U.S. GOVERNMENT PUBLISHING OFFICE

35–333 WASHINGTON : 2019

CHALLENGES IN SBA’S STATE TRADE EXPANSION 

PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON RURAL DEVELOPMENT, AGRICULTURE, TRADE, AND 

ENTREPRENEURSHIP 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 12, 2019 

Small Business Committee Document Number 116–010 

Available via the GPO Website: www.govinfo.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA VELA ́ ZQUEZ, New York, Chairwoman 

ABBY FINKENAUER, Iowa 

JARED GOLDEN, Maine 

ANDY KIM, New Jersey 

JASON CROW, Colorado 

SHARICE DAVIDS, Kansas 

JUDY CHU, California 

MARC VEASEY, Texas 

DWIGHT EVANS, Pennsylvania 

BRAD SCHNEIDER, Illinois 

ADRIANO ESPAILLAT, New York 

ANTONIO DELGADO, New York 

CHRISSY HOULAHAN, Pennsylvania 

ANGIE CRAIG, Minnesota 

STEVE CHABOT, Ohio, Ranking Member 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member 

TRENT KELLY, Mississippi 

TROY BALDERSON, Ohio 

KEVIN HERN, Oklahoma 

JIM HAGEDORN, Minnesota 

PETE STAUBER, Minnesota 

TIM BURCHETT, Tennessee 

ROSS SPANO, Florida 

JOHN JOYCE, Pennsylvania 

ADAM MINEHARDT, Majority Staff Director 

MELISSA JUNG, Majority Deputy Staff Director and Chief Counsel 

KEVIN FITZPATRICK, Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Abby Finkenauer ............................................................................................ 1 

Hon. John Joyce ....................................................................................................... 3 

WITNESSES 

Ms. Kim Gianopoulos, Director of International Affairs and Trade, Government Accountability Office, Washington, DC .................................................... 4 

Mr. Hannibal ‘‘Mike’’ Ware, Inspector General, United States Small Business 

Administration, Washington, DC ........................................................................ 6 

APPENDIX 

Prepared Statements: 

Hon. Jim Hagedorn, Minnesota ...................................................................... 15 

Ms. Kim Gianopoulos, Director of International Affairs and Trade, Government Accountability Office, Washington, DC ........................................ 16 

Mr. Hannibal ‘‘Mike’’ Ware, Inspector General, United States Small Business Administration, Washington, DC ........................................................ 29 

Questions and Answers for the Record: 

Questions from Hon. Nydia Vela ́zquez to Mr. Hannibal ‘‘Mike’’ Ware 

and Responses from Mr. Hannibal ‘‘Mike’’ Ware ....................................... 37 

Additional Material for the Record: 

None. 

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CHALLENGES IN SBA’S STATE TRADE 

EXPANSION PROGRAM 

TUESDAY, MARCH 12, 2019 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON RURAL DEVELOPMENT, AGRICULTURE, TRADE, AND ENTREPRENEURSHIP, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:11 a.m., in Room 

2360, Rayburn House Office Building. Hon. Abby Finkenauer 

[chairwoman of the Subcommittee] presiding. 

Present: Representatives Finkenauer, Chabot, Hagedorn, and 

Joyce. 

Chairwoman FINKENAUER. Good morning. The Subcommittee 

will come to order. 

It is a pleasure to have our witnesses testifying before our Subcommittee this morning. I commend you for your commitment to 

public service. I also want to take a minute to thank Ranking 

Member Dr. John Joyce of Pennsylvania. He introduced himself to 

me very early on and expressed how important trade and rural development was to his district. I am glad we share that as a common priority, and I look forward to working with him in a bipartisan fashion on this Subcommittee. 

As someone who grew up in a small town in Iowa—as I like to 

say, in a town with more cows than people—I am thrilled to be 

leading this Subcommittee focused on rural development. We have 

an opportunity to give folks in districts like mine and Ranking 

Member Joyce’s a seat at the table for important conversations like 

the one we are having today on helping farmers and small businesses export their products. 

It is no secret that for rural entrepreneurs and family farmers 

in states like Iowa, the ability to do business overseas is key to economic success here at home. Trade should help us export goods but 

also protect our workers and our communities. 

Despite the economic rewards that come with exporting products 

overseas, only 1 percent of our nation’s 30 million small businesses 

are able to do so. 

With 95 percent of the world’s consumers living outside of the 

United States, small businesses are missing out on opportunities to 

better support their families and communities, create jobs, and expand our economy. 

Today, we have a chance to hear from some of our nation’s leading experts on a federal program that aims to help small businesses enter new markets around the globe. This initiative, the 

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State Trade and Expansion Program (STEP), was initially created 

in 2010 as a 3-year pilot program. Five years later, Congress enacted the Trade Facilitation and Trade Enforcement Act to make 

the STEP program permanent and authorize $30 million in funding 

through fiscal year 2020. 

STEP provides matching funds to states and territories to help 

small businesses enter new markets, access export financing, and 

go on trade missions. 

Since its inception, the Small Business Administration has 

awarded approximately $139 million in funding to almost every 

state in the country. 

In the 2018 annual report, SBA reported that the agency awarded 44 grants totaling $18.9 million in fiscal year 2016. The rate of 

return was 31 to 1 for every dollar invested, states reported $31 

in sales. 

STEP has the potential to unlock opportunities in the global 

marketplace for small businesses in a town like Maquoketa in my 

district, whose owners may want to sell products overseas but 

could lack the staff capacity or even an idea of where to start. 

Having said that, the reports and audits conducted by our nation’s watchdogs raise some concerns over the implementation of 

the STEP program and show areas for improvement as we look at 

the need for reauthorization in 2020. Work by the Government Accountability Office found that SBA lacks a strong process to ensure 

states are complying with the program’s requirements. GAO also 

found states face serious and ongoing challenges in trying to utilize 

the funds with some even giving the funds back. Problems range 

from short application windows and difficult reporting requirements to a lack of timely communication from SBA. 

The Inspector General’s audits uncovered similar problems and 

determined more work needs to be done to improve the program’s 

performance measures and oversight. Moreover, the report showed 

that SBA is at risk of not fully realizing the potential of the program. 

My office had a chance last week to hear from the Iowa Economic 

Development Authority about problems in utilizing the funds. In 

one instance, Iowa was awarded a STEP grant on September 21st 

with a start date of September 29th, just 8 days later. 

In another instance, SBA announced a grant opportunity on 

April 2nd only to post a second announcement with new and more 

accurate information on April 18th. SBA did not respond to Iowa’s 

questions about the application until April 27th, but the deadline 

for applying for the STEP grant was May 16th. That is a pretty 

tight turnaround. 

While this is frustrating, STEP is a needed initiative, and I look 

forward to hearing other states’ ideas for improving it and hopefully getting some of our states on record in the future about how 

we can make STEP work better. 

In Congress, we ought to be making it easier for farmers and 

small businesses to succeed in the international marketplace— not 

harder—while also protecting our workers. STEP has the potential 

to help Iowa’s entrepreneurs and entrepreneurs around the country 

tap into new markets. 

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If utilized properly, this program stands to provide small businesses with the tools they desperately need to expand, create jobs, 

and boost wages throughout America, especially in rural areas that 

quite frankly have been ignored for too long. 

Let me close by saying how grateful I am to have the opportunity 

to Chair this Subcommittee. I look forward to working with my colleagues on both sides of the aisle to harness the feedback we receive today to make much needed improvements to the STEP program for all of our communities, small businesses, and hard-working families. 

I want to thank our witnesses for being here for what I hope will 

be a productive discussion. 

I would like to now yield to the Ranking Member, Dr. Joyce, for 

his opening statement. 

Mr. JOYCE. Thank you, Madam Chairwoman Finkenauer. 

Small businesses eying international markets face daunting obstacles, such as insufficient manpower, lack of external resources, 

inadequate access to financing, and clearly, bureaucratic red tape. 

The Small Business Administration (SBA) is one of the six agencies 

that offer export promotion programs specifically for small businesses. 

The SBA Office of International Trade, often referred to as OIT, 

is responsible for a variety of programs that provide training, counseling, and export financing for small businesses. We are here 

today to review just one unique program within an exceptionally 

complex network of trade promotion programs. 

The statutes governing the State Trade Expansion Program, 

known as STEP, are very specific to ensure each dollar hits its target. Since its creation as a pilot program in 2010, SBA OIT has 

struggled to comply with STEP’s strict legal requirements. One of 

Congress’s most vital roles is not only to exercise fiscal responsibility when spending taxpayer dollars but also to ensure that the 

taxpayer dollars we allocate are being spent wisely and reaching 

their maximum impact. 

I appreciate the cooperation between all agencies and their commitment to seeing that SBA fulfills its goals relating to this program and maximizes every dollar received to help small businesses 

reach their potential in the international market. 

This hearing resumes the Committee’s oversight of OIT and the 

STEP program. Our witnesses represent the Government Accountability Office (GAO) and SBA’s Office of Inspector General (OIG). 

They are our eyes and our ears. They are here to present the issues 

plaguing the STEP program. I am encouraged by the dedication 

shown by all parties to expanding the opportunities for small businesses and farmers, and I look forward to working with you to 

achieve our common goal of reducing barriers to small businesses 

participating in global trade. 

Thank you again to our distinguished witnesses and I yield back. 

Chairwoman FINKENAUER. Thank you, Dr. Joyce. The gentleman yields back. 

If any Subcommittee members have an opening statement prepared, we ask that you submit it for the record. 

Now I would like to just take a minute to explain the timing 

rules. Each witness will have 5 minutes to testify and each member 

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will have 5 minutes for questioning. There is a lighting system to 

assist you. The green light will be on when you begin and the yellow light will come on when you have one minute remaining. The 

red light will come on when you are out of time, and we ask that 

you stay within the timeframe to the best of your ability. 

I would now like to introduce the witnesses. 

Our first witness is Ms. Kimberly Gianopoulos. Ms. Gianopoulos 

serves as the director for international trade issues in the International Affairs and Trade Team at the Government Accountability 

Office (GAO). She has a distinguished career and has provided 

leadership in a number of efforts to improve government programs, 

including contributions to GAO’s high-risk series. Ms. Gianopoulos 

has also received a number of awards, including a Meritorious 

Service Award, a Client Service Award, an Assistant Comptroller 

General’s Award, and several Results through Teamwork Awards. 

