implementation of the SBIR program in 1982, HHS has funded 
more than $8 billion in awards to small businesses pursuing innovative 
research ideas. However, in 1999, the Office of Inspector General (OIG) 
reported that within HHS, the National Institutes of Health (NIH) did not 
evaluate the success of the program.9    
If HHS does not properly oversee the SBIR program, it cannot evaluate 
the programs success or ensure that awardees are eligible and are 
appropriately using funds. Other Federal agencies have identified fraud in 
the SBIR program.  Specifically, NASA has identified awardees that  
falsely certified eligibility, including a company that stated it was 
American-owned but was not and a company that stated it was a small 
business but was not.10  Further, the Government Accountability Office 
(GAO) stated in a 1995 report that SBIR awardees had received 
duplicative funds from at least three participating agencies.11 One of these 
agencies was the National Science Foundation, which stated that 
duplicative funding is the most frequent violation in its SBIR program.12    
 
5 The 11 agencies that participate in the SBIR program are the Department of 
Agriculture, the Department of Commerce, the Department of Defense, the Department 
of Education, the Department of Energy, HHS, the Department of Homeland Security, 
the Department of Transportation, the Environmental Protection Agency, the National  
Aeronautics and Space Administration (NASA), and the National Science Foundation. 
6 SBA,  What We  Do.  Accessed at http://www.sba.gov/about-sba-services/what-we-do on  
December 5, 2011. 

7 SBA,  2011 SBIR Program Policy Directive, pp. 3, 4,  25.  (See footnote 2 for  URL 

information.)  

8 SBA, 2011  SBIR Program Policy Directive, p. 4.  (See footnote 2 for URL information.)  
9 OIG,  Review of  the Effectiveness of  the National  Institutes of Healths Administration of  
the Small Business Innovation Research Program, A-15-98-00031.   This report focused 
solely on NIH because it makes the most SBIR awards in HHS.   
10 NASA, Review of NASAs Management  of its Small Business Innovation Research  
Program. Accessed at http://oig.nasa.gov/audits/reports/FY11/IG-11-010-R.pdf on  
July 10, 2013.  
 
11 GAO,  Federal Research:  Interim Report on the Small Business Innovation Research 
 
Program, GAO-RCD-95-59, March 1995.  Accessed at http://www.gao.gov/assets/160/  

154923.pdf on December 16, 2013. 

12 Alison Lerner, Inspector General of the National Science Foundation, Statement Before 

the Senate Committee of  Science, Commerce, and Transportation, August 6, 2009.  

Accessed at http://www.nsf.gov/oig/SBIRtestimonyAugust6.pdf  on August 19, 2013. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  2 
   
   
Congress passed the SBIR/STTR Reauthorization Act of 2011 in 
December 2011.13  To incorporate changes from the reauthorization, SBA 
updated its 2011 SBIR Program Policy Directive in October 2012, after 
the May 2012 end of our data collection for this study.  Throughout this 
report, we describe the SBIR program requirements that were in effect at 
the time of our review and note any changes resulting from the new Policy 
Directive. See Appendix A for a list of differences in the 2011 and 
2012 SBIR Program Policy Directives relevant to our review.   
The 2011 SBIR Reauthorization Act requires agency OIGs to cooperate in 
preventing fraud, waste, and abuse in the SBIR program by 
(1) establishing fraud detection indicators; (2) reviewing agency 
regulations and operating procedures; (3) coordinating information sharing 
between agencies; and (4) improving the education and training of SBIR 
administrators, applicants, and awardees.14 The 2011 SBIR 
Reauthorization Act also requires OIGs to submit annual reports to 
Congress describing actions taken and funds used to address fraud, waste, 
and abuse in each SBIR program.15  This report is not intended to fulfill 
HHS OIGs annual reporting requirement.    
SBIR Program Eligibility and Phases 
To be eligible for an SBIR award, an applicant must:   
	   have a Principal Investigator (i.e., the primary researcher who will 
conduct and oversee the research project) who is primarily 
employed by the small business;16    
 	  have fewer than 500 total employees, including affiliates;17  
 	  maintain a place of business in the United States and operate 
primarily within the United States;18 and  
 
 
13 National Defense Authorization Act for  Fiscal Year 2012, P.L. 112-81, 125 Stat. 1298, 
Section 5001 (2011). 

14  15  U.S.C 638b(a)(5).  See also SBA,  2012 SBIR Program Policy Directive. Accessed 

at http://documents.scribd.com.s3.amazonaws.com/docs/6c90n43wxs1wmoxi. 

pdf?t=1351707349  on July 31, 2013. 

15  15 U.S.C.  638b(c). 

16 To be considered primarily employed by the company, the Principal Investigator must 

spend more than  half of his or her time in the employ of the company at the time of 
 
award and during  the proposed project.  Occasionally, deviation from  this  requirement
  
may occur; such  deviation must be approved  in writing.  SBA, 2011 SBIR Program 
 
Policy Directive, p. 13.  (See  footnote 2 for URL information.) 
 
17 In  determining  whether affiliation exists, SBA considers such factors as ownership,  

management, previous relationships with  or  ties to another company, and contractual  
relationships.  13  CFR  121.103 (a)(1-2). 
 
18 Alternatively, applicants can make significant contributions to the U. S. economy 

through  payment of taxes or use of  American products, materials, or labor.   SBA, 
 
2011 SBIR Program Policy Directive, p. 7.   (See footnote 2  for URL information.) 
 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  3 
   
   
   be organized as a for-profit entity.19    
All SBIR applicants must certify that they meet all of the eligibility 
requirements before receiving an SBIR award.20  Specifically, applicants 
must check a box on the electronic application indicating that they intend 
to meet all eligibility requirements at the time of the award.21 Although 
awarding agencies are not required to do so, they can conduct additional 
eligibility checks at their discretion.  
The SBIR program consists of three phases.22  Applicants selected to 
receive SBIR funds, or awardees, must participate in Phase I of the 
program to participate in Phases II and III.  The object of Phase I is for 
agencies to determine the scientific merit and feasibility of a proposal as 
well as the quality of an awardees performance.23  Generally, Phase I runs 
for 6 months, and awardees may receive up to $150,000 in SBIR funds.24       
After completing Phase I, awardees must apply to receive additional 
funding in Phase II. In Phase II, awardees continue the research and 
development of the project.25  Phase II applications must include a 
commercialization plan that may include market analyses, patent status, 
and/or plans to secure funding for Phase III.26 Phase II generally runs for 
2 years, and awardees may receive up to $1 million in additional SBIR 
funds.27   The SBIR program permits agencies to exceed the amount in the 
funding guidelines for Phases I and II if the additional amount is fully 
justified and scientifically appropriate.28   Agencies must provide SBA with 
written justification for all awards that exceed the amounts in the funding 
guidelines. This justification must be included in the agencys annual 
report to SBA on the SBIR program.29  
 
19 Ibid., p. 7. 
   
20 HHS, SBIR Application Guide, p. III-27.  Accessed at 

http://grants.nih.gov/grants/funding/424/SF424_RR_Guide_SBIR_STTR_Adobe_VerB.p 
df  on October 26, 2011.   

