Department of Health and Human Services 

 OFFICE OF 

INSPECTOR GENERAL 

VULNERABILITIES IN THE 

HHS SMALL BUSINESS 

INNOVATION RESEARCH 

PROGRAM 

Daniel R. Levinson 

Inspector General 

April 2014 

OEI-04-11-00530 
 

 

EXECUTIVE SUMMARY: VULNERABILITIES IN THE HHS SMALL BUSINESS 

INNOVATION RESEARCH PROGRAM, OEI-04-11-00530 

WHY WE DID THIS STUDY 

The Small Business Innovation Research (SBIR) program awards funds to small businesses to 

pursue innovative research and development ideas that have potential for commercial and that meet 

research and development needs of the Federal Government. Since the implementation of the SBIR 

program in 1982, the Department of Health and Human Services (HHS) has funded more than $8 

billion in awards to small businesses that self-certify that they meet program requirements. However, 

unlike most other SBIR awarding agencies, HHS does not have a single office responsible for 

overseeing its SBIR program. In 1999, the Office of Inspector General reported that HHS had not 

evaluated the success of the program. Further, other Federal agencies have identified fraud in their 

respective SBIR programs, including awardees that falsely certify eligibility and receive duplicative 

funding from multiple agencies. 

HOW WE DID THIS STUDY 

We reviewed fiscal year 2011 data from the four HHS Operating Divisions (OpDivs) that participate 

in the SBIR program to determine the extent to which they ensured that awardees were eligible and 

that awards were meeting program guidelines and goals. We also verified awardees’ eligibility using 

data sources commonly used by other Federal agencies to identify potentially ineligible awardees. 

WHAT WE FOUND 

HHS awarded $360 million in SBIR funds to nearly 1,000 awardees in 2011 and had the highest 

average SBIR award amount of any participating agency. Although it was not required to do so, HHS 

did not consistently collect information on or assess the commercial success of SBIR awards and 

therefore cannot determine whether the program is meeting one of its primary goals. Although all 

awardees self-certified that they intended to meet SBIR eligibility requirements, we found that 

31 percent of awardees had questionable or unverified eligibility for at least one requirement. 

Although they are not required to do so, HHS OpDivs did not take any steps to independently verify 

that these awardees met eligibility requirements. Furthermore, although one OpDiv checked for 

duplicative funding within HHS, none of the four OpDivs completed a required check for duplicative 

awards across other Federal agencies. 

WHAT WE RECOMMEND 

Our findings raise concerns about vulnerabilities in the SBIR program. To address these 

vulnerabilities, HHS should create a central office to oversee the SBIR program. HHS OpDivs 

should track and assess the commercial success of SBIR projects, ensure compliance with eligibility 

requirements, and improve procedures to check for duplicative awards. The Office of the Assistant 

Secretary for Financial Resources (ASFR) did not indicate whether it concurred with each of our 

recommendations. However, ASFR concurred that additional coordination and oversight across 

participating OpDivs is warranted and agreed that HHS must ensure that applicants meet SBIR 

eligibility requirements. 
 

TABLE OF CONTENTS 

Objectives ....................................................................................................1 

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

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

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

HHS awarded $360 million in SBIR funds to nearly 

1,000 awardees in 2011..................................................................12 

Although HHS OpDivs are not required to collect information on 

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

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

Although all SBIR awardees certified their eligibility, 31 percent 

of awardees had questionable or unverified eligibility for at least 

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

HHS OpDivs did not perform a required check for duplicative 

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

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

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

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

A: Differences in the 2011 and 2012 Small Business Innovation 

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

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

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

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

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

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

 

 

 

 

 

 

 

OBJECTIVES 

1.	 To describe the Department of Health and Human Services (HHS) 

Operating Divisions’ (OpDivs) expenditures on the Small Business 

Innovation Research (SBIR) program in 2011. 

2.	 To determine the extent to which, in 2011, HHS OpDivs: 

 collected information on the commerical success of SBIR products 

and services; 

 ensured that SBIR awardees met eligibility requirements; and 

 performed required checks to ensure that SBIR awardees did not 

receive duplicative funding for grants and contracts (i.e., awards). 

BACKGROUND 

The SBIR program is a competitive awards program created by the Small 

Business Innovation Development Act of 1982.1 These awards are 

intended to provide Federal funding to small businesses pursuing research 

and development ideas that have potential for commercialization and that 

meet research and development needs of the Federal Government.2, 3 

Federal agencies with research and development budgets of over 

$100 million for nongovernment groups are required to participate in the 

SBIR program and in 2011, were required to allocate 2.5 percent of their 

budgets to SBIR awards.4 SBA is the Federal agency that coordinates the 

1

 P.L. 97-219, 96 Stat. 217 1982), 15 U.S.C. § 638. Congress reauthorized this statute in 

2011. This statute also created the Small Business Technology Transfer (STTR) 

program, which shares the goals of the SBIR program and also reserves a specific 

percentage of Federal research and development funding to award to small businesses. 

2

 Small Business Administration (SBA), Small Business Innovation Research Program: 

2011 Policy Directive (2011 SBIR Program Policy Directive), p. 3. Accessed at 

http://documents.scribd.com.s3.amazonaws.com/docs/4nxkhpa8hs11bk8f.pdf?t=1310401 

127 on August 9, 2011. 3

 Commercialization is the process of developing marketable products or services and 

producing and delivering those products or services for sale to Government or 

commercial markets. SBIR awards can be distributed to awardees through grants or 

contracts. 

4 This budget is known as an agency’s extramural budget, or the sum of the total 

obligations minus amounts obligated for such activities by Government-owned, 

Government-operated facilities. 15 U.S.C. § 638(e)(1). The 2011 SBIR reauthorization 

specified that the percentage of the extramural research and development budget that 

agencies must allocate to SBIR awards would increase to 2.6 percent in 2012 and to 

2.7 percent in 2013. 15 U.S.C. § 638(f)(1)(C-E). 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 1 
 

 

 

 

 

 

 

SBIR program across the 11 participating Federal agencies.5, 6 SBA issues 

Policy Directives to guide agency implementation of the program, 

monitors agency implementation of the program, and reports program 

results to Congress annually.7 Federal law and SBA establish general 

standards for the SBIR program, and agencies have flexibility in managing 

their individual programs within these standards.8 

Since the implementation of the SBIR program in 1982, HHS has funded 

more than $8 billion in awards to small businesses pursuing innovative 

research ideas. However, in 1999, the Office of Inspector General (OIG) 

reported that within HHS, the National Institutes of Health (NIH) did not 

evaluate the success of the program.9 

If HHS does not properly oversee the SBIR program, it cannot evaluate 

the program’s success or ensure that awardees are eligible and are 

appropriately using funds. Other Federal agencies have identified fraud in 

the SBIR program. Specifically, NASA has identified awardees that 

falsely certified eligibility, including a company that stated it was 

American-owned but was not and a company that stated it was a small 

business but was not.10 Further, the Government Accountability Office 

(GAO) stated in a 1995 report that SBIR awardees had received 

duplicative funds from at least three participating agencies.11 One of these 

agencies was the National Science Foundation, which stated that 

duplicative funding is the most frequent violation in its SBIR program.12 

5

 The 11 agencies that participate in the SBIR program are the Department of 

Agriculture, the Department of Commerce, the Department of Defense, the Department 

of Education, the Department of Energy, HHS, the Department of Homeland Security, 

the Department of Transportation, the Environmental Protection Agency, the National 

Aeronautics and Space Administration (NASA), and the National Science Foundation. 6

 SBA, What We Do. Accessed at http://www.sba.gov/about-sba-services/what-we-do on 

December 5, 2011. 

