JANUARY 12, 2011 

REDACTED FOR PUBLIC RELEASE ____________________________________________________________________________ 

REPORT. NO. IG-11-010-R 

OFFICE OF AUDITS

REVIEW OF NASA’S MANAGEMENT OF ITS SMALL 

BUSINESS INNOVATION RESEARCH PROGRAM

OFFICE OF INSPECTOR GENERAL

National Aeronautics and 

Space Administration 
REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R-R 

THE FULL VERSION OF APPENDICES B AND E TO THIS REPORT INCLUDED INFORMATION 

THAT MAY BE CONSIDERED CONTRACTOR PROPOSAL INFORMATION. WE HAVE 

REDACTED FROM THE APPENDICES INFORMATION THAT WOULD IDENTIFY THE SPECIFIC 

PROPOSERS. WHERE SUCH INFORMATION HAS BEEN REDACTED IS NOTED.

Final report released by: 

Paul K. Martin 

Inspector General 

Acronyms 

DCAA Defense Contract Audit Agency 

FAR Federal Acquisition Regulation 

GSA General Services Administration 

NRC National Research Council 

OIG Office of Inspector General 

OMB Office of Management and Budget 

SBA Small Business Administration 

SBIR Small Business Innovation Research Program 
REDACTED FOR PUBLIC RELEASE 

JANUARY 12, 2011 

REPORT No. IG-11-010-R 

OVERVIEW

REVIEW OF NASA’S MANAGEMENT OF ITS SMALL BUSINESS 

INNOVATION RESEARCH PROGRAM

The Issue 

Congress created the Small Business Innovation Research (SBIR) program in 1982 to 

stimulate technological innovation, increase participation by small businesses and 

disadvantaged persons in federally funded research and development, and increase 

private-sector commercialization of innovations derived from federally funded research 

and development efforts. NASA’s SBIR Program is the third largest of the 11 Federal 

agencies that are required to participate in the program, awarding an average of 

$112 million annually to small businesses from 2004 through 2008.1

The NASA Office of Inspector General (OIG) initiated this audit because recent 

investigations by the OIG’s Office of Investigations identified cases of fraud, waste, and 

abuse in NASA’s SBIR Program that raised questions about the overall effectiveness of 

the Program’s internal controls. The objective of our audit was to examine these internal 

controls and determine whether NASA effectively managed the SBIR Program. To 

accomplish that objective, we examined whether: 

 management had established internal controls to ensure evaluations of SBIR 

technical proposals were merit-based and objective; 

 the Agency performed adequate due diligence to identify unallowable and 

unsupported costs; 

 management had established adequate criteria and procedures for selecting SBIR 

awards based on best value; and 

 internal controls were adequate to prevent and detect fraud and abuse in the SBIR 

Program. 

The scope of our audit included all SBIR technical proposals submitted to and contracts 

awarded by NASA for program year 2008.2 To meet our audit objectives, we selected a 

statistical sample of 67 SBIR awards for review. Details of the audit’s scope and 

methodology are in Appendix A. 

 

1

 The 11 agencies participating in the Federal SBIR program are the Departments of Agriculture, 

Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, 

Transportation, the Environmental Protection Agency, NASA, and the National Science Foundation. 

2

 SBIR program year 2008 encompassed proposals submitted and contracts awarded in response to the 

2008 NASA SBIR Program Solicitation, which included 2008 Phase 1 awards and 2007 Phase 2 awards. 
REDACTED FOR PUBLIC RELEASE OVERVIEW

ii REPORT No. IG-11-010-R 

Results 

Our review found that while NASA’s initial choice of SBIR award recipients appeared 

objective and merit-based, its oversight and monitoring of awards was deficient. 

Specifically, SBIR awards in 2008 contained an estimated $2.7 million in unallowable 

and unsupportable costs, including travel and equipment expenses. In addition, we found 

that NASA officials lacked adequate procedures to ensure SBIR applicants’ past 

performance had been considered when selecting recipients of approximately $85.7 

million in “Phase 2” SBIR funds. Federal acquisition rules require consideration of past 

performance. Finally, NASA has not implemented appropriate internal controls to 

prevent fraud and abuse in contract awards. Consequently, some SBIR award recipients 

may have received multiple SBIR awards from different Federal agencies for the same 

research or NASA may have received highly questionable research products for its 

contract money. 

Technical Proposals Were Appropriately Evaluated. SBIR Program officials 

established effective internal controls to ensure that evaluations of SBIR technical 

proposals were merit-based and objective. Program officials established a clear scoring 

methodology for evaluating technical proposals and procedures for ensuring evaluations 

were objective. In addition, Program officials engaged Mission Directorate and Center 

personnel in SBIR activities to ensure the infusion of SBIR research into NASA projects. 

NASA Needs Better Controls to Prevent Unallowable and Unsupported Costs. A 

significant percentage of SBIR contracts awarded by NASA in 2008 contained 

unallowable and unsupported costs. We reviewed a randomly selected sample of 67 

SBIR contracts and found that 17 (25 percent) included unallowable or unsupported 

costs. Specifically, we found unallowable travel and equipment costs, unallocable costs, 

and unsupported costs in the sample of SBIR contracts we examined to include: 

 Unallowable travel costs. NASA awarded contracts with unallowable travel 

costs totaling $9,255 on 4 of the 36 (11.1 percent) Phase 1 SBIR awards we 

reviewed. 

 Unallowable equipment costs. NASA awarded contracts with unallowable 

equipment costs totaling $234,354 on 6 of the 67 (8.9 percent) awards we 

reviewed. 

 Unallocable costs.3

 NASA awarded $167,014 in unallocable direct costs on 7 of 

the 67 (10.4 percent) awards we reviewed. 

 

3

 FAR 31.201-4, “Determining allocability,” states that a “cost is allocable if it is assignable or chargeable 

to one or more cost objectives on the basis of relative benefits received or other equitable relationship” – 

i.e., a cost is allocable to a Government contract if it (a) is incurred specifically for the contract; 

(b) benefits both the contract and other work, and can be distributed to them in reasonable proportion to 

the benefits received; or (c) is necessary to the overall operation of the business, although a direct 

relationship to any particular cost objective cannot be shown. 
OVERVIEW REDACTED FOR PUBLIC RELEASE __________________________ 

REPORT No. IG-11-010-R iii 

 Unsupported costs. NASA awarded contracts containing $117,932 in 

unsupported costs in 2 of the 67 (3 percent) awards we reviewed. 

Based on our statistical projections, we estimate that NASA awarded contracts with $2.7 

million in unallowable and unsupported costs during program year 2008 alone. 

We determined that NASA awarded these SBIR contracts with unallowable and 

unsupported costs primarily because contracting officers and technical evaluators did not 

perform adequate due diligence in reviewing applicants’ proposed costs. If NASA took 

the corrective actions outlined in this report to address these unallowable and 

unsupported costs, we estimated that the Agency could put $13.3 million in SBIR funds 

to better use during program years 2010 through 2014. 

NASA Needs to Consider Past Performance When Considering SBIR Proposals. 

Our analysis of randomly selected contracts also found that SBIR Program managers did 

not appropriately consider past performance information in evaluating and selecting the 

Phase 2 awards. The Office of Federal Procurement Policy states that “the use of past 

performance as a major evaluation factor in the contract award process is instrumental in 

making best value selections.” In addition, Federal Acquisition Regulations require 

agencies to use past performance information in awards of more than $100,000 to ensure 

the selected proposal represents the best value (Phase 2 SBIR awards have a maximum 

value of $750,000). However, NASA policies and procedures do not require 

consideration of past performance information in proposal evaluations and award 

selections. Evaluating this factor in future SBIR award selections will enable the Agency 

to better predict the quality of future work and help achieve Program goals. 

NASA Needs to Improve Its Ability to Prevent and Detect Fraud in the SBIR 

Program. In analyzing investigations conducted by NASA OIG and others, we found 

that SBIR award recipients received multiple SBIR contracts for essentially the same 

research and provided duplicate deliverables or questionable research products. Some 

recipients also violated Small Business Administration (SBA) rules, such as when actual 

effort and costs differed materially from proposed effort and costs, contractors used SBIR 

funds for noncontract purposes, and technical personnel violated conflict of interest 

policies. 

During our review, we identified 24 internal controls that, if implemented correctly, 

would help prevent and detect SBIR fraud and abuse. Under the Federal Managers 

Financial Integrity Act and Office of Management and Budget requirements, agency 

managers are required to establish effective internal controls. When we examined 

NASA’s SBIR Program, we found Agency managers had not established 14 of the 24 

controls (58 percent). In particular, we found that NASA had not implemented 9 of 19 

controls we identified as critical in preventing and detecting fraud. Consequently, the 

SBIR Program remains vulnerable to fraud and abuse. For example, we performed two 

data mining tests to identify firms that might have received duplicate awards or might 

have submitted duplicate deliverables and we identified potential instances of duplicate 

awards and duplicate deliverables that have a combined value of approximately 

$28.6 million. 
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iv REPORT No. IG-11-010-R 

Management Action 

We recommended that the Director, Innovative Partnerships Program Office, in 

consultation with the Assistant Administrator for Procurement, provide NASA technical 

evaluators with additional training to ensure that they know how to perform a preliminary 

assessment of cost allowability during the selection and evaluation stage. In addition, we 

recommended that the Assistant Administrator for Procurement improve the cost review 

procedures used during the contract award stage to ensure that contracting officers take 

appropriate action when unallowable and/or unsupported costs are identified. 

We also recommended that the Director, Innovative Partnerships Program Office, 

develop policies and procedures for using past performance information in the selection 

of Phase 2 awards. In addition, the Director should require that the annual solicitation for 

SBIR proposals outline the performance assessment methodology; designate 

responsibility for collecting past performance information; include past performance 

information in the scoring methodology and scores for Phase 2 proposals; and require 

technical officers to assess a firm’s past performance on Phase 2 awards and to document 

the assessment. Further, we recommend that the Director implement critical internal 

controls that are not currently being utilized by NASA in its SBIR program. In addition, 

the Director should assess implementation costs and benefits to NASA for the remaining 

controls we identified as noncritical. 

Finally, we recommended that NASA’s Program Executive for the SBIR Program contact 

the SBA and the General Services Administration to discuss implementing automated 

controls in databases operated by those agencies to enhance cross-agency fraud detection. 

Because of the recent merger of NASA’s Innovative Partnership Office with the Office of 

the Chief Technologist, the Chief Technologist provided comments in response to the 

draft of this report (see Appendix E). Consequently, the applicable recommendations in 

this final report are addressed to the Chief Technologist. 

Although the Chief Technologist did not agree with the findings on unallowable and 

unallocable costs (a detailed evaluation of the Agency’s response begins on page 10), he 

stated that the report accurately highlights “very important issues and weaknesses in the 

integration of the Nation’s SBIR Program,” generally concurred with our 

recommendations, and set forth a series of planned actions the Agency agreed to take in 

response. We consider these planned actions to be responsive to our recommendations, 

and accordingly we consider the recommendations to be resolved. We will close the 

recommendations upon completion and verification of the proposed corrective actions. 

The Chief Technologist stated that NASA will develop a training module for technical 

evaluators to improve the quality of cost reviews and completeness of the technical 

evaluation forms; revise templates, checklists, and file documentation to ensure costs are 

appropriately analyzed, supported, dispositioned, and documented; and provide all 

employees assigned to the SBIR Program additional training on the analysis of direct and 
OVERVIEW REDACTED FOR PUBLIC RELEASE __________________________ 

REPORT No. IG-11-010-R v 

indirect costs. He also stated that NASA modified the 2010 SBIR solicitation to 

emphasize that past performance would be evaluated, made contracting officers 

responsible for collecting and reviewing past performance information, and required 

contracting officer technical representatives to assess past performance when the SBIR 

contract is completed. Additionally, technical evaluators will be provided access to past 

performance information. 

With respect to our recommendations regarding implementation of additional internal 

controls, Chief Technologist stated that 9 critical controls we recommended will be 

implemented or partially implemented and one noncritical control we recommended will 

be evaluated for implementation. In addition, he said NASA will meet with the SBA and 

the General Service Administration to discuss implementing the recommended controls 

that require coordination with those agencies.

JANUARY 12, 2011 REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 

CONTENTS

INTRODUCTION

Background __________________________________________ 1 

SBIR Program’s Contribution to NASA’s Mission ______________ 4 

Objectives ___________________________________________ 6 

RESULTS

SBIR Program Officials Appropriately Managed Evaluations of 

Selections of Technical Proposals _______________ 7 

NASA Needs Better Controls to Prevent Unallowable and 

Unsupportable Costs _________________________ 9 

NASA Needs to Consider Past Performance When Considering 

SBIR Proposals ____________________________ 18 

NASA Needs to Improve Its Ability to Prevent and Detect 

Fraud in the SBIR Program ___________________ 22 

APPENDIX A 

Scope and Methodology _______________________________ 32 

Review of Internal Controls _____________________________ 34 

Prior Coverage _______________________________________ 35 

APPENDIX B 

Questioned Costs _____________________________________ 36 

APPENDIX C 

Sampling Methodology and Projection of Results ____________ 38 

APPENDIX D 

Controls to Prevent and Detect Fraud and Abuse ____________ 41 

APPENDIX E 

MANAGEMENT’S COMMENTS _________________________ 46

APPENDIX F 

Report Distribution ___________________________________ 66 

JANUARY 12, 2011 REDACTED FOR PUBLIC RELEASE 

REPORT NO. IG-11-010-R 1

INTRODUCTION

Background 

Authorization and Scope of the Federal SBIR Program. Congress created the Small 

Business Innovation Research (SBIR) program in 1982 to stimulate technological 

innovation, increase participation by small and disadvantaged businesses in federally 

funded research and development, and increase private-sector commercialization of 

innovations derived from federally funded research and development efforts.4 NASA’s 

SBIR Program is the third largest of the 11 Federal agencies that are required to 

participate in the SBIR program.5

 For program years 2004 through 2008, NASA 

annually awarded, on average, $112 million through the Agency’s SBIR Program to 422 

participants. 