Welcome, Ms. Gianopoulos. 

Our second witness is the Honorable Hannibal ‘‘Mike’’ Ware, the 

inspector general of the Small Business Administration. Mr. Ware 

was sworn in as the inspector general of the Small Business Administration in May 2018. He is responsible for independent oversight of SBA’s programs and operations, which encompass more 

than $100 billion in guaranteed loans and nearly $100 billion in 

federal contracting dollars. Mr. Ware has 28 years of experience 

within the OIG community and has received numerous awards 

throughout his career, including several awards from the Council 

of Inspectors General on Integrity and Efficiency in recognition of 

his significant work in the inspector general community. Welcome, 

Mr. Ware. 

Ms. Gianopoulos, you are recognized for 5 minutes. 

STATEMENTS OF KIM GIANOPOULOS, DIRECTOR OF INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE; HANNIBAL ‘‘MIKE’’ WARE, INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS ADMINISTRATION 

STATEMENT OF KIM GIANOPOULOS 

Ms. GIANOPOULOS. Thank you. 

Chairwoman Finkenauer, Ranking Member Joyce, and members 

of the Subcommittee, thank you for the opportunity to be here 

today to discuss our recent work on SBA’s State Trade Expansion 

Program. 

As you know, Congress established STEP to help small businesses export. Many states report that STEP is important to their 

export promotion operations. However, concerns have been raised 

related to the management of the program, including SBA’s processes for administering and monitoring grants, and the effectiveness of the program in reaching its goals. 

My testimony today is based on our report, which is being released at this hearing. Today, I will discuss two items: one, the extent to which SBA’s STEP grants management process provides 

reasonable assurance of compliance with selected requirements of 

applicable law, and two, the extent to which SBA has responded to 

states’ challenges in using grant funds. 

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First, we found that SBA does not provide reasonable assurance 

that STEP grant recipients meet two of the three Trade Facilitation and Trade Enforcement Act requirements that we reviewed before the grant is closed out. 

The first requirement states that SBA must limit the amount 

given to the 10 states with the largest numbers of eligible small 

businesses. SBA demonstrated reasonable assurance that this first 

requirement was being met. 

The second requirement is that states must provide either a 25 

or 35 percent total match to the Federal grant amount. We identified four instances where according to SBA’s documentation, states 

did not report sufficient total matches. Nevertheless, SBA closed 

these grants. 

The third requirement is that a state’s match cannot be less than 

50 percent cash. SBA collects information about the matching 

funds, including the proportion provided in cash. However, it does 

not monitor states’ compliance with this requirement. Additionally, 

SBA considers the salaries of state trade office staff who work on 

administering the grant to be a form of cash and most states use 

staff salaries as their total match, including the required cash portion. 

SBA does not ensure that states that do this are not also using 

grant funds from STEP to pay for portions of these salaries. As a 

result, SBA cannot consistently determine whether states are meeting the cash match requirement. 

In our report, we recommend that SBA establish a process to ensure documentation of states’ compliance with the total match requirement and develop a process to determine states’ compliance 

with the cash match requirement. SBA agreed with these recommendations. 

Our second finding is related to the overall use of grant funds 

and the challenges that states report in using their allocations. We 

found that nearly 20 percent of grant funds go unused each year 

despite SBA officials stating that they seek 100 percent use of 

these funds. For example, in 2016, across 41 of the 43 recipient 

states, combined grant use was about 82 percent, leaving nearly 

$3.2 million unused. This includes one state that left nearly 95 percent of its funds unused that year. 

SBA made some changes to the program that could improve 

states’ abilities to use all their grant funds, such as extending the 

fund’s usage period to 2 years; allowing certain flexibilities, including travel; and reducing the length of the technical proposal. 

The 12 states we interviewed cited numerous challenges, including timing of the application and award processes, administrative 

burden, and communication between the states and SBA. We heard 

about variable and short application timeframes, inflexible application requirements, a difficult process for repurposing funds, burdensome and changing reporting requirements, and delayed and inconsistent communication of requirements from SBA. SBA does not 

assess and address the risk posed by some states’ low use of funds. 

Also, SBA officials told us that while they informally collect feedback from states, there is no process to collect states’ perspectives 

on challenges with the program. We recommended that SBA assess 

this risk to achieving program goals posed by some states’ low 

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grant fund use rates. We also recommended that SBA enhance collection and sharing of best practices among states. SBA agreed 

with these recommendations. 

Thank you again for the opportunity to testify. I am happy to answer any questions you may have. 

Chairwoman FINKENAUER. Thank you, Ms. Gianopoulos. 

Mr. Ware, you are now recognized for 5 minutes. 

STATEMENT OF HANNIBAL ‘‘MIKE’’ WARE 

Mr. WARE. Thank you, Chairwoman Finkenauer, Ranking Member Joyce, and distinguished members of the Subcommittee. Thank 

you for the opportunity to be here today and for your continued 

support of the Office of Inspector General. I am proud to represent 

the dedicated men and women of my office and speak to you about 

their important work. 

We have published three reports and written one management 

advisory regarding what is now known as the State Trade Expansion Program, or STEP. Across these three reports, we made 22 

recommendations, all of which are now considered closed. 

While the STEP program has benefitted from congressional scrutiny, OIG oversight, and most recently oversight by my colleagues 

at GAO, my office has identified systemic risks to SBA’s grant 

management practices that are important in context of today’s discussion. 

Our first STEP review was conducted pursuant to the Small 

Business Jobs Act of 2010, which authorized SBA to establish a 

STEP grant program as a 3-year pilot to increase the number of 

eligible small business concerns in states that export and to increase the export value of those eligible small businesses that already export. In 2015, Congress authorized STEP as a full-fledged 

program through the Trade Facilitation and Trade Enforcement 

Act of 2015. Our two most recent reports were mandated by the 

2015 act. 

We conducted our 2012 audit of the pilot program to determine 

the extent to which the grant recipients were measuring program 

performance. To achieve our objectives, we reviewed the Small 

Business Jobs Act of 2010 and the Fiscal Year 2011 STEP program 

announcement. We judgmentally selected all STEP grants exceeding $1 million to review. Six grant recipients met this threshold. 

We conducted site visits to California, Pennsylvania, Washington, 

Michigan, and Illinois. We found that STEP grant recipients did 

not implement adequate metrics to measure program performance 

and issued nine recommendations for corrective action. In addition, 

SBA granted more than $1 million to an ineligible applicant, the 

Commonwealth of the Northern Mariana Islands, which was the 

subject of our advisory report. In response, Congress included an 

expanded definition of state in the 2015 act which resolved the 

issue in the advisory. 

Our second STEP review was performed to determine how STEP 

funds were used. We requested grant award and expenditure totals 

from SBA, queried STEP data from usaspending.gov, and selected 

15 grant awards totaling $15.2 million. We found that SBA could 

not provide consistent STEP award and expenditure data and did 

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mented new reporting requirements for the fiscal year 2014 STEP 

program that significantly improved controls over the quality of the 

grant recipients’ performance and financial reports. We issued 

three recommendations based on our review findings. 

Our final report we issued was also issued pursuant to the 2015 

act authorizing STEP. The objectives of the audit were to determine the extent to which STEP recipients measure program activity performance and the results of those measurements. It is noteworthy that Congress included certain performance measures within the 2015 authorization as a follow-on to our findings that SBA 

lacked adequate metrics in the pilot stage. 

We selected five cooperative agreement awards totaling $3.9 million, conducted site visits and obtained documentation from recipients in California, North Carolina, Washington, and Mississippi. 

We also interviewed and obtained documentation from cooperative 

agreement officials for Illinois. 

We found SBA has made significant progress in improving the 

overall management and effectiveness of STEP since our audit of 

the pilot program in 2012; however, SBA could utilize existing data 

to further improve its performance measures and program oversight. We issued six recommendations based on our review findings. 

It is safe to say the STEP program has evolved since its inception and has benefitted from oversight review from my office, GAO, 

and congressional scrutiny. Nonetheless, our reviews of SBA’s 

grant programs continue to identify systemic issues with SBA’s accuracy of grant data for both financial and performance reporting, 

ineffective oversight, and inadequate standard operating procedures. 

In our most recently published, most serious management and 

performance challenges facing SBA in fiscal year 2019, we identified grant management as an agency challenge for the first time. 

SBA officials acknowledge that there are systemic issues with its 

grant management processes and have documented plans to address them. That said, we will continue to perform reviews and 

make recommendations for corrective action to promote efficiencies 

and effectiveness within SBA’s grant programs. 

Thank you for the opportunity to speak to you today. I look forward to your questions. 

Chairwoman FINKENAUER. Thank you, Mr. Ware. 

You guys are very good on time. Oh, my goodness. 

Mr. WARE. Exactly on the 5 minute mark. 

Chairwoman FINKENAUER. Exactly. Thank you all. We really 

appreciate everything you have shared with us. 

I will begin the questioning by recognizing myself for 5 minutes. 

The first question is for Ms. Gianopoulos. Trade is obviously a 

priority for me and for the state of Iowa, which is why I am so 

pleased that our first hearing is on how small business trade assistance programs can work better for farmers and small businesses but also our states. Iowa is the number one export state for 

corn and pork, and number two for soybeans. Iowa is also number 

two in the country overall for commodities behind California. I am 

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ness trade assistance programs, as well, so I hope this is a bipartisan issue. 

For GAO’s report, you interviewed 12 states that left at least 25 

percent of their grant funds unused. Why do some states spend all 

their money while others are struggling to do so? 

Ms. GIANOPOULOS. When we spoke with the states, they gave 

us a variety of responses as far as the barriers and challenges that 

they experienced in trying to use some of the grant monies that 

they received from SBA. I touched on them a little bit in my oral 

testimony but they included everything from the, as you mentioned 

earlier in your opening statement, Chairwoman, the application 

deadline. It is not always the same day or the same week every 

year so some folks who have very small state trade offices cannot 

plan in advance when to dedicate their time to this application 

process. 