7

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

information.) 

8 SBA, 2011 SBIR Program Policy Directive, p. 4. (See footnote 2 for URL information.) 9

 OIG, Review of the Effectiveness of the National Institutes of Health’s Administration of 

the Small Business Innovation Research Program, A-15-98-00031. This report focused 

solely on NIH because it makes the most SBIR awards in HHS. 10 NASA, Review of NASA’s Management of its Small Business Innovation Research 

Program. Accessed at http://oig.nasa.gov/audits/reports/FY11/IG-11-010-R.pdf on 

July 10, 2013. 

11 GAO, Federal Research: Interim Report on the Small Business Innovation Research
 

Program, GAO-RCD-95-59, March 1995. Accessed at http://www.gao.gov/assets/160/
 

154923.pdf on December 16, 2013. 12 Alison Lerner, Inspector General of the National Science Foundation, Statement Before 

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

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

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 2 
 

 

 

 

 

 

 

Congress passed the SBIR/STTR Reauthorization Act of 2011 in 

December 2011.13 To incorporate changes from the reauthorization, SBA 

updated its 2011 SBIR Program Policy Directive in October 2012, after 

the May 2012 end of our data collection for this study. Throughout this 

report, we describe the SBIR program requirements that were in effect at 

the time of our review and note any changes resulting from the new Policy 

Directive. See Appendix A for a list of differences in the 2011 and 

2012 SBIR Program Policy Directives relevant to our review. 

The 2011 SBIR Reauthorization Act requires agency OIGs to cooperate in 

preventing fraud, waste, and abuse in the SBIR program by 

(1) establishing fraud detection indicators; (2) reviewing agency 

regulations and operating procedures; (3) coordinating information sharing 

between agencies; and (4) improving the education and training of SBIR 

administrators, applicants, and awardees.14 The 2011 SBIR 

Reauthorization Act also requires OIGs to submit annual reports to 

Congress describing actions taken and funds used to address fraud, waste, 

and abuse in each SBIR program.15 This report is not intended to fulfill 

HHS OIG’s annual reporting requirement. 

SBIR Program Eligibility and Phases 

To be eligible for an SBIR award, an applicant must: 

	 have a Principal Investigator (i.e., the primary researcher who will 

conduct and oversee the research project) who is primarily 

employed by the small business;16 

	 have fewer than 500 total employees, including affiliates;17 

	 maintain a place of business in the United States and operate 

primarily within the United States;18 and 

13 National Defense Authorization Act for Fiscal Year 2012, P.L. 112-81, 125 Stat. 1298, 

Section 5001 (2011). 

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

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

pdf?t=1351707349 on July 31, 2013. 15 15 U.S.C. § 638b(c). 16 To be considered primarily employed by the company, the Principal Investigator must 

spend more than half of his or her time in the employ of the company at the time of
 

award and during the proposed project. Occasionally, deviation from this requirement
 

may occur; such deviation must be approved in writing. SBA, 2011 SBIR Program
 

Policy Directive, p. 13. (See footnote 2 for URL information.)
 17 In determining whether affiliation exists, SBA considers such factors as ownership,
 

management, previous relationships with or ties to another company, and contractual 

relationships. 13 CFR § 121.103 (a)(1-2).
 18 Alternatively, applicants can make significant contributions to the U. S. economy 

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

2011 SBIR Program Policy Directive, p. 7. (See footnote 2 for URL information.)
 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 3 
 

 

 

 

 

 

 

 

 

 

 

 

 be organized as a for-profit entity.19 

All SBIR applicants must certify that they meet all of the eligibility 

requirements before receiving an SBIR award.20 Specifically, applicants 

must check a box on the electronic application indicating that they intend 

to meet all eligibility requirements at the time of the award.21 Although 

awarding agencies are not required to do so, they can conduct additional 

eligibility checks at their discretion. 

The SBIR program consists of three phases.22 Applicants selected to 

receive SBIR funds, or awardees, must participate in Phase I of the 

program to participate in Phases II and III. The object of Phase I is for 

agencies to determine the scientific merit and feasibility of a proposal as 

well as the quality of an awardee’s performance.23 Generally, Phase I runs 

for 6 months, and awardees may receive up to $150,000 in SBIR funds.24 

After completing Phase I, awardees must apply to receive additional 

funding in Phase II. In Phase II, awardees continue the research and 

development of the project.25 Phase II applications must include a 

commercialization plan that may include market analyses, patent status, 

and/or plans to secure funding for Phase III.26 Phase II generally runs for 

2 years, and awardees may receive up to $1 million in additional SBIR 

funds.27 The SBIR program permits agencies to exceed the amount in the 

funding guidelines for Phases I and II if the additional amount is fully 

justified and scientifically appropriate.28 Agencies must provide SBA with 

written justification for all awards that exceed the amounts in the funding 

guidelines. This justification must be included in the agency’s annual 

report to SBA on the SBIR program.29 

19 Ibid., p. 7.
 20 HHS, SBIR Application Guide, p. III-27. Accessed at 

http://grants.nih.gov/grants/funding/424/SF424_RR_Guide_SBIR_STTR_Adobe_VerB.p 

df on October 26, 2011. 21 If an awardee becomes ineligible after receiving an award, the award may continue at 

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

allowed to compete for new SBIR awards after becoming ineligible. 

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

information.) 

23 Ibid., p. 9.
 24 Ibid., p. 17.
 25 Ibid., p. 9.
 26 Ibid., p. 14.
 27 Ibid., p. 17.
 28 NIH, NIH Grants Policy Statement (October 2010), p. IIB-254. Accessed at 

http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on April 17, 2013. 

29 SBA, 2011 SBIR Program Policy Directive, p. 17. (See footnote 2 for URL 

information.) 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 4 
 

 

 

In Phase III, awardees do not apply for or receive SBIR funding but 

instead seek non-SBIR Federal funds or private funds to pursue 

commercialization of products or services resulting from Phase I and II 

research and development.30, 31 Figure 1 illustrates the three phases of the 

SBIR program. 

Figure 1: SBIR Program Phases 

Phase I 

6 Months 

SBIR awardees 

establish proposal

feasibility and are 

awarded up to 

$150,000. 

Phase II 

2 Years 

SBIR awardees 

continue research 

and development

from Phase I and are 

awarded up to 

$1,000,000. 

Phase III 

No Timeframe 

SBIR awardees 

attempt to

commercialize their 

products and

services and do not 

receive SBIR 

funding. 

Source: OIG analysis of 2011 SBIR Program Policy Directive. 

The SBIR Program Within HHS 

Four HHS OpDivs issue SBIR awards: NIH, the Centers for Disease 

Control and Prevention (CDC), the Food and Drug Administration (FDA), 

and the Administration for Children and Families (ACF). 

