SMALL BUSINESS 

RESEARCH PROGRAMS

Agencies Did Not 

Consistently Comply with 

Spending and Reporting 

Requirements

Statement of John Neumann, Acting Director,

Natural Resources and Environment

Testimony

Before the Committee on Small 

Business and Entrepreneurship,

U.S. Senate

For Release on Delivery 

Expected at 9:30 a.m. PT

Thursday, April 24, 2014

GAO-14-567T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-567T, a testimony 

before the Committee on Small Business and 

Entrepreneurship, U.S. Senate

April 24, 2014

SMALL BUSINESS RESEARCH PROGRAMS

Agencies Did Not Consistently Comply with Spending 

and Reporting Requirements

Why GAO Did This Study

Federal agencies have awarded more 

than 156,000 contracts and grants, 

totaling nearly $40 billion through the 

SBIR and STTR programs to small 

businesses to develop and 

commercialize innovative technologies. 

The Small Business Act mandates that 

agencies, with extramural R&D 

budgets that meet the thresholds for 

participation, must spend a percentage

of these annual budgets on the two

programs. The agencies are to report

to SBA and SBA is to report to 

Congress. 

This testimony is based on a report 

GAO issued in September 2013 and 

addresses for fiscal years 2006 

through 2011, (1) the extent to which 

participating agencies complied with 

program spending requirements, (2) 

the extent to which participating 

agencies and SBA complied with 

certain reporting requirements, (3) the 

potential effects of basing the spending 

requirements for the SBIR and STTR 

programs on agencies’ total R&D 

budgets instead of their extramural 

R&D budgets, and (4) what is known 

about the amounts participating 

agencies spent for administering the 

programs. For that report, GAO 

reviewed agency calculations of 

spending requirements and required 

reports, and interviewed SBA and 

participating agency officials.

What GAO Recommends

GAO is not making any new 

recommendations, but made several to 

SBA in GAO’s 2013 report on this 

topic. SBA agreed with those

recommendations and is taking steps 

to implement them.

What GAO Found

Using data agencies had reported to the Small Business Administration (SBA), 

GAO found in its 2013 report that 8 of the 11 agencies participating in the Small 

Business Innovation Research (SBIR) program and 4 of the 5 agencies 

participating in the Small Business Technology Transfer (STTR) program did not 

consistently comply with spending requirements for fiscal years 2006 to 2011. 

SBA, which oversees the programs, provided guidance in policy directives for 

agencies on calculating these requirements, but the directives did not provide 

guidance on calculating the requirements when appropriations are late and 

spending is delayed. Some SBIR and STTR program managers told GAO that it 

can be difficult to spend the required amount because delays in receiving final 

appropriations can delay agencies’ awarding of contracts. As GAO found in its 

2013 report, when appropriations were received late in the year agencies used 

differing methodologies to calculate their spending requirements, which made it 

difficult to determine whether agencies’ calculations were correct. GAO found 

that, without further SBA guidance, agencies would likely continue calculating 

spending requirements in differing ways.

GAO also found in 2013 that the participating agencies and SBA had not 

consistently complied with certain program reporting requirements. For example, 

participating agencies did not itemize each program excluded from the 

calculation of their extramural research or research and development (R&D) 

budgets and explain why the program was excluded, as required. (Extramural 

R&D is generally conducted by nonfederal employees outside of federal 

facilities.) Also, SBA’s annual reports to Congress that were available at the time 

of GAO’s review contained limited analysis of the agencies’ methodologies, often 

not including information on particular agencies. By providing more analysis of 

the agencies’ reports, as GAO recommended in its 2013 report, SBA can provide 

information to Congress on the extent to which agencies were reporting what is 

required.

In 2013, GAO found that the potential effects of basing each participating 

agency’s spending requirement on its total R&D budget instead of its extramural 

R&D budget would increase the amount of the spending requirement—for some 

agencies more than others, depending on how the change was implemented. 

Also, if the thresholds of the spending requirements for participation in the 

programs did not change, changing the base to an agency’s total R&D budget 

would increase the number of agencies required to participate.

In addition, GAO found in 2013 that the agencies’ cost of administering the 

programs could not be determined because the agencies had not consistently 

tracked costs as they were not required to do so by the authorizing legislation of 

the programs. Estimates agencies provided to GAO indicated that the greatest 

amounts of administrative costs in fiscal year 2011 were for salaries and 

expenses, contract processing, outreach programs, technical assistance 

programs, support contracts, and other purposes. With the start of a pilot 

program allowing agencies to use up to 3 percent of SBIR program funds for 

administrative costs in fiscal year 2013, SBA planned to require participating 

agencies to track and report administrative costs paid from program funds.