As you also noted, sometimes things change. The reporting requirements change. In other cases, the states have difficulty in 

repurposing funds. For example, we heard one story where a state 

was unable to attend a trade conference overseas because things 

had changed or certain companies had dropped out and they had 

a very difficult time getting those funds repurposed through SBA. 

So in some cases it is the timing that works against the states and 

in other cases it has to do with the management of the program 

itself. 

Chairwoman FINKENAUER. Got it. Thank you. 

My next question is for Mr. Ware. You also found that grant recipients did not expend all the funds awarded. In response to your 

findings, SBA enhanced its oversight procedures so that the program managers are monitoring states to ensure they are meeting 

their quarterly goals. What could SBA do to make it easier for recipients to use funds? Has the appropriations process impacted 

states’ abilities to utilize the funds? 

Mr. WARE. I believe that the appropriations process has impacted the states’ ability. I mean, the states are on record as my 

colleague stated of discussing the difficulties they have with the 

short timeframe, and it is compounded, of course, when the short 

timeframe is made even shorter. Relative to spending, I think one 

of the things that SBA did was after our last audit, they increased 

the period of performance time which should take some of the pressure off the states in terms of spending. But I caution that that 

does come with its own set of challenges that I could get into but 

I am sure that answers your question, or I hope it does. 

Chairwoman FINKENAUER. Great. Thank you. 

I thank both of you for being here. This is enlightening and there 

is clearly a lot that we need to be doing better. STEP is a great 

program and we need to make sure that it is implemented in a way 

that our states and our small businesses can get what they need 

to be able to grow. I really appreciate your time and look forward 

to ongoing discussions. 

With that, I am going to yield back my time. The Ranking Member, Dr. Joyce, is now recognized for 5 minutes. 

Mr. JOYCE. Thank you, Madam Chairwoman. 

My first question is for Mr. Ware. The SBA’s OIG identified what 

truly were systemic issues with the SBA’s financial and performSBR002 with DISTILLER

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ance oversight. These grant programs and the elevation of this by 

this review show that these issues into 2019 had management and 

performance challenges in the report. How do STEP’s management 

issues compare to other SBA grant programs? 

Mr. WARE. Thank you. It goes hand in hand. The same type of 

problems we find in STEP, we find in the other programs. It is basically two things. So it is inaccurate data and it is not enough 

oversight or inadequate oversight. And when I say they go together 

it is that those problems are what we find systematically across 

just about every grant program that we look at, which was the reason why we elevated it to a top management challenge and notified 

the agency. 

Mr. JOYCE. Has the SBA Office of Grants Management made 

any changes based on the recommendations in the report, and how 

long will it take for this reform to take place? 

Mr. WARE. They have made changes. And I will give you some 

of the ways they did. They did the earlier detection in terms of a 

risk management process by which they visit states based on risk 

that are not spending on time based on the quarterly reviews of the 

performance data now. And they also came up with an agency-wide 

data quality plan that they are supposed to implement across the 

board on all their grant programs. They provided us with sufficient 

documentation to prove that they have put those things in place. 

We have not done the work yet to determine the impact of those 

changes. 

Mr. JOYCE. How can Congress monitor SBA implementation 

progress? 

Mr. WARE. One way Congress can monitor the implementation 

progress is by the work that both GAO and the Office of Inspector 

General does in terms of that. 

Mr. JOYCE. And finally, how will grant management reforms 

impact the STEP program? 

Mr. WARE. It should impact it significantly, mainly because we 

want a transparent, well-functioning program that has the right 

level of oversight on it and that is providing the type of performance measures data that Congress can use to provide the type of 

oversight. And I think that based on our work, they have come a 

long way in terms of that. Like, for example, in the past they only 

did the rate of return on investment as the true measurement. 

They have since stepped that up based on our recommendations to 

provide measures more in line with what the authorizing language 

asks for. 

Mr. JOYCE. And will the better management help states use 

these funds, fully implement the access to these funds? 

Mr. WARE. I believe so, especially in regard to the early detection of states who are struggling to use their funds. 

Mr. JOYCE. Thank you very much. 

My next questions are for Ms. Gianopoulos. Your report found 

that the SBA does not have sufficient processes to ensure that 

states meet the total and cash match requirements mandated by 

the statute. Can you explain total and cash match requirements 

and why they are mandated? 

Ms. GIANOPOULOS. Sure. So the total matching requirement 

that a state has to meet is 25 percent of the total amount that they 

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are going to receive. So, for example, if a state was going to spend 

$100 on export promotion, $75 of that could come from the STEP 

program and $25 would come from the state itself. And of that $25, 

$12.50 would have to be in cash and the other $12.50 could be either in cash or by some other way, either an indirect or an in-kind 

contribution, that sort of thing. So that is what TFTEA, the Trade 

Facilitation and Trade Enforcement Act requires when it updated 

the program and made it a permanent program. So what we found 

were there were some difficulties that SBA had in not only confirming that the match had been met, but also that the cash match 

was being met with actual cash. As I explained in my statement, 

there were some issues having to do with staff salaries being used 

as part of that or all of the cash match, and it was unclear to us 

whether that was actually following the guidance that was put forward in order to meet the requirements of TFTEA. 

Mr. JOYCE. Now, you mentioned indirect costs and in-kind contributions. Can you tell me more about that? Can you directly address what representation of that would be? 

Ms. GIANOPOULOS. Sure. So, indirect costs and in-kind contributions are the noncash options that a state can use to help provide its portion of the program. So they could offer a conference 

space for a meeting. They could use the utility of their travel offices 

to arrange overseas travel for some of these conferences. It is the 

different types of services that the state can provide that would not 

be something you would see on a balance sheet but could be valued 

in various ways by the states to meet their requirement. 

Mr. JOYCE. And how do you monitor the—— 

Chairwoman FINKENAUER. Thank you. The gentleman’s time 

has expired but we will allow for more questions after this as well. 

Mr. JOYCE. I yield back. Thank you. 

Chairwoman FINKENAUER. Yes, thank you. 

The gentleman, Mr. Hagedorn, from Minnesota, is now recognized for 5 minutes. 

Mr. HAGEDORN. I thank the Chair and the Ranking Member 

and the witnesses. Appreciate all the work done by staff, including 

my own. Thanks for putting this together. 

It is a timely hearing. This is National Agriculture Week, so anything we can do to help our farmers and agribusinesses, especially 

expand in area of trade, is very important. And as somebody who 

also sits on the Agriculture Committee, I have a vested interest in 

this in a number of ways. 

Our farmers and agribusinesses, not just in Southern Minnesota 

where I represent that district, but across the country, many of 

them have been in recession one way or another for the better part 

of 5 years. We have had low commodity prices, high input costs, 

and all this predates anything with the trade issue. 

And so what we try to do, at least my goals with agriculture and 

being here, three things for our farmers: Make sure that we can 

do everything possible to reform the Federal Government so we 

have good government policies in the areas of regulation, health 

care, taxes, energy, you know, work requirements for welfare, 

whatever, to make sure that we drive down the cost of farming as 

much as possible, and make sure that we have the workforce there 

for our farmers. Secondarily, we want to sustain our farmers when 

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times are tough, and we do that with implementation of the 5-year 

Farm Bill, E-15 year-round, things of that nature. And third, and 

this is the critical part where we have an opportunity at the Federal Government, the Federal role, expand our exports. Drop down 

those barriers. Make sure that we have new markets around the 

world. 

In southern Minnesota, we have about 20,000 farms. It is a highly rural area. It happens to also have the urban spot of Rochester 

where we have the preeminent institution of medicine in all the 

world, the Mayo Clinic, but mostly farms. A lot of good crop and 

livestock producers. The second largest hog production congressional district in the whole country. And so each one of those 

farms, each one of those farmers is producing enough to feed about 

165 people. And we see that that reach is not just across the country but the whole world. 

And so when we get into what is going on with these programs 

and how they can be better utilized, do you think we should track 

closer as to how much of this money it spent on direct work trying 

to promote farmers and agribusinesses and our commodities? And 

secondarily, and I will ask both of you, do you work closely with 

USDA to try to implement these things? Are there measures that 

we should take to make sure that we are not duplicating costs but 

we are using our monies as efficiently and effectively as possible? 

Mr. WARE. I believe your first question was should we track 

what goes to the farms differently? 

Mr. HAGEDORN. Well, just how do you track the money? For 

instance, in Minnesota, we spent, I think it was like $150,000, 

something like that. Do we track exactly what we are trying to do 

with those monies or do you get to that level in your reports? 

Mr. WARE. In my reports, we stay programmatic in line with the 

mandate for us. We did not go into exactly what the states were 

using the money for. 

Mr. HAGEDORN. Should we do more in that area of tracking the 

money? What would that require? How would we get that done? 

Mr. WARE. Well, it is a different scope for us if we were to do 

that. The act says that we are supposed to look at XYZ. In order 

for us to do something like that it would just be a different focus, 

a different scope. And if the member wanted to request of my office 

that we did something like that, we are definitely open to it. 

Mr. HAGEDORN. Okay. 

Ms. GIANOPOULOS. So when we started our work, as you 

know, we looked at the 12 states that used less than 75 percent 

of their allocation in 2015. And I am just looking now at my statistics. Your home state Minnesota was actually the one that used 

only 23.3 percent of its 2015 STEP allocation. We did pursue possibly looking into the kinds of things that each STEP grant was 

used for, but because the IG identified the issues with the reliability of the data that SBA had, we were unable to do that. Now, 

anecdotally, when we spoke with the 12 different states, we did 

hear a number of different industries that were benefitting from 

the STEP program, such as heavy manufacturing, medical equipment, food and beverage, consumer appliances, that sort of thing, 

but that is purely anecdotal and cannot be generalized. So we do 

not have specific information but I did want to share that with you 

SBR002 with DISTILLER

12 

that your state was one of the ones that we spoke with about the 

low use rate. 

Mr. HAGEDORN. Well, that is very useful, and we will follow up 

on that. I appreciate your testimony. I yield back. 

Chairwoman FINKENAUER. Thank you. Now we will go into a 

second round of questions. There is a lot to talk about here today. 