21 If an awardee becomes ineligible after receiving an award, the award may continue at 

the scientific discretion of OpDiv program  officials.  However, the awardees are not 

allowed to compete for new SBIR awards after becoming ineligible. 

22 SBA, 2011  SBIR Program Policy Directive, p. 8.  (See footnote 2 for URL 

information.) 

23 Ibid., p.  9. 
 
24 Ibid., p. 17. 
   
25  Ibid., p. 9.  

26 Ibid., p.  14. 
 
27 Ibid., p.  17. 
 
28 NIH,  NIH Grants Policy Statement (October 2010),  p. IIB-254.  Accessed at 

http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on April 17, 2013.  
  
29 SBA,  2011 SBIR Program Policy Directive, p. 17.  (See footnote 2 for URL 

information.) 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  4 
   
   
In Phase III, awardees do not apply for or receive SBIR funding but 
instead seek non-SBIR Federal funds or private funds to pursue 
commercialization of products or services resulting from Phase I and II 
research and development.30, 31  Figure 1 illustrates the three phases of the 
SBIR program. 
Figure 1: SBIR Program Phases  
Phase III 
Phase II 
Phase I 
No Timeframe 
2 Years 
6 Months 
SBIR awardees 
SBIR awardees 
SBIR awardees  attempt to
continue research 
establish proposal commercialize their 
and development
feasibility and are  products and
from Phase I and are 
awarded up to  services and do not 
awarded up to 
$150,000.  receive SBIR 
$1,000,000. 
funding. 
Source:  OIG analysis of 2011 SBIR Program Policy Directive.  
The SBIR Program Within HHS 
Four HHS OpDivs issue SBIR awards:  NIH, the Centers for Disease 
Control and Prevention (CDC), the Food and Drug Administration (FDA), 
and the Administration for Children and Families (ACF).   
Unlike most other agencies that make awards under the SBIR program, 
HHS does not have a single office responsible for overseeing its OpDivs  
respective SBIR programs.32  Because NIH makes most of HHS SBIR 
awards, NIH solicits SBIR proposals for all participating HHS OpDivs, 
manages the scientific review of all HHS SBIR applications, and submits 
an annual HHS SBIR report to SBA on behalf of all four HHS OpDivs.33   
HHS uses grants and contracts to award SBIR funds and uses a different 
review process for the two types of awards.  Once they have received all 
HHS SBIR grant applications, external peer reviewers in NIHs Center for 
 
30 Ibid., pp. 910.  See also SBA,  SBIR. Accessed at http://www.sbir.gov/about/about-
sbir on April 22, 2013. 

31 Phase I awardees may advance to Phase  III and receive non-SBIR funds without 

participating in Phase II. 

32 SBAs SBIR Policy Directive assumes that each participating agency has an SBIR 

program  manager or coordinator and assigns several responsibilities to this office. See 

SBA, 2011  SBIR Program Policy Directive, pp. 13, 26, 29, and 37.  (See footnote 2 for 

URL information.)  The Department of Defense, the Department of Education, the 

Department of Energy, the Department of Homeland Security, NASA, and the National 
 
Science Foundation each have  an SBIR program  manager or  coordinator. 
 
33 NIH manages  the review of SBIR grant applications on behalf of all OpDivs, but CDC 
 
independently evaluates its  SBIR contract  proposals.  CDC awarded five contracts in
  
2011. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  5 
   
   
Scientific Review evaluate the scientific merits of the proposed projects.34   
After receiving reviewers scores and comments on the strengths, 
weaknesses and budget of the proposed project, each OpDiv considers 
NIHs scientific assessment and the OpDivs research and development 
needs to select which projects to fund.35    
A technical evaluation panel assesses SBIR contract proposals according 
to requirements in the Federal Acquisition Regulations and the HHS 
Acquisition Regulations.36   The panel makes recommendations related to 
the proposed research and budget. Program staff then conduct a second 
level of review before awarding a contract.37  
To help SBIR awardees commercialize products or services, agencies may 
also use SBIR funds to provide technical assistance to awardees in 
drafting and executing a commercialization plan.38 NIH has two technical 
assistance programs for SBIR awardees; for both, awardees must apply 
and be selected to participate. The Niche Assessment Program helps 
selected Phase I awardees identify the most appropriate market for their 
products or services.39   The Commercialization Assistance Program is for 
selected Phase II awardees that may need help transitioning their 
innovations from the research and development phase to the marketplace.40   
NIH maintains a page on its Web site where SBIR awardees can self-
report commercialization of products and services.  Other HHS OpDivs do 
not participate in structured commercialization assistance plans, but 
awardees may request technical assistance from their respective awarding  
OpDivs. 
HHS Oversight of the SBIR Program 
Each HHS OpDiv is responsible for overseeing its awards.  Oversight 
includes ensuring that awardees meet eligibility requirements and that  
awards are not duplicative. 
 
34 NIH,  NIH Grants Policy Statement  (October  2010), pp. I-49I-53.  Accessed at 
http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on  October  7, 2011.   
35  NIH,  Peer Review Process. Accessed at http://grants.nih.gov/Grants/peer_review_ 
process.htm on May 17, 2013.   
36 NIH and CDC are the only  HHS OpDivs that award SBIR contracts.  These OpDivs 
use a  joint guidance document  for reviewing SBIR  contract proposals.  HHS, Solicitation  
of NIH and CDC for SBIR Contract Proposals, PHS 2013-1. Accessed at 
http://grants.nih.gov/grants/funding/SBIRContract/PHS2013-1.pdf on November 25, 
2013. 
37  Ibid., pp. 2526. 
38 SBA, 2011  SBIR Program Policy Directive, p. 21.  (See footnote 2 for URL 
information.)   
39 NIH, Niche Assessment Program. Accessed at 
http://grants.nih.gov/grants/funding/nap.htm on October  21, 2011. 
40 NIH,  Commercialization Assistance Program.  Accessed at  
http://grants.nih.gov/grants/funding/cap/index.htm on October 21, 2011. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  6 
   