Unlike most other agencies that make awards under the SBIR program, 

HHS does not have a single office responsible for overseeing its OpDivs’ 

respective SBIR programs.32 Because NIH makes most of HHS’ SBIR 

awards, NIH solicits SBIR proposals for all participating HHS OpDivs, 

manages the scientific review of all HHS SBIR applications, and submits 

an annual HHS SBIR report to SBA on behalf of all four HHS OpDivs.33 

HHS uses grants and contracts to award SBIR funds and uses a different 

review process for the two types of awards. Once they have received all 

HHS SBIR grant applications, external peer reviewers in NIH’s Center for 

30 Ibid., pp. 9–10. See also SBA, SBIR. Accessed at http://www.sbir.gov/about/aboutsbir on April 22, 2013. 31 Phase I awardees may advance to Phase III and receive non-SBIR funds without 

participating in Phase II. 

32 SBA’s SBIR Policy Directive assumes that each participating agency has an SBIR 

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

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

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

Department of Energy, the Department of Homeland Security, NASA, and the National
 

Science Foundation each have an SBIR program manager or coordinator.
 33 NIH manages the review of SBIR grant applications on behalf of all OpDivs, but CDC
 

independently evaluates its SBIR contract proposals. CDC awarded five contracts in
 

2011. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 5 
 

 

 

 

 

 

 

Scientific Review evaluate the scientific merits of the proposed projects.34 

After receiving reviewers’ scores and comments on the strengths, 

weaknesses and budget of the proposed project, each OpDiv considers 

NIH’s scientific assessment and the OpDiv’s research and development 

needs to select which projects to fund.35 

A technical evaluation panel assesses SBIR contract proposals according 

to requirements in the Federal Acquisition Regulations and the HHS 

Acquisition Regulations.36 The panel makes recommendations related to 

the proposed research and budget. Program staff then conduct a second 

level of review before awarding a contract.37 

To help SBIR awardees commercialize products or services, agencies may 

also use SBIR funds to provide technical assistance to awardees in 

drafting and executing a commercialization plan.38 NIH has two technical 

assistance programs for SBIR awardees; for both, awardees must apply 

and be selected to participate. The Niche Assessment Program helps 

selected Phase I awardees identify the most appropriate market for their 

products or services.39 The Commercialization Assistance Program is for 

selected Phase II awardees that may need help transitioning their 

innovations from the research and development phase to the marketplace.40 

NIH maintains a page on its Web site where SBIR awardees can selfreport commercialization of products and services. Other HHS OpDivs do 

not participate in structured commercialization assistance plans, but 

awardees may request technical assistance from their respective awarding 

OpDivs. 

HHS Oversight of the SBIR Program 

Each HHS OpDiv is responsible for overseeing its awards. Oversight 

includes ensuring that awardees meet eligibility requirements and that 

awards are not duplicative. 

34 NIH, NIH Grants Policy Statement (October 2010), pp. I-49–I-53. Accessed at 

http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on October 7, 2011. 35 NIH, Peer Review Process. Accessed at http://grants.nih.gov/Grants/peer_review_ 

process.htm on May 17, 2013. 36 NIH and CDC are the only HHS OpDivs that award SBIR contracts. These OpDivs 

use a joint guidance document for reviewing SBIR contract proposals. HHS, Solicitation 

of NIH and CDC for SBIR Contract Proposals, PHS 2013-1. Accessed at 

http://grants.nih.gov/grants/funding/SBIRContract/PHS2013-1.pdf on November 25, 

2013. 

37 Ibid., pp. 25–26. 38 SBA, 2011 SBIR Program Policy Directive, p. 21. (See footnote 2 for URL 

information.) 

39 NIH, Niche Assessment Program. Accessed at 

http://grants.nih.gov/grants/funding/nap.htm on October 21, 2011. 40 NIH, Commercialization Assistance Program. Accessed at 

http://grants.nih.gov/grants/funding/cap/index.htm on October 21, 2011. 

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Ensuring That Awardees Are Eligible. Before receiving an award, SBIR 

awardees must certify that they intend to meet all eligibility requirements 

at the time of the award. Although they are not required to do so, HHS 

OpDivs can conduct additional eligibility checks before funding an award. 

Further, if an HHS OpDiv is uncertain whether an applicant meets the 

SBIR eligibility requirements, it may request a “size determination” from 

SBA.41 SBA size determinations generally focus on the number of 

employees and size of affiliates, but SBA also collects information 

relevant to other eligibility requirements during this process.42 

Additionally, NIH uses what it calls “Just-in-Time” procedures to request 

additional information from applicants after an application has been peer 

reviewed and is being considered for funding. This information may 

include documents relevant to an applicant’s eligibility.43 These 

procedures are specific to NIH grant awards. 

If an SBIR applicant submits a false certification of eligibility, OpDivs 

follow standard procedures for reporting grant fraud and abuse that may 

include actions up to and including pursuing criminal charges with the 

Department of Justice.44 If an entity knowingly submits a false claim and 

receives government funds, it is liable for three times the government’s 

damages plus civil penalties.45 

Ensuring That Awards Are Not Duplicative. Applicants may propose the 

same project to multiple agencies. However, agencies must avoid funding 

essentially equivalent, or duplicative, work under SBIR and other Federal 

programs.46 If an applicant receives funding from one agency, the 

applicant must withdraw the application(s) from any other agencies to 

which it applied. If the applicant does not withdraw the other 

application(s), it may subsequently receive duplicative funding. 

41 NIH, NIH Grants Policy Statement (October 2010), p. IIB-251. Accessed at 

http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on October 7, 2011. 42 SBA, Guide to Size Standards. Accessed at http://www.sba.gov/content/guide-sizestandards on April 24, 2013. See also SBA Form 355. Accessed at 

http://www.sba.gov/sites/default/files/SBA%20%20Form%20355.pdf on April 24, 2013. 43 NIH, NIH Grants Policy Statement (October 2010), pp. I-54–I-55. Accessed at 

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

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

from the Human Subjects Assurance and Institutional Review Board and/or approval
 

from the Institutional Animal Care and Use Committee. 

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

18 U.S.C. § 641. 

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

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

information.) 

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Duplicative funding can also occur if an awardee receives funding for the 

same project in multiple years. 

To manage awardee data, and in part to avoid duplicative funding, NIH 

stores data on HHS SBIR awardees and their projects in its IMPAC II and 

NIH Data Warehouse databases, which contain information for all HHS 

awards.47 CDC, FDA, and ACF provide data on their SBIR awardees to 

NIH to be included in these databases and can search the databases to 

avoid funding duplicative work within HHS. NIH is responsible for 

providing all of HHS’s SBIR data to SBA through the SBIR.gov database. 

Before granting an award, each OpDiv is also required to check SBIR.gov 

to ensure that applicants have not been previously funded by HHS or other 

Federal agencies for duplicative projects.48 NIH requires applicants to 

self-disclose other active and pending financial support (e.g., other grants 

or contracts) as part of its “Just-in-Time” procedures.49 NIH does not 

require applicants to provide information on past awards. Further, NIH 

does not independently verify that applicants disclosed all other active and 

pending financial support. 