I will begin by recognizing myself for another 5 minutes. My first 

question, again, will be for Ms. Gianopoulos. 

According to your report, SBA told you that it does not formally 

facilitate the sharing of best practices between states. You recommend that SBA enhance its identification and sharing of best 

practices. How might this improve the program? And do you have 

any thoughts on how this can be achieved? 

Ms. GIANOPOULOS. Well, we did not specifically tell SBA how 

it should be achieved because we wanted them to work within the 

parameters and the resources that they had available to them. But 

there are a number of ways, and we have noted in other reports 

some suggestions of how not only states but also agencies can 

share best practices and information. What the SBA officials told 

us is that they perhaps informally—anecdotally—speak with a particular state regarding the difficulty it might be having in using its 

grant funds but there is no systematic way. And when we spoke 

with the 12 states they told us there is no systematic way that they 

can learn from each other—other than through outside organizations such as State International Development Office (SIDO) and 

that sort of thing—to learn from each other what it is that is working and not working for a particular state. And we realize that 

every state’s situation is a little bit different, but because the 12 

states we talked to were so variable, they were small states, large 

states, urban and rural, all different in and of themselves, there 

should be some way that SBA could facilitate that sharing of information in order to better use the money and better achieve the program goals. 

Chairwoman FINKENAUER. Absolutely. Thank you. 

Mr. Ware, metrics are obviously a very valuable tool in measuring the success of a program, but they also let us know where 

to make improvements. How can we better measure the success of 

the program in terms of increasing exports and the number of 

small businesses that export? 

Mr. WARE. Right. That is a good question. And I think it is a 

question that we asked based on our recommendations for SBA to 

do. And we believe that they have now done that in terms of addressing what the mandate was, which was to increase the small 

businesses that do exports. As I think I said earlier, they were focused so much on the return on investment that was being reported, and as a matter of fact, that is what was mandated to be 

reported. What the body could possibly do is in the new version is 

to make some of those measurements, the ones that they are now 

doing as a result of our recommendations, perhaps make those 

mandatory as well. And on top of that there is a lot of room out 

there for outcome-based recommendations and there are other, like 

someone said, six other places that are doing this. So there should 

be best practices, like we were just discussing, out there on how 

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13 

best to measure this program if you are really focused on determining the true impact of the program in the states. 

Chairwoman FINKENAUER. Great. Thank you. 

I will yield back the rest of my time. 

And I would like to again recognize the Ranking Member, Dr. 

Joyce, for 5 minutes. 

Mr. JOYCE. Thank you, Madam Chairwoman. 

This is for Mr. Ware. We heard earlier that the Commonwealth 

of the Northern Mariana Islands was awarded a STEP grant and 

they were actually an ineligible recipient at that time. Testimony 

says that OIT personnel did not have the experience or training required to manage and administer such a complex grant program. 

What has SBA OIT done to ensure its staff now fully understands 

STEP’s statutory requirements? 

Mr. WARE. At the time that happened, it was still in the pilot. 

So it was very much in the beginning. As a result of our recommendations, they did implement a training program and trained 

all the grant managers across the board. Now, that being said, 

keep in mind that it is not like contracting officers where they have 

a requirement to do annual training or anything like that. They did 

training at that time and they have implemented steps to make 

sure that they provide the training going forward. And that is 

something that they are doing across the board for all the grant 

programs right now. 

Mr. JOYCE. So along that same line, how are the states made 

aware and held accountable for the STEP’s legal requirements? Is 

that training extended to individual states? 

Mr. WARE. We did not look at the training to the individual 

states. However, the grant managers from a systematic standpoint 

of SBA’s oversight of the program, that was covered in the training. 

Mr. JOYCE. This question is for Ms. Gianopoulos. 

Several states claim that STEP reporting requirements were 

much more detailed and burdensome than grants from the Department of Commerce and other agencies. Can you provide me with 

more details on this, please? 

Ms. GIANOPOULOS. Well, what we heard from the 12 states 

that we interviewed is that some of the difficulties in using all of 

their funds had to do with the level of detail with which they had 

to report back the use of those funds or to ask for reimbursement. 

So, for example, one of the states told us that when a group of 

trade folks were traveling say to a conference, in order to request 

reimbursement of that money, if they were all in a cab together 

they had to divide the cost of the cab and claim it individually by 

person, which made for—and that was only one example—a great 

deal of administrative burden for them and made it very difficult. 

And in some cases they were even having second thoughts about 

applying for the grant the next year because of the amount of burden it was on them—to request that money back. And in some 

cases that money is such a small amount, even though it is important to them, they had to do a cost-benefit analysis as to whether 

it was worth their time in order to get that money back as part 

of the STEP grant. 

SBR002 with DISTILLER

14 

Mr. JOYCE. Do find that then states apply for less burdensome 

application processes? Are they reaching out in other directions 

when facing such obstacles? 

Ms. GIANOPOULOS. We did not really get into a lot of detail 

with where they put their efforts, but because the size of the state 

trade offices varies so widely, the very small state trade offices 

have to make choices as to where they are going to put their time. 

And as I mentioned earlier, because this program does not follow 

a set standard routine every year, it is not available on the same 

day every year, it is not the same amount of time every year, they 

have to make those types of choices state by state by state as to 

what they are going to apply for and how they are going to use 

their resources. 

Mr. JOYCE. Would you presume that they do reach out to less 

burdensome application processes? 

Ms. GIANOPOULOS. I have not talked with them about that, 

but if I were making a decision as far as what I was going to do 

with my resources and my time, I would want the most bang for 

my buck. 

Mr. JOYCE. That makes sense. 

Thank you both for your concise answers. I yield back my time. 

Chairwoman FINKENAUER. Thank you. Thank you very much 

to both of you for being here today, for your public service, and for 

taking out so much time out of your schedule. It really means a lot, 

and this was a very informative day. Ms. Gianopoulos and Mr. 

Ware, we are very grateful. 

As we have heard today, STEP offers many promising opportunities for entrepreneurs and farmers in Iowa and across the country 

to succeed. Over the past decade, STEP has grown from a 3-year 

pilot program to a permanent, successful program in SBA that with 

some improvements will be a critical piece of a trade assistance 

portfolio. I appreciate your work in identifying some of the systemic 

issues that we need to resolve. It has led to significant improvements in the implementation of the law. More work, obviously, 

needs to be done. In my role as the Chairwoman of the Subcommittee on Rural Development, Agriculture, Trade, and Entrepreneurship, I look forward to working with my colleagues on both 

sides of the aisle to make much-needed improvements in STEP. I 

am committed to making life easier for small business owners in 

Iowa and across rural America so that they can grow their small 

businesses and better support their families and our rural communities. 

I would ask unanimous consent that members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

If there is no further business to come before the Committee, we 

are adjourned. Thank you. 

[Whereupon, at 11:58 a.m., the subcommittee was adjourned.] 

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A P P E N D I X 

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JIM HAGEDORN 

www.hagedorn.house.gov 

COMM!TIEE ON AGRICULTURE 

COMM!TIEE ON SMALL BUSINESS 

(!Congress of tbe Wntteb ~tates 

J!.)ousc of i\epresentatibcs 

M!a~bington, :mill: 20515-2301 

March 11, 2019 

Small Business Subcommittee on Rural Development, Agriculture Trade and 

Entrepreneurship Hearing 

Opening Remarks 

"Challenges in SBA's State Trade Expansion Program" 

I would like to thank our witnesses for addressing our Subcommittee today. As a member of both 

the Agriculture Committee and the Small Business Committee the topics addressed today are of 

great importance to my constituents. 

The agricultural economy has been facing headwinds from low commodity prices, excessive 

government regulations and the continuing battle over unfair trade practices. Thus, every 

opportunity to expand agricultural markets through increased exports needs to be taken 

advantage of. 

I will listen with interest to the witnesses outline the steps which have been taken by the SBA to 

address the issues the GAO identified in the STEP as well as actions recommended to address 

existing challenges. I am also interested in learuing more about the coordination SBA has with 

the USDA's Foreign Agriculture Service. 

In these days of economic challenges in America's farm economies, it is imperative we promote 

and encourage agricultural exports in an efficient and efficacious manner. I encourage the SBA 

to continue its efforts to streamline its services and programs in order to accomplish those goals. 

I yield back. 

Jim Hagedorn 

Member of Congress 
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For Release on Delivery Expected at 10:00 a.m. ET Tuesday, March 12, 2019 

GA0-19-444T 

United States Government Accountability Office 

Testimony before the Subcommittee on 

Rural Development, Agriculture, Trade 

and Entrepreneurship, 

House of Representatives 

SMALL BUSINESS 

ADMINISTRATION 

Export Promotion Grant 

Program Should Better 

Ensure Compliance with 

Law and Help States Make 

Full Use of Funds 

Statement of Kimberly Gianopoulos, Director 

International Affairs and Trade 
17 

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Chairwoman Finkenauer, Ranking Member Joyce, and Members of the 

Subcommittee: 

I am pleased to be here today to discuss the Small Business 

Administration's (SBA) State Trade Expansion Program (STEP). 

Congress established STEP in 2010 and reauthorized the program in 

2016 to provide funding for state programs that facilitate export 

opportunities for small businesses. According to SBA officials, the goals 

of the program are increasing (1) the number of small businesses 

exporting, (2) the number of small businesses exploring significant new 

trade opportunities, and (3) the value of exports for small businesses 

already engaged in international trade. In the years since STEP was first 

authorized, SBA has awarded about 300 STEP grants, and these grants 

have provided about $139 million of support to almost every U.S. state as 

well as several territories. Many states report that STEP is important to 

their export promotion operations; however, concerns have been raised 

related to the management of the program, including SBA's processes for 

administering and monitoring grants and the effectiveness of the program 

in reaching its goals. 

My testimony today is based on our report, which is also being released 

today. 1 Our report examines the extent to which (1) SBA's STEP grants 

management process provides reasonable assurance of compliance with 

selected requirements of applicable law, and (2) SBA has taken steps to 

address challenges states report in using grant funds to achieve program 

goals. 