View GAO-14-567T. For more information, 

contact John Neumann at (202) 512-3841 or 

neumannj@gao.gov.
Page 1 GAO-14-567T 

Chairwoman Cantwell, Ranking Member Risch, and Members of the 

Committee:

I am pleased to be here today to discuss federal agencies’ compliance 

with spending and reporting requirements for the Small Business 

Innovation Research (SBIR) and Small Business Technology Transfer 

(STTR) programs, as well as other aspects of the programs. Since the 

early 1980s, federal agencies have awarded more than 156,000 contracts 

and grants, totaling nearly $40 billion, to small businesses to develop and 

commercialize innovative technologies. Federal agencies with a budget of 

$100 million or more for extramural research or research and 

development (R&D) are required to establish and operate an SBIR 

program, while federal agencies with budgets of $1 billion or more for 

extramural R&D are required to establish and operate an STTR program.1

Table 1: Agencies Participating in the Small Business Innovation Research (SBIR) 

and Small Business Technology Transfer (STTR) Programs

Currently, 11 agencies participate in the SBIR program and 5 of these 

agencies also participate in the STTR program, as shown in table 1.

Agency Program

SBIR STTR

Department of Agriculture (USDA) X

Department of Commerce X

Department of Defense (DOD) X X

Department of Education X

Department of Energy (DOE) X X

Department of Health and Human Services (HHS) X X

Department of Homeland Security (DHS) X

Department of Transportation (DOT) X

Environmental Protection Agency (EPA) X

National Aeronautics and Space Administration (NASA) X X

National Science Foundation (NSF) X X

Source: Small Business Administration.

 1

Agencies’ R&D programs generally include funding for two types of R&D: intramural and 

extramural. Intramural R&D is conducted by employees of a federal agency in or through 

government-owned, government-operated facilities. Extramural R&D is generally 

conducted by nonfederal employees outside of federal facilities. Agencies are required to 

calculate their extramural R&D budgets by subtracting amounts obligated for intramural 

R&D from total obligations for R&D. 
Page 2 GAO-14-567T 

The Small Business Administration’s (SBA) Office of Investment and 

Innovation is responsible for overseeing and coordinating the participating 

agencies’ efforts for the SBIR and STTR programs by setting overarching 

policy and issuing policy directives, collecting program data, reviewing 

agency progress, and reporting annually to Congress, among other 

responsibilities. Each participating agency must manage its SBIR and 

STTR programs in accordance with program laws, regulations, and policy 

directives issued by SBA.2

The Small Business Act, which authorizes the programs, establishes the 

minimum percentage of an agency’s extramural R&D budget that must be 

spent on the programs annually.

Each participating agency has considerable 

flexibility to design and manage the specifics of these programs, such as 

determining research topics, selecting award recipients, and 

administering funding agreements.

3 Participating agencies were required to 

spend at least 2.5 percent of their extramural R&D budgets on the SBIR 

program in fiscal years 1997 through 2011 and at least 0.3 percent of 

these budgets on the STTR program in fiscal years 2004 through 2011. 

The 2011 reauthorization of the programs increased these minimum 

percentages to 2.6 percent and 0.35 percent, respectively, for the SBIR 

and STTR programs in fiscal year 2012, with additional increases in 

future years.4

 2

As part of its oversight and coordination role, SBA issued SBIR and STTR policy 

directives in September 2002 and December 2005, respectively, and updated them in 

August 2012, January 2014, and February 2014.

SBA’s SBIR and STTR policy directives require 

participating agencies to submit data to SBA each year on the amount of 

their extramural R&D budgets and the amount obligated for awards, 

among other information. The Small Business Act also establishes certain 

reporting requirements for participating agencies and SBA. Among other 

things, agencies are to report to SBA on their methodologies for 

calculating their extramural R&D budgets within 4 months of the 

enactment of their annual appropriations. Furthermore, SBA is to annually 

report to Congress on all participating agencies’ SBIR and STTR 

programs.

3

We refer to the amounts resulting from applying these mandated percentages to 

extramural R&D budgets as “spending requirements.”