   
Ensuring That Awardees Are Eligible. Before receiving an award, SBIR 
awardees must certify that they intend to meet all eligibility requirements  
at the time of the award.  Although they are not required to do so, HHS 
OpDivs can conduct additional eligibility checks before funding an award.   
Further, if an HHS OpDiv is uncertain whether an applicant meets the 
SBIR eligibility requirements, it may request a size determination from  
SBA.41  SBA size determinations generally focus on the number of 
employees and size of affiliates, but SBA also collects information 
relevant to other eligibility requirements during this process.42    
Additionally, NIH uses what it calls Just-in-Time procedures to request 
additional information from applicants after an application has been peer 
reviewed and is being considered for funding.  This information may 
include documents relevant to an applicants eligibility.43   These 
procedures are specific to NIH grant awards.   
If an SBIR applicant submits a false certification of eligibility, OpDivs 
follow standard procedures for reporting grant fraud and abuse that may 
include actions up to and including pursuing criminal charges with the 
Department of Justice.44  If an entity knowingly submits a false claim and 
receives government funds, it is liable for three times the governments  
damages plus civil penalties.45    
Ensuring That Awards Are Not Duplicative. Applicants may propose the 
same project to multiple agencies.  However, agencies must avoid funding 
essentially equivalent, or duplicative, work under SBIR and other Federal 
programs.46  If an applicant receives funding from one agency, the 
applicant must withdraw the application(s) from any other agencies to 
which it applied.  If the applicant does not withdraw the other 
application(s), it may subsequently receive duplicative funding.  
 
41 NIH,  NIH Grants Policy Statement (October 2010),  p. IIB-251.  Accessed at 
http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on  October  7, 2011.   

42 SBA,  Guide to Size Standards.  Accessed at  http://www.sba.gov/content/guide-size-
standards on  April 24, 2013.  See also SBA Form 355.  Accessed at 

http://www.sba.gov/sites/default/files/SBA%20%20Form%20355.pdf on April 24, 2013. 

43 NIH,  NIH Grants Policy Statement (October  2010), pp. I-54I-55.  Accessed at 

http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on  October  7, 2011.  

Information requested as part of the Just-in-Time procedures may also include approval 

from the Human Subjects Assurance and Institutional Review Board and/or approval
  
from the Institutional Animal Care and Use Committee. 

44 Ibid., p. I-44.  See also False Statements, 18 U.S.C. 1001, Theft of  Federal Funds, 

18 U.S.C.  641. 

45 False Claims Act, 31 U.S.C.   3729-3733. 

46 SBA,  2011 SBIR Program Policy Directive, p. 21.  (See footnote 2 for URL 

information.) 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  7 
   
   
Duplicative funding can also occur if an awardee receives funding for the 
same project in multiple years.  
To manage awardee data, and in part to avoid duplicative funding, NIH 
stores data on HHS SBIR awardees and their projects in its IMPAC II and 
NIH Data Warehouse databases, which contain information for all HHS 
awards.47  CDC, FDA, and ACF provide data on their SBIR awardees to 
NIH to be included in these databases and can search the databases to 
avoid funding duplicative work within HHS. NIH is responsible for 
providing all of HHSs SBIR data to SBA through the SBIR.gov database.  
Before granting an award, each OpDiv is also required to check SBIR.gov 
to ensure that applicants have not been previously funded by HHS or other 
Federal agencies for duplicative projects.48  NIH requires applicants to 
self-disclose other active and pending financial support (e.g., other grants 
or contracts) as part of its Just-in-Time procedures.49 NIH does not 
require applicants to provide information on past awards. Further, NIH 
does not independently verify that applicants disclosed all other active and 
pending financial support. 
Previous OIG Work 
In 1999, OIG determined that NIH did not track and assess awardees 
commercialization of SBIR products and services.  NIH generally agreed 
with OIGs recommendations to improve its tracking and assessment of 
SBIR commercialization data.  NIH also stated that it was developing a 
methodology to link the significant investments that NIH has made in the 
SBIR program to specific and measurable outcomes.50   
METHODOLOGY 
We used NIHs Research Portfolio Online Reporting Tools (RePORT) 
Web site and SBAs SBIR.gov database to obtain and assess information 
on SBIR-funded projects as of March 12, 2012, for fiscal year (FY) 
 
47 NIH,  Query, View, and Report. Accessed at http://era.nih.gov/nih_and_grantor_ 
agencies/other/query_view_and_report.cfm on October  22, 2013.  
48 SBA,  2011 SBIR Program Policy Directive, p. 21.  (See footnote 46 for URL 
information.)  The 2011 SBIR Program  Policy Directive instructs agencies to use a  
database called Tech-Net to check for duplicative funding.   However, OpDivs review  
information on SBIR.gov, which contains all Tech-Net  data.  The 2012  SBIR Program  
Policy Directive requires agencies to develop policies and procedures to avoid funding 
duplicative work, which could include searching Tech-Net  or SBIR.gov.  SBA, 2012  
SBIR Program Policy Directive. Accessed at  http://documents.scribd.com.s3. 
amazonaws.com/docs/6c90n43wxs1wmoxi. pdf?t=1351707349  on July 31, 2013. 
49 NIH,  NIH Grants Policy Statement (October  2010), pp. I-54I-55.  Accessed at 
http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on  October  7, 2011.   
50 OIG,  Review of the Effectiveness of the National Institutes of  Healths Administration  
of the Small Business Innovation Research Program, A-15-98-00031, November 1999.  
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  8 
   
   
2011.51  We selected a sample of Phase I and II awardees from each HHS 
OpDiv.   We also collected SBIR award data from each of the four 
participating HHS OpDivs and requested documents (e.g., internal policies 
or procedures) to determine the extent to which each of these OpDivs 
oversees its SBIR awards. We report data HHS-wide and for specific 
OpDivs, as appropriate. 
The SBIR program was reauthorized in December 2011.  To incorporate 
changes from the reauthorization, SBA issued a new Policy Directive in 
October 2012, after our data collection concluded in May 2012.  For this 
report, we reviewed SBIR awards administered under SBAs previous 
Policy Directive.  Changes in the 2012 Policy Directive do not affect the 
results of our review.  
Data Collection and Analysis 
We collected and analyzed data to describe HHS SBIR expenditures in 
2011 and to determine the extent to which HHS OpDivs tracked and 
assessed the commercialization of SBIR products and services.  We also 
determined the extent to which HHS OpDivs ensured that awardees were 
eligible and that awards were not duplicative.   
Determining the Extent to Which HHS OpDivs Tracked and Assessed the 
Commercialization of SBIR Products or Services. We analyzed the 
responses to our requests for information and supporting documentation to 
determine the extent to which each HHS OpDiv evaluated the 
commercialization of SBIR awardees products and services.  We  
reviewed NIHs Niche Assessment and Commercialization Assistance 
Program data to determine the number of participants for which 
commercialization data was collected.  We also determined how many 
SBIR awardees have self-reported success stories on NIHs Web site since 
2001. 
Determining the Extent to Which HHS Ensured That SBIR Awardees Were  
Eligible. Using the data we received in response to our requests, we 
determined the extent to which HHS OpDivs verified and had written 
procedures to verify applicant eligibility beyond self-certification.  We  
also asked SBA whether any HHS OpDivs had requested its assistance in 
determining eligibility.   
To determine the extent to which HHS OpDivs ensured that SBIR 
awardees met eligibility requirements, we selected a random sample of 
 