To address these objectives, we analyzed relevant data on award and 

matching fund amounts. We reviewed the Small Business Jobs Act of 

2010 and the Trade Facilitation and Trade Enforcement Act of 2015 

(TFTEA), the statutes that established and reauthorized STEP, 

respectively. We also reviewed the Office of Management and Budget's 

(OMB) federal grant guidance, Uniform Administrative Requirements, 

Cost Principles, and Audit Requirements for Federal Awards (Uniform 

Guidance), 2 and the Standards for Internal Control in the Federal 

1GAO, SmafiBusiness Administration: Export Promotion Grant Program Should Better 

Ensure Compliance with Law and Help States Make Full Use of Funds, GA0-19-276 

(Washington, D.C.: Mar. 12, 2019). 

2

2 C.F.R. § 200. 

Page 1 GA0-19-444T 
18 

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Government. 3 In addition, we analyzed SBA program documents, and 

standard operating procedures for managing SBA grants. We also 

interviewed officials from SBA's Office of International Trade (OIT), which 

is responsible for making the awards and administering the program; the 

Office of Grants Management (OGM), which is responsible for managing 

grants across SBA. 

To identify the states' challenges to fully using the grant funds, we spoke 

with officials from 12 of the 40 states that received a grant in fiscal year 

2015, the most recent year for which complete grant expenditure data 

were available when we began this work. We selected these states 

because they used 75 percent or less of their award in that year. This 

group of 12 states constitutes a nongeneralizable sample, and as such, 

the challenges that these states reported may not be common to all 

states receiving a STEP grant. We conducted the work on which this 

statement is based in accordance with generally accepted government 

auditing standards. More details on our methodology can be found in the 

report being released today. 

SBA awards STEP funds annually to state governments through a 

competitive application process. According to SBA, the annual STEP 

cycle begins with the funding opportunity announcement that SBA posts 

on www.grants.gov. This announcement indicates that the grant 

application is open and includes objectives, deadlines, eligibility, and 

requirements. When a state trade office applies for a STEP grant, its 

application outlines any intended activities and establishes performance 

targets within each of the activities for the fiscal year or period of the 

grant. 4 OIT selects grant recipients and notifies states of their award 

status in September. If a state receives a STEP grant, its trade office 

provides the funds to local small businesses through an application 

process. Once small businesses receive STEP funding, they can use the 

money for a variety of export-related purposes. These purposes are 

outlined in TFTEA, and include participation in foreign trade missions; 

subscriptions to Department of Commerce services; participation in trade 

shows, and; training. 

Standards for Internal Control in the Federal Government, GA0·14·704G 

tWashmoton. D.C.: September 2014). 

4

Current!y, all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the 

U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and 

American Samoa are eligible to apply for STEP grants. Hereafter, we use "states" to refer 

to any of these eligible applicants. 

Page 2 GA0-19-444T 
19 

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SBA's STEP Grants 

Management Process 

Does Not Provide 

Reasonable 

Assurance of 

Compliance with 

Some Requirements 

of Applicable Law 

SBA's Process Provides 

Reasonable Assurance of 

Compliance with TFTEA's 

Proportional Distribution 

Requirement 

Our report found that SBA's STEP grants management process does not 

provide reasonable assurance that STEP grant recipients meet two of the 

three TFTEA requirements we reviewed before the grant is closed out. 

TFTEA contains specific requirements for STEP, including: 

Proportional distribution requirement. SBA must distribute grant 

funds in a way that caps the amount of grant funds distributed to the 

10 states with the largest numbers of eligible small businesses at 40 

percent of the total amount awarded each year. This requirement 

ensures that states with fewer eligible small businesses receive 

funding, and is known as the "proportion of amounts" clause in the 

law-' 

Total match requirement. States must provide either a 25 percent or 

35 percent nonfederal total match to the federal grant amount. 6 

Cash match requirement. A state's match cannot be less than 50 

percent cash 7 

First, we found that OIT has established a process for ensuring 

compliance with the TFTEA requirement outlined in the "proportion of 

amounts" clause of the statute. OIT officials told us they review data from 

the Department of Commerce's Census Bureau that show the number of 

exporting small and medium-sized businesses in each state, and then 

use these data to determine the top 10 states. According to OIT officials, 

they use the most recent data available, with an approximately 2- to 3-

year lag. OIT officials told us that they planned to use available 2016 

Census data to determine the top 10 states for the fiscal year 2018 award 

cycle and then, after receiving applications, determine award amounts 

that would comply with this requirement. 

USC 649(1)(3)(C)(ii). 

6

STEP's authorizing statute requires that those states that SBA designates as having a 

"high trade vo!umen match at the higher rate of 35 percent of the total federal-state 

amount. To identify high trade volume states, SBA uses Census data on export volume by 

state, and each year identifies the top three states using the most recent data available, 

715 USC 649(1)(6). Not more than 50 percent of the nonfederal amount may consist of 

indirect costs and in-kind contributions. 

Page3 
20 

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Not Document that States 

Met TFTEA's Total Match 

Requirement before Grant 

Closeout 

Second, we found SBA's process did not document that states met 

TFTEA's total match requirement before grant closeout TFTEA requires 

that states provide matching funds, and the total match is typically 25 

percent of the combined state-federal amount At least half of the total 

match must be cash. Matching share requirements are often intended to 

ensure local financial participation, and may serve to hold down federal 

costs. 8 If SBA determines that a state is not providing sufficient matching 

funds, it can withhold reimbursement for expenses incurred under the 

grant Figure 1 illustrates the STEP funding proportions described above. 

Figure 1: Required Mix of State Trade Expansion Program (STEP) Funding, 

Including State Total and Cash Match Funds 

Percentage (o! fundsl 

Federal award 

!75%) 

Total state matching funds 

(25"4/) 

St.ate match1ng funds: cash, ln,kind, or ind1rect contnbutions 

No!~r l"his graphtc dep1cts the mirumum requirement for cash matching funds, 

~The Trade Facilitation and Trade Enforcement Act of 2015 requires that those states the Small 

Busmess Administration (SBA} designates as having a "high trade volume~ match at a higher rate of 

at !east 35 percent of the total federaJ,state amount To identify high trade volume states, SBA uses 

Census da!a on export volume by state, and klenttfles the lop three states 

8

GAO. Pnnciples of Federal Appropnation Law, Volume II. GAOM06~382SP (Washington, 

DC. February 2006) 

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In our report, we identified four instances where, according to OfT's 

documentation, states reported insufficient total matches-one in fiscal 

year 2015 and three in fiscal year 2016. OfT's documentation showed 

that these four states failed to meet the required total matching funds by 

about $76,000 combined over these 2 years of the program. SBA told us 

they nevertheless had closed these grants. 

OIT officials provided several explanations for their actions. First, OIT 

officials told us that of these four states, two submitted additional 

information after the grant had closed, indicating that the states had met 

the matching requirement. OIT officials stated that they did not verify the 

accuracy of the total match information before grant closure because of 

OIT staff error. With respect to the other two states, OIT initially stated 

that it was working with OGM to verify that the total match requirement 

had not been met, and how best to recover the funds. Subsequently, OIT 

reported OGM's determination that one state had in fact met the match 

requirement, but that the other had not. In the case of the state that did 

not meet the requirement, OGM determined that SBA had overpaid 

federal funds to that state by about $19,600. However, after contacting 

the state and looking into the matter further, OGM conducted a review of 

quarterly reporting documentation for this state, and determined that the 

state had in fact exceeded its required match by about $3,800. 

Though all four of the states initially identified were eventually determined 

to have met the total match requirement, SBA did not have an adequate 

process in place to ensure documentation of a full match before grant 

closeout. Federal internal control standards state that management 

should design control activities. 9 By designing and executing appropriate 

control activities, management helps fulfill its responsibilities and address 

identified risks in the internal control system. Without a process for 

effectively documenting that the total match requirement has been met 

and reviewing this documentation before grant closeout, SBA does not 

have reasonable assurance that states have complied with TFTEA's total 

match requirement, and risks overpayment of federal funds. 

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SBA Does Not Monitor 

States' Compliance with 

TFTEA's Cash Match 

Requirement 

Third, we found that OJT's process does not provide reasonable 

assurance that states have complied with the TFTEA cash match 

requirement As previously noted, TFTEA requires that states provide at 

least half of their total match in the form of cash. TFTEA allows for the 

remaining half to be any mixture of cash, in-kind contributions, and 

indirect costs. OJT collects information about the types of expended 

matching funds, including the proportion provided in cash; however, OJT 

does not have a process in place to use this information to monitor states' 

compliance with this requirement 

OIT documents show that while proposed cash match amounts are 

recorded, OIT does not track or analyze states' expended cash matching 

funds during or at the close of the grant cycle. OIT officials told us that 

this information is included in the states' quarterly detailed expenditure 

worksheets, and therefore can be reviewed for compliance on a case-bycase basis. However, OJT program officials told us that they do not 

regularly analyze this information to determine what proportion of the total 

match the cash portion constitutes. The program's authorizing legislation 

does not define "cash," and neither does the Uniform Guidance. OJT 

considers the salaries of state trade office staff who work on 

administering the grant to be a form of cash and, according to OJT 

officials, most states use state staff salaries as their total match, including 

the required cash portion. 10 

In addition, we found that OIT does not have a process for ensuring that 

states reporting staff salaries as their required cash match are not also 

using grant funds from STEP to pay for portions of these same salaries. 

As such, SBA cannot consistently determine whether states are meeting 

the TFTEA cash match requirement, and risks closing out grants for 

which states have not met the cash match requirement. Using part of the 

grant to cover the cost of the state's matching requirement in this way 

could have the effect of reducing the match below the thresholds 

mandated by TFTEA In our discussions with officials from 12 low-use 

states that received STEP grants in fiscal year 2015, 2 states reported 

using the grant to offset state staff salaries. When we asked OIT officials 

what process they had in place to determine whether states were using 

staff salaries paid for with STEP funds as part of their match amount, OIT 

102 C.F.R. § 200.413. The Uniform Guidance notes that typical costs charged directly to a 

federal award include compensation of employees who work on that award and their 

related fringe benefit costs; expenses for administrative and clerical staff can also be 

charged directly to an award if conditions specified in the Uniform Guidance are met 

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23 

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Some States Report 

Challenges to Using 

Grant Funds and SBA 

Has Not Adequately 

Assessed Risk to 

Program from Low 

Grant Use 

officials told us that they were not aware that STEP grantees had 

engaged in this practice, and therefore did not monitor for it. 