4

National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, § 5102, 125 

Stat. 1298,1824. 
Page 3 GAO-14-567T 

In 2013, we reported on the participating agencies’ compliance with 

spending and reporting requirements for the programs, as well as other 

aspects of the programs, for fiscal years 2006 through 2011.5

To determine the extent to which participating agencies complied with the 

programs’ spending requirements for our 2013 report, we compared 

spending requirements for fiscal years 2006 to 2011 with the amounts 

agencies reported spending in each annual report to SBA.

We are 

currently examining these issues for fiscal year 2012, and we plan to 

report on our findings in June 2014. My testimony today focuses on our 

2013 report and addresses, for fiscal years 2006 through 2011, (1) the 

extent to which participating agencies complied with program spending 

requirements, (2) the extent to which participating agencies and SBA 

complied with certain reporting requirements, (3) the potential effects of 

basing the spending requirements for the SBIR and STTR programs on 

agencies’ total R&D budgets instead of their extramural R&D budgets, 

and (4) what is known about the amounts participating agencies spent for 

administering the programs.

6

 5

GAO, Small Business Research Programs: Actions Needed to Improve Compliance with 

Spending and Reporting Requirements, 

To determine 

the extent to which participating agencies and SBA complied with certain 

reporting requirements for calculating their extramural research budgets, 

we compared the agencies’ methodology and annual reports to SBA and 

SBA’s annual report to Congress for fiscal years 2006 to 2011, to the 

extent available, with requirements in the Small Business Act and the 

policy directives for the programs. To determine the potential effects of 

basing spending requirements for the SBIR and STTR programs on an 

agency’s total R&D budget, we calculated potential spending 

requirements for each agency using data on total R&D budget authority 

GAO-13-421 (Washington, D.C.: Sept. 9, 2013).

6

We used the agencies’ obligations data to represent spending for the programs in part 

because obligations data were readily available from each of the agencies for program 

purposes, and obligations provided a reasonable measure of the spending for the 

programs in each year. We determined that an agency met its spending requirement if the 

agency’s reported spending for these programs was equal to or greater than the reported 

spending requirement.
Page 4 GAO-14-567T 

from the President’s budget.7 We compared these potential spending 

requirements with the spending requirements under the current law to 

determine the potential effects of changing the methodology. To 

determine what is known about the amounts participating agencies spent 

for administering the programs, we collected existing administrative cost 

data directly from agencies and interviewed program and financial 

officials at each agency. We determined that the administrative cost data 

were too incomplete and from such varied sources that an assessment of 

the available data’s reliability was not possible and we could not use the 

data in our report. More detail on our scope and methodology is included 

in that issued product. The work on which this testimony is based was 

conducted from April 2012 to August 2013 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 our 

audit objectives. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit 

objectives.

In 2013, we found that most agencies did not comply with spending 

requirements for the SBIR or STTR programs in all 6 years, based on 

data the agencies submitted to SBA for fiscal years 2006 to 2011. 

Specifically, 8 of the 11 agencies did not consistently meet annual 

spending requirements for SBIR. Data from 3 of the agencies—DHS, 

Education, and HHS—indicated that they met their spending 

requirements for all 6 years. For STTR, 4 of 5 agencies did not 

consistently meet annual spending requirements. Data from 1 agency—

HHS—indicated that it met its STTR spending requirements for all 6 

years. Figure 1 shows the number of years that each agency complied 

with spending requirements for fiscal years 2006 through 2011. Additional 

data on each agency’s spending on the programs is included in our 2013 

report.

 7

In calculating these potential spending requirements, we assumed that agencies would 

be required to spend 2.5 percent of their total R&D budget for the SBIR program and 0.3 

percent for the STTR program. Additionally, we assumed that an agency with total annual 

R&D funding of $100 million would be required to participate in the SBIR program, while 

an agency with total annual R&D funding of $1 billion would be required to participate in 

both the SBIR and STTR programs.

Data Indicated Most 

Agencies Did Not 

Consistently Comply 

with Spending 

Requirements
Page 5 GAO-14-567T 

Figure 1: Number of Years Agencies Met Spending Requirements for the Small Business Innovation Research (SBIR) and 

Small Business Technology Transfer (STTR) Programs for Fiscal Years 2006 to 2011

SBIR and STTR program managers identified reasons why spending the 

required amount in a given fiscal year could be difficult, which we 

described in our 2013 report. For example, in that report, we found that 

delays in receiving final appropriations can delay agencies’ awarding of 

contracts for SBIR or STTR projects. Some program managers said that 

they tend to wait to award some grants and contracts until receiving their 

final appropriations in case the agency’s extramural R&D budget—and, 

therefore, its SBIR or STTR spending requirement—differs significantly 

from the expected amount. Because the award process can be lengthy, a 

delay can push the awards and spending into the following fiscal year.