Previous OIG Work 

In 1999, OIG determined that NIH did not track and assess awardees’ 

commercialization of SBIR products and services. NIH generally agreed 

with OIG’s recommendations to improve its tracking and assessment of 

SBIR commercialization data. NIH also stated that it was developing a 

methodology to link the significant investments that NIH has made in the 

SBIR program to specific and measurable outcomes.50 

METHODOLOGY 

We used NIH’s Research Portfolio Online Reporting Tools (RePORT) 

Web site and SBA’s SBIR.gov database to obtain and assess information 

on SBIR-funded projects as of March 12, 2012, for fiscal year (FY) 

47 NIH, Query, View, and Report. Accessed at http://era.nih.gov/nih_and_grantor_ 

agencies/other/query_view_and_report.cfm on October 22, 2013. 48 SBA, 2011 SBIR Program Policy Directive, p. 21. (See footnote 46 for URL 

information.) The 2011 SBIR Program Policy Directive instructs agencies to use a 

database called Tech-Net to check for duplicative funding. However, OpDivs review 

information on SBIR.gov, which contains all Tech-Net data. The 2012 SBIR Program 

Policy Directive requires agencies to develop policies and procedures to avoid funding 

duplicative work, which could include searching Tech-Net or SBIR.gov. SBA, 2012 

SBIR Program Policy Directive. Accessed at http://documents.scribd.com.s3. 

amazonaws.com/docs/6c90n43wxs1wmoxi. pdf?t=1351707349 on July 31, 2013. 

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

http://grants.nih.gov/grants/policy/nihgps_2010/nihgps_2010.pdf on October 7, 2011. 50 OIG, Review of the Effectiveness of the National Institutes of Health’s Administration 

of the Small Business Innovation Research Program, A-15-98-00031, November 1999. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 8 
 

 

2011.51 We selected a sample of Phase I and II awardees from each HHS 

OpDiv. We also collected SBIR award data from each of the four 

participating HHS OpDivs and requested documents (e.g., internal policies 

or procedures) to determine the extent to which each of these OpDivs 

oversees its SBIR awards. We report data HHS-wide and for specific 

OpDivs, as appropriate. 

The SBIR program was reauthorized in December 2011. To incorporate 

changes from the reauthorization, SBA issued a new Policy Directive in 

October 2012, after our data collection concluded in May 2012. For this 

report, we reviewed SBIR awards administered under SBA’s previous 

Policy Directive. Changes in the 2012 Policy Directive do not affect the 

results of our review. 

Data Collection and Analysis 

We collected and analyzed data to describe HHS SBIR expenditures in 

2011 and to determine the extent to which HHS OpDivs tracked and 

assessed the commercialization of SBIR products and services. We also 

determined the extent to which HHS OpDivs ensured that awardees were 

eligible and that awards were not duplicative. 

Determining the Extent to Which HHS OpDivs Tracked and Assessed the 

Commercialization of SBIR Products or Services. We analyzed the 

responses to our requests for information and supporting documentation to 

determine the extent to which each HHS OpDiv evaluated the 

commercialization of SBIR awardees’ products and services. We 

reviewed NIH’s Niche Assessment and Commercialization Assistance 

Program data to determine the number of participants for which 

commercialization data was collected. We also determined how many 

SBIR awardees have self-reported success stories on NIH’s Web site since 

2001. 

Determining the Extent to Which HHS Ensured That SBIR Awardees Were 

Eligible. Using the data we received in response to our requests, we 

determined the extent to which HHS OpDivs verified and had written 

procedures to verify applicant eligibility beyond self-certification. We 

also asked SBA whether any HHS OpDivs had requested its assistance in 

determining eligibility. 

To determine the extent to which HHS OpDivs ensured that SBIR 

awardees met eligibility requirements, we selected a random sample of 

51 RePORT is a publically available site that provides access to reports, data, and analyses 

of NIH research activities, including information on NIH awards. NIH, The ReSource, 

Issue 1 (no date; circa 2010–2011). Accessed at http://report.nih.gov/resource/issue1/ on 

December 5, 2013. 

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137 SBIR awards, stratified by OpDiv. The number of awards that CDC 

and FDA granted in 2011 was small in comparison to that of NIH.52 

Therefore, we included all awards from CDC and FDA to ensure that 

awards from these OpDivs were included in our sample. Table 1 shows 

the sample of awards used to analyze eligibility by stratum and the 

population of 2011 awards. This stratified random sample is projectable to 

all 2011 HHS SBIR awards.53 

Table 1: Sample and Population of 2011 SBIR Awards

Stratum 

Awards in 

Sample 

Award Amount 

in Sample 

Awards in 

Population 

Award Amount 

in Population 

NIH 100 $40,768,573 957 $353,529,688 

CDC 26 $4,889,690 26 $4,889,690 

FDA 11 $1,479,428 11 $1,479,428 

Total 137 $47,137,691 994 $359,898,806 

 Source: OIG analysis of SBIR awardees reported by HHS OpDivs. 

See Appendix B for a detailed methodology of our process for verifying 

awardee eligibility. 

Determining the Extent to Which HHS OpDivs Ensured That SBIR Awards 

Were Not Duplicative. We used the responses to our information requests 

to determine the extent to which HHS reviewed SBIR awards for 

duplicative funding. We used the stratified random sample of 137 HHS 

SBIR awards described in Table 1 to determine whether any projects were 

listed multiple times in NIH databases using RePORT. 

All estimates in this report are projected to the specified population or 

subpopulation of 2011 SBIR awards, at the 95-percent confidence level. 

Appendix C shows the sample size, point estimates, and 95-percent 

confidence intervals for all statistics in this report. 

Limitations 

We did not independently verify data reported by HHS and SBA. 

Additionally, some Web sites used to verify awardees’ eligibility contained 

self-reported data submitted voluntarily. We did not independently verify 

information reported on these Web sites, and we did not attempt to verify 

awardees’ eligibility through other means if they had no information on 

these Web sites. 

52 ACF allowed NIH to award ACF’s 2011 SBIR funds, totaling $395,770. NIH, SBIR 

Program Annual Report to the U.S. Small Business Administration. 53 To project our findings, we weighted each sample statistic by the total number of
 

awards from each stratum, or OpDiv. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 10 
 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 11 
 

 

 

 

 

FINDINGS 

HHS awarded $360 million in SBIR funds to nearly

1,000 awardees in 2011 

In 2011, HHS funded 994 Phase I and II SBIR awards for a total of 

$360 million, second to only the Department of Defense in the amount of 

SBIR funding among Federal agencies.54 This amount does not reflect 

HHS’ total SBIR expenditures in 2011 because it does not include SBIR 

funds used in 2011 for awards funded in previous years. According to its 

annual report to SBA, HHS obligated $617 million for all SBIR 

expenditures in 2011.55 NIH awarded 957 of HHS’ 994 SBIR awards in 

2011, which amounted to $353.5 million, or 98 percent of all HHS SBIR 

dollars. 

Agencies are permitted to exceed SBIR funding guidelines if they submit 

written justification in their annual report to SBA. In 2011, 

528 (53 percent) of HHS’ SBIR awards exceeded the amounts in the 

funding guidelines, totaling nearly $170 million in funds over the 

guideline amounts.56 In its annual report to SBA, HHS included one 

general justification for all awards that exceeded the amounts in the 

funding guidelines. 