51 RePORT is a publically available site that provides access to reports, data, and analyses 
of NIH research activities, including  information  on NIH awards.  NIH, The ReSource, 
Issue 1 (no date; circa 20102011).  Accessed at http://report.nih.gov/resource/issue1/ on  
December 5, 2013. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  9 
   
   
137 SBIR awards, stratified by OpDiv.   The number of awards that CDC 
and FDA granted in 2011 was small in comparison to that of NIH.52   
Therefore, we included all awards from CDC and FDA to ensure that 
awards from these OpDivs were included in our sample.  Table 1 shows 
the sample of awards used to analyze eligibility by stratum and the 
population of 2011 awards.  This stratified random sample is projectable to 
all 2011 HHS SBIR awards.53    
Table 1: Sample and Population of 2011 SBIR Awards 
 
Awards in  Award Amount   Awards in  Award Amount  
 
Stratum  Sample   in Sample   Population   in Population  
                                        
 
NIH  100  $40,768,573   957  $353,529,688  
 
 
CDC  26  $4,889,690   26  $4,889,690  
 
 
FDA  11  $1,479,428   11  $1,479,428  
 
 
Total  137  $47,137,691   994  $359,898,806  
 
      Source:  OIG analysis of SBIR awardees reported by HHS OpDivs.   
 
See Appendix B for a detailed methodology of our process for verifying 
awardee eligibility.   
Determining the Extent to Which HHS OpDivs Ensured That SBIR Awards 
Were Not Duplicative. We used the responses to our information requests 
to determine the extent to which HHS reviewed SBIR awards for 
duplicative funding.  We used the stratified random sample of 137 HHS 
SBIR awards described in Table 1 to determine whether any projects were 
listed multiple times in NIH databases using RePORT.   
All estimates in this report are projected to the specified population or 
subpopulation of 2011 SBIR awards, at the 95-percent confidence level.  
Appendix C shows the sample size, point estimates, and 95-percent 
confidence intervals for all statistics in this report. 
Limitations 
We did not independently verify data reported by HHS and SBA.  
Additionally, some  Web sites used to verify awardees eligibility contained 
self-reported data submitted voluntarily.  We did not independently verify  
information reported on these Web sites, and we did not attempt to verify 
awardees eligibility through other means if they had no information on 
these Web sites.   
 
52 ACF allowed NIH to award ACFs 2011 SBIR funds, totaling $395,770.  NIH,  SBIR  
Program  Annual Report to the U.S. Small Business Administration. 

53 To project our findings, we weighted each sample statistic by the total number of 
 
awards from each stratum, or OpDiv. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  10 
   
   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
   
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  11 
   
   
FINDINGS 
HHS awarded $360 million in SBIR funds to nearly 
1,000 awardees in 2011 
In 2011, HHS funded 994 Phase I and II SBIR awards for a total of 
$360 million, second to only the Department of Defense in the amount of 
SBIR funding among Federal agencies.54  This amount does not reflect 
HHS total SBIR expenditures in 2011 because it does not include SBIR 
funds used in 2011 for awards funded in previous years.  According to its 
annual report to SBA, HHS obligated $617 million for all SBIR 
expenditures in 2011.55  NIH awarded 957 of HHS 994 SBIR awards in 
2011, which amounted to $353.5 million, or 98 percent of all HHS SBIR 
dollars. 
Agencies are permitted to exceed SBIR funding guidelines if they submit 
written justification in their annual report to SBA.  In 2011, 
528 (53 percent) of HHS SBIR awards exceeded the amounts in the 
funding guidelines, totaling nearly $170 million in funds over the 
guideline amounts.56 In its annual report to SBA, HHS included one 
general justification for all awards that exceeded the amounts in the 
funding guidelines. 
On average, HHS Phase I awards exceeded funding guidelines by 
$111,819, ranging from $43 to $1.6 million in excess.  Phase II awards 
exceeded guidelines by an average of $301,584, ranging from $7,031 to 
$2 million in excess.  Further, for FYs 20092011, HHS average award 
amounts for Phase I and II awards exceeded the average SBIR award 
amount across the Federal Government by $121,000 and $568,000, 
respectively.57  HHS had the highest average award amount for Phase I 
and II awards during this period. 
See Figure 2 for a comparison of average HHS awards and average awards 
for the 10 other participating agencies. 
 
 
 
 
54 The Department of Defense awarded  2,754 awards  for a total of $1.04  billion in  2011.  
Department of Defense,  Department of Defense SBIR Annual  Summary  Report. 
Accessed at http://www.dodsbir.net/annualreport/annrpt.html  on April 8, 2013.   
55 HHS, SBIR Program Annual  Report to the U.S. Small Business Administration. 
56 Phase II awards span  2 or more years.  For  this portion of  our data analysis, we 
 
included the Phase II  amount  awarded for FY 2011. 
 
57 SBA,  SBIR and  STTR Annual Report, FY-20092011, p.  7.  
 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  12 
   
   
Figure 2: Average Award Amounts for HHS and All Other Participating 
Agencies, FY 2011  
  
$1,600,000 
  $1,388,000 
$1,400,000 
 
$1,200,000 
 
$1,000,000 
 
$800,000 
$606,200 
  $600,000 
  $400,000 
$251,000 
  $200,000  $100,400 
  $0 
Phase I  Phase II 
 
HHS  All Other Agencies 
 
Source:  OIG analysis of SBAs SBIR and STTR Annual Report for FY 2009-2011  
Although HHS OpDivs are not required to collect 
information on the commercial success of SBIR 
awards, one of the four OpDivs did so 
One goal of the SBIR program is to increase the commercialization of 
federally funded research. However, SBA does not require agencies to 
track the commercial success of SBIR projects.  Further, at the time of this 
review, SBIR awardees were not required to report commercialization data 
(e.g., patents acquired, products and services developed and sold to 
companies or the general public) to OpDivs.58  Without consistent tracking 
or an assessment of commercial success, HHS cannot determine whether 
the SBIR program is meeting its commercialization goal.  Although 
NIHwhich awards the bulk of HHSs SBIR fundscollects information 
on the commercial success of awards, the other three HHS OpDivs that 
made SBIR awards did not.  Furthermore, the information that NIH 
collects is limited in scope.     
 