Pursuant to Executive Order, the Small Business Administration (SBA) is responsible for 

monitoring and coordinating the SBIR activities of participating Federal agencies.6

 

SBIR Eligibility Criteria. To participate in the SBIR Program, small businesses must 

meet the following criteria: 

 American-owned. Businesses must be at least 51 percent owned and controlled 

by one or more individuals who are citizens of, or permanent resident aliens in, 

the United States. 

 Operated for profit. Businesses must be organized for profit with a place of 

business located in the United States that operates primarily within the United 

States or makes a significant contribution to the United States economy through 

payment of taxes or use of American products, materials, or labor. 

 Principal investigator employed by the small business. The principal 

investigator must be primarily employed (at least 51 percent in a calendar year) 

by the business at the time of an award and during the period of performance. 

 Limited in size. Businesses are limited to 500 or fewer employees, including 

affiliates. 

 

4

 Public Law 97-219 (1982), Small Business Innovation Development Act of 1982. Small Business 

Reauthorization Act of 2000. 

5

 The 11 agencies participating in the Federal SBIR program are the Departments of Agriculture, 

Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, 

Transportation, the Environmental Protection Agency, NASA, and the National Science Foundation. 

Each year the 11 agencies award a total of approximately $1.8 billion in SBIR funds to approximately 

5,800 recipients. 

6

 Executive Order 13329, February 26, 2004, “Encouraging Innovation in Manufacturing.” 
REDACTED FOR PUBLIC RELEASE INTRODUCTION

2 REPORT No. IG-11-010-R 

Phase 1

• provides small

businesses with a

start‐up period to

establish the scientific,

technical, and

commercial feasibility

of the proposed

innovation

• awards of up to

$100,000

• 6‐month period of

performance

Phase 2

• provides for further

development of the

scientific and

commercial promise

of research from

Phase 1

• includes only firms

that have successfully

completed Phase 1

• awards of up to

$750,000

• 24‐month period of

performance

Phase 3

• provides the firm an

opportunity to move

the technology

innovations from

Phase 2 to the

marketplace

• provides funds

through normal

procurement

processes at the

agency and/or private

sector procurements

SBIR Award Phases. The SBIR Program is divided into three phases as shown in 

Figure 1. 

Figure 1. SBIR Program Phases

NASA’s Implementation of the Federal SBIR Program. During program year 2008, 

NASA awarded 350 SBIR Phase 1 purchase orders valued at $34.7 million and 143 

Phase 2 contracts valued at $85.7 million. We could not determine the number of Phase 

3 contracts during the program year because the Agency did not maintain reliable records 

identifying Phase 3 activity. Therefore, we limited our review to Phase 1 and Phase 2 

SBIR awards. 

According to NASA’s 2008 SBIR Solicitation, the Agency’s objective for its SBIR 

Program is to take the technological innovations developed by the program and infuse 

them into various Mission Directorates’ programs and projects. NASA’s SBIR Program 

is managed by the Innovative Partnerships Program Office (SBIR Program Office) at 

NASA Headquarters and the Program Management Office at Ames Research Center 

(Ames Program Management Office).7

 The SBIR Program Office and the Program 

Executive provide overall policy direction and make the final selection of award 

recipients. The Ames Program Management Office is responsible for developing annual 

SBIR solicitations and associated guidelines and establishing procedures to evaluate and 

select proposals. 

At NASA, the SBIR process is divided into five stages: solicitation, evaluation and 

selection; contract award, post-award administration, and close-out. The solicitation 

stage involves issuing an annual SBIR request for research proposals. The evaluation and 

selection stage includes ranking research proposals and selecting award recipients. The 

contract award stage includes reviewing proposed costs and making contract awards. 

 

7

 The NASA SBIR program operates in partnership with NASA’s four Mission Directorates: Aeronautics 

Research, Exploration Systems, Science, and Space Operations. 
INTRODUCTION REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 3 

The post-award administration stage includes oversight of the SBIR contract during its 

period of performance. The contract close-out stage assesses whether all contract terms 

and conditions have been met. The activities performed during each of these stages are 

illustrated in Figure 2. 

Figure 2. NASA’s SBIR Process

Since 1997, the NASA OIG Office of Investigations has investigated 51 cases of alleged 

SBIR fraud at NASA. We conducted a risk analysis of these 51 cases to determine 

whether particular stages of the NASA SBIR award process were more vulnerable to 

fraud, waste, and abuse than others. Based on this analysis, we limited the scope of this 

audit to three stages of the process: evaluation and selection, contract award, and postaward administration. 

OIG Oversight of the SBIR Program. As noted above, since 1997 the OIG has 

investigated 51 allegations of potential fraud, waste, or abuse in NASA’s SBIR Program. 

Eight of these allegations resulted in criminal convictions, civil judgments, or 

administrative corrective action and five additional cases were under investigation as of 

September 2010. 

In April 2004, the OIG issued a Management Alert Memorandum to NASA’s Associate 

Administrator for the Office of Procurement containing a series of recommendations to 

Solicitation

•Managers in NASA’s Mission Directorates develop research topics

•Program Management Office issues the annual solicitation for proposals

Evaluation

and

Selection

•Technical personnel with expertise in research topic evaluate technical proposals for that topic

•Mission Directorates rank and recommend proposals

•Project Management Office determines number of proposals that can receive awards

•Source Selection Official selects award recipients  

Contract

Award

•Contracting officer assesses the allowability of proposed costs

•Contracting officer appoints technical oversight personnel

•Contracting officer awards contracts

Post‐award

Admin‐

istration

•Contracting officer's technical representative reviews progress and final reports

•Technical officer reviews contractor invoice

•Contracting officer approves invoice for payment

Close‐out

•Contracting officer ensures that the contract is complete

•Contracting officer approves final invoice for payment
REDACTED FOR PUBLIC RELEASE INTRODUCTION

4 REPORT No. IG-11-010-R 

improve the SBIR Program, including that SBIR contractors be required to recertify 

compliance with program eligibility criteria before receiving final payment and that 

contracting officer technical representatives receive training regarding post-award 

administration of SBIR contracts. In response to our recommendations, NASA required 

SBIR contractors to recertify compliance with requirements of the SBIR Program Policy 

Directive before receiving final payment. In addition, the Ames Program Management 

Office collaborated with the Office of Procurement to include post-award administration 

of SBIR contracts in training for contracting officer’s technical representatives. 

In August 2009, NASA’s Acting Inspector General testified before the Senate Committee 

on Commerce, Science, and Transportation regarding NASA’s SBIR Program.8 

Following this testimony, the OIG issued a memorandum recommending that NASA 

consider whether the SBIR Program represents a weakness in internal controls that 

warrants monitoring as part of the Agency's implementation of Office of Management 

and Budget (OMB) Circular A-123.9

 The Agency concurred with the OIG 

recommendation. In October 2009, March 2010, and October 2010, the SBIR Program 

Office briefed the Agency on internal controls within the SBIR Program. According to 

Agency officials, they are monitoring the SBIR Program to determine whether internal 

controls within the Program represent a weakness that warrants corrective action. 

SBIR Program’s Contribution to NASA’s Mission

This OIG review examined NASA’s management of its SBIR program and did not assess 

the value of the research produced under its SBIR contracts. However, in order to 

provide context for our findings, we reviewed assessments by the National Research 

Council (NRC) and the OMB regarding the effectiveness of NASA’s SBIR Program. In 

addition, we asked Mission Directorates for their assessments of whether SBIR contracts 

had contributed to NASA programs and projects. 

NRC. Congress directed the NRC to evaluate the quality of SBIR research and evaluate 

the SBIR Program’s value to the Agency’s mission. In 2009, the NRC issued “An 

Assessment of the Small Business Innovation Research Program at the National 

Aeronautics and Space Administration.” The NRC reported that the “NASA SBIR 

program is making significant progress in achieving the congressional goals for the 

program.” Additionally, the NRC reported that: 

 

8

 NASA OIG, “Hearing of the Senate Committee on Commerce, Science, and Transportation on the 

National Aeronautics and Space Administration’s Small Business Innovation Research (SBIR) Program.” 

Statement by Thomas J. Howard, Acting Inspector General, August 6, 2009. Available at 

http://commerce.senate.gov/public/?a=Files.Serve&File id=b9d8b888-8bb8-4d0a-8d79-d55ad95a4978 (last accessed January 5, 2011). 

9

 NASA OIG, “NASA’s Small Business Innovation Research (SBIR) Program” (Report No. IG-09-023, 

August 13, 2009). Available at http://oig nasa.gov/audits/reports/FY09/IG-09-023.pdf (last accessed 

January 5, 2011). 
INTRODUCTION REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 5 

 The NASA SBIR Program helps its award recipients achieve significant levels of 

commercialization. For example, the NRC surveyed Phase 2 SBIR contractors 

and found that nearly half of NASA Phase 2 projects reached the marketplace. 

 The NASA SBIR Program stimulates collaboration and technological innovation 

and generates new knowledge. For example, about 25 percent of the NRC Phase 

2 survey respondents reported filing at least one related patent, and about 20 

percent reported having received at least one patent. 

 NASA’s technology transfer program has shifted since 2006 from a focus on 

commercialization (“spin-out”) to a focus on supplying mission needs (“spin-in” 

or “infusion”). 

 NASA needs to improve tracking of Phase 3 awards to better evaluate the 

Program’s success. 

OMB. In 2008, OMB rated NASA’s SBIR Program as “moderately effective.”10 OMB 

concluded that the Program is promoting technology flow into and out of NASA and is 

focusing SBIR awards on projects expected to provide the greatest possible technological 

benefit to the Agency. 

NASA Mission Directorates. According to Program liaisons from NASA’s four 

Mission Directorates that participate in the SBIR Program, Directorate personnel were 

satisfied with the final products received under the Program. The liaisons also stated that 

the SBIR Program had enhanced the scope and progress of the projects within their 

Directorates and had assisted programs with meeting their overall goals. Mission 

Directorates provided the following examples of SBIR contracts that successfully 

contributed to NASA programs and projects: 

 Aeronautics Research Mission Directorate. An SBIR contractor developed 

technology leading to the design of a “real-time” monitoring system for control of 

dynamic aero-loads of aircraft structures. 

 Exploration Systems Mission Directorate. An SBIR contractor provided NASA 

with expert engineering analysis and evaluation of aerospace vehicles and systems 

design. 

 Science Mission Directorate. An SBIR contractor developed more reliable, 

powerful, and agile electrical sources that will allow scientists to study the 

chemistry and dynamics of the Earth’s atmosphere, molecular clouds in starforming regions of the universe, and the atmospheres of other planets. 

 

10 OMB documented NASA’s rating using its Program Assessment Rating Tool. OMB uses the tool to 

evaluate a program’s purpose, design, planning, management, and results, and to assess a program’s 

overall effectiveness. 
REDACTED FOR PUBLIC RELEASE INTRODUCTION

6 REPORT No. IG-11-010-R 

 Space Operations Mission Directorate. An SBIR contractor developed and 

commercialized a processor that enables high-resolution imaging of launch 

gantries from a distance.11

Objectives 

Our overall objective was to determine whether NASA effectively managed its SBIR 

Program. To accomplish this objective, we examined whether NASA had: 

 established internal controls to ensure that evaluations of technical proposals are 

merit-based and objective; 

 established adequate criteria and procedures for selecting SBIR awards based on 

best value; 

 performed adequate due diligence to identify unallowable and unsupported costs 

by SBIR recipients; and 

 established internal controls to prevent and detect fraud and abuse in the SBIR 

Program. 

 

11 A launch gantry is a movable structure with platforms at different levels used for erecting and servicing 

rockets before launching. 
JANUARY 12, 2011 REDACTED FOR PUBLIC RELEASE 

REPORT NO. IG-11-010-R 7

SBIR PROGRAM OFFICIALS 

APPROPRIATELY MANAGED 

EVALUATIONS AND 

SELECTIONS OF 

TECHNICAL PROPOSALS

We found that NASA followed detailed criteria for selecting SBIR award recipients 

and its decision-making process appeared objective and merit-based. 

Program Officials Established Policy to Select Proposals that 

Stimulate Innovation 

As required by the Small Business Innovation Development Act of 1982, NASA 

established an SBIR policy that considers, among other criteria, whether proposals for 

Phase 1 and Phase 2 awards will stimulate innovation. To identify proposals that are both 

innovative and viable, the policy uses four scoring factors: (1) scientific and technical 

merit and feasibility; (2) experience, qualifications, and facilities; (3) effectiveness of the 

proposed work plan; and (4) commercial potential and feasibility.12 Evaluators calculate 

a technical merit score for each proposal by assigning numerical values to the first three 

scoring factors (scoring factor 1, 50 percent; scoring factor 2, 25 percent; and scoring 

factor 3, 25 percent) and a subjective rating (excellent, very good, average, below 

average, and poor) to factor 4. 

NASA’s policy includes procedures to ensure that evaluations of proposals are objective, 

assigning two evaluators with technical knowledge in the topic area to evaluate each 

proposal. The evaluators document their findings on standardized forms that the SBIR 

Program electronically maintains in the Electronic Handbook.13 If there is a 15-point or 

greater difference in the initial evaluators’ scores, a third evaluator is assigned to review 

the proposal. Managers review and average the evaluator’s ratings and assign a final 

score to the proposal. 

In addition to the evaluation process described above, proposals are also reviewed by 

Mission Directorate personnel who rate the proposal based on innovation and potential 

benefit to their specific Directorate and to NASA. Recommendations from the Mission 

Directorates are considered along with the overall score from the evaluators by the 

Source Selection Official, who makes the final selection decision. For 2008 awards, the 

 

12 Officials included criteria for evaluating Phase 1 proposals in the 2008 Phase 1 “Proposal Evaluation 

Guidelines,” September 2008. Criteria for evaluating Phase 2 proposals were included in the 2007 Phase 

2 “Proposal Evaluation Guidelines,” July 2008. 

13 The Electronic Handbook is the primary data collection, processing, and reporting tool for the SBIR 

program and is used to develop the topic and subtopic descriptions and for evaluating and ranking the 

proposal. 
REDACTED FOR PUBLIC RELEASE RESULTS

8 REPORT No. IG-11-010-R 

Source Selection Official considered only proposals that had an overall score of 85 or 

higher and had been recommended by a Mission Directorate. 