SBA's grants management standard operating procedure states that the 

agency should monitor grantees for compliance with the terms and 

conditions of the awards, which includes compliance with applicable 

federal law. Further, according to federal standards for internal control, 

management should design and execute control activities, and use quality 

information to achieve the entity's objectives. Management should 

process reliable data into quality information to make informed decisions 

and evaluate the entity's performance in achieving key objectives and 

addressing risks. 11 Without processes to review whether states are 

meeting the cash match requirement, OIT is not implementing its 

responsibilities under SBA's standard operating procedure because it 

cannot consistently determine whether states are meeting this 

requirement. Without making such a determination, SBA does not have 

reasonable assurance that states are contributing to the program as 

required by STEP's authorizing statute. 

In our report, we recommended that the SBA Administrator should 

establish a process that ensures documentation of states' compliance 

with the total match requirement before grant closeout, and develop a 

process to determine states' compliance with the cash match 

requirement. SBA agreed with these recommendations. 

Next, we looked at STEP's grant use rate. In our report, we found that 

nearly 20 percent of grant funds go unused each year, despite OIT 

officials stating that they seek 1 00 percent use of grant funds. 

Specifically: 

2015. Across all 40 recipient states, combined grant use was 81 

percent, leaving 19 percent, or nearly $3.4 million, unused. This 

included one state that left 77 percent, or over $432,000, of its funds 

unused that year. 

2016. Across 41 of the 43 recipient states, combined grant use was 

82 percent, leaving 18 percent, or nearly $3.2 million, unused. This 

11 GA0~14-704G, Principle 13; Use Quality Information. 

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Some States Cited 

Challenges with the 

Program 

included one state that left nearly 95 percent, or nearly $184,000, of 

its funds unused that year. 12 

We found that OIT made some changes to the program that could 

improve states' ability to use all their grant funds. Changes included: 

(1) Extending funds usage period to 2 years. This change allows an 

additional 4 quarters to conduct program activities, which, in turn, may 

help enable states to use the full amount of their grant funding and 

achieve performance targets. 

(2) Eliminating travel preauthorization requirement. This change may 

reduce the administrative burden on state trade office staff and allow 

greater flexibility to use grant funds when opportunities that require travel 

arise with limited notice. 

(3) Reducing the length of the technical proposal. This change may 

help to streamline the program's application paperwork. 

We interviewed officials from low-use states to identify the continuing 

challenges they faced. We grouped the most commonly reported 

challenges into the following categories: 

(1) Timing ofthe application and award processes. State officials 

discussed the variable and short application timeframes, and said that the 

award announcement happening close to the start of the grant period can 

make it difficult to use funds during the 1st quarter of the period. 

(2) Administrative burden. State officials described challenges due to 

inflexible application requirements, a difficult process for repurposing 

funds, and burdensome and changing reporting requirements. 

(3) Communication. State officials told us this was a challenge because 

of delays and inconsistent communication of requirements from OIT. 

12At the time of our analysis, South Dakota and Texas had not submitted finalized data for 

the fiscal year 2016 cycle. According to SBA officials and documentation, OIT granted a 1 ~ 

year extension to each of these states. Award and expenditure data related to these two 

states have been omitted from our calculations for the fiscal year 2016 cycle. 

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SBA Has Not Adequately 

Assessed Risk to 

Achieving Program Goals 

or Effectively Shared Best 

Practices 

In our report, we found that OIT had not assessed and fully addressed the 

risk posed by some states' low use of funds. OIT officials told us that 

while they informally collect feedback from states, there is no systematic 

process to collect states' perspectives on challenges with the program, 

including obstacles to their ability to use funds. Officials said that they 

seek 100 percent use for each state that receives an award, as well as for 

the program as a whole. Federal internal control standards specify that 

agency leadership should define program objectives clearly to enable the 

identification of risks and define risk tolerances in order to meet the goals 

of the program's authorizing legislation. 13 

In addition, OIT has no systematic process to share best practices with 

sufficient detail that states struggling to use their STEP funds might apply 

those practices to improve their own programs. TFTEA requires SBA to 

publish an annual report regarding STEP, including the best practices of 

those states that achieve the highest returns on investment and 

significant progress in helping eligible small businesses. While 12 states 

used 75 percent or less oftheir grant funds in the fiscal year 2015 cycle, 

19 states used all or almost all of their funds. SBA publishes high-level 

information on what it deems to be notable state activities in its annual 

report to Congress. OIT officials told us that, when possible, they share 

best practices with states that may have difficulty accessing external 

markets. However, OIT officials told us that they do not formally facilitate 

the sharing of best practices among the states, saying that best practices 

for promoting exports in one state might not be transferable to another 

state because each state is unique. 

According to the Uniform Guidance, grant recipients' performance should 

be measured in a way that helps the federal awarding agency and other 

nonfederal entities improve program outcomes, share lessons learned, 

and spread the adoption of promising practices. 14 We have also 

previously reported on the importance of collecting and sharing best 

practices, as well as the processes for doing so. 15 By sharing detailed 

information with all participating states about the approaches that some 

grant recipients are using to successfully achieve STEP's goals, SBA 

could encourage all grant recipients to improve the effectiveness of their 

13GA0~14·704G, Principle 6: Define Objectives and Risk Tolerances. 

14See 2 C.F.R. § 200.301. 

15GAO, Best Practices Methodology.· A New Approach for Improving Government 

Operations, GAO/NSIAD-95-154 (Washington, D.C.: May 1995). 

Page9 GA0-19-444T 
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GAO Contact and 

Staff 

Acknowledgments 

(103395) 

state STEP programs, including increasing fund use rates in pursuit of 

OIT's stated aim of 100 percent grant fund use. 

In our report, we recommended that the SBA Administrator assess the 

risk to achieving program goals posed by some states' low grant fund use 

rates, and that assessing this risk could include examining the challenges 

that states reported related to the program's application and award 

processes, administrative burden, and communication. We also 

recommended that SBA enhance collection and sharing of best practices 

among states that receive STEP grant funds. SBA agreed with these 

recommendations. 

Chairwoman Finkenauer, Ranking Member Joyce, and Members of the 

Subcommittee, this completes my prepared statement I would be 

pleased to respond to any questions that you may have at this time. 

If you or your staff have any questions about this statement, please 

contact me at (202) 512-8612 or gianopoulosk@gao.gov. Contacts for our 

Offices of Congressional Relations and Public Affairs are on the last page 

of this testimony. GAO staff who made key contributions to this statement 

are Adam Cowles (Assistant Director), Cristina Ruggiero (Analyst in 

Charge), Martin de Alteriis, Mark Dowling, Jesse Elrod, John Hussey, and 

Christopher Keblitis. 

Page 10 GA0-19-444T 
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HANNIBAL "MIKE" WARE 

INSPECTOR GENERAL 

U.S. SMALL BUSINESS ADMINISTRATION 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS SUBCOMMITTEE ON 

RURAL DEVELOPMENT, AGRICULTURE, TRADE, AND 

ENTREPRENEURSHIP 

U.S. HOUSE OF REPRESENTATIVES 

MARCH 12, 2019 
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INTRODUCTION 

Chairwoman Finkenauer, Ranking Member Joyce, and distinguished members of the 

Subcommittee, thank you for inviting me to testify before you today and for your continued 

support of the Office of Inspector General (OIG). We have published three reports and one 

management advisory memorandum regarding what is now known as the State Trade Expansion 

Program, or STEP. The Small Business Jobs Act of2010 authorized SBA to establish the STEP 

grant program as a 3-year pilot program to both increase the number of eligible small business 

concerns in the states that export and increase the export value of those eligible small businesses 

that already export. Through the Trade Facilitation and Trade Enforcement Act of2015, 

Congress authorized STEP as a full-fledged program. 

OIG's ROLE 

OIG was established within SBA by statute to promote economy, efficiency, and effectiveness 

and to deter and detect fraud, waste, abuse, and mismanagement in the Agency's programs and 

operations. During fiscal year (FY) 2018, OIG achieved more than $224,472,559 million in 

monetary recoveries and savings-an eleven fold return on investment to the taxpayers-and 

made Ill recommendations for improving SBA's operations and reducing fraud and 

unnecessary losses in the Agency's programs. 

OIG audits are conducted in accordance with federal audit standards established by the 

Comptroller General, and other reviews generally are conducted in accordance with standards 

established by the Council of the Inspectors General on Integrity and Efficiency. In addition, we 

coordinate with the Government Accountability Office to avoid duplicating federal audits. We 

also establish criteria to ensure that the nonfederal auditors that OIG uses (typically, certified 

public accountant firms) comply with federal audit standards. 

OIG'S WORK ON STEP 

Since the inception of the STEP pilot in 2010, OIG has produced three reports and one 

management advisory memorandum. The Agency has been mostly amenable to our findings and 

recommendations, and OIG has closed all 22 recommendations from the reports and advisory 

based on management's implemented actions. Nonetheless, OIG continues to identify systemic 

risks in the Agency's grants programs and thus, identified grants management as one of the most 

serious management and performance challenges facing the Agency in FY 2019. 

Report 12-21: Review of SBA 's State Trade and Export Promotion Grant Program 

The Small Business Jobs Act of2010, in addition to authorizing SBA to create STEP, also 

required my office to conduct a review of STEP. To fulfill this requirement, my office produced 

report 12-21. There were two objectives for this audit: (1) to determine the extent to which grant 

recipients were measuring program performance and the results of those measurements and (2) 

to review the overall management and effectiveness of the program. To achieve our objectives, 

we reviewed the Small Business Jobs Act of2010 and the FY 2011 program announcement for 

STEP. Wejudgmentally selected all STEP grants exceeding $1 million to review. Six grant 

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recipients met this threshold, including the states of California, Illinois, Michigan, Pennsylvania, 

Washington, and the Commonwealth of the Northern Mariana Islands. We conducted site visits 

to California, Pennsylvania, Washington, Michigan, and Illinois. In addition, we interviewed 

SBA personnel from the Office of International Trade (OIT) and the Office of Grants 

Management (OGM). We also reviewed pertinent codes of federal regulation, federal public 

laws, and the Office of Management and Budget Circular A-123. 