58 SBAs 2012 Policy Directive establishes a Commercialization  Database to store 
information reported by awardees on the commercial activity resulting from their past 
SBIR awards. SBIR awardees  are required to  update information on their prior Phase II  
awards in the Commercialization  Database when submitting an application for an SBIR  
Phase II award and  upon completion  of the last deliverable for that award.  However, 
awardees are not required to update this information if they  do not apply  for a second  
Phase II award.  SBA,  2012 Policy Directive, pp. 4445.  Accessed at 
http://documents.scribd.com.s3.amazonaws.com/docs/6c90n43wxs1wmoxi.pdf?t=13517 
07349  on July 31, 2013.  
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None of the HHS OpDivs had a comprehensive, standardized data 
collection system to track the commercialization of products and services 
resulting from SBIR awards.  NIH collects limited information on the 
commercial success of SBIR awards. Specifically, it uses survey data 
stored in the Performance Outcomes Database System (PODS) to assess 
commercial outcomes.  However, the information in PODS is based solely 
on two surveys (conducted in 2002 and 2008) of Phase II NIH SBIR 
awardees.59  Further, responses to the surveys were voluntary.60 NIH also 
uses PODS to store Commercialization Assistance Program outcome data 
(e.g., estimated cumulative sales, number of awardees receiving additional 
non-SBIR funding) that it collects throughout an awardees time in the 
program.61  However, providing data is voluntary and limited to the 
relatively low number of Commercialization Assistance Program  
participants (39 of 203 Phase II awardees in 2011).62 Because NIH 
received only limited and inconsistent data from program participants, it 
does not use PODS data as a metric to judge the commercial success of 
SBIR projects. 
As of 2011, NIH did not collect commercialization data from Niche 
Assessment Program Participants.  Of the 12,836 SBIR awards funded 
since 2002, 99 awardees (less than 1 percent) reported commercialization 
of products and services on the NIH Web site.63  
Although all SBIR awardees certified their eligibility, 
31 percent of awardees had questionable or unverified 
eligibility for at least one requirement 
Applicants are required to check a box on the electronic SBIR application 
certifying that they intend to meet all of the SBIR programs eligibility 
 
59  In 2004, 2005 and 2007, NIH followed up with awardees selected to  participate in the 
original 2002 survey and updated the information stored in  PODS.  NIH,  Report on the 
2007 Outcome Measures Update, p. 1.  Accessed at  http://grants.nih.gov/grants/ 
funding/sbir_pods_final_rpt_2007.pdf  on September 4, 2013.    
60 NIH,  National Survey to Evaluate the NIH SBIR Program (January  2009), p. I-3.   
Accessed at http://grants.nih.gov/grants/funding/sbir_2008surveyreport.pdf on  April 22, 
2013. 
61 Sally J. Rockey, Ph. D., Deputy Director for Extramural Research, NIH, SBIR:  
Defining Metrics and Outcomes of Success. July 2012.  Accessed at 
http://smrb.od.nih.gov/documents/presentations/2012/rockey_07112012.pdf   on April 17, 
2013. 
62 SBIR awardees that received Phase II awards before 2006 were not eligible to 
participate in the Commercialization Assistance Program. NIH, Commercialization 
Assistance Program for Phase II Awardees.  Accessed at 
http://grants.nih.gov/grants/funding/cap/more_on_cap.htm on January 7, 2013. 
63 The NIH  Web site includes self-reported data from SBIR and STTR awardees.   When  
we reviewed the self-reported data, we were  unable to determine in which  of the two 
programs the awardees were participating.  
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  14 
   
   
requirements at the time of the award.  If an OpDiv is uncertain whether 
an applicants certification is accurate, it may, but is not required to, 
independently verify the applicants eligibility or request that SBA assist 
with determining eligibility.   
In 2011, all SBIR awardees self-certified that they intended to meet 
eligibility requirements at the time of the award.  Using data sources 
commonly used by other Federal agencies to identify potentially ineligible  
SBIR awardees, we found that 31 percent of awardees had questionable 
eligibility for at least one requirement (16 percent of awardees) or 
unverified eligibility for at least one requirement (20 percent of awardees).  
Six percent of SBIR awardees in 2011 had questionable eligibility for at 
least one requirement and unverified eligibility for at least one other 
requirement.64 Although they are not required to do so, HHS OpDivs did 
not take any steps to independently verify that these awardees met 
eligibility requirements.65    
Sixteen percent of awardees had questionable eligibility for at 
least one requirement 
We found information indicating that 16 percent of SBIR awardees in 
2011 may not have met at least one eligibility requirement.  Therefore, we 
considered the eligibility of these awardees to be questionable.  Table 2 
shows the number of awardees in our sample that had questionable 
eligibility for each requirement.    
 
64 The percentage of awardees with  questionable eligibility for at least one requirement, 
unverified eligibility for at least one requirement, and  both questionable and unverified  
eligibility does not sum  to 31 because of rounding. 
65 NIH requested SBA assistance with  determining eligibility for 4  of the nearly 
1,000 awardees in  2011.   However, none of these four awardees were in  our sample of 
2011 SBIR awards. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  15 
   
   
Table 2: Eligibility Requirements and Corresponding Numbers of 
Awardees in Our Sample With Questionable Eligibility, 2011 
Number of  Awardees in 
Eligibility Requirement   Our Sample With 
Questionable Eligibility 
Principal Investigators primary employer was the SBIR awardee   21 
SBIR awardee had fewer than 500 employees   4 
SBIR awardee had a place of business and operated primarily in the 
2 
United States 
SBIR company  was for-profit  0 
 
Source:  OIG analysis of HHS SBIR awardees, 2012 
The eligibility of 21 awardees in our sample was questionable because we 
found information indicating that the awardee was not the Principal 
Investigators primary employer.  For example, one Principal Investigator 
for an award in our sample listed three positions on his LinkedIn profile at 
the time the SBIR award was made, including a full-time position at a 
university.  This Principal Investigator was associated with one SBIR 
award in 2011 totaling $575,303.  Another Principal Investigator for an 
award in our sample stated in her LinkedIn profile that she was the 
president of two companies and head of business development for a third 
company at the time of the SBIR award.  This Principal Investigator was 
also listed as an employee on the three organizations  Web sites.  This 
Principal Investigator was associated with one SBIR award in 2011 
totaling $143,301. 
The eligibility of 4 awardees in our sample was questionable because we 
found information indicating that the awardees, or their affiliate(s), had 
more than 500 employees.  One awardee in our sample was owned by a 
larger company with 7,200 employees and was awarded $582,698 in SBIR 
funds in 2011.   
The eligibility of two awardees in our sample was questionable because 
we found information indicating that the awardees did not maintain a U.S. 
place of business and/or did not operate primarily in the United States.  
One awardees Web site stated that many of its devices are made in the 
companys location in Canada.  This company received two awards for a 
total of $399,938 in SBIR funds in 2011. 
We did not find information indicating that any awardee in our sample was 
not organized as a for-profit entity. 
 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  16 
   