For program year 2008, NASA received 1,662 SBIR proposals and selected 493 for 

award, with a total value of $120.4 million. We randomly selected nine Phase 1 and 

eight Phase 2 proposals for review to determine whether NASA evaluators followed the 

procedures outlined in NASA policy. We found that evaluators in almost all of the cases 

followed the procedures outlined in the policy. For example, evaluators assessed each of 

the four scoring factors and documented scoring factors and scores on the standardized 

technical evaluation forms. In addition, we found that managers assigned a third 

evaluator when there was at least a 15-point difference in the scores assigned by the 

initial evaluators. 
RESULTS REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 9 

NASA NEEDS BETTER CONTROLS 

TO PREVENT UNALLOWABLE 

AND UNSUPPORTABLE COSTS

NASA awarded SBIR contracts in 2008 that contained an estimated $2.7 million in 

unallowable and unsupported costs such as travel and equipment. We found that this 

occurred primarily because NASA contracting officers and technical evaluators did 

not perform adequate due diligence when reviewing costs proposed by SBIR 

awardees. 

Federal Acquisition Regulation (FAR) and NASA Requirements for 

the Allowability of Costs 

FAR 31.201-2, “Determining allowability,” provides that a cost is allowable only when it 

is reasonable, allocable, and complies with the terms of the contract. A cost is reasonable 

if it does not exceed the amount that a prudent person would pay under similar 

circumstances in the conduct of competitive business. A cost is allocable to an SBIR 

award if the cost provided benefits or bears an equitable relationship to the award. A cost 

complies with the terms of the contract if it is consistent with the requirements and 

express prohibitions established in the contract. 

FAR 1.602, “Contracting officers,” provides that “no contract shall be entered into unless 

the contracting officer ensures that all requirements of law, executive orders, regulations, 

and all other applicable procedures . . . have been met.” To ensure compliance with 

acquisition regulations, contracting officers must review proposed costs for allowability. 

 The 2008 NASA SBIR Solicitation established the Agency’s policy regarding the 

allowability of individual cost elements proposed in SBIR program year 2008. 

Solicitation sections 3.2, “Phase 1 Proposal Requirements,” and 3.3, “Phase 2 Proposal 

Requirements,” established specific prohibitions on travel and equipment costs. 

NASA Awarded Contracts with Unallowable and Unsupported 

Costs 

Approximately one quarter of the SBIR contracts NASA awarded in 2008 contained 

unallowable and unsupported costs. We reviewed a random sample of 67 SBIR contracts 

and found that 17 (25 percent) included unallowable or unsupported costs. Specifically, 

based on our review of the sampled contracts, the Agency awarded: 

 unallowable travel costs; 

 unallowable equipment costs; 

 unallocable costs; and 

 unsupported costs. 
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10 REPORT No. IG-11-010-R 

Projecting these findings from the 67 sampled awards onto the universe of the Agency’s 

493 SBIR program awards, we estimate that NASA awarded contracts with $2.7 million 

in unallowable and unsupported costs in 2008. Because the indirect costs and profit 

associated with each contract are calculated based on direct costs, the inclusion of 

unallowable direct costs caused indirect costs and profits to be overstated for many of 

these awards. Accordingly, our calculation accounts for these overstated indirect costs 

and profits as well. 

Unallowable Travel Costs. NASA awarded contracts with unallowable travel costs 

totaling $9,255 on 4 of the 36 (11.1 percent) Phase 1 awards we reviewed. Those costs 

were unallowable under NASA policy because the 2008 SBIR solicitation established the 

following prohibition on Phase 1 travel costs: 

The NASA SBIR/STTR [Small Business Technology Transfer] program does 

not require or expect to incur travel expenses during the performance of a Phase 

1 contract. For this reason, travel expenses should not be included in the 

proposed budget for a Phase 1 proposal [emphasis added]. If the Technical 

Monitor and Contracting Officer determine that travel is necessary, the budget 

can be altered during contract negotiations to allow for this. 

Two examples of unallowable travel costs in our sample are as follows: 

 A Phase 1 award included unallowable travel costs of $585 as a line item within 

the “Other Direct Costs” section of the budget summary as well as travel costs of 

$3,000 as part of a $33,000 subcontract. During the budget review for this award, 

one of the two technical evaluators noted that “[t]ravel expenses are included in 

the company budget and in the subcontract budget, which is not allowed by SBIR 

policy.” However, the contract file contained no evidence that the contracting 

officer considered the technical evaluator’s comment or corresponded with the 

Technical Monitor to determine whether travel was necessary before awarding the 

total proposed travel costs of $3,585. 

$3,585 unallowable travel costs + $1,524 applicable indirect costs and profit 

= $5,109 total questioned costs 

 A Phase 1 award included unallowable travel costs of $1,496 as part of a $30,000 

subcontract. During the budget review for this award, neither of the technical 

evaluators commented in their technical evaluation forms about whether the 

subcontractor’s travel costs were necessary to accomplish the technical objectives 

of the award. In addition, the contract file contained no evidence that the 

contracting officer corresponded with the Technical Monitor to determine 

whether the subcontractor’s proposed travel was necessary. 

$1,496 unallowable travel costs + $150 applicable indirect costs and profit 

= $1,646 total questioned costs 

Management’s Comments and OIG Evaluation of Those Comments. In written 

comments to the draft of this report, the Chief Technologist asserted that all of the travel 
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REPORT No. IG-11-010-R 11 

costs we questioned were justified as exceptions to the general rule prohibiting Phase 1 

travel because the technical evaluators had concluded that the proposed travel costs were 

appropriate in these particular instances. As evidence that the technical evaluators had 

reached this conclusion, the Chief Technologist pointed to the evaluators’ affirmative 

responses to the question in the technical evaluation forms of whether “individual 

elements of the proposed budget appear to be appropriate?” 

We disagree with the conclusion that the technical evaluators considered and approved 

travel costs in each of these cases based solely on an affirmative response to this general 

question. Under the applicable rules, travel costs were prohibited unless the technical 

monitor and the contracting officer determined they were necessary for a particular SBIR 

award. Yet, with one exception where the technical evaluator specifically objected to 

proposed travel costs as unallowable but the contracting officer nevertheless awarded 

them, there was no evidence in the files we reviewed that the evaluators actually 

reviewed proposed travel costs and made an affirmative determination that they were 

necessary. Moreover, without such evidence we cannot conclude that the contracting 

officer reviewed and made a determination regarding the necessity of these costs. 

Unallowable Equipment Costs. NASA awarded contracts with unallowable equipment 

costs totaling $234,354 on 6 of the 67 awards (8.9 percent) we reviewed. These costs 

were unallowable under NASA policy because the 2008 SBIR solicitation established the 

following prohibition on equipment costs: 

NASA will not fund the purchase of equipment, instrumentation, or facilities 

under SBIR/STTR contracts as a direct cost . . .. 

Examples of unallowable equipment costs in our sample included the following: 

 A Phase 1 award included unallowable “Equipment installation” costs of $12,986 

as a line item under Other Direct Costs. During the budget review for this award, 

a technical evaluator commented that, “Offeror currently lacks the equipment to 

produce micro-sized particles . . . . However, this equipment will be identified 

and procured under this contract.” Despite the technical evaluator’s comment, the 

contractor’s proposal did not request funds to acquire equipment or identify the 

equipment that was to be installed. Moreover, generally accepted accounting 

principles prescribe that installation costs be capitalized as part of the total cost of 

an equipment item. Therefore, the installation costs should have been treated as 

equipment and disallowed as a direct charge. 

$12,986 unallowable installation costs + $0 applicable indirect costs and profit14 

= $12,986 total questioned costs 

 A Phase 2 award included unallowable equipment costs of $43,000 as a line item 

under Other Direct Costs. During the budget review, none of the three technical 

evaluators commented on the proposed equipment costs and the contract file 

 

14 The contractor did not include indirect costs associated with the questioned equipment installation costs 

and similarly did not include a profit percentage in their SBIR Phase 1 proposal. 
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12 REPORT No. IG-11-010-R 

contained no information identifying the equipment that was to be acquired. 

Regardless of whether the equipment was properly identified and supported, the 

contracting officer should not have allowed it as a direct charge. 

$43,000 unallowable equipment costs + $13,618 applicable indirect costs and profit 

= $56,618 total questioned costs 

Management’s Comments and OIG Evaluation of Those Comments. In written 

comments to the draft of this report, the Chief Technologist asserted that all of the 

questioned equipment costs were allowable because (1) “[T]echnical evaluators did not 

object to proposed equipment costs as unnecessary or inappropriate” and (2) “the 

authority to allow equipment purchases . . . was within the discretion of the Contracting 

Officer.” However, we believe NASA’s policy for 2008 SBIR awards unambiguously 

prohibited all equipment purchases as direct costs. In addition, the Chief Technologist 

acknowledged that the NASA 2008 Solicitation may not have accurately reflected the 

Agency’s intent regarding the allowability of equipment costs. 

The Chief Technologist also stated that the $12,986 equipment installation cost identified 

above was deleted by the contractor in a January 15, 2009, revised proposal and therefore 

was not included in the final award. We disagree. The contract file we obtained from 

NASA does not include this revised proposal. Moreover, the file includes a “Price 

Memorandum” containing the stamped signature of the contracting officer that identifies 

the $12,986 equipment installation charge. This memorandum is the contractor officer’s 

support for the amount awarded in the contract signed on January 22, 2009. In addition, 

the Chief Technologist asserted that, in another contract in which we questioned costs, 

computer service charges totaling $1,096 should not be considered an equipment 

purchase. However, the contractor’s cost proposal described these charges as including 

“the support and acquisition of our corporate computer equipment and software . . ..” 

Unallocable Costs. NASA awarded $167,014 in unallocable direct costs on 7 of the 67 

awards (10.4 percent) we reviewed. FAR 31.201-4, “Determining Allocability,” states 

that a cost is allocable if it is assignable or chargeable to one or more cost objectives on 

the basis of relative benefits received or other equitable relationship. Accordingly, 

allocable SBIR costs are those that are incurred solely to advance the work for which the 

SBIR contract is awarded. In contrast, costs that benefit work performed both on a 

NASA SBIR contract and other Government contracts should be included in an indirect 

cost pool and allocated to all benefiting contracts through an indirect cost rate. Examples 

of costs typically included in an indirect cost pool are corporate officers’ salaries, 

administrative wages, recruiting and hiring, public relations, professional development, 

office supplies, rent, utilities, taxes, and depreciation. 

Examples of unallocable costs in our sample included the following: 

 A Phase 1 award included unallocable Other Direct Costs of $9,370. The direct 

costs included rent and utilities, Internet access, cell phones, accounting and tax 

services, public relations, office supplies, and licenses. These costs should have 
RESULTS REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 13 

been included in the contractor’s indirect cost pool and recovered through an 

indirect cost rate. 

$9,370 unallocable costs + $960 applicable indirect costs and profit 

= $10,330 total questioned costs 

 A Phase 2 award included unallocable overhead costs of $89,032. The 

unallocable costs resulted from the contractor misclassifying subcontracted labor 

costs of $296,774 as direct labor and then applying the prime contractor’s 

overhead rate to all direct labor. In effect, the prime contractor’s overhead rate 

was applied to subcontracted labor. 

$89,032 unallocable costs + $891 applicable indirect costs and profit 

= $89,923 total questioned costs 

Management’s Comments and OIG Evaluation of Those Comments. In written 

comments to the draft of this report, the Chief Technologist disagreed that unallocable 

costs necessarily result in overstated total costs. He stated that the only way to definitely 

determine whether total costs are overstated is to request that the Defense Contract Audit 

Agency perform field pricing audits. He further stated that it is impractical for 

contracting officers to request these types of audits during the normal business cycle of 

reviewing and awarding SBIRs. 

We disagree that field pricing audits are needed to identify contractors’ inappropriate 

accounting practices. Rather, we believe NASA contracting officers should exercise a 

higher degree of professional skepticism when reviewing proposed costs. When 

contracting officers identify direct costs that are typically included in indirect cost pools, 

they should notify the offerors that the costs are unallowable as direct charges unless the 

offeror can provide adequate documentation to justify an alternative accounting 

treatment. 

Unsupported Costs. The FAR and the 2008 SBIR Solicitation provide that contracting 

officers should not enter into contracts if proposed costs are inadequately supported. 

Specifically, the 2008 SBIR solicitation required that proposals include budget 

information “to explain the offeror’s plans for use of the requested funds to enable NASA 

to determine whether the proposed budget is fair and reasonable.” However, we found 

that NASA awarded unsupported costs totaling $117,932 on 2 of the 67 awards (3 

percent) we reviewed. 

 The budget proposal for a Phase 2 award included $85,000 for “Special Testing” 

as a line item under Other Direct Costs and provided a cost breakdown to support 

the line item. However, the contractor’s cost breakdown totaled only $62,000 and 

left the remaining $23,000 undefined and unsupported. NASA contracting 

personnel corresponded with the contractor to inquire about the unsupported 

costs. The contractor explained that the funds were intended for “solar wind 

exposure” testing, but it was uncertain whether the testing would be needed. 

Further, the contractor described a high level of uncertainty about where testing 
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14 REPORT No. IG-11-010-R 

would be performed. The contractor then offered to eliminate the costs from their 

proposal. Despite these uncertainties, the contracting officer awarded the 

proposed costs in-full. 

$23,000 unsupported costs + $19,182 applicable indirect costs and profit 

= $42,182 total questioned costs 

 The budget proposal for a Phase 2 award included $75,000 of materials as a line 

item under Other Direct Costs. The contractor’s explanatory footnote stated, 

“Other Direct Cost will predominantly represent materials such as polymers, 

electronic [sic], sensors, electrodes, chemicals, fabrication costs, and lab 

supplies.” We concluded that this explanatory footnote did not provide sufficient 

information to allow NASA to determine that the budgeted amount, which 

equaled 12.6 percent of the total award, was fair and reasonable. 

$75,000 unsupported costs + $750 applicable indirect costs and profit 

= $75,750 total questioned costs 

Management’s Comments. In written comments to the draft of this report, the Chief 

Technologist disagreed that $42,181 for “Special Testing” in the Phase 2 award described 

above was unsupported. We stand by our finding as previously described. In the other 

Phase 2 award described above, NASA management agreed that the $75,000 for 

materials “should have been more adequately supported by the contractor.” 