What OIG Found 

We found that recipients of STEP grants did not implement adequate metrics by which to 

measure program performance. In addition, the results of performance measurements did not 

demonstrate whether grant recipients achieved milestones and remained on track to meet 

proposed goals. This occurred because personnel in OIT, which administers STEP, did not hold 

STEP grant recipients accountable for meeting reporting requirements. 

Further, SBA personnel did not meet with Congress to identifY and clarify the FY 20 II STEP 

program measures for success. OIT personnel could have ensured that grant recipients' 

performance measures included measurable targets, established baselines against which to 

measure performance, and directly corresponded to Congress' intentions for the FY 2011 STEP 

grant program. 

SBA personnel also relied on inaccurate information, did not conduct adequate oversight, and 

did not maintain documentation in the grant award files. Due to SBA's mismanagement, more 

than $1 million in funding was misspent, grant recipients and SBA personnel were confused 

about the governance of the program, and OIT authorized no cost extensions that directly 

violated grant terms and conditions. 

OJG Recommendations 

OIG recommended a total of nine specific actions aimed at improving the accountability and 

performance of STEP, all of which were addressed to SBA's Associate Administrator (AA) for 

OIT: (I) meet with Congress to determine STEP expectations for FY 20 12; (2) ensure that STEP 

grant recipients' FY 2012 performance measures align with Congress' expectations; (3) require 

STEP grant recipients to establish and provide SBA with quarterly milestones that will measure 

effectiveness and efficiency on a quarterly basis; (4) in cases where STEP grant recipients do not 

meet established milestones, require grant recipients to provide SBA with revised work plans and 

budget estimates to meet proposed performance goals; (5) hold STEP grant recipients 

accountable for adhering to reporting requirements established in the notices of award and the 

FY 2012 STEP grant program announcement; (6) document and maintain all analyses, 

evaluations, and rationale used to award STEP grants; (7) provide Grant Officer's Technical 

Representative (GOTR) training to OIT personnel acting in that capacity; (8) establish and 

implement a policy requiring GOTRs to conduct in-depth reviews of STEP grant recipients' 

quarterly submissions and provide feedback to grant recipients; and (9) consult with OGM to 

modifY STEP grant terms and conditions to align with SBA's management of the program. 

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Summary of Actions Taken by SBA to Close the Recommendations 

Based on the documentation SBA provided to OIG demonstrating that it had implemented the 

recommendations, we closed the nine recommendations. Notably, OIT personnel met with 

Congressional staff members to discuss FY 2012 STEP expectations. As a result, OIT personnel 

modified STEP reporting requirements during the first quarter ofFY 2013 in order to ensure that 

they aligned with Congress' expectations. OIT personnel implemented a reporting process to 

monitor recipients' performance against planned milestones. Further, OIT personnel provided 

training to STEP program managers on grants management policies and practices. OIT personnel 

also established and implemented a policy requiring program managers conduct in-depth reviews 

of STEP grant recipients' quarterly submissions and provide feedback to grant recipients, 

beginning in the first quarter ofFY 2013. 

Management Advisory Memorandum Report No. 12-12: The SBA 's Office of International 

Trade Inappropriately Awarded a One Million Dollar State Trade and Export Promotion 

(STEP) Program Grant to an Ineligible Recipient 

As reported in report 12-21, we determined that OIT and OGM personnel mismanaged the STEP 

grant program by awarding a $1,022,781 grant to an ineligible applicant, the Commonwealth of 

the Northern Mariana Islands. Due to the severity of this error, we issued this advisory. The 

Small Business Jobs Act of2010 did not list the Commonwealth of the Northern Mariana Islands 

as an eligible grant recipient. Therefore, the statutory grant authority for STEP did not permit the 

use of STEP grant funds for the Commonwealth of the Northern Mariana Islands. OIT personnel 

did not have the experience or training required to manage and administer such a complex grant 

program. 

OJG Recommendations 

The advisory made four recommendations to the AA for OIT: (1) instruct grant officers to 

immediately terminate STEP grant number SBAHQ-11-IT -004 7 awarded to the Commonwealth 

of the Northern Mariana Islands; (2) withhold fund disbursements of grant number SBAHQ-11-

IT-0047 to the Commonwealth of the Northern Mariana Islands; (3) in the event that funds are 

disbursed between the issuance of the draft version and final version of this advisory 

Memorandum, recover all funds that were disbursed, redistribute the funds to other qualified 

STEP recipients or return the funds to the United States Department of Treasury; and (4) take 

precautions to ensure the Commonwealth of the Northern Mariana Islands or any other ineligible 

applicant is not awarded a STEP grant in future years, unless Congress modifies the Small 

Business Jobs Act to make the Commonwealth of the Northern Mariana Islands eligible. 

Summary of Actions Taken by SBA to Close the Recommendations 

Based on the documentation SBA provided to OIG demonstrating that it had implemented the 

recommendations, we closed the four recommendations. Notably, OIT personnel cancelled the 

STEP award to the Commonwealth of the Northern Mariana Islands and did not disburse the 

funds. 

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Congressional Response 

In 2015 Congress amended the Small Business Jobs Act, 15 U.S.C. 649B, to include a definition 

of state: "the term 'State' means each of the several States, the District of Columbia, the 

Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Commonwealth of the Northern 

Mariana Islands, and American Samoa." This further resolved the ineligible recipient issue we 

identified in our advisory. 

Report 17-11: Review of the Small Business Administration's State Trade and Export 

Promotion Grant Program 

As required by the Trade Facilitation and Trade Enforcement Act of20 15, my office reviewed 

STEP to determine how the funds were used. To answer our objective, we requested the grant 

award and expenditure totals from OIT, OGM, and the Office of the Chief Financial Officer 

(OCFO). We also queried STEP data from the USAspending.gov website. Additionally, we 

judgmentally selected and reviewed 15 grant awards totaling $15.2 million. 

What 0/G Found 

We found that SBA could not provide consistent STEP award and expenditure data. OIT, OGM, 

and OCFO provided different totals for FYs 2011,2012,2014, and 2015 grant awards and 

expenditures. Additionally, we compared the totals received from the three offices with 

USAspending.gov and found that SBA did not update the website with complete and accurate 

award data. 

We also found that SBA implemented new reporting requirements for the FY 2014 STEP that 

significantly improved the quality of the grant recipients' performance and financial reports. 

However, we were unable to determine how the grant recipients spent the funds the first 2 years 

ofthe program, FYs 2011 and 2012, because SBA did not define program management 

procedures for the STEP grant program at the time. Additionally, we found that most of the grant 

recipients we reviewed did not expend all the funds awarded. 

OIG Recommendations 

We made three recommendations to improve SBA's oversight of STEP: (I) that the Chief 

Financial Officer, the AA for OIT, and the Chief Operating Officer implement corrective actions 

to ensure consistency in financial reporting within SBA; (2) that the Chief Financial Officer 

develop a process to ensure that SBA submits timely, complete, and accurate data in 

USAspending.gov; and (3) that the AA for OIT establish and document oversight procedures to 

ensure that the STEP program managers effectively monitor the grant recipient's process in 

meeting targeted milestones. 

Summary of Actions Taken by SBA to Close the Recommendations 

Based on the documentation SBA provided to OIG demonstrating that it had implemented the 

recommendations, we closed the three recommendations. Notably, SBA management 

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implemented a data quality plan to ensure consistency in financial reporting for federal 

assistance grant awards. Further, SBA management implemented a process to submit timely, 

complete, and accurate data to USAspending.gov. Additionally, SBA management enhanced its 

oversight procedures to assess grants recipients' performance in meeting their targeted quarterly 

achievements. 

Report 18-11: Audit of State Trade Expansion Program 

This review also was performed pursuant to requirements of the Trade Facilitation and Trade 

Enforcement Act of2015. The objectives of the audit were(!) to determine the extent to which 

STEP recipients measured program activity performance and the results of those measurements 

and (2) to review the overall management and effectiveness of STEP. To answer our objectives, 

we judgmentally selected five cooperative agreement awards totaling $3.9 million based on 

dollar value and risk. We conducted site visits and obtained documentation from recipients in the 

states of California, North Carolina, Washington, and Mississippi. We also interviewed and 

obtained documentation from cooperative agreement officials for the state of Illinois. 

Additionally, we interviewed personnel and obtained documentation from OIT. 

What GIG Found 

SBA made significant progress in improving the overall management and effectiveness of STEP 

since our audit ofthe pilot program in 2012; however, SBA needs to improve its performance 

measures and program oversight. Although SBA designed a program specific performance 

progress report that assists program managers in monitoring recipients' progress and requires 

states to report measurable results, SBA did not effectively analyze the information to report on 

program success. SBA relied on unverified return on investment measurements when other 

performance measures may provide more comprehensive program results. Additionally, SBA did 

not provide effective oversight of the recipients to ensure they achieved program goals; all five 

fiscal year 2016 recipients we reviewed were not on track to spend the full award amount. 

Absent improving existing performance measurements and providing effective oversight to assist 

recipients with meeting their goals, SBA is at risk of not fully realizing the impact of the 

program in increasing the number of small businesses exploring significant new trade 

opportunities. 

GIG Recommendations 

This audit made six recommendations to improve the overall management and effectiveness of 

STEP, all of which were addressed to the AA for OIT: (I) establish performance measurements 

using the recipients' reported data, such as eligible small business concerns new to the State 

Trade Expansion Program, and include them in the annual report as a verifiable measure of 

program success; (2) develop policies and implement a process to ensure recipients report 

accurate and complete information for participating eligible small business concerns that 

reconciles to the quarterly performance reports; (3) clearly define essential measurement criteria, 

specifically sales, new-to-export, and market expansion, to ensure reporting consistency among 

the STEP recipients and include these definitions in the program announcement; (4) require 

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STEP applicants to include reimbursement and activity thresholds for participating eligible small 

business concerns in their proposals and review for reasonableness to ensure the program meets 

the objective of the Trade Facilitation and Trade Enforcement Act of2015; (5) enhance the 

quarterly review process to include strategic planning to emphasize recipients' meeting 

performance goals; and (6) increase oversight of cooperative agreement recipients, and establish 

and implement a risk-based approach to monitor recipients that are not meeting their quarterly 

milestone goals. 