   
Challenges exist in verifying the eligibility of 20 percent of 
SBIR awardees 
Twenty percent of SBIR awardees in 2011 had unverified eligibility for 
one or more of the four eligibility requirementsi.e., we could not find 
information in any of our searches to verify the awardees eligibility for 
the requirement(s).  Two awardees in our sample had unverified eligibility 
for three requirements.  There was one awardee in our sample for which 
we were unable to verify any of the four eligibility requirements.  Table 3 
shows each eligibility requirement and the corresponding number of 
awardees in our sample with unverified eligibility. 
Table 3: Eligibility Requirements and Corresponding Numbers of 
Awardees in Our Sample With Unverified Eligibility, 2011 
Number of  Awardees in 
Eligibility Requirement   Our Sample With 
Unverified Eligibility  
Principal Investigators primary employer was the SBIR awardee   13 
SBIR awardee had fewer than 500 employees   14 
SBIR awardee had a place of business and operated primarily in the 
6 
United States 
SBIR company  was for-profit  3 
 
Source:  OIG analysis of HHS SBIR awardees, 2012 
For 13 awardees in our sample, we were unable to verify that the awardee 
was the Principal Investigators primary employer.  For these awardees, 
we were unable to find documentation confirming that the Principal 
Investigator was employed by the awardee.   
For 14 of the awardees in our sample in 2011, we were unable to verify 
that the company had fewer than 500 employees.  For these awardees, we  
were unable to find documentation on LinkedIn, Manta, or other Web sites 
confirming the number of employees at the company or its affiliate(s).  
Further, we were unable to verify that six awardees in our sample had a 
place of business and operated primarily in the United States.  For these 
awardees, we found documentation that the companies operated in foreign 
business locations and could not find documentation that the company 
operated primarily in the United States.   
Finally, we were unable to verify whether three awardees in our sample 
were for-profit companies.  For these awardees, we were unable to find 
documentation confirming that the awarded company was a for-profit 
business. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  17 
   
   
HHS OpDivs did not perform a required check for 
duplicative awards across other Federal agencies 
Each Federal agency is required to check SBIR.gov for duplicative awards 
within the agency and across other Federal agencies before granting an 
SBIR award. Other agencies have identified awardees that committed 
fraud by not disclosing that they had received awards from other agencies  
for the same work.66  While NIH checks for duplicative funding within 
HHS, none of the four HHS OpDivs checked SBIR.gov for duplicative 
awards across Federal agencies in 2011.   
To check for duplicative funding within HHS, NIH reported that it 
compares SBIR applications to existing SBIR awards within HHS by 
searching IMPAC II, which contains information on HHS awards only.67   
NIH reported that no duplication within HHS occurred in 2011.  We also 
did not identify any cases of duplicative awards within HHS.  No other 
HHS OpDivs had procedures for performing checks for duplicative 
funding within HHS. 
None of the HHS OpDivs checked SBIR.gov for duplicative awards 
across Federal agencies, as required. NIH has procedures to perform  
limited checks for duplicative funding across Federal agencies.  These 
checks, known as Just-in-Time procedures, require applicants to self-
disclose information on other active and pending financial resources, 
including other grants and contracts, before receiving an award.  However, 
the procedures do not include steps to independently verify the 
information reported by applicants.  No other HHS OpDivs had 
procedures for performing checks for duplicative funding across Federal 
agencies. 
 
 
 
   
 
66 Alison Lerner, Inspector General of the National Science Foundation, Statement Before 
the Senate Committee of  Science, Commerce, and Transportation, August 6, 2009.  
Accessed at http://www.nsf.gov/oig/SBIRtestimonyAugust6.pdf  on August 19, 2013.  
See also, NASA, Review of NASAs Management  of its  Small Business Innovation 
Research Program. Accessed at http://oig.nasa.gov/audits/reports/FY11/IG-11-010-
R.pdf on  July 10, 2013.   
67 IMPAC II is also available to CDC, but the OpDiv reported that it relies on applicants 
to disclose duplicate SBIR funding.  
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CONCLUSION AND RECOMMENDATIONS 
Since the implementation of the SBIR program in 1982, HHS has funded 
more than $8 billion in awards to small businesses pursuing innovative 
research ideas. Furthermore, the reauthorization of the SBIR program in 
December 2011 increased the percentage of SBIR funds awarded by 
participating agencies from 2.5 percent of their annual extramural research 
budgets in 2012 to 3.2 percent by 2017. 
In 1999, OIG reported that HHS had not evaluated the success of the SBIR 
program.  Further, other Federal agencies have identified SBIR awardees  
that falsely certified that they met eligibility requirements and received 
duplicative funding.   
In 2011, HHS awarded $360 million in SBIR funds to nearly 
1,000 awardees and had the highest average SBIR award amount of any 
participating agency.  However, HHS does not have a central office for 
overseeing the SBIR program.   
HHS did not consistently collect information on the commercial success of 
awards and therefore cannot determine whether the program is increasing 
the commercialization of federally funded research, one of the primary 
goals of the program.  Additionally, all awardees in 2011 self-certified that 
they intended to meet SBIR eligibility requirements at the time of the 
award.   However, using data sources commonly used by other Federal 
agencies to identify potentially ineligible SBIR awardees, we found that 
31 percent of awardees had questionable or unverified eligibility for at 
least one requirement.  Although they are not required to do so, HHS 
OpDivs did not take any steps to independently verify the eligibility of  
these awardees.  Furthermore, while one OpDiv checked for duplicative 
funding within HHS, none of the four OpDivs completed a required check 
for duplicative awards across other Federal agencies.  
Our findings raise concerns about vulnerabilities in the HHS SBIR 
program, including the inability to evaluate the programs success and the 
reliance on self-reported information to determine whether awardees are 
eligible and are not receiving duplicative funding from other Federal 
agencies. 
Therefore, we recommend that HHS: 
Create a central office to oversee the SBIR program 
Unlike most other participating agencies, HHS does not have a central 
office responsible for overseeing the SBIR program.  Each OpDiv is 
separately responsible for awarding SBIR funds and overseeing these 
awards. The 2012 SBIR Program Policy Directive requires HHS to 
increase its coordination with other participating agencies and with HHSs  
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  19 
   