Contracting Officers Did Not Adequately Review Proposed Costs 

NASA awarded contracts with unallowable and unsupported costs because contracting 

officers and technical evaluators did not consistently exercise adequate due diligence 

when reviewing proposed costs. Due diligence refers to the care that a reasonable person 

should take before entering into a contract on behalf of the Government. Adequate due 

diligence requires contracting officers to obtain and evaluate a sufficient amount of 

appropriate evidence to provide a reasonable basis for assessing the allowability of costs 

and to take appropriate action when they identify unallowable and/or unsupported costs. 

Similarly, adequate due diligence requires technical evaluators to review proposed costs 

and make a preliminary assessment of allowability and to properly document their review 

and make appropriate comments for consideration by the contracting officer. 

Contracting Officers’ Inadequate Due Diligence. Contracting officers did not 

consistently exercise adequate due diligence in that they did not consistently: 

 give adequate consideration to technical evaluators’ comments about proposed 

costs; 

 correspond with technical monitors to determine whether Phase 1 travel costs 

were necessary; 
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REPORT No. IG-11-010-R 15 

 notify offerors that equipment costs and unallocable costs were unallowable as 

direct charges; or 

 correspond with offerors to request additional information about unsupported 

costs. 

Technical Evaluators’ Inadequate Due Diligence. Technical evaluators did not 

consistently exercise adequate due diligence in that they did not always make appropriate 

comments in the technical evaluation forms about unallowable and/or unsupported costs. 

In addition, when evaluators noted unallowable or unsupported costs, they sometimes 

incorrectly answered “Yes” in the technical evaluation forms to the question of whether 

“individual elements of the proposed budget appear to be appropriate?” 

Technical evaluators should be able to complete the evaluation forms properly and 

understand basic cost principles regarding allowability and any prohibitions on specific 

cost categories. 

Conclusion 

We projected the results of our review of 67 sampled SBIR awards onto the universe of 

493 program year 2008 awards. We estimate that NASA awarded contracts with 

$2.7 million in unallowable and unsupported costs in 2008. More specifically, we 

estimate that NASA awarded contracts with: 

 unallowable travel costs of $89,979; 

 unallowable equipment costs of $1,159,140; 

 unallocable costs of $870,852; and 

 unsupported costs of $544,007. 

Based on these findings, we believe the Agency should improve its cost review 

procedures by: 

 ensuring that during the selection and evaluation stage technical evaluators 

adequately review proposed costs, perform a preliminary assessment of 

allowability, and make appropriate comments in the technical evaluation forms 

about any unallowable and/or unsupported costs, and 

 ensuring that in the contract award stage contracting officers give due 

consideration to technical evaluators’ comments about proposed costs and take 

appropriate action when they identify unallowable and/or unsupported costs. 

We estimated that NASA could put $13.3 million in SBIR funds to better use during 

program years 2010 through 2014 if it takes steps to ensure that unallowable and 
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16 REPORT No. IG-11-010-R 

unsupported costs are excluded from SBIR awards. We calculated this figure by 

projecting the results of our program year 2008 sample to future years.15

Details about questioned costs in our sample are in Appendix B. Details about our 

sampling methodology and projection of results are in Appendix C. 

Recommendations, Management’s Response, and OIG Evaluation 

of Management’s Response 

Recommendation 1. The Chief Technologist, in consultation with the Assistant 

Administrator for Procurement, should provide technical evaluators with training to ensure 

that they know how to perform a preliminary assessment of cost allowability and properly 

complete technical evaluation forms. 

Management’s Response. The Chief Technologist concurred with the 

recommendation, stating that technical evaluators play a crucial role in assessing the 

technical capability of firms seeking SBIR awards. However, he considers the budget 

review performed by technical reviewers to be “a very preliminary assessment of the 

budget.” Nevertheless, he agreed to improve the quality of the budget review process 

by developing a training module for technical evaluators and implementing it by 

July 30, 2011. 

Evaluation of Management’s Response. The proposed action is responsive to our 

recommendation. Accordingly, the recommendation is resolved and will be closed 

upon completion and verification of the proposed corrective action. 

Recommendation 2. The Chief Technologist, in consultation with the Assistant 

Administrator for Procurement, should improve cost review procedures in the selection and 

evaluation stage to ensure that technical evaluators properly review proposed costs, perform 

a preliminary assessment of allowability, and make appropriate comments in evaluation 

forms about any unallowable and/or unsupported costs. 

Management’s Response. The Chief Technologist concurred with the 

recommendation, stating that the Agency can improve its SBIR budget review 

process by providing technical evaluators with cost review training and by modifying 

the technical evaluation form to better identify specific elements of cost. The training 

program will be developed and implemented by July 30, 2011. 

Evaluation of Management’s Response. The proposed action is responsive to our 

recommendation. Accordingly, the recommendation is resolved and will be closed 

upon completion and verification of the proposed corrective action. 

Recommendation 3. The Assistant Administrator for Procurement should improve cost 

review procedures in the contract award stage to ensure that contracting officers document 

that they have given due consideration to technical evaluators’ comments about proposed 

 

15 Our calculation assumed that SBIR funding levels would remain constant over the 5-year period of our 

projection. 
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REPORT No. IG-11-010-R 17 

costs and have taken appropriate action when unallowable and/or unsupported costs are 

identified. 

Management’s Response. The Chief Technologist disagreed with our finding that 

contracting officers did not consistently exercise adequate due diligence when 

reviewing proposed costs. Nevertheless, he agreed to review and revise existing price 

negotiation memorandum templates, checklists, and associated file documentation for 

SBIRs by February 28, 2011, to ensure that negotiated costs are adequately analyzed, 

supported, dispositioned, and documented. In addition, NASA agreed to provide 

contracting personnel with additional training on the analysis of direct and indirect 

costs. 

Evaluation of Management’s Response. The proposed action is responsive to our 

recommendation. Accordingly, the recommendation is resolved and will be closed 

upon completion and verification of the proposed corrective action. 
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18 REPORT No. IG-11-010-R 

NASA NEEDS TO CONSIDER 

PAST PERFORMANCE WHEN 

CONSIDERING SBIR

PROPOSALS

FAR requires agencies to use past performance information in competitive awards of 

more than $100,000 to ensure the selected proposal represents the best value to the 

Government.16 According to the Office of Federal Procurement Policy, “the use of 

past performance as a major evaluation factor in the contract award process is 

instrumental in making best value selection.” However, we found that SBIR 

Program management had not developed policies to collect or consider past 

performance information in Phase 2 contract selections and, as a result, past 

performance information was not used in evaluating any of the 31 Phase 2 contracts 

we randomly sampled even though all of these awards exceeded the $100,000 

threshold. 

FAR Requires that Performance Information Be Used to Help 

Identify Best Value for the Government 

FAR 2.1, “Definitions,” defines best value as the acquisition that is expected to provide 

the greatest overall benefit to the Government. All Federal acquisitions must be selected 

based on best value. The FAR explains that technical and past performance 

considerations may play a dominant role in award selections when requirements are less 

defined, more development work is needed, or performance risk is greater, such as with 

Phase 2 SBIR awards. 

FAR Subpart 15.3, “Source Selection,” requires agencies to use past performance 

information as an evaluation factor in selecting negotiated competitive awards of more 

than $100,000, along with price, management capability, and technical excellence. FAR 

defines past performance information as the contractor’s (1) record of meeting contract 

requirements and standards of good workmanship, (2) record of forecasting and 

controlling costs, (3) conformance to contract schedules, and (4) history of customer 

satisfaction. In “Best Practices for Collecting and Using Current & Past Performance 

Information,” the Office of Federal Procurement Policy states that the use of past 

performance as a major evaluation factor in the contract award process is instrumental in 

making best value selections. The guidance stated that “. . . assessing past performance 

information enables agencies to better predict the quality of, and customer satisfaction 

with future work” and to achieve their program mission. 

 

16 Phase 1 contracts are valued at a maximum value of $100,000. Therefore, NASA is not required to use 

past performance information in evaluating Phase 1 SBIR proposals. 
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REPORT No. IG-11-010-R 19 

NASA Infrequently Considered Past Performance in Evaluating 

Phase 2 Proposals 

During our review of 31 Phase 2 awards, we found that 84 percent of Phase 2 proposal 

evaluations did not include past performance information. For example, only 5 (16 

percent) of the 31 Phase 2 awards we sampled contained past performance assessments 

and 1 of the 5 contained an unsatisfactory assessment but still received an SBIR award. 

Past performance information was not part of the scoring factors or the scoring 

methodology for the SBIR program’s evaluation of Phase 2 technical proposals.17 

The Program’s Source Selection Official and the SBIR Program Manager stated that 

current proposal evaluation procedures meet FAR requirements because evaluation factor 

1 considers past performance information from prior NASA SBIR awards. Proposal 

evaluation factor 1 states: 

The proposed R/R&D [research/research and development] effort will be evaluated on its 

innovativeness, originality, and potential technical value, including the degree to which 

Phase 1 objectives were met, the feasibility of the innovation, and whether the Phase 1 

results indicate a Phase 2 project is appropriate. 

In our opinion, factor 1 does not fully meet the requirements of FAR. Although factor 1 

identifies the technical requirements for prior Phase 1 contracts, it does not consider 

information about contractors’ past performance as required by FAR Subpart 42.15. 

Specifically, factor 1 does not provide information about a contractors’ record of good 

workmanship, record of forecasting and controlling costs, conformance to contract 

schedules, and history of customer satisfaction on all prior contracts beyond SBIR. 

Deficient Controls Prevented Program from Using Past 

Performance in Award Selections 

The NASA SBIR Program lacks evaluation and selection policies for collecting past 

performance information on firms that compete for Phase 2 awards and for using the 

information in Phase 2 award selections. For example, the Program does not give 

adequate consideration to information about contractors’ past performance as required by 

FAR. Specifically, the SBIR Program failed to include the following policies required by 

FAR 15.3: 

 Require the annual solicitation to outline the performance assessment 

methodology or to describe procedures for firms to provide past performance 

information. 

 Incorporate past performance information in scoring factors and the final scores 

for Phase 2 proposals. 

 

17 Proposals are scored using a quantitative and qualitative scoring methodology. The methodology uses 

four evaluation factors: (1) scientific/technical merit and feasibility; (2) experience, qualifications, and 

facilities; (3) effectiveness of the proposed work plan; and (4) commercial potential and feasibility. 
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20 REPORT No. IG-11-010-R 

 Require technical officers to assess past performance on Phase 2 awards or 

document the past performance assessment score. 

Without considering past performance, the SBIR Program cannot provide assurance that 

Phase 2 SBIR contract selections were in the best interest of the Government. Failing to 

consider past performance information increases the risk that NASA will select poorly 

performing firms. To reduce that risk, the FAR requires that agencies use past 

performance information in selecting negotiated competitive awards. 

Recommendations, Management’s Response, and OIG Evaluation 

of Management’s Response 

Recommendation 4. The Chief Technologist should require consideration of a 

contractors’ past performance before awarding an SBIR contract, in compliance with the 

FAR. These policies and procedures should: 

a. require that the annual solicitation for SBIR proposals outline the performance 

assessment methodology; 

b. designate responsibility for collecting past performance information; 

c. include past performance information in the scoring methodology and scores for 

Phase 2 proposals; and 

d. require technical officers to assess a firm’s past performance on Phase 2 awards 

and to document the assessment. 

Management’s Response. The Chief Technologist concurred with recommendations 

4 a, b, and, d and partially concurred with recommendation 4c. Additional comments 

on the recommendation’s subparts follows: 

4a. The Chief Technologist stated that past performance is an important factor in 

NASA’s selection process and that NASA modified its selection criteria in the 

2010 SBIR solicitation to provide that “Each proposal selected for negotiation 

will be evaluated for cost/price reasonableness, past performance and award will 

be made to those contractors determined to be responsible. The past performance 

evaluation will consider the contractor’s past performance under the Phase 1 

effort.” 

Regarding corrective action, the Chief Technologist stated that the Program will 

review language based upon audit recommendations and additional revisions will 

be incorporated in the 2011 solicitation. 

4b. The Chief Technologist stated that contracting officers are responsible for 

collecting past performance information and that they collect past performance 

information from the NASA Acquisition Internet Service and place a copy of the 

results in the file. 
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REPORT No. IG-11-010-R 21 

 Regarding corrective action, the Chief Technologist stated that the action was 

complete. 

4c. The Chief Technologist stated that prior to selection for negotiation, technical 

evaluators review and evaluate performance of the firm during the Phase I 

performance period as part of the Phase II evaluation, which NASA considers a 

valuable indicator of the potential Phase II performance. After firms are reviewed 

and selected for negotiation, contracting officers query the NASA Acquisition 

Internet Service database to review past performance history. 

Regarding corrective action, the Chief Technologist stated that management plans 

to initiate the collection of past performance information on both Phase I and 

Phase II contracts and make past performance information available to reviewers 

during the review process. In addition, management will evaluate the feasibility 

of conducting the preliminary review of the Past Performance Database, Excluded 

Parties List System, and Central Contractor Registration before making a formal 

notice of selection for negotiation to the public, rather than during the negotiation 

process as is current practice. Management expects to complete the proposed 

actions by July 2011. 

4d. The Chief Technologist stated that the collection of past performance information 

is an important element of contract administration, and that NASA requires 

contracting officer technical representatives to perform a past performance 

assessment at the completion of the SBIR contract. This evaluation is done 

through the NASA Past Performance Database system. 

 Regarding corrective action, the Chief Technologist stated that beginning with 

2008 Phase 1 contracts, contracting officer technical representatives have been 

required to file past performance evaluation forms for Phase 1 and Phase 2 

contracts. 

In subsequent discussions, Program officials stated that management partially 

concurred on recommendation 4.c because of difficulties making past performance 

information available for use in the final selection of SBIR awards. Officials 

explained that to implement recommendation 4.c fully, the Program Office and Office 

of Procurement are working out security and access issues related to the Past 

Performance Database maintained by the Office of Procurement. Officials stated that 

the Program Office and Office of Procurement have tentatively decided to make 

information from the Past Performance Database available to the Source Selection 

Official who will review information in the database and determine whether the 

Agency will consider a contractor with negative past performance information for an 

SBIR contract. 