On average, HHS Phase I awards exceeded funding guidelines by 

$111,819, ranging from $43 to $1.6 million in excess. Phase II awards 

exceeded guidelines by an average of $301,584, ranging from $7,031 to 

$2 million in excess. Further, for FYs 2009–2011, HHS’ average award 

amounts for Phase I and II awards exceeded the average SBIR award 

amount across the Federal Government by $121,000 and $568,000, 

respectively.57 HHS had the highest average award amount for Phase I 

and II awards during this period. 

See Figure 2 for a comparison of average HHS awards and average awards 

for the 10 other participating agencies. 

54 The Department of Defense awarded 2,754 awards for a total of $1.04 billion in 2011. 

Department of Defense, Department of Defense SBIR Annual Summary Report. 

Accessed at http://www.dodsbir.net/annualreport/annrpt.html on April 8, 2013. 55 HHS, SBIR Program Annual Report to the U.S. Small Business Administration. 56 Phase II awards span 2 or more years. For this portion of our data analysis, we
 

included the Phase II amount awarded for FY 2011.
 57 SBA, SBIR and STTR Annual Report, FY-2009–2011, p. 7. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 12 
 

 

 

Figure 2: Average Award Amounts for HHS and All Other Participating 

Agencies, FY 2011 

$251,000 

$1,388,000 

$100,400 

$606,200 

$0 

$200,000 

$400,000 

$600,000 

$800,000 

$1,000,000 

$1,200,000 

$1,400,000 

$1,600,000 

Phase I Phase II 

HHS All Other Agencies 

Source: OIG analysis of SBA’s SBIR and STTR Annual Report for FY 2009-2011 

Although HHS OpDivs are not required to collect 

information on the commercial success of SBIR 

awards, one of the four OpDivs did so 

One goal of the SBIR program is to increase the commercialization of 

federally funded research. However, SBA does not require agencies to 

track the commercial success of SBIR projects. Further, at the time of this 

review, SBIR awardees were not required to report commercialization data 

(e.g., patents acquired, products and services developed and sold to 

companies or the general public) to OpDivs.58 Without consistent tracking 

or an assessment of commercial success, HHS cannot determine whether 

the SBIR program is meeting its commercialization goal. Although 

NIH—which awards the bulk of HHS’s SBIR funds—collects information 

on the commercial success of awards, the other three HHS OpDivs that 

made SBIR awards did not. Furthermore, the information that NIH 

collects is limited in scope. 

58 SBA’s 2012 Policy Directive establishes a Commercialization Database to store 

information reported by awardees on the commercial activity resulting from their past 

SBIR awards. SBIR awardees are required to update information on their prior Phase II 

awards in the Commercialization Database when submitting an application for an SBIR 

Phase II award and upon completion of the last deliverable for that award. However, 

awardees are not required to update this information if they do not apply for a second 

Phase II award. SBA, 2012 Policy Directive, pp. 44–45. Accessed at 

http://documents.scribd.com.s3.amazonaws.com/docs/6c90n43wxs1wmoxi.pdf?t=13517 

07349 on July 31, 2013. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 13 
 

 

 

 

 

None of the HHS OpDivs had a comprehensive, standardized data 

collection system to track the commercialization of products and services 

resulting from SBIR awards. NIH collects limited information on the 

commercial success of SBIR awards. Specifically, it uses survey data 

stored in the Performance Outcomes Database System (PODS) to assess 

commercial outcomes. However, the information in PODS is based solely 

on two surveys (conducted in 2002 and 2008) of Phase II NIH SBIR 

awardees.59 Further, responses to the surveys were voluntary.60 NIH also 

uses PODS to store Commercialization Assistance Program outcome data 

(e.g., estimated cumulative sales, number of awardees receiving additional 

non-SBIR funding) that it collects throughout an awardee’s time in the 

program.61 However, providing data is voluntary and limited to the 

relatively low number of Commercialization Assistance Program 

participants (39 of 203 Phase II awardees in 2011).62 Because NIH 

received only limited and inconsistent data from program participants, it 

does not use PODS data as a metric to judge the commercial success of 

SBIR projects. 

As of 2011, NIH did not collect commercialization data from Niche 

Assessment Program Participants. Of the 12,836 SBIR awards funded 

since 2002, 99 awardees (less than 1 percent) reported commercialization 

of products and services on the NIH Web site.63 

Although all SBIR awardees certified their eligibility,

31 percent of awardees had questionable or unverified 

eligibility for at least one requirement 

Applicants are required to check a box on the electronic SBIR application 

certifying that they intend to meet all of the SBIR program’s eligibility 

59 In 2004, 2005 and 2007, NIH followed up with awardees selected to participate in the 

original 2002 survey and updated the information stored in PODS. NIH, Report on the 

2007 Outcome Measures Update, p. 1. Accessed at http://grants.nih.gov/grants/ 

funding/sbir_pods_final_rpt_2007.pdf on September 4, 2013. 60 NIH, National Survey to Evaluate the NIH SBIR Program (January 2009), p. I-3. 

Accessed at http://grants.nih.gov/grants/funding/sbir_2008surveyreport.pdf on April 22, 

2013. 

61 Sally J. Rockey, Ph. D., Deputy Director for Extramural Research, NIH, SBIR: 

Defining Metrics and Outcomes of Success. July 2012. Accessed at 

http://smrb.od.nih.gov/documents/presentations/2012/rockey_07112012.pdf on April 17, 

2013. 

62 SBIR awardees that received Phase II awards before 2006 were not eligible to 

participate in the Commercialization Assistance Program. NIH, Commercialization 

Assistance Program for Phase II Awardees. Accessed at 

http://grants.nih.gov/grants/funding/cap/more_on_cap.htm on January 7, 2013. 63 The NIH Web site includes self-reported data from SBIR and STTR awardees. When 

we reviewed the self-reported data, we were unable to determine in which of the two 

programs the awardees were participating. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 14 
 

 

 

 

requirements at the time of the award. If an OpDiv is uncertain whether 

an applicant’s certification is accurate, it may, but is not required to, 

independently verify the applicant’s eligibility or request that SBA assist 

with determining eligibility. 

In 2011, all SBIR awardees self-certified that they intended to meet 

eligibility requirements at the time of the award. Using data sources 

commonly used by other Federal agencies to identify potentially ineligible 

SBIR awardees, we found that 31 percent of awardees had questionable 

eligibility for at least one requirement (16 percent of awardees) or 

unverified eligibility for at least one requirement (20 percent of awardees). 

Six percent of SBIR awardees in 2011 had questionable eligibility for at 

least one requirement and unverified eligibility for at least one other 

requirement.64 Although they are not required to do so, HHS OpDivs did 

not take any steps to independently verify that these awardees met 

eligibility requirements.65 

Sixteen percent of awardees had questionable eligibility for at 

least one requirement 

We found information indicating that 16 percent of SBIR awardees in 

2011 may not have met at least one eligibility requirement. Therefore, we 

considered the eligibility of these awardees to be questionable. Table 2 

shows the number of awardees in our sample that had questionable 

eligibility for each requirement. 