   
OIG to prevent fraud, waste, and abuse in the SBIR program.  HHS should 
create a central office to facilitate this coordination and to ensure 
consistent oversight among OpDivs.  Central office functions could 
include coordinating with OIG, developing agencywide policies and 
procedures, increasing oversight, and fulfilling agency reporting 
requirements.  A central office would also facilitate the consistent 
implementation of our remaining recommendations. 
Collect information to track and assess SBIR-funded projects  
commercialization 
SBAs new Policy Directive requires awardees to report commercialization 
data to a central Commercialization Database.  The implementation of this 
requirement is ongoing; however, while these data are unavailable, HHS 
OpDivs should develop processes to track commercialization of SBIR 
awardees. These processes should be consistent among OpDivs.  OpDivs 
should use this information to determine whether the SBIR program is 
meeting its goal of increasing private-sector commercialization of Federal 
research and development innovations.  
Ensure compliance with SBIR eligibility requirements  
The 2012 SBIR Program Policy Directive requires agencies to ensure 
compliance with SBIR eligibility requirements.  SBA requires that 
awardees meet eligibility requirements at the time of the award.  HHS 
OpDivs should take actions to ensure that awardees will meet  
requirements before they receive SBIR funds.  These actions could include 
implementing a standardized process for verifying that a random or risk-
based sample of awardees meets all eligibility requirements at the time of  
the award and during the life cycle of the award.  OpDivs could also 
require applicants to provide proof  that they will meet eligibility 
requirements at the time of the award and request SBA assistance to verify 
awardee eligibility.  
Improve procedures to check for duplicative awards  
The 2012 SBIR Program Policy Directive requires agencies to develop 
policies and procedures to avoid funding duplicative work.  HHS should 
develop procedures beyond the Just-in-Time procedures used by NIH.  
Just-in-Time procedures rely on self-reported information that does not 
allow HHS to determine whether awardees have completed similar 
projects in the past or whether multiple awardees are completing similar 
projects. The new procedures should be consistent across HHS OpDivs to 
ensure that all SBIR applicants receive the same scrutiny regarding 
duplicative awards. 
   
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  20 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
The Office of the Assistant Secretary for Financial Resources (ASFR) 
provides advice and guidance to the Secretary of HHS on grants and 
acquisition management and provided comments on behalf of HHS.  
ASFR stated that it is committed to the successful implementation and 
oversight of the SBIR program.  ASFR did not indicate whether it 
concurred with each of our recommendations.  However,  ASFR agreed 
that additional coordination and oversight across the participating OpDivs 
is appropriate and warranted. ASFR further noted that it is working with 
the respective OpDivs to determine the most effective and efficient use of 
resources to accomplish this coordination.   
ASFR also agreed that HHS must ensure that applicants are in compliance 
with all SBIR eligibility requirements, noting that it will work with 
OpDivs to determine whether additional eligibility checks are required.  
However,  ASFR stated that it has concerns about the official use of social 
media networking sites to verify applicant eligibility, and does not believe  
such sites are reliable sources of information for the purposes of 
confirming or questioning program eligibility.  While we understand 
ASFRs concern, these are tools commonly used by other Federal agencies 
to identify potentially ineligible SBIR awardees.  
We support ASFRs efforts to address these issues and encourage it to 
continue making progress in these areas.  We ask that, in its final 
management decision, ASFR clearly indicate whether it concurs with each 
of our recommendations and what steps, if any, it will take to implement 
them.  For the full text of ASFRs comments, see Appendix D.  We made 
minor corrections to the report on the basis of ASFRs technical 
comments. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  21 
   
   
APPENDIX A 
Table A-1:  Differences in the 2011 and 2012 Small Business 
Innovation and Research Program Policy Directives 
 
Requirement  2011 SBIR Program Policy  Directive   2012 SBIR Program Policy  Directive  
Majority-owned by multiple venture capital  Majority-owned by multiple venture capital operating 
operating companies, hedge funds and/or  companies, hedge funds, and/or private equity firms 
Eligibility  
private equity firms are not eligible.  are eligible, if agencies opt to include this provision. 
   
Eligibility   Awardees certify  their eligibility at the time  Awardees certify  their eligibility throughout the life 
Certification  of the award.   cycle of the award. 
Agencies may  not exceed funding guidelines by  
more than 50 percent.  Agencies must request a 
waiver to exceed funding guidelines by more than 
Agencies may  exceed funding guidelines if  50 percent for a specific topic.  
the additional amount is fully justified and   
scientifically appropriate.   Agencies must maintain information on awards that 
Exceeding Funding    exceed funding guidelines, including the amount of  
Guidelines  Agencies must submit written justification  the award, justification for exceeding the guidelines 
of the excess funds with their Annual  for each award, the identity and location of the 
Reports to SBA.   awardee,  whether the awardee has received any  
  venture capital, hedge fund, or private equity firm 
investment, and whether the awardee is 
majority-owned by multiple venture capital operating 
companies, hedge funds, or private equity firms.  
Agencies and awardees must maintain 
Agencies are not required to collect or 
commercialization data in the Commercialization 
Commercialization  track commercialization data. Awardees 
Database. Awardees are required to update 
Data   may voluntarily submit and update 
commercialization data for prior Phase II awards 
commercialization data.  
when applying for a subsequent Phase II award.  
   
         Source:  OIG analysis of  2011 and 2012 SBIR Program Policy Directives. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  22 
   
   
APPENDIX B 
Detailed Methodology for Verifying Awardee Eligibility  
For our sample of 137 SBIR program awards, we verified awardee 
eligibility using the Lexis/Nexis Accurint for Government (Accurint) 
database, State Business Registration Web sites, and awardee Web sites.68   
We used additional Web sites (e.g., Manta, LinkedIn) to collect 
information not available from the sources referenced above.69, 70  We  
chose these sources to verify awardee eligibility because these are tools 
commonly used by other Federal agencies to identify potentially ineligible  
SBIR awardees.71  We classified awardees as having verified eligibility 
if we could determineusing these data sourcesthat the awardees met 
all four eligibility requirements.  If at least one data source indicated that  
an awardee met a given eligibility requirement, we considered that 
requirement to be verified.  We  classified awardees as having  
questionable eligibility if we found information indicating that they may 
not meet one or more of the four eligibility requirements.  We classified  
awardees as having unverified eligibility if we could not find 
information in any of our data sources indicating that awardees met one or 
more of the four eligibility requirements.72   
To verify awardee eligibility, we searched for the following information 
indicating that the awardee: 
1)   Was the Principal Investigators primary employment. We used 
Accurint, Principal Investigators profiles on LinkedIn, and other 
Internet searches to verify that the Principal Investigator was primarily 
employed by the awardee and did not have additional full-time 
 
68 Accurint is a database that collects a broad array  of public records on  businesses and 

individuals.  For personal searches, Accurint contains information on Social Security
  
numbers, drivers licenses, and professional  licenses.  Accurint can also reveal
  
connections between people, businesses,  assets, and locations that are not available in 

public  records.   For business searches, Accurint draws from  corporate filings, property 
 
information, phone listings, professional licenses, and  Securities and Exchange  

Commission filings, among other data.  Information on property assets and court 
 
proceedings is  also available both for individuals and businesses. 
   