Evaluation of Management’s Response. Management’s planned actions are 

responsive to our recommendation. We consider the recommendation resolved and 

will close it upon completion and verification of management’s corrective action. 
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22 REPORT No. IG-11-010-R 

NASA NEEDS TO IMPROVE ITS 

ABILITY TO PREVENT AND 

DETECT FRAUD IN THE 

SBIR PROGRAM 

SBIR Program managers are responsible for establishing controls that prevent and 

detect fraud and abuse. As part of this review, we identified 24 controls that could 

help prevent or detect fraud and abuse and found that more than half have not been 

implemented by NASA. For example, NASA requires contractors to certify that the 

proposed research was not previously funded by another agency, to provide a list of 

its federally funded awards, and to certify that the firm meets SBA eligibility criteria. 

However, NASA does not require contractors to identify personnel who worked on 

SBIR research, describe the role of contract personnel in their proposed research, or 

itemize costs on contract invoices. Consequently, NASA’s SBIR Program remains 

vulnerable to fraud and abuse involving duplicate awards, duplicate deliverables, 

violations of SBA requirements, significant differences between actual and proposed 

costs, and misuse of SBIR funds. 

Types of Fraud and Abuse Found in SBIR Programs 

Fraud is a type of illegal act that involves obtaining something of value through willful 

misrepresentation. Abuse involves behavior that is deficient or improper when compared 

with behavior that a prudent person would consider a reasonable and necessary business 

practice given the facts and circumstances.18 We reviewed SBIR-related investigations at 

NASA and other agencies dating back to 1997 and identified 6 categories of fraud and 

abuse that are prevalent in SBIR programs Government-wide: 

1. Firms or principal investigators received duplicate awards for the same 

research. Firms or principal investigators submitted research proposals to NASA 

for research that had previously been funded by another agency. 

2. Contractors submitted duplicate deliverables or questionable research 

products. Contractors submitted duplicate deliverables to multiple agencies, 

false research data, or plagiarized deliverables. 

3. Firms and principal investigators violated SBA eligibility criteria. Principal 

investigators were not primarily employed by the contractor or did not perform a 

substantial portion of the research work. In addition, firms falsely certified that 

they (1) were American-owned; (2) had performed the research in-house; (3) met 

subcontracting restrictions; or (4) met requirements for being classified as a small 

business or woman-owned entity. Investigations also uncovered firms that 

provided nonexistent addresses for their place of business. 

 

18 Government Accountability Office “Performance Audit Tool.” 
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REPORT No. IG-11-010-R 23 

4. Actual effort and costs differed materially from what was negotiated. Firms 

used a different principal investigator than the investigator identified in the 

proposal, did not provide current or accurate labor rates in the cost proposal, or 

performed research that was materially inferior to the research described in the 

proposal. Investigations also found firms that had materially lower costs (e.g., 

labor or equipment) during contract performance than stated in their cost 

proposals. 

5. Contractors misused SBIR funds. Firms willfully diverted, concealed, or 

illegally used SBIR funds. For example, firms applied cost overruns on SBIR 

fixed-priced contracts to a NASA cost-plus contract, diverted SBIR funds to noncontract activities, charged cost overruns on SBIR contracts to research and 

development or other indirect accounts, or used SBIR funds to support 

commercial work. In addition, investigations found firms that charged 

unallowable costs such as nonexistent employees to SBIR contracts or 

overcharged labor hours. In one investigation, the firm owner diverted SBIR 

funds to the owner’s personal use by billing individuals not employed by the 

business to the SBIR contract and submitting falsified research reports to the 

funding agency. 

6. Technical personnel were involved in procurement integrity issues. Technical 

evaluators had conflicts of interest with the proposing entity or disclosed 

proprietary information to an unauthorized party. 

Management Is Responsible for Internal Controls 

According to the Federal Managers’ Financial Integrity Act (FMFIA) of 1982 and OMB 

Circular A-123, “Management’s Responsibility for Internal Control,” December 21, 

2004, management is responsible for developing effective internal controls. Internal 

controls includes the plans, methods, and procedures that management uses to meet 

missions, goals, and objectives. Effective internal controls provide reasonable assurance 

that operations are effective, financial reports are reliable, the organization complies with 

laws and regulations, and the organization safeguards assets. 

FMFIA and Circular A-123 require managers to meet standards established by the 

Government Accountability Office (GAO). Circular A-123 and GAO’s “Standards for 

Internal Control in the Federal Government” (Standards) describe the methodology 

management can use for evaluation of its internal controls.19 First, management 

identifies specific risks that could jeopardize financial reports, assets, and compliance 

with laws and regulations. The identification should be comprehensive and include both 

external and internal risks. Second, management completes a risk analysis and control 

assessment. For each risk, management estimates the impact from the risk, identifies 

controls that prevent or manage the risk, determines whether controls are in place or 

missing, and decides whether additional controls are needed. 

 

19 GAO, “Standards for Internal Control in the Federal Government” (GAO/AIMD-00-21.3.1, November 1999).
REDACTED FOR PUBLIC RELEASE RESULTS

24 REPORT No. IG-11-010-R 

Actions by SBIR Program Office to Strengthen Internal Controls

SBIR Program officials developed a paperless web-based system, the Electronic 

Handbook, to document transactions for all stages of the SBIR process. The Handbook 

contains documentation of solicitation development and dissemination, proposal 

evaluations and selections, contract negotiations and awards, post-award administration, 

and contract close out. The Electronic Handbook also contains program points of 

contact, policy directives and guidelines, and SBIR Program milestones. Using the 

Handbook, Program officials can access and evaluate transactions by NASA and firm 

personnel who have a part in the SBIR process. For example, Program officials can 

determine whether NASA personnel who serve as proposers and evaluators followed 

procedures consistently and used the appropriate documentation. For example, Program 

officials can determine whether proposers and evaluators followed procedures 

consistently and used the appropriate documentation. 

In addition to the Electronic Handbook, Program officials voiced strong support for 

internal control and established an effective organizational structure that designated 

specific personnel responsible for policy, program management, evaluations, selections, 

and contract oversight. For example, Program officials implemented procedures to 

accomplish 21 of 23 program management requirements from statutes, regulations, 

policies, and guidelines. From October 2009 to March 2010, SBIR Program Officials 

briefed the NASA Senior Assessment Team on the adequacy of the Program’s controls 

and identified possible improvements. Those improvements were again presented to the 

Senior Assessment Team in October 2010 but are not fully implemented into NASA’s 

processes and procedures. (See discussion later in the report.) 

SBIR Process Lacks Adequate Controls to Prevent and 

Detect Fraud and Abuse

We analyzed SBIR fraud risks according to the methodology described in OMB’s 

Circular A-123, GAO’s Standards, and GAO’s “Auditing and Investigating the Internal 

Control of Government Purchase Card Programs” (Purchase Card Audit Guide).20 We 

identified specific points in NASA’s SBIR process where fraud or abuse were most likely 

to occur, identified procedures that would help prevent or detect the fraud or abuse, and 

determined whether NASA had implemented the procedures. 

In consultation with OIG fraud investigators, we identified 24 internal controls that we 

believe would assist NASA in preventing or detecting SBIR fraud and abuse. Of these 24 

controls, 10 (42 percent) are already part of NASA’s processes and procedures while the 

other 14 controls (58 percent) are not currently used by NASA. See Appendix D for 

descriptions of the 24 controls and their status within NASA. 

 

20 GAO, “Audit Guide: Auditing and Investigating the Internal Control of Government Purchase Card 

Programs” (GAO-04-87G, November 2003). 
RESULTS REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 25 

We classified 19 of the 24 controls as critical in fraud prevention and detection.21 For 

these 19 critical controls, approximately half (10) were already part of NASA’s processes 

and procedures. For example, NASA requires firms to certify that the SBIR research 

proposal has not been funded by another Federal agency. However, NASA does not 

perform automated word searches of SBIR research proposals submitted to NASA or 

automated word searches of research proposals funded by other Federal agencies, which 

could identify duplicate funding. Both of those controls are critical to preventing 

duplicate awards for the same research. While the remaining 5 of the 24 controls (none 

of which are currently employed by NASA) would be helpful in fraud prevention and 

detection, their implementation is not critical. 

As noted above, we identified specific controls for each of the six most common 

categories of fraud and abuse we identified. Table 1 shows the number of controls we 

identified for each category and whether those controls are in place at NASA. As shown 

in the table, the only risk for which NASA had adopted the full complement of controls 

was that of technical personnel being involved in procurement integrity issues, such as 

conflicts of interests with proposing entities. 

Table 1. Summary of NASA’s Internal Controls for Six Categories 

of Fraud and Abuse Found in SBIR Programs 

 Controls 

 Category of Fraud or Abuse Implemented

Not 

Implemented Total

Firms or principal investigators received duplicate 

awards for the same research. 3 2 5 

Contractors submitted duplicate deliverables or 

questionable research products. 1 1 2 

Firms and principal investigators violated SBA 

eligibility criteria. 3 1 4 

Actual effort and costs differed materially from what 

had been negotiated. 1 2 3 

Contractors misused SBIR funds. 0 8 8 

Technical personnel are involved in procurement 

integrity issues. 2 0 2

 Totals 10 14 24 

With the adoption of the additional controls we identified, NASA officials would be 

better positioned to prevent and detect fraud and abuse in the SBIR Program. For 

example: 

 NASA OIG investigations identified multiple firms that attempted to defraud 

NASA and other Federal agencies by submitting duplicate research proposals or 

research reports from previous contracts. SBIR Program officials could detect 

 

21 We defined a critical control as a control for which the related fraud has (1) a high probability of 

occurring, (2) a high impact to NASA should it occur, or (3) a medium to high probability of occurring, a 

medium to high impact to NASA, and a low implementation cost. See Appendix D for additional details. 
REDACTED FOR PUBLIC RELEASE RESULTS

26 REPORT No. IG-11-010-R 

duplicate proposals or reports by performing automated word searches of 

(1) SBIR research proposals submitted to NASA, which are electronically stored 

in the Electronic Handbook; (2) research proposals funded by a NASA grant or 

contract, which are electronically stored in the General Services Administration 

(GSA) Federal Procurement Data System database22; and (3) research proposals 

funded by another Federal agency under an SBIR award, grant, or contract. 

GSA’s database contains data on Government contracts with an estimated value 

of $3,000 or more and modifications to Government contracts regardless of dollar 

value. The SBA TECH-Net database is a publically accessible database that 

contains data on SBIR and Small Business Technology Transfer awards including 

the firm’s name and address, SBIR award phase, agency granting the award, 

award amount, award year, and a synopsis of award technical proposals. 

 Investigations by NASA OIG identified multiple firms that, rather than perform 

the research in-house, subcontracted the work to other firms or individuals. 

Program officials could help detect this type of abuse by performing automated 

searches of the SBA TECH-Net database to identify principal investigators that 

held more than two awards for the year and use this information to assess a firm’s 

compliance with limitations on principal investigator employment. 

 Six of the 14 controls we are recommending to NASA are controls that the 

contracting officer or designee performs or that the contracting officer adds to the 

contract requirements.23 Adoption of these controls by NASA could help prevent 

or detect fraud and abuse such as violations of SBA eligibility criteria, material 

differences between actual and negotiated costs, and misuse of SBIR funds. Two 

of the controls specifically target contractors that bill NASA for nonexistent 

employees and divert SBIR funds to personal or non-contract purposes.24

 Four of the 14 controls we are recommending relate to the use of automated tools 

or electronic processes to identify potentially improper transactions.25 These four 

controls involve data mining to find patterns by comparing, for example, data in a 

group of NASA SBIR research proposals with data in a group of non-NASA 

contracts. Such a comparison could assist management in detecting duplicate 

SBIR awards, duplicate deliverables, and violations of SBIR Program rules. 

Agency Did Not Develop Information that Would Have Shown 

the Need for Additional Controls 

In response to previous OIG audits and management referrals, NASA’s Office of Internal 

Controls and Management Systems completed an internal control assessment of NASA’s 

 

22 See the Federal Procurement Data System – Next Generation Web site at 

https://www.fpds.gov/fpdsng cms/ (accessed January 5, 2011). 

23 See controls, 12, 15, 16, 22, 23, and 26 in Appendix D. 

24 See controls 19, 22, and 23 on Appendix D. 

25 See controls 4, 5, 6, and 8 on Appendix D. 
RESULTS REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 27 

SBIR policies and procedures on December 9, 2009. The assessment stated, “. . . it 

appears that the [SBIR Program Office] is taking or is planning appropriate steps to 

address the OIG’s concerns regarding program/process controls . . ..” 

A March 2010 presentation by SBIR Program management to the Senior Assessment 

Team26 described risks from duplicate awards, duplicate deliverables, and 

misrepresenting the role of the principal investigator who was to perform the research. 

The presentation stated that the SBIR Program had “very effective internal controls 

currently in place; but, could apply additional internal controls at an additional cost if 

funding were made available.” The presentation identified improvements as possible 

additional internal controls with estimated annual costs of nearly $4 million. For 

example: 

 Increase SBIR Program awareness. The SBIR Program Office would increase 

awareness by including responsibilities for evaluators and technical officers in 

their annual performance plans and by issuing policy that emphasizes the 

importance of their roles in the SBIR Program. 

 Train personnel on fraud awareness. The SBIR Program Office would add a 

fraud awareness module to technical officer training, establish a liaison with 

NASA’s Acquisition Integrity Program, and provide fraud awareness training to 

NASA personnel who are involved in the SBIR Program. 

 Enhancements to the Electronic Handbook. Enhancements include the 

purchase of software that permits the SBIR Program Office to electronically 

compare key words and phrases in SBIR technical proposals and reports. 

 Increase administrative oversight. The contracting officer would request 

Defense Contract Audit Agency (DCAA) audits for a sample of SBIR proposals. 

In addition, the SBIR Program Office would lead an internal and external effort to 

heighten fraud awareness. 

 Increase support by NASA Shared Services Center. The Center would 

develop contract surveillance plans, validate contractor references, and increase 

the use of DCAA rate analysis for evaluating Phase 2 proposals. The SBIR 

Program Office would develop guidelines for virtual site visits of SBIR 

contractors, recertify firms quarterly, and develop improved checklists for 

evaluating firms and analyzing proposed costs. 