64 The percentage of awardees with questionable eligibility for at least one requirement, 

unverified eligibility for at least one requirement, and both questionable and unverified 

eligibility does not sum to 31 because of rounding. 65 NIH requested SBA assistance with determining eligibility for 4 of the nearly 

1,000 awardees in 2011. However, none of these four awardees were in our sample of 

2011 SBIR awards. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 15 
 

Table 2: Eligibility Requirements and Corresponding Numbers of 

Awardees in Our Sample With Questionable Eligibility, 2011 

Eligibility Requirement 

Number of Awardees in 

Our Sample With 

Questionable Eligibility 

Principal Investigator’s primary employer was the SBIR awardee 21 

SBIR awardee had fewer than 500 employees 4 

SBIR awardee had a place of business and operated primarily in the 

United States 2 

SBIR company was for-profit 0 

Source: OIG analysis of HHS SBIR awardees, 2012 

The eligibility of 21 awardees in our sample was questionable because we 

found information indicating that the awardee was not the Principal 

Investigators’ primary employer. For example, one Principal Investigator 

for an award in our sample listed three positions on his LinkedIn profile at 

the time the SBIR award was made, including a full-time position at a 

university. This Principal Investigator was associated with one SBIR 

award in 2011 totaling $575,303. Another Principal Investigator for an 

award in our sample stated in her LinkedIn profile that she was the 

president of two companies and head of business development for a third 

company at the time of the SBIR award. This Principal Investigator was 

also listed as an employee on the three organizations’ Web sites. This 

Principal Investigator was associated with one SBIR award in 2011 

totaling $143,301. 

The eligibility of 4 awardees in our sample was questionable because we 

found information indicating that the awardees, or their affiliate(s), had 

more than 500 employees. One awardee in our sample was owned by a 

larger company with 7,200 employees and was awarded $582,698 in SBIR 

funds in 2011. 

The eligibility of two awardees in our sample was questionable because 

we found information indicating that the awardees did not maintain a U.S. 

place of business and/or did not operate primarily in the United States. 

One awardee’s Web site stated that many of its devices are made in the 

company’s location in Canada. This company received two awards for a 

total of $399,938 in SBIR funds in 2011. 

We did not find information indicating that any awardee in our sample was 

not organized as a for-profit entity. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 16 
 

Challenges exist in verifying the eligibility of 20 percent of 

SBIR awardees 

Twenty percent of SBIR awardees in 2011 had unverified eligibility for 

one or more of the four eligibility requirements—i.e., we could not find 

information in any of our searches to verify the awardee’s eligibility for 

the requirement(s). Two awardees in our sample had unverified eligibility 

for three requirements. There was one awardee in our sample for which 

we were unable to verify any of the four eligibility requirements. Table 3 

shows each eligibility requirement and the corresponding number of 

awardees in our sample with unverified eligibility. 

Table 3: Eligibility Requirements and Corresponding Numbers of 

Awardees in Our Sample With Unverified Eligibility, 2011 

Eligibility Requirement 

Number of Awardees in 

Our Sample With 

Unverified Eligibility 

Principal Investigator’s primary employer was the SBIR awardee 13 

SBIR awardee had fewer than 500 employees 14 

SBIR awardee had a place of business and operated primarily in the 

United States 6 

SBIR company was for-profit 3 

Source: OIG analysis of HHS SBIR awardees, 2012 

For 13 awardees in our sample, we were unable to verify that the awardee 

was the Principal Investigator’s primary employer. For these awardees, 

we were unable to find documentation confirming that the Principal 

Investigator was employed by the awardee. 

For 14 of the awardees in our sample in 2011, we were unable to verify 

that the company had fewer than 500 employees. For these awardees, we 

were unable to find documentation on LinkedIn, Manta, or other Web sites 

confirming the number of employees at the company or its affiliate(s). 

Further, we were unable to verify that six awardees in our sample had a 

place of business and operated primarily in the United States. For these 

awardees, we found documentation that the companies operated in foreign 

business locations and could not find documentation that the company 

operated primarily in the United States. 

Finally, we were unable to verify whether three awardees in our sample 

were for-profit companies. For these awardees, we were unable to find 

documentation confirming that the awarded company was a for-profit 

business. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 17 
 

 

 

 

HHS OpDivs did not perform a required check for 

duplicative awards across other Federal agencies 

Each Federal agency is required to check SBIR.gov for duplicative awards 

within the agency and across other Federal agencies before granting an 

SBIR award. Other agencies have identified awardees that committed 

fraud by not disclosing that they had received awards from other agencies 

for the same work.66 While NIH checks for duplicative funding within 

HHS, none of the four HHS OpDivs checked SBIR.gov for duplicative 

awards across Federal agencies in 2011. 

To check for duplicative funding within HHS, NIH reported that it 

compares SBIR applications to existing SBIR awards within HHS by 

searching IMPAC II, which contains information on HHS awards only.67 

NIH reported that no duplication within HHS occurred in 2011. We also 

did not identify any cases of duplicative awards within HHS. No other 

HHS OpDivs had procedures for performing checks for duplicative 

funding within HHS. 

None of the HHS OpDivs checked SBIR.gov for duplicative awards 

across Federal agencies, as required. NIH has procedures to perform 

limited checks for duplicative funding across Federal agencies. These 

checks, known as “Just-in-Time” procedures, require applicants to selfdisclose information on other active and pending financial resources, 

including other grants and contracts, before receiving an award. However, 

the procedures do not include steps to independently verify the 

information reported by applicants. No other HHS OpDivs had 

procedures for performing checks for duplicative funding across Federal 

agencies. 

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

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

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

See also, NASA, Review of NASA’s Management of its Small Business Innovation 

Research Program. Accessed at http://oig.nasa.gov/audits/reports/FY11/IG-11-010-

R.pdf on July 10, 2013. 67 IMPAC II is also available to CDC, but the OpDiv reported that it relies on applicants 

to disclose duplicate SBIR funding. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 18 
 

CONCLUSION AND RECOMMENDATIONS 

Since the implementation of the SBIR program in 1982, HHS has funded 

more than $8 billion in awards to small businesses pursuing innovative 

research ideas. Furthermore, the reauthorization of the SBIR program in 

December 2011 increased the percentage of SBIR funds awarded by 

participating agencies from 2.5 percent of their annual extramural research 

budgets in 2012 to 3.2 percent by 2017. 

In 1999, OIG reported that HHS had not evaluated the success of the SBIR 

program. Further, other Federal agencies have identified SBIR awardees 

that falsely certified that they met eligibility requirements and received 

duplicative funding. 

In 2011, HHS awarded $360 million in SBIR funds to nearly 

1,000 awardees and had the highest average SBIR award amount of any 

participating agency. However, HHS does not have a central office for 

overseeing the SBIR program. 

HHS did not consistently collect information on the commercial success of 

awards and therefore cannot determine whether the program is increasing 

the commercialization of federally funded research, one of the primary 

goals of the program. Additionally, all awardees in 2011 self-certified that 

they intended to meet SBIR eligibility requirements at the time of the 

award. However, using data sources commonly used by other Federal 

agencies to identify potentially ineligible SBIR awardees, we found that 

31 percent of awardees had questionable or unverified eligibility for at 

least one requirement. Although they are not required to do so, HHS 

OpDivs did not take any steps to independently verify the eligibility of 

these awardees. Furthermore, while one OpDiv checked for duplicative 

funding within HHS, none of the four OpDivs completed a required check 

for duplicative awards across other Federal agencies. 