Summary of Actions Taken by SBA to Close the Recommendations 

Based on the documentation SBA provided to OIG demonstrating that it had implemented the 

recommendations, we closed the six recommendations. Notably OJT personnel established 

performance measurements using the recipients' reported data and included them in the annual 

report to Congress as part of its assessment of program success. 0 IT personnel defined essential 

measurement criteria, required STEP applicants to include reimbursement and activity thresholds 

for participating eligible small business concerns in their proposals, and implemented a process 

to ensure recipients accurately reported their results. Further, OIT implemented a risk-based site 

visit program for greater oversight of the cooperative agreement recipients. 

GRANTS MANAGEMENT CHALLENGES 

In our recently published report on the most serious management and performance challenges 

facing SBA in FY 2019, we identified grants management as an Agency challenge for the first 

time. In FY 2018, SBA administrated more than $24 7 million in grants and cooperative 

agreements to its resource partners and other non federal entities to provide technical assistance 

and training programs to develop small businesses. With recent govemmentwide emphasis on 

grant management reform, it is SBA's responsibility to develop processes and policies to ensure 

its grants programs effectively and efficiently accomplish program objectives. However, our 

reviews of SBA's grant programs, including STEP, continue to identity systemic issues with 

SBA's accuracy of grant data for both financial and performance reporting, ineffective oversight, 

and inadequate standard operating procedures. 

OGM officials acknowledge that there are systemic issues within its grants management 

processes and plan to address these issues by implementing a new grants management system, 

implementing policies to establish an overarching oversight function for all SBA's grants, 

establishing training requirements for grants officers, and focusing resources on closing out 

grants to comply with Grants Oversight and New Efficiency Act requirements. It is my 

understanding SBA is currently updating its standard operating procedure pertaining to federal 

assistance, which seeks to incorporate recommendations made by my office. 

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CONCLUSION 

SBA's STEP has certainly matured and has benefited from the recommendations my office has 

made through its work over the years. As I stated previously, SBA has been amenable to our 

recommendations since the inception of the pilot program and has accepted and implemented all 

our recommendations from all three OIG reports as well as the advisory. That said, grants 

management continues to be an issue for the Agency, as we identified in our management 

challenges report for FY 2019. 

OIG will continue to provide independent, objective oversight to improve the integrity, 

accountability, and performance ofSBA and its programs for the benefit of the American 

people. Our focus is to keep SBA leadership, our congressional stakeholders, and the public 

currently and fully informed about the problems and deficiencies in the programs as identified 

through our work. We value our relationship with the Committee and the Congress at large, and 

we look forward to working together to address identified risks and the most pressing 

management challenges facing SBA. 

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Questions for the Record 

"Challenges in SBA's State Trade Expansion Program" 

Mr. Hannibal "Mike" Ware, Inspector General Small Business Administration 

• Your investigations found that states are not utilizing all their funds. In FY2015, 

more than $1 million was left on the table. Were you able to determine why states 

were having trouble utilizing the full amount of the award? 

During our review of the pilot program (State Trade and Export Program), for the fiscal 

years (FYs) 2011, 2012,2014, and 2015, we found that SBA could not provide us with 

consistent grant expenditure data. Therefore, we could not determine the total amount of 

award funds that remained unspent at the end of the period of performance for each of 

the 4 program years we reviewed. The $1.1 million of STEP funds we reported as 

unspent by the end of the performance period were attributed to the eight states we 

judgmentally reviewed that received awards in FY 2014 or FY 2015. According to 

program officials, they tracked the recipients' use of funds quarterly and provided 

feedback when recipients did not achieve their expenditure milestones. However, these 

efforts were not sufficient to ensure the recipients used the full amount of the award. 

The objective of our review was specifically to determine how the funds for the STEP 

grant program were used. As a result, the scope of our work did not evaluate why 

recipients did not use the full amount of the award. 

Our review of the first three quarters of the STEP FY 2016 performance period, 

September 30, 2016, to June 30, 2017 (authorized by the Trade Facilitation and Trade 

Enforcement Act of2015) found all five states that we judgmentally selected to review 

were not on track for using the full award funds. Although program officials continued 

to track the states' progress on achieving their quarterly milestones and provided 

feedback to them, the five states we reviewed were behind on meeting their quarterly 

spending targets. California showed the largest variance between their proposed and 

actual STEP spending, due to a state legislature approval process that resulted in zero 

first quarter spending. 

Though grant recipients for all five states told us that the program office's award 

decision timelines impacted their ability to spend funds in the first quarter, we found 

this to not be the case for the FY 2016 awards we reviewed. Our review of the 4-year 

pilot program, revealed that program official notified recipients of their STEP awards in 

September, within days of the September 30 performance period start. However, for the 

FY 2016 performance period, program officials notified the recipients of their STEP 

awards in late August, with 5 weeks to prepare before the September 30 performance 

period start. Even though the states had additional time to prepare and to implement 

their planned activities, all five of the states were behind their spending targets as of the 

third quarter. 
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As a result of our reviews, program officials implemented three improvements to 

address the low funds utilization rates. Program officials: (I) updated the quarterly indepth review checklist to ensure program managers assess grant recipient's performance 

in meeting their targeted milestones; (2) implemented a risk-based site visit program for 

greater oversight of the cooperative agreement recipients and issued a Directors 

Memorandum to program managers that identified criteria to assess whether a recipient 

should be considered high-risk; and (3) changed the award period of performance from 

1-year to 2-years to give recipients a longer period to use the award funds. 

With extended period of performances and the improved monitoring efforts, program 

officials are better positioned to ensure recipients use the full amount of their award 

funds. 

• How does the underutilization of funds impact the overall effectiveness of the 

program? 

STEP recipients that did not use their full awards may have lost opportunities to 

increase the number of small businesses exporting or increasing small business export 

sales, thus not maximizing the potential of the program. STEP award amounts are based 

on the funding requirements proposed by the states relative to planned activities. If 

states do not meet their milestone goals and as a result, do not spend all of their award 

funds, the eligible small business concerns that the state had planned to support through 

these activities may not receive the intended benefits of the program. 

• Your report found that SBA reported inaccurate and incomplete award data on 

USASpending.gov. How significant is this reporting and are you satisfied that 

SBA has taken steps to ensure that the data is submits is timely, complete, and 

accurate? 

The Federal Funding Accountability and Transparency Act of2006, amended in 2008, 

required federal agencies to report all contract and grant awards in USAspending.gov to 

give the American public access to information on how the federal government spends 

its tax dollars. 1 USAspending.gov is the official source for spending data for the federal 

government. It is imperative that agencies report timely, accurate, and complete data on 

USAspending.gov for transparency and accountability on all spending decisions. 

We recommended that SBA develop and implement a process to ensure that SBA 

submits timely, complete, and accurate reporting. SBA provided documentation 

demonstrating that it transferred responsibility for USASpending.gov reporting from the 

Office of the Chiefinformation Officer to the Office of the Chief Financial Officer and 

established a new Chief Data Officer position to oversee all data submissions. The 

Chief Data Officer supervises a reconciliation process that correlates with obligations 

that SBA reported in the SF 133 Report on Budget Execution and Budgetary Resources 

1 Public Law 109-282, The Federal Funding Accountability and Transparency Act of 2006 (September 2006} and 

amended in 2008 by Public Law 110-252 Section 6201. 
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to the reporting of grants to ensure accurate and complete reporting in 

USASpending.gov. 

Further, the Chief Financial Officer implemented a data quality plan on August 29, 

2018, and distributed it to the executive in charge of grant oversight. The plan includes 

definitions of standardized data elements and maps each data element to the source 

documents. The Chief Financial Officer also directed the executive in charge of grant 

oversight to establish and document its quality assurance and ongoing monitoring 

processes over the grants data entered into source systems. 

SBA's implemented reconciliation process and the data quality improvements should 

ensure that SBA submits timely, accurate, and complete information to 

USASpending.gov to support better decision making and transparency and 

accountability on how the government uses taxpayers' funds. 

• We have learned from GAO's report that states face ongoing challenges in trying 

to utilize the funds. States have reported that the reporting requirements are 

tedious and burdensome. In your view, are STEP's reporting requirements more 

onerous than other grant programs? 

While STEP requires additional reporting requirements than other SBA grant programs 

we have reviewed, the nuances in STEP may justify the additional reporting. This is 

mostly due to requirements for states to report costs incurred by the activities they 

proposed to complete during the grant performance period. These activities are tracked 

and categorized by the nine activities allowed under the authorizing law. The program 

office uses this information to monitor the states' progress in accomplishing their 

planned activities and reaching their proposed goals. Further, states are required to 

report the eligible small business concerns that participated in the activities and the total 

cost of the assistance they provided each eligible small business concern. Program 

officials use this information to verify that states are maximizing the reach of the 

program by engaging new eligible small business concerns and to assess that states use 

the STEP funds to support a variety of businesses instead of a limited or specific group 

of eligible small business concerns. These two reporting requirements are in addition to 

the standard financial reporting requirements where states report budgeted expenditures 

by cost category-personnel, fringe benefits, travel, supplies, contractual, etc. -that the 

program office uses to monitor costs in accordance with the uniformed grant guidance. 

• States have raised concerns that SBA's guidance is often inconsistent and 

inaccurate. What can Congress and SBA do to ensure that states have a clear 

understanding of definitions for sales, new-to-export, etc .... 

As a result ofthe recommendation made in report 18-11 to improve consistency among 

the STEP recipients reporting, program officials included definitions for sales, eligible 

small business concerns pursuing market expansion, and eligible small business 

concerns new-to-export in the FY 2018 Funding Opportunity Announcement. We 

verified that the program office's definitions were clear and determined that the 
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