 Increase Center management activities. Centers would be required to support 

program administration and ensure that technical oversight personnel follow 

contract surveillance plans. 

 

26 The Senior Assessment Team provides oversight for NASA’s internal control over financial reporting. 

The Team determines the scope of the internal control assessment, determines the assessment design and 

methodology, analyzes the results of internal control testing, and reports on the results of the assessment. 
REDACTED FOR PUBLIC RELEASE RESULTS

28 REPORT No. IG-11-010-R 

Generally, the controls recommended by the SBIR Program Office will strengthen the 

general control environment, which we believe is an important first step in reducing the 

Program’s vulnerability to fraud and abuse. However, the Office recommended only 4 

controls to prevent and detect specific SBIR fraud risks.27 The presentation did not 

identify specific SBIR fraud risks from all categories or analyze existing and planned 

controls against specific SBIR fraud risks. We believe such an analysis would have 

underscored the need for the additional controls. 

Internal control guidance recommends a methodology similar to that described in OMB’s 

Circular A-123 and GAO’s Standards. GAO’s Purchase Card Audit Guide recommends 

that auditors identify the specific risks of fraudulent, improper, and abusive purchases, 

identify the related control activities, and conclude whether the control activities 

adequately manage the specific risks. In addition, the Practitioners Publishing 

Company’s guide, “Internal Control and Fraud Prevention,” outlines a targeted approach 

that recommends auditors consider their organization’s vulnerability to specific fraud 

schemes and assess the controls that prevent and detect those specific schemes. For the 

24 controls we identified, we used such an analysis to classify controls as critical or 

noncritical. 

In addition, internal control guidance requires management to evaluate the cost and 

benefit of additional procedures. For the 24 controls we identified, we used estimates of 

outside purchases to assess implementation costs but lacked insight into all staff, contract 

support, and administrative costs needed to implement the controls. We believe 

management should implement the additional 9 controls we classified as critical. For the 

remaining 5 controls we identified as noncritical, as well as additional controls that the 

SBIR Program Office is considering, management should evaluate implementation costs 

and benefits to NASA and implement those controls for which benefits exceed costs. 

SBIR Program Office Lacks Authority to Implement Controls 

Although NASA manages the SBIR Program through SBIR Program Office, the office 

does not have the authority to implement controls to address all risks to the SBIR 

Program. Because the contracting officer is responsible for implementing controls over 

procurement actions, the Office of Procurement must approve any internal controls 

related to procurement actions. Accordingly, the Office of Procurement and SBIR 

Program Office would have to coordinate to ensure effective implementation of control 

procedures. 

For example, we identified the following control to detect firms that attempt to charge the 

Government for nonexistent employees: 

 

27 The controls are (1) electronically compare key words and phrases in SBIR technical proposals and 

reports software, (2) request DCAA audits for a sample of SBIR proposal, (3) validate contractor 

references, and (4) increase the use of DCAA rate analysis for evaluating Phase 2 proposals. 
RESULTS REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 29 

The contracting officer should require SBIR firms to identify, by name, phone 

number, and e-mail address, the personnel who worked on the research project 

during the reporting period in progress reports. 

The Office of Procurement would have to approve the above control procedure because 

the contracting officer would have to add the requirement to the SBIR contract. For the 

control procedure to operate properly, technical officers would have to review progress 

reports and enter the reports in the Electronic Handbook. 

Neither SBA nor GSA has implemented automated controls in their databases, thus users 

such as NASA technical evaluators cannot perform automated searches to identify 

potential instances of duplicate SBIR awards, duplicate deliverables, or violations of 

SBIR Program requirements. All Federal agencies participating in the SBIR Program 

would benefit from being able to use the SBA and GSA databases for data mining. 

However, the SBIR Program Office lacks authority to implement automated controls in 

external databases. Until SBA and GSA make automated controls available for all users 

of their databases, the SBIR Program Office can obtain access from SBA and GSA and 

apply data mining procedures to data contained in the Electronic Handbook, Tech-Net, 

and the Federal Procurement Data System. 

For example, as part of our fieldwork, we obtained access to NASA’s Electronic 

Handbook, SBA’s TECH-Net, and GSA’s Federal Procurement Data System databases 

and applied data mining procedures. Our data mining uncovered potential instances of 

duplicate SBIR awards, duplicate deliverables to multiple agencies, and violation of 

SBIR Program requirements. We performed two data mining tests that identified 

potential instances of duplicate awards and duplicate deliverables with a combined value 

of approximately $28.6 million. 

 The first test searched the Electronic Handbook and SBA Tech-Net databases for 

research summaries from program years 2004 to 2008 that contained the terms 

“lithium batteries.” We grouped proposal summaries by firm. For each firm, we 

compared proposal summaries from the two databases and associated proposal 

summaries that contained the same or similar content. The test identified 31 firms 

that received 98 contracts worth approximately $26.8 million for what appeared to 

be the same or similar research. 

 The second test searched the SBA Tech-Net and the GSA Federal Procurement 

Data Systems databases for research summaries from program years 2004 to 2008 

that contained the terms “nuclear fusion.” We grouped proposal summaries by 

firm. For each firm, we compared proposal summaries from the two databases 

and associated proposal summaries with the same or similar content. The test 

identified two firms with five awards worth approximately $1.8 million for what 

appeared to be the same or similar research. 
REDACTED FOR PUBLIC RELEASE RESULTS

30 REPORT No. IG-11-010-R 

Program Remains Vulnerable to Fraud and Abuse 

Unless NASA adopts additional internal controls, the NASA SBIR Program will remain 

vulnerable to fraud and abuse such as duplicate awards, duplicate deliverables, violations 

of SBA requirements, significant differences between actual and proposed costs, and 

misuse of SBIR funds. We identified 24 internal controls that could help address the 

SBIR Program’s vulnerabilities. However, as discussed above, NASA has implemented 

only 10 of these 24 controls. We believe that NASA should consider adopting the other 

14 controls we identified to further reduce the level of fraud and abuse in NASA’s SBIR 

Program. 

Recommendations, Management’s Response, and OIG Evaluation 

of Management’s Response 

Recommendation 5. The Chief Technologist should implement the 11 internal controls 

we identified as critical for preventing and detecting fraud and abuse in the SBIR Program. 

Management’s Response. The Chief Technologist partially concurred and agreed to 

implement 9 of the 11 critical controls. He stated that NASA does not plan to 

implement the remaining 2 controls (requiring contracting officers to search online 

records or business databases to verify that the firm is American-owned and requiring 

contracting officers to request firms break out costs on invoices and certify the costs 

as accurate and allocable). The Chief Technologist stated that the first of these 

controls duplicates procedures already in place in the Central Contractor Registration 

database. He stated that the procedure suggested in the second control cannot be 

implemented on fixed-price contracts. 

Additionally, the Chief Technologist noted that 3 of the 11 controls involve other 

agencies and that he will initiate discussions with those agencies to develop a plan for 

partial implementation of the controls at NASA. The Chief Technologist expects to 

implement the 9 critical controls by September 30, 2011, and promised to initiate 

discussions with SBA by March 2011. 

Evaluation of Management’s Response. The proposed action is responsive to our 

recommendation. We agree that the first control duplicates procedures already in 

place and that the second control cannot be implemented on fixed-price contracts. 

Accordingly, the recommendation is resolved and will be closed upon completion and 

verification of the proposed corrective action. 

Recommendation 6. The Chief Technologist should evaluate implementation costs and 

benefits to NASA for the remaining 7 controls we identified, and for any additional controls 

being considered by management, and implement those controls where benefits exceed 

costs. 

Management’s Response. The Chief Technologist partially concurred with this 

recommendation and agreed to evaluate 1 of the 7 noncritical controls (control 6) but 
RESULTS REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 31 

deemed the other 6 noncritical controls not feasible. The Chief Technologist stated 

that the evaluation of control 6 is dependent on successful implementation of a central 

repository of research reports and did not estimate a completion date. He deemed the 

other 6 controls as not feasible because the procedures either duplicate procedures 

already in place (controls 11 and 13) or said they cannot be implemented on fixedprice contracts (controls 20, 21, 24, and 25). In discussions held after receiving the 

Agency’s response, management officials stated that the Chief Technologist deemed 

controls 20, 21, 24, and 25 as not feasible because the controls required officials to 

apply procedures to all SBIR contracts. Officials stated that procedures for these 

controls should be applied only to SBIR contracts that have been identified as at risk 

for fraud, waste, and abuse. 

Evaluation of Management’s Response. The proposed action is responsive to our 

recommendation. We agree that controls 11 and 13 duplicate procedures already in 

place and that officials could apply procedures for controls 20, 21, 24, and 25 only to 

SBIR contracts they have identified as at risk of fraud, waste, and abuse. Therefore, 

the recommendation is resolved and will be closed upon completion and verification 

of the proposed action. 

Recommendation 7. The Chief Technologist should contact the SBA and GSA to 

discuss implementing automated controls in databases owned by those agencies. 

Management’s Response. The Chief Technologist concurred, stating that NASA 

will meet with the SBA and GSA to discuss implementing automated controls in their 

databases. Management expects to complete the proposed action by June 30, 2011. 

Evaluation of Management’s Response. The proposed action is responsive. The 

recommendation is resolved and will be closed upon completion and verification of 

the proposed corrective action. 
APPENDIXES REDACTED FOR PUBLIC RELEASE 

REPORT NO. IG-11-010-R 32

APPENDIX A 

Scope and Methodology 

We performed this audit from September 2009 through November 2010 in accordance 

with generally accepted government auditing standards. Those standards require that we 

plan and perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on the objectives. We believe 

that the evidence obtained during this audit provides a reasonable basis for our findings 

and conclusions based on our objectives. 

We limited the scope of our review to the evaluation and selection, contract award, and 

the post-award administration stages because we assessed them as most vulnerable to 

fraud, waste, and abuse. We did not review the solicitation and contract close-out stages. 

To meet our audit objectives, we selected a statistical sample of 67 program year 2008 

SBIR awards for review. The sample consisted of 36 Phase 1 awards and 31 Phase 2 

awards. We did not review Phase 3 awards because the Agency does not maintain 

reliable records identifying Phase 3 activity. Details of the audit’s sampling methodology 

are provided in Appendix C. 

To assess whether NASA performed adequate due diligence to identify unallowable and 

unsupported costs, we: 

 reviewed regulations governing the allowability of costs including the FAR and 

2008 NASA SBIR Solicitation; 

 interviewed SBIR Program officials, procurement officials, technical evaluators, 

contracting officer technical representatives, and contracting support personnel to 

identify procedures for reviewing and awarding costs; and 

 reviewed procurement files for a randomly selected sample of 67 program year 

2008 SBIR awards to assess whether costs were allowable and properly 

supported. 

To assess whether management had established adequate criteria and procedures for 

selecting SBIR awards based on best value, we: 

 reviewed FAR Part 15, “Contracting by Negotiation,” and FAR Subpart 42.15, 

“Contractor Performance Information,” July 2008, the NASA, “SBIR Proposal 

Evaluation Guidelines,” and 2008 NASA SBIR Solicitation; 
APPENDIX A REDACTED FOR PUBLIC RELEASE

REPORT No. IG-11-010-R 33 

 interviewed SBIR Program officials to obtain an understanding of how past 

performance information is used in the evaluation and selection process; and 

 analyzed procurement files for a randomly selected sample of 31 program year 

2008 SBIR Phase 2 awards to determine whether management had applied 

controls for selecting SBIR contracts. 

To assess whether internal controls were adequate to prevent and detect fraud, waste, and 

abuse in the SBIR Program, we: 

 analyzed SBIR-related investigations to identify SBIR frauds and abuses; 

 reviewed internal control statutes, regulations, policies, and guidance to determine 

requirements and methodologies for evaluating controls; Agency control 

assessments and presentations to determine the Agency’s plans for additional 

controls; and guides on data mining to define data mining; 

 identified and analyzed SBIR fraud risks to determine whether existing controls 

prevent and detect SBIR frauds and abuses; and 

 performed beta tests of automated controls that involve data mining to identify 

potential instances of duplicate SBIR awards, duplicate deliverables, and 

violations of SBIR Program requirements. 

We performed this review at NASA Headquarters, Ames Research Center, Langley 

Research Center, and Stennis Space Center. 

Use of Computer-Processed Data. The audit used data from three databases: (1) the 

NASA Electronic Handbook is accessible by NASA personnel and SBIR proposers. The 

Electronic Handbook is used for all SBIR transactions, such as proposal submissions, 

proposal evaluations, and documentation. We used Electronic Handbook data from 2004 

through 2008 (https://ehb8.gsfc.nasa.gov/sbir/logon.jsp); (2) the SBA TECH-Net

database contains data on SBIR awards that was submitted by participating Federal 

agencies. We used data from 2004 through 2008 

(http://www.sba.gov/aboutsba/sbaprograms/sbir/technet/index.html); (3) the GSA Federal 

Procurement Data System database contains data on federally funded awards and grants. 

We used data from 2004 through 2008 (https://www.fpds.gov/fpdsng_cms/). 

We used the NASA Electronic Handbook to obtain statistical random samples. We 

established data reliability for our statistical random samples by comparing data we 

obtained from the Electronic Handbook to source documents. We used the Handbook, 

TECH-Net, and Federal Procurement Data System databases to perform data mining. We 

did not evaluate the general and application controls of each database. To establish data 

reliability for data mining, we compared data we obtained from the Handbook to data we 

obtained from the SBA TECH-Net database. We concluded that data from the three 

databases was sufficiently reliable to support our audit conclusions.
REDACTED FOR PUBLIC RELEASE APPENDIX A 

34 REPORT No. IG-11-010-R 

Review of Internal Controls 

For our review of internal controls, we used guidance from OMB Circular A-123, 

“Management’s Responsibility for Internal Control,” December 21, 2004, and the 

“Circular A-123 Implementation Guide,” Chief Financial Officers’ Council, July 2005. 