Our findings raise concerns about vulnerabilities in the HHS SBIR 

program, including the inability to evaluate the program’s success and the 

reliance on self-reported information to determine whether awardees are 

eligible and are not receiving duplicative funding from other Federal 

agencies. 

Therefore, we recommend that HHS: 

Create a central office to oversee the SBIR program 

Unlike most other participating agencies, HHS does not have a central 

office responsible for overseeing the SBIR program. Each OpDiv is 

separately responsible for awarding SBIR funds and overseeing these 

awards. The 2012 SBIR Program Policy Directive requires HHS to 

increase its coordination with other participating agencies and with HHS’s 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 19 
 

 

OIG to prevent fraud, waste, and abuse in the SBIR program. HHS should 

create a central office to facilitate this coordination and to ensure 

consistent oversight among OpDivs. Central office functions could 

include coordinating with OIG, developing agencywide policies and 

procedures, increasing oversight, and fulfilling agency reporting 

requirements. A central office would also facilitate the consistent 

implementation of our remaining recommendations. 

Collect information to track and assess SBIR-funded projects’ 

commercialization 

SBA’s new Policy Directive requires awardees to report commercialization 

data to a central Commercialization Database. The implementation of this 

requirement is ongoing; however, while these data are unavailable, HHS 

OpDivs should develop processes to track commercialization of SBIR 

awardees. These processes should be consistent among OpDivs. OpDivs 

should use this information to determine whether the SBIR program is 

meeting its goal of increasing private-sector commercialization of Federal 

research and development innovations. 

Ensure compliance with SBIR eligibility requirements 

The 2012 SBIR Program Policy Directive requires agencies to ensure 

compliance with SBIR eligibility requirements. SBA requires that 

awardees meet eligibility requirements at the time of the award. HHS 

OpDivs should take actions to ensure that awardees will meet 

requirements before they receive SBIR funds. These actions could include 

implementing a standardized process for verifying that a random or riskbased sample of awardees meets all eligibility requirements at the time of 

the award and during the life cycle of the award. OpDivs could also 

require applicants to provide proof that they will meet eligibility 

requirements at the time of the award and request SBA assistance to verify 

awardee eligibility. 

Improve procedures to check for duplicative awards 

The 2012 SBIR Program Policy Directive requires agencies to develop 

policies and procedures to avoid funding duplicative work. HHS should 

develop procedures beyond the “Just-in-Time” procedures used by NIH. 

“Just-in-Time” procedures rely on self-reported information that does not 

allow HHS to determine whether awardees have completed similar 

projects in the past or whether multiple awardees are completing similar 

projects. The new procedures should be consistent across HHS OpDivs to 

ensure that all SBIR applicants receive the same scrutiny regarding 

duplicative awards. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 20 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

The Office of the Assistant Secretary for Financial Resources (ASFR) 

provides advice and guidance to the Secretary of HHS on grants and 

acquisition management and provided comments on behalf of HHS. 

ASFR stated that it is committed to the successful implementation and 

oversight of the SBIR program. ASFR did not indicate whether it 

concurred with each of our recommendations. However, ASFR agreed 

that additional coordination and oversight across the participating OpDivs 

is appropriate and warranted. ASFR further noted that it is working with 

the respective OpDivs to determine the most effective and efficient use of 

resources to accomplish this coordination. 

ASFR also agreed that HHS must ensure that applicants are in compliance 

with all SBIR eligibility requirements, noting that it will work with 

OpDivs to determine whether additional eligibility checks are required. 

However, ASFR stated that it has concerns about the official use of social 

media networking sites to verify applicant eligibility, and does not believe 

such sites are reliable sources of information for the purposes of 

confirming or questioning program eligibility. While we understand 

ASFR’s concern, these are tools commonly used by other Federal agencies 

to identify potentially ineligible SBIR awardees. 

We support ASFR’s efforts to address these issues and encourage it to 

continue making progress in these areas. We ask that, in its final 

management decision, ASFR clearly indicate whether it concurs with each 

of our recommendations and what steps, if any, it will take to implement 

them. For the full text of ASFR’s comments, see Appendix D. We made 

minor corrections to the report on the basis of ASFR’s technical 

comments. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 21 
 

 

 

APPENDIX A 

Table A-1: Differences in the 2011 and 2012 Small Business 

Innovation and Research Program Policy Directives 

Requirement 2011 SBIR Program Policy Directive 2012 SBIR Program Policy Directive 

Eligibility 

Majority-owned by multiple venture capital 

operating companies, hedge funds and/or 

private equity firms are not eligible. 

Majority-owned by multiple venture capital operating 

companies, hedge funds, and/or private equity firms 

are eligible, if agencies opt to include this provision. 

Eligibility 

Certification 

Awardees certify their eligibility at the time 

of the award. 

Awardees certify their eligibility throughout the life 

cycle of the award. 

Exceeding Funding 

Guidelines 

Agencies may exceed funding guidelines if 

the additional amount is fully justified and 

scientifically appropriate. 

Agencies must submit written justification 

of the excess funds with their Annual 

Reports to SBA. 

Agencies may not exceed funding guidelines by 

more than 50 percent. Agencies must request a 

waiver to exceed funding guidelines by more than 

50 percent for a specific topic. 

Agencies must maintain information on awards that 

exceed funding guidelines, including the amount of 

the award, justification for exceeding the guidelines 

for each award, the identity and location of the 

awardee, whether the awardee has received any 

venture capital, hedge fund, or private equity firm 

investment, and whether the awardee is 

majority-owned by multiple venture capital operating 

companies, hedge funds, or private equity firms. 

Commercialization 

Data 

Agencies are not required to collect or 

track commercialization data. Awardees 

may voluntarily submit and update 

commercialization data. 

Agencies and awardees must maintain 

commercialization data in the Commercialization 

Database. Awardees are required to update 

commercialization data for prior Phase II awards 

when applying for a subsequent Phase II award. 

 Source: OIG analysis of 2011 and 2012 SBIR Program Policy Directives. 