69 Manta is an  online community for promoting and connecting small businesses that 

contains approximately 87 million company profiles.  Company profiles include 

information on company size, type, and location collected  from  multiple sources (e.g., 

public company financial and trade records,  business registrations, government registries, 

and representatives of the company).  
 
70 LinkedIn is an online professional  networking tool.  Registered members create 

individual  profiles containing  information about current and past employment, education,
  
and other professional interests, or company  profiles containing  general information 

about the business.  We used  only public information on the LinkedIn site. 

71 National Science Foundation,  Fraud Indicators. 
 
72 Occasionally, deviation from some eligibility requirements may occur and must be 

approved in  writing by the SBA.  We did not request  documentation of SBA-approved 

deviations  from eligibility requirements.   

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  23 
   
   
employment at the time of the award.   We considered whether the 
dates of employment on LinkedIn were during the award period.  We  
considered an awardees eligibility questionable if we found 
information indicating that the Principal Investigator was primarily 
employed at another company or institution at the time of the award.  
We determined that we could not verify whether an awardee met this 
requirement if we could not find information indicating that he or she 
was employed by the awardee.   
2)	   Had fewer than 500 total employees, including affiliates. We used 
awardee profiles on LinkedIn and Manta and other Internet searches to 
verify that awardees had fewer than 500 employees.  We considered an 
awardees eligibility to be questionable if we found information 
indicating that the awardee had more than 500 employees or was 
affiliated with an entity with more than 500 employees.73   We  
determined that we could not verify whether an awardee met this 
eligibility requirement if we could not find any information on an 
awardees and/or affiliates number of employees.   
3)	   Has a place of business and operates primarily in the U.S.  We used 
Accurint, company profiles on LinkedIn and Manta, State Business 
Registration Web sites, and additional Internet searches to verify that 
awardees had U.S. locations and/or operated primarily in the 
United States. We considered an awardees eligibility questionable if 
we found information indicating that the awardee operated primarily in 
a foreign location. We determined that we could not verify that 
awardees met this requirement if we found information indicating that 
the awardee had foreign locations  and we could not verify that it 
operated primarily in the United States.  We did not consider 
contributions to the U.S. economy in this analysis. 
4)	   Was a for-profit entity.  We used the Accurint and State Business 
Registration  Web sites to verify that awardees were for-profit entities.  
We considered an awardees eligibility questionable if we found 
information indicating that the awardee was a not organized as a 
for-profit entity at the time of the award.  We determined that we could 
not verify that awardees were for-profit entities if we could not find 
information to confirm the type of entity.  
 
 
73 In  determining  whether affiliation exists, SBA considers factors such as ownership,  
management, previous relationships with  or  ties to another concern, and contractual  
relationships.  However, we considered an awardee to  be affiliated with an entity only if 
we found information explicitly stating that the awardee was owned  and/or operated  by  
the entity.   
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  24 
   
   
APPENDIX C 
Table C-1:  Estimate Descriptions, Sample Sizes, Point Estimates, and 
Confidence Intervals   
Sample  Point  Confidence 
Estimate Description  
Size  Estimate*   Interval  
Awardees With Verified Eligibility (i.e., we  determined that the awardee 
137  69%   55.6%--83.2%  
was meeting all four eligibility requirements) 
Awardees With Questionable Eligibility (i.e., we found information 
indicating that the awardee was not meeting one or more of the following  137  16%   5.4%--27.1%  
eligibility requirements)      
Awardees With Unverified Eligibility  (i.e., we could not determine whether 
the awardee was meeting one or more of the following eligibility   137  20%   8.6%--31.3%  
requirements)  
Awardees with both a questionable and unverified eligibility requirement  137  6%   0.3%--11.1%  
* Weighted point estimates are provided rather than point estimates and confidence intervals because  of small sample sizes.  Each sample 

statistic is weighted by the size of each stratums population from which our sample was selected. 

Source:  OIG analysis of HHS SBIR Program data, 2011. 

   
   
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  25 
  APPENDIX D 
Agency Comments 
DEI';\RTMENT OF HEALTH & HUM!\1\ SERVICTS  Office of the Secretary 
Washington, D.C. 20201 
~t\R 1 0 2014 
TO:  Daniel R. Levinson 
Inspector General 
FROM:  Ulen G. Murray 
Assistant Secretary fod'inancial Resources and Chief Financial Officer 
SUB.JECT:  I11-IS Comments on OIG Draft Report: Vulnerabilities in the HHS Small Business 
Innovation ami Research Program. OEJ-04-!1-00530 
The Department of Health and Human Services' Office of the Assistant Secretary for Financial 
Resources (ASFR) appreciates the opportunity to review and comment on the Office oflnspector 
General's draft report on Vulnerabilities in the HHS Small Business Innovation and Research 
Program, OEI-04-1!-00530. 
ASFR values the Small Business Innovation and Research Program (SBIR) and is committed to 
the successful implementation and oversight of the program.  As reported, the National institutes 
of Health (NIH) awards the vast majority of the SBlR awards.  NIH also serves an important 
function of coordinating much of the program with the other participating Operating Divisions. 
This approach has been successful in ensuring that the Operating Divisions work together to 
implement the requirements of the SBIR Program Policy Directive and the Small Business Act. 
ASFR concurs with the OIG that additional coordination and oversight across the participating 
Operating Divisions is appropriate and warranted.  ASFR is currently working with the 
respective Operating Divisions to determine the most effective and efficient use of resources to 
accomplish this coordination.  We will provide the OIG with an update on these efforts as they 
progress. 
ASFR also agrees that we must ensure that applicants are in compliance with all SBIR eligibility 
requirements. I lowever, ASFR has concerns about the official use ofwebsites such as Manta and 
LinkedIn and other similar sites to verify applicant eligibility. These sites, in particular, are 
social media networking sites; they are not government owned or controlled. The accuracy. 
completeness. and currency of the content are at the discretion ofthe user. There is no validation 
or quality control of any of the data at these sites. Therefore, ASFR believes that such sites are 
not reliable sources of information for the purposes of the government confirming or questioning 
eligibility for its programs. ASFR will work with the respective Operating Divisions to 
determine if additional, appropriate checks are required on eligibility. We will provide the OIG 
with an update on these efforts as they progress. 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  26   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Dwayne Grant, Regional 
Inspector General for Evaluation and Inspections in the Atlanta regional 
office, and Jaime Durley, Deputy Regional Inspector General. 
Sarah Langford served as lead analyst.  Office of Evaluation and 
Inspections staff from the Atlanta regional office who conducted this study 
include Sarah McLaulin. Central office staff who provided support 
include Clarence Arnold, Christine Moritz, and Talisha Searcy. 
 
Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530)  27 
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.