We also used Government Accountability Office’s “Standards for Internal Control in the 

Federal Government,” November 1999; “Internal Control Management and Evaluation 

Tool,” August 2001; and Audit Guide to Auditing and Investigating the Internal Control 

of Government Purchase Card Programs,” November 2003. Specifically: 

 We assessed whether the control environment indicated management’s support 

for internal control. We found senior Program officials voiced strong support for 

internal control and established an effective organizational structure that 

designated specific personnel responsible for policy, program management, 

evaluations, selections, and contract oversight. Program officials required firms 

to submit certifications as a means to prevent duplicate awards and violations of 

SBIR Program requirements. 

 We determined whether internal controls in the evaluation and selection, contract 

award, and post-award administration sub processes provided reasonable 

assurance that management would achieve program management requirements. 

For the evaluation, we identified 23 program management requirements from 

statutes, regulations, policies, and guidelines. We found that internal controls 

provided reasonable assurance that management would achieve 21 of 23 

requirements (91.3 percent). Internal controls were deficient in pricing analysis 

of SBIR awards and the use of past performance information in selecting 

proposals for award. 

 We determined whether internal controls provided reasonable assurance that 

management would prevent and detect SBIR frauds and abuses. To identify 

specific SBIR frauds and abuses, we analyzed Government-wide investigations 

since 1997. To identify controls that would prevent and detect specific SBIR 

frauds and abuses, we found points in NASA’s SBIR process where a specific 

fraud or abuse were most likely to occur, identified procedures that would have 

prevented or detected the fraud or abuse, confirmed procedures with OIG fraud 

investigators, and determined whether the procedures were in place or missing 

from the SBIR process. We found 14 of 24 controls (58 percent) to prevent and 

detect types of fraud and abuse prevalent in SBIR Programs were missing from 

the SBIR process. 

 We completed a control risk assessment to distinguish controls that are critical 

from controls that are not critical but helpful in fraud prevention and detection. 

The control risk assessment evaluated the probability that the related fraud would 

occur, the impact to NASA’s SBIR Program should the fraud occur, and the 

control’s implementation costs. 
APPENDIX A REDACTED FOR PUBLIC RELEASE

REPORT No. IG-11-010-R 35 

 We tested compliance with existing controls in the evaluation and selection, 

contract award, and post-award administration sub processes. Our tests found that 

personnel followed 356 of the 358 existing controls (99.4 percent) in the sub 

processes. 

Prior Coverage 

During the past 6 years, the NASA Office of Inspector General, Government 

Accountability Office, National Research Council, and Department of Energy issued four 

reports of particular relevance to the subject of this report. Unrestricted reports can be 

accessed over the Internet at http://www.gao.gov, http://www.nap.edu/catalog, and 

http://www.ig.energy.gov. 

NASA Office of Inspector General

“Management Alert – Concerns Relating to NASA Small Business Innovation Research 

(SBIR) Contracts” (April 28, 2004) 

Government Accountability Office

“Small Business Innovation Research: Observations on Agencies' Data Collection and 

Eligibility Determination Efforts” (GAO-09-956T, August 2009) 

National Research Council

“An Assessment of the Small Business Innovation Research Program at the National 

Aeronautics and Space Administration” (2009) 

Department of Energy

“Management Controls over Monitoring and Closeout of Small Business Innovation 

Research Phase II Grants” (OAS-M-08-09, July 2008) 
REDACTED FOR PUBLIC RELEASE APPENDIX B 

36 REPORT No. IG-11-010-R 

QUESTIONED COSTS 

Questioned Costs in the Sample of Phase 1 Awards

(All amounts rounded to the nearest dollar)

Sample 

Number Award Number 

Award 

Value 

Unallowable 

Travel 

Unallowable 

Equipment 

Unallocable 

Costs 

Total 

Questioned 

Costs 

1 NNX09C███ $99,978 

2 NNX09C███ 99,962 $1,195 $1,195 

3 NNX09C███ 99,886 $5,109* 5,109 

4 NNX09C███ 100,000 $352 352 

5 NNX09C███ 99,999 

6 NNX09C███ 99,838 

7 NNX09C███ 100,000 

8 NNX09C███ 100,000 

9 NNX09C███ 99,964 1,103 10,330* 11,433 

10 NNX09C███ 100,000 12,986* 12,986 

11 NNX09C███ 100,000 

12 NNX09C███ 99,995 

13 NNX09C███ 97,316 

14 NNX09C███ 99,994 1,646* 1,646 

15 NNX09C███ 99,908 

16 NNX09C███ 99,918 

17 NNX09C███ 99,972 

18 NNX09C███ 100,000 

19 NNX09C███ 99,225 

20 NNX09C███ 99,985 

21 NNX09C███ 100,000 

22 NNX09C███ 99,678 

23 NNX09C███ 100,000 597 597 

24 NNX09C███ 99,989 

25 NNX09C███ 99,695 

26 NNX09C███ 100,000 

27 NNX09C███ 99,968 

28 NNX09C███ 99,915 

29 NNX09C███ 99,288 

30 NNX09C███ 99,995 8,974 8,974 

31 NNX09C███ 100,000 

32 NNX09C███ 99,998 

33 NNX09C███ 99,833 

34 NNX09C███ 99,681 

35 NNX09C███ 100,000 1,903 1,903 

36 NNX09C███ 100,000 

Totals $3,593,980 $9,255 $15,283 $19,656 $44,195 

* The nature of the questioned cost is described in the section beginning on page 9. 
APPENDIX B REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 37 

Questioned Costs in the Sample of Phase 2 Awards 

(All amounts rounded to the nearest dollar) 

Sample 

Number Award Number Award Value 

Unallowable 

Equipment 

Unallocable 

Costs 

Unsupported 

Costs 

Total 

Questioned 

Costs 

1 NNX09C███ $599,988 $42,182* $42,182 

2 NNX09C███ 599,982 

3 NNX09C███ 600,000 

4 NNX09C███ 596,505 $89,923* 75,750* 165,673 

5 NNX09C███ 599,993 

6 NNX09C███ 600,000 $76,620 76,620 

7 NNX09C███ 597,295 

8 NNX09C███ 600,000 56,618* 56,618 

9 NNX09C███ 599,995 

10 NNX09C███ 600,000 38,637 38,637 

11 NNX09C███ 600,000 

12 NNX09C███ 599,899 

13 NNX09C███ 599,999 

14 NNX09C███ 599,946 

15 NNX09C███ 599,939 

16 NNX09C███ 599,941 

17 NNX09C███ 599,842 

18 NNX09C███ 599,993 

19 NNX09C███ 599,994 15,070 15,070 

20 NNX09C███ 599,955 

21 NNX09C███ 600,000 

22 NNX09C███ 599,315 3,729 3,729 

23 NNX09C███ 599,962 

24 NNX09C███ 599,977 

25 NNX09C███ 599,418 

26 NNX09C███ 599,952 

27 NNX09C███ 599,950 

28 NNX09C███ 599,945 

29 NNX09C███ 600,000 

30 NNX09C███ 599,999 

31 NNX09C███ 600,000 85,833 85,833 

 Totals $18,591,784 $219,071 $147,358 $117,932 $484,361 

* The nature of the questioned cost is described in the section beginning on page 9. 
REDACTED FOR PUBLIC RELEASE APPENDIX C 

38 REPORT No. IG-11-010-R 

SAMPLING METHODOLOGY AND 

PROJECTION OF RESULTS

For our audit, we used the stratified sample design with the method of selection being 

simple random sample. We evaluated simple random samples for attributes based on 

sample award (either passes or fails, depending on the audit substantive tests) and 

evaluated our variable data based on the dollar amount of the award that failed the 

substantive tests. We used a Normal distribution because it is the only distribution that 

allows combining stratified samples, and we wanted to combine our variable data from 

program year 2008 SBIR Phase 1 and 2 to project a total of questionable costs for the 

program year 2008 SBIR process. In addition, the Normal distribution works well for 

simple random samples of at least 30 if the error count in the sample is at least 5 but not 

more than the sample less 5, and if the variability in the data is not excessive. For 

example, if the sample is 36, the error count should be between 6 and 31. 

We are 85 percent confident that the dollar value of errors is between $1.4 million and 

$3.9 million. This is equivalent to being 92.5 percent confident that the dollar value of 

errors is at least $1.4 million. We are 85 percent confident that the error count is between 

86 and 162. This is equivalent to being 92.5 percent confident that the error count is at 

least 86. 

Based on documentary evidence and an analysis of 67 of 493 statistically selected SBIR 

contract awards, we found that 17 of the program year 2008 SBIR contract awards had 

unallowable and unsupported costs of $528,555.28 Based on statistical analysis, we are 

85 percent confident that between 17 and 33 percent of the total program year 2008 SBIR 

contract awards had questionable costs projected between 1 and 3 percent of the total 

program year 2008 SBIR contract dollars.29,30 Properly validating contractor 

performance prior to and during the program year 2008 SBIR process could result in 

potential cost avoidance of at least $13.32 million over the next 5 years. 

Based on documentary evidence and an analysis of 36 of 350 statistically selected SBIR 

contract awards for the program year 2008 Phase 1 SBIR process, we found that 9 SBIR 

contract awards had unallowable costs of $44,195. Based on statistical analysis, we are 

85 percent confident that between 15 and 35 percent of the program year 2008 Phase 1 

SBIR contract awards had questionable costs projected between 1 and 2 percent of the 

 

28 The methodology used for sample selection was random; the sampled items were stratified by phase for 

precision, the extent of substantive testing conducted, and or the type of evidence obtained/examined in 

the course of the validation. 

29 Statistical attribute projection, lower bound 86 of 493 contract awards, upper bound 162 of 493 contract 

awards. 

30 Statistical variable projection, lower bound $1,444,670.92 of $120,392,389.12 contract dollars, upper 

bound $3,883,284.62 of $120,392,389.12 contract dollars. 
APPENDIX C REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 39 

program year 2008 Phase 1 SBIR contract dollars.31, 32 Properly validating contractor 

performance prior to and during the program year 2008 Phase 1 SBIR process could 

result in potential cost avoidance of at least $2.15 million over the next 5 years. 

Based on documentary evidence and an analysis of 31 of 143 statistically selected SBIR 

contract awards for the program year 2008 Phase 2 SBIR process, we found that 8 SBIR 

contract awards had unallowable and unsupported costs of $484,361. Based on statistical 

analysis, we are 85 percent confident that between 15 and 36 percent of the program year 

2008 Phase 2 SBIR contract awards had questionable costs projected between 1 and 4 

percent of the program year 2008 Phase 2 SBIR contract dollars.33, 34 Properly validating 

contractor performance prior to and during the program year 2008 Phase 2 SBIR process 

could result in potential cost avoidance of at least $11.17 million over the next 5 years. 

Attribute Projections in 1 Year, Based on 85 Percent Confidence Level 

Program 

Year 2008 Universe Sample Errors 

Lower 

Bound Mean 

Upper 

Bound 

Phase 1 350 36 9 53 88 122 

Phase 2 143 31 8 22 37 51 

 Totals 493 67 17 75 125 173 

Attribute Error Projections Over a 5-Year Budget, Based on 85 Percent Confidence Level 

Program 

Years 2010-

2014 Universe Sample Errors 

Lower 

Bound Mean 

Upper 

Bound 

Phase 1 1,750 180 45 265 440 610 

Phase 2 715 155 40 110 185 255 

 Totals 2,465 335 85 375 625 865 

Variable Projections in 1 Year, Based on 85 Percent Confidence Level 

Program 

Year 2008 Universe Sample Errors 

Lower 

Bound Mean 

Upper 

Bound 

Phase 1 $34,742,214 $3,593,980 $44,192 $174,508 $429,669 $684,830 

Phase 2 85,650,176 18,591,784 484,361 1,041,594 2,234,309 3,427,024 

 Totals $120,392,390

.00 

$22,185,764.

00 

$528,553.00 $1,216,102.0

0

$2,663,978.0

0 

$4,111,854.0

0 

All amounts rounded to the nearest dollar.

 

31 Statistical projection, lower bound 53 of 350 contract awards, upper bound 122 of 350 contract awards. 

32 Statistical variable projection, lower bound $174,507.72 of $34,742,213.53 contract dollars, upper bound 

$684,829.98 of $34,742,213.53 contract dollars. 

33 Statistical projection, lower bound 22 of 143 contract awards, upper bound 51 of 143 contract awards. 

34 Statistical variable projection, lower bound $1,041,593.53 of $85,650,175.59 contract dollars, upper 

bound $3,427,024.35 of $85,650,175.59 contract dollars. 
REDACTED FOR PUBLIC RELEASE APPENDIX C 

40 REPORT No. IG-11-010-R 

Variable Projections Over a 5-Year Budget, Based on 85 Percent Confidence Level 

Program 

Years 

2010-

2014 Universe Sample Errors 

Lower 

Bound Mean 

Upper 

Bound 

Phase 1 $173,711,068 $17,969,901 $220,958 $872,539 $2,148,344 $3,424,150 

Phase 2 428,250,878 92,958,920 2,421,803 5,207,968 11,171,545 17,135,122 

 Totals $601,961,946

.00 

$110,928,821

.00 

$2,642,761.

00

$6,080,507.0

0 

$13,319,889.

00 

$20,559,272.

00 

All amounts rounded to the nearest dollar. 
APPENDIX D REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 41 

CONTROLS TO PREVENT AND 

DETECT FRAUD AND ABUSE

We analyzed SBIR-related investigations conducted by NASA and other agencies since 

1997 and identified instances of fraud and abuse that we divided into six categories of 

types of fraud and abuse prevalent in SBIR Programs (see page 22). To identify controls 

that would prevent and detect specific SBIR frauds and abuses, we found points in 

NASA’s SBIR process where a specific fraud or abuse was most likely to occur, 

identified procedures that would prevent or detect the fraud or abuse, confirmed 

procedures with OIG fraud investigators. We then determined whether the procedures 

were in place or missing from NASA’s SBIR process. 

We identified 28 controls that could prevent or detect the types of fraud and abuse 

categorized. In response to management’s comments on the draft of this report, we are 

withdrawing 3 of the 28 controls (Controls 10, 11, and 13) because they duplicated 

procedures already in place and 1 more control (Control 19) because procedures cannot 

be implemented on fixed-price contracts. We show the withdrawn controls as not 

applicable (NA) in the table. 