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APPENDIX B 

Detailed Methodology for Verifying Awardee Eligibility 

For our sample of 137 SBIR program awards, we verified awardee 

eligibility using the Lexis/Nexis Accurint for Government (Accurint) 

database, State Business Registration Web sites, and awardee Web sites.68 

We used additional Web sites (e.g., Manta, LinkedIn) to collect 

information not available from the sources referenced above.69, 70 We 

chose these sources to verify awardee eligibility because these are tools 

commonly used by other Federal agencies to identify potentially ineligible 

SBIR awardees.71 We classified awardees as having “verified” eligibility 

if we could determine—using these data sources—that the awardees met 

all four eligibility requirements. If at least one data source indicated that 

an awardee met a given eligibility requirement, we considered that 

requirement to be verified. We classified awardees as having 

“questionable” eligibility if we found information indicating that they may 

not meet one or more of the four eligibility requirements. We classified 

awardees as having “unverified” eligibility if we could not find 

information in any of our data sources indicating that awardees met one or 

more of the four eligibility requirements.72 

To verify awardee eligibility, we searched for the following information 

indicating that the awardee: 

1) Was the Principal Investigator’s primary employment. We used 

Accurint, Principal Investigators’ profiles on LinkedIn, and other 

Internet searches to verify that the Principal Investigator was primarily 

employed by the awardee and did not have additional full-time 

68 Accurint is a database that collects a broad array of public records on businesses and 

individuals. For personal searches, Accurint contains information on Social Security
 

numbers, driver’s licenses, and professional licenses. Accurint can also reveal
 

connections between people, businesses, assets, and locations that are not available in 

public records. For business searches, Accurint draws from corporate filings, property
 

information, phone listings, professional licenses, and Securities and Exchange
 

Commission filings, among other data. Information on property assets and court
 

proceedings is also available both for individuals and businesses.
 69 Manta is an online community for promoting and connecting small businesses that 

contains approximately 87 million company profiles. Company profiles include 

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

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

and representatives of the company). 

70 LinkedIn is an online professional networking tool. Registered members create 

individual profiles containing information about current and past employment, education,
 

and other professional interests, or company profiles containing general information 

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

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

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

deviations from eligibility requirements. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 23 
 

 

 

 

 

 

employment at the time of the award. We considered whether the 

dates of employment on LinkedIn were during the award period. We 

considered an awardee’s eligibility questionable if we found 

information indicating that the Principal Investigator was primarily 

employed at another company or institution at the time of the award. 

We determined that we could not verify whether an awardee met this 

requirement if we could not find information indicating that he or she 

was employed by the awardee. 

2)	 Had fewer than 500 total employees, including affiliates. We used 

awardee profiles on LinkedIn and Manta and other Internet searches to 

verify that awardees had fewer than 500 employees. We considered an 

awardee’s eligibility to be questionable if we found information 

indicating that the awardee had more than 500 employees or was 

affiliated with an entity with more than 500 employees.73 We 

determined that we could not verify whether an awardee met this 

eligibility requirement if we could not find any information on an 

awardee’s and/or affiliate’s number of employees. 

3)	 Has a place of business and operates primarily in the U.S. We used 

Accurint, company profiles on LinkedIn and Manta, State Business 

Registration Web sites, and additional Internet searches to verify that 

awardees had U.S. locations and/or operated primarily in the 

United States. We considered an awardee’s eligibility questionable if 

we found information indicating that the awardee operated primarily in 

a foreign location. We determined that we could not verify that 

awardees met this requirement if we found information indicating that 

the awardee had foreign locations and we could not verify that it 

operated primarily in the United States. We did not consider 

contributions to the U.S. economy in this analysis. 

4)	 Was a for-profit entity. We used the Accurint and State Business 

Registration Web sites to verify that awardees were for-profit entities. 

We considered an awardee’s eligibility questionable if we found 

information indicating that the awardee was a not organized as a 

for-profit entity at the time of the award. We determined that we could 

not verify that awardees were for-profit entities if we could not find 

information to confirm the type of entity. 

73 In determining whether affiliation exists, SBA considers factors such as ownership, 

management, previous relationships with or ties to another concern, and contractual 

relationships. However, we considered an awardee to be affiliated with an entity only if 

we found information explicitly stating that the awardee was owned and/or operated by 

the entity. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 24 
 

 

 

 

 

 

 

 

APPENDIX C 

Table C-1: Estimate Descriptions, Sample Sizes, Point Estimates, and 

Confidence Intervals 

Estimate Description Sample 

Size 

Point 

Estimate* 

Confidence 

Interval 

Awardees With Verified Eligibility (i.e., we determined that the awardee 

was meeting all four eligibility requirements) 137 69% 55.6%--83.2% 

Awardees With Questionable Eligibility (i.e., we found information 

indicating that the awardee was not meeting one or more of the following 

eligibility requirements) 

137 16% 5.4%--27.1% 

Awardees With Unverified Eligibility (i.e., we could not determine whether 

the awardee was meeting one or more of the following eligibility 

requirements) 

137 20% 8.6%--31.3% 

Awardees with both a questionable and unverified eligibility requirement 137 6% 0.3%--11.1% 

* Weighted point estimates are provided rather than point estimates and confidence intervals because of small sample sizes. Each sample 

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

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

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 25 
APPENDIX D 

Agency Comments 

DEI';\RTMENT OF HEALTH & HUM!\1\ SERVICTS Office of the Secretary 

Washington, D.C. 20201 

~t\R 1 0 2014 

TO: Daniel R. Levinson 

Inspector General 

FROM: Ulen G. Murray 

Assistant Secretary fod'inancial Resources and Chief Financial Officer 

SUB.JECT: I11-IS Comments on OIG Draft Report: Vulnerabilities in the HHS Small Business 

Innovation ami Research Program. OEJ-04-!1-00530 

The Department of Health and Human Services' Office of the Assistant Secretary for Financial 

Resources (ASFR) appreciates the opportunity to review and comment on the Office oflnspector 

General's draft report on Vulnerabilities in the HHS Small Business Innovation and Research 

Program, OEI-04-1!-00530. 

ASFR values the Small Business Innovation and Research Program (SBIR) and is committed to 

the successful implementation and oversight of the program. As reported, the National institutes 

of Health (NIH) awards the vast majority of the SBlR awards. NIH also serves an important 

function of coordinating much of the program with the other participating Operating Divisions. 

This approach has been successful in ensuring that the Operating Divisions work together to 

implement the requirements of the SBIR Program Policy Directive and the Small Business Act. 

ASFR concurs with the OIG that additional coordination and oversight across the participating 

Operating Divisions is appropriate and warranted. ASFR is currently working with the 

respective Operating Divisions to determine the most effective and efficient use of resources to 

accomplish this coordination. We will provide the OIG with an update on these efforts as they 

progress. 

ASFR also agrees that we must ensure that applicants are in compliance with all SBIR eligibility 

requirements. I lowever, ASFR has concerns about the official use ofwebsites such as Manta and 

LinkedIn and other similar sites to verify applicant eligibility. These sites, in particular, are 

social media networking sites; they are not government owned or controlled. The accuracy. 

completeness. and currency of the content are at the discretion ofthe user. There is no validation 

or quality control of any of the data at these sites. Therefore, ASFR believes that such sites are 

not reliable sources of information for the purposes of the government confirming or questioning 

eligibility for its programs. ASFR will work with the respective Operating Divisions to 

determine if additional, appropriate checks are required on eligibility. We will provide the OIG 

with an update on these efforts as they progress. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 26 
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Dwayne Grant, Regional 

Inspector General for Evaluation and Inspections in the Atlanta regional 

office, and Jaime Durley, Deputy Regional Inspector General. 

Sarah Langford served as lead analyst. Office of Evaluation and 

Inspections staff from the Atlanta regional office who conducted this study 

include Sarah McLaulin. Central office staff who provided support 

include Clarence Arnold, Christine Moritz, and Talisha Searcy. 

Vulnerabilities in the HHS Small Business Innovation Research Program (OEI-04-11-00530) 27 
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.