For the 24 remaining controls, we classified 19 controls as critical and 5 controls as 

noncritical but helpful in fraud prevention and detection. We defined a critical control as 

a control for which the related fraud has a (1) high probability of occurring, (2) a high 

impact to NASA should it occur, or (3) a medium to high probability of occurring, a 

medium to high impact to NASA, and a low implementation cost. We found that 10 of 

19 critical controls were already part of NASA’s SBIR process, while 9 of 19 critical 

controls were not. In the following six tables we list, by fraud category, the 24 controls, 

we describe the control, identify it as critical or noncritical, and show whether the control 

was in place or missing from NASA’s SBIR process using the following legend – critical: 

yes = Y or no = N; implemented = , not implemented =  . 

Fraud Category 1: Firms or Principal Investigators Received Duplicate Awards for Same Research 

Control Critical 

Implemented

1. Firm certifies that the SBIR research proposal was not funded by another Federal 

agency. 

Y 

2. Firm provides a list of Federally funded awards and certifies that the list is accurate and 

complete. 

Y 

3. SBIR Program Management Office performs automated word search of SBIR research 

proposals submitted to NASA that year. Program Management searches proposals by 

firm and by PI. Automated word search provides a report of duplicate SBIR proposals 

that the firm or PI submitted to NASA for a given solicitation. Program Management 

Office reviews proposals to verify whether firms submitted duplicate proposals. 

Program Management Office rejects duplicate proposals. 

Y 

 
REDACTED FOR PUBLIC RELEASE APPENDIX D 

42 REPORT No. IG-11-010-R 

Fraud Category 1: Firms or Principal Investigators Received Duplicate Awards for Same Research 

(continues) 

Control Critical 

Implemented

4. SBIR Program Management Office performs automated word search of (1) SBIR 

research proposals submitted to NASA and (2) research proposals funded by other 

SBIR awards. Program Management Office uses the NASA Electronic Handbook and 

the Small Business Administration databases. Automated word search produces a 

report of research proposals submitted to NASA that appear to duplicate research 

proposals funded through other SBIR awards. SBIR Program Management Office 

enlists technical personnel to compare research proposals. Technical personnel verify 

whether research proposal that firm submitted to NASA duplicated research proposal 

that firm received funding for from an SBIR award with another Federal agency. 

Y 

5. SBIR Program Management Office performs automated word search of (1) SBIR 

research proposals submitted to NASA, (2) research proposals funded by a NASA 

grant or contract, and (3) research proposals funded by another Federal agency under a 

grant or contract. Program Management Office uses the NASA Electronic Handbook 

database, NASA grant and contract databases, and the General Services Administration 

Federal Procurement Data Systems database. Automated word search produces a 

report of research proposals submitted to NASA that appear to duplicate research 

proposals funded through another Federal grant or contract. Program Management 

Office enlists technical personnel to compare research proposals. Technical personnel 

verify whether research proposal that firm submitted to NASA duplicated research 

proposal that firm received funding for from another Federal grant or contract. 

Y 

Fraud Category 2: Contractors Submitted Questionable Research Product 

Control Critical 

Implemented 

6. SBIR Program Management Office performs automated word search of (1) SBIR 

research reports submitted to NASA that year, (2) research reports submitted to NASA 

under a grant or contract, and (3) research reports submitted to other Federal agencies 

under a grant or contract. Program Management Office uses the NASA Electronic 

Handbook database, NASA grant and contract databases, and the General Services 

Administration Federal Procurement Data Systems database. Automated word search 

produces a report of research reports submitted to NASA that appear to duplicate 

research reports submitted under another Federal grant or contract. SBIR Program 

enlists technical personnel to compare the research reports. Technical personnel verify 

whether research reports that firm submitted to NASA duplicated research reports that 

firm had submitted under another Federal grant or contract. 

N 

7. SBIR Program appoints technical officer with expertise in related or same subject area 

as SBIR research proposal. Technical officer assesses progress and research reports 

that firm submits under NASA SBIR contract. 

Y 
APPENDIX D REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 43 

Fraud Category 3: Firms and Principal Investigators Violated SBIR Program Requirements 

Control Critical 

Implemented 

8. For each PI being considered for contract award: 

 SBIR Program Management Office performs automated search of SBA Tech-Net

database to obtain a report of SBIR awards during a period; 

 Program Management Office uses an automated procedure to group the report of 

SBIR awards into SBIR awards, by PI; 

 Program Management Office uses an automated procedure to identify PIs that have 

more than 2 SBIR awards during the period; 

 Contracting officer requests contractor to provide percentage of time that PI worked 

for firm during the period; 

 Program Management Office obtains percentages of time PI spent on SBIR awards 

that other Federal agencies funded during the period; 

 Program Management Office and technical officer determine whether percentages of 

time appear realistic for PI or indicate a potential abuse (mischarging, unreported 

use of subcontractor, or failure to perform research). SBIR Program Management 

Office refers questionable firms, PI, and contracts to the OIG.

Y 

9. SBIR Program Management Office requires firm to certify that the entity is Americanowned.

Y 

10. Prior to contract award, contracting officer searches online state incorporation records, 

online local business license records, or Dun & Bradstreet databases to verify that firm 

is American-owned. SBIR Program reviews Form A and certifications for those firms 

that the search identified as not American-owned. SBIR Program refers firms that 

submitted false certifications to the OIG.

Y (NA) 

11. For each firm being considered for an award, contracting officer searches databases of 

addresses and locations (Google Earth, Yahoo Maps; e.g.) to determine whether place 

of business actually exists. For firms identified as potential problem during search, 

contracting officer searches local business records, Dun & Bradstreet databases, or 

state records to confirm that business actually exists. Contracting officer refers 

problematic firms to the OIG.

N (NA) 

12. Contracting officer searches SBA database to verify that firm is a small business or 

woman-owned entity.

Y 

13. Contracting officer searches Dun & Bradstreet database to verify that SBIR firm does 

not exceed small business limits.

N (NA)

14. SBIR Program Management Office requires firm to certify that it met subcontracting 

limits for SBIR Phase 1 and Phase 2 contracts.

Y 

Fraud Category 4: Actual Effort and Costs Differed Materially from What Was Negotiated 

Control Critical 

Implemented 

15. Contracting officer should verify the firm’s labor rates with the Defense Contract Audit 

Agency for firms that were audited; or with other funding agencies for firms that the 

Defense Contract Audit Agency has not audited.

Y 

16. Technical officer assesses progress and final reports and reports indicators of 

substandard performance to the contracting officer.

Y 

17. Technical officer prepares final performance file on Phase 2 contractor. Y 
REDACTED FOR PUBLIC RELEASE APPENDIX D 

44 REPORT No. IG-11-010-R 

Fraud Category 5: Contractors Misused SBIR Funds 

Control Critical 

Implemented 

18. SBIR Program Management Office and technical officers assess indicators that firm 

will have excess cash on a NASA SBIR contract. Excess cash occurs when firm’s 

actual expenses are materially less than proposed. Program Management Office refers 

problematic firms to the OIG. Also, Program Management Office assesses the 

following indicators: 

 Firm demonstrated substandard performance. Substandard performance can indicate 

firm spent less on actual labor than it proposed. 

 Firm recycled or plagiarized reports. Recycled reports can indicate that firm had to 

submit report from prior research as the deliverable because the firm did not spend 

contract funds on researcher labor. 

 Firm submitted duplicate proposals. Duplicate proposals can indicate that firm did 

not use actually conduct research. 

 PI has an unreasonable number of awards for period of contract. An unreasonable 

number of awards can indicate that PI did not actually perform research, firm used 

subcontractor to perform research, or firm recycled old research. 

 Firm lacks a legitimate business facility. Lack of a business facility can indicate 

firm did little, if any, actual research. 

 Firm proposed higher labor rates than it actually paid. Higher proposed labor rates 

can indicate that firm knowingly proposed lower rates to provide firm excess cash.

Y 

19. Contracting officer requires firms to break out costs on each invoice for the SBIR 

contract and to certify the costs. Break out should show direct labor, material, 

subcontract, and indirect costs. Direct labor costs should identify each employee and 

show their position, the hours the employee worked, and the related labor cost. The 

firm should certify that costs are accurate and allocable to the contract.

Y (NA) 

20. SBIR Program Management Office reviews indicators in Control No. 18, above, 

against the firm’s cost-type contracts. For each SBIR contract identified at risk for 

fraud, waste, or abuse, the SBIR Program Management Office will assess whether the 

firm may have applied overruns on a NASA SBIR contract to a cost-type contract. 

SBIR Program Management Office refers problematic firms to the OIG.

N 

21. SBIR Program Management Office reviews indicators in Control No. 18, above, 

against the firm’s contracts that have large indirect accounts. For each SBIR contract 

identified at risk for fraud, waste, or abuse, the SBIR Program Management Office will 

assess whether the firm may have applied overruns on a NASA SBIR contract to 

indirect accounts. SBIR Program Management Office refers problematic firms to the 

OIG. 

N 

22. Contracting officer requires SBIR firms to describe researchers in progress reports. 

Firms should identify personnel who worked on the SBIR research during the reporting 

period and describe their role. Contracting officer requires SBIR firms to provide the 

names, phone numbers, and email addresses of the PI, researchers, and subcontract 

researchers. 

Y 

23. Contracting officer requires SBIR firms to submit evidence with the firm’s invoice that 

firm has not billed NASA for nonexistent employees. Evidence could include 

employee addresses or email, written employment agreement, or other support. 

Y 

24. SBIR Program Management Office reviews indicators in Control No. 18, above. For 

each SBIR contract identified at risk for fraud, waste, or abuse, the SBIR Program 

Management Office will assess whether the firm may have charged unallowable costs 

to a NASA SBIR contract. SBIR Program Management Office refers problematic 

firms to the OIG. 

N 
APPENDIX D REDACTED FOR PUBLIC RELEASE 

REPORT No. IG-11-010-R 45 

Fraud Category 5: Contractors Misused SBIR Funds 

(continues)

25. SBIR Program Management Office reviews indicators in Control No. 18. For each 

SBIR contract identified at risk for fraud, waste, or abuse, the SBIR Program 

Management Office will assess whether the firm may have used funds from a NASA 

SBIR contract to support a commercial contract. SBIR Program Management Office 

refers problematic firms to the OIG. 

N 

26. Technical officer compares actual labor rates reported on invoice with verified rates 

from Control No. 15, above. 

Y 

Fraud Category 6: Technical Personnel Were Involved in Procurement Integrity Issues 

Control Critical 

Implemented 

27. External evaluators submit conflict of interest statements. SBIR Program Management 

Office reviews statements for conflicts. 

Y 

28. NASA technical personnel submit conflict of interest statements annually. Statements 

are reviewed for conflicts. 

Y 
APPENDIX E 

REPORT No. IG-11-010 47

MANAGEMENT’S COMMENTS
APPENDIX E 

48 REPORT No. IG-11-010
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REPORT No. IG-11-010 49
APPENDIX E 

50 REPORT No. IG-11-010
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REPORT No. IG-11-010 51
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52 REPORT No. IG-11-010
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APPENDIX E 

54 REPORT No. IG-11-010
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APPENDIX E 

56 REPORT No. IG-11-010
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66 REPORT No. IG-11-010
REDACTED FOR PUBLIC RELEASE APPENDIX E 

66 REPORT No. IG-11-010-R 

REPORT DISTRIBUTION

National Aeronautics and Space Administration 

Administrator 

Deputy Administrator 

Chief Technologist 

Associate Administrator for Small Business Programs 

Assistant Administrator for Procurement 

Director, Innovative Partnerships Program Office 

Non-NASA Organizations and Individuals 

Office of Management and Budget 

Deputy Associate Director, Energy and Science Division 

Branch Chief, Science and Space Programs Branch 

Government Accountability Office 

Director, Defense, State, and NASA Financial Management, Office of Financial 

Management and Assurance 

Director, NASA Issues, Office of Acquisition and Sourcing Management 

Congressional Committees and Subcommittees, Chairman and 

Ranking Member 

Senate Committee on Appropriations 

Subcommittee on Commerce, Justice, Science, and Related Agencies 

Senate Committee on Commerce, Science, and Transportation 

Subcommittee on Science and Space 

Senate Committee on Homeland Security and Governmental Affairs 

House Committee on Appropriations 

Subcommittee on Commerce, Justice, Science, and Related Agencies 

House Committee on Oversight and Government Reform 

Subcommittee on Government Management, Organization, and Procurement 

House Committee on Science and Technology 

Subcommittee on Investigations and Oversight 

Subcommittee on Space and Aeronautics 
REDACTED FOR PUBLIC RELEASE

REPORT No. IG-11-010-R 67 

Major Contributors to the Report: 

Raymond Tolomeo, Director, Science and Aeronautics Research Directorate 

Nora Thompson, Project Manager 

Robert Rose, Auditor 

Jobenia Odum, Management Analyst 

James Pearce, Auditor 

Arnold Pettis, Data Mining, Statistician, Application Developer 
REDACTED FOR PUBLIC RELEASE JANUARY 12, 2011 

 REPORT NO. IG-11-010-R 

OFFICE OF AUDITS

OFFICE OF INSPECTOR GENERAL

ADDITIONAL COPIES

Visit http://oig.nasa.gov/audits/reports/FY11/ to obtain additional copies of this report, or contact the 

Assistant Inspector General for Audits at 202-358-1232. 

COMMENTS ON THIS REPORT

In order to help us improve the quality of our products, if you wish to comment on the quality or 

usefulness of this report, please send your comments to Mr. Laurence Hawkins, Audit Operations and 

Quality Assurance Director, at Laurence.B.Hawkins@nasa.gov or call 202-358-1543. 

SUGGESTIONS FOR FUTURE AUDITS

To suggest ideas for or to request future audits, contact the Assistant Inspector General for Audits. 

Ideas and requests can also be mailed to: 

Assistant Inspector General for Audits 

NASA Headquarters 

Washington, DC 20546-0001 

NASA HOTLINE

To report fraud, waste, abuse, or mismanagement, contact the NASA OIG Hotline at 800-424-9183 or 

800-535-8134 (TDD). You may also write to the NASA Inspector General, P.O. Box 23089, L’Enfant 

Plaza Station, Washington, DC 20026, or use http://oig.nasa.gov/hotline.html#form. The identity of 

each writer and caller can be kept confidential, upon request, to the extent permitted by law.