As we found in our 2013 report, when appropriations were received late in 

the year, agencies used differing methodologies to calculate their 

spending requirements, making it difficult to determine whether agencies’
Page 6 GAO-14-567T 

calculations were correct. Although SBA provided guidance in policy 

directives on calculating their spending requirements, we found that the 

policy directives did not provide guidance to agencies on how to calculate 

such spending requirements when agency appropriations are delayed. 

We found that, without such guidance, that agencies would likely continue 

to calculate spending requirements in differing ways. In our 2013 report, 

we recommended that SBA provide additional guidance on how agencies 

should calculate spending requirements when agency appropriations are 

received late in the fiscal year. SBA has since begun taking steps to 

address this recommendation.

We also found in 2013 that agencies participating in the SBIR and STTR 

programs did not consistently comply with requirements in the Small 

Business Act to annually report a description of their methodologies for 

calculating their extramural R&D budgets to SBA and that SBA did not 

consistently comply with the act’s requirements for annually reporting to 

Congress.

With the exception of NASA in certain years, agencies did not submit their 

methodology reports to SBA within the time frame required by the Small 

Business Act for fiscal years 2006 through 2011 for the SBIR and STTR 

programs. As noted earlier, the act requires that agencies report to SBA 

their methodologies for calculating their extramural budgets within 4 

months after the date of enactment of their respective appropriations 

acts.8

 8

15 U.S.C. § 638(i)(2)(A).

However, most participating agencies documented their 

methodologies for calculating their extramural R&D budgets for these 

fiscal years and submitted them to SBA after the close of the fiscal year 

with their annual reports. SBA officials said that they did not hold the 

agencies to the act’s deadline for submitting methodology reports, in part 

because delays in receiving annual appropriations pushed the required 

reporting date until late in the fiscal year and it was more convenient for 

agencies to submit their methodology reports with their annual reports. By 

not having the methodology reports earlier in the year as specified by law, 

however, SBA did not have an opportunity to analyze these 

methodologies and provide the agencies with timely feedback to assist 

agencies in accurately calculating their spending requirements. By not 

providing such feedback, SBA was forgoing the opportunity to assist 

Agencies and SBA 

Did Not Consistently 

Comply with Certain 

Reporting 

Requirements
Page 7 GAO-14-567T 

agencies in correctly calculating their program spending requirements 

and to help ensure that they spent the mandated amounts.

More significantly, we found in 2013 that the majority of the agencies did 

not include an itemization of each R&D program excluded from the 

calculation of the agency’s extramural budget and a brief explanation of 

why it was excluded, as required. We found that it was difficult for SBA to 

comprehensively analyze the methodologies and determine whether 

agencies were accurately calculating their spending requirements without 

having more consistent information from agencies. We also found that 

agencies could have benefited from guidance on the format of 

methodology reports, and that without such guidance, participating 

agencies might continue to provide SBA with broad, incomplete, or 

inconsistent information about their methodologies and spending 

requirements. We recommended that SBA provide additional guidance to 

agencies on the format that they are to include in their methodology 

reports. We also recommended that SBA provide timely annual feedback 

to each agency following submission of its methodology report on 

whether its method for calculating the extramural R&D budget complies 

with program requirements, including an itemization of and an explanation 

for all exclusions from the basis for the calculations. SBA is in the process 

of taking steps to address these recommendations.

We also found in 2013 that SBA had not consistently complied with the 

requirement to report its analysis of the agencies’ methodologies in its 

annual report to Congress,9 as required by the Small Business Act.10

Over the 6 years covered in our review, SBA reported to Congress for 3 

of those; fiscal years 2006, 2007, and 2008.11

 9

The act directs that the SBA Administrator report not less than annually to the Committee 

on Small Business and Entrepreneurship of the Senate and to the Committee on Science 

and Technology and the Committee on Small Business of the House of Representatives.

We found that these 

reports contained limited analyses of the agencies’ methodologies, and 

some of the analyses were inaccurate. For example, SBA’s analysis was 

limited to a table attached to the annual report to Congress that often did 

not include information on particular agencies. In our 2013 report, we 

1015 U.S.C. § 638(i)(2)(B).

11SBA issued its report on the programs for fiscal years 2009 through 2011 in December 

2013, after we issued our 2013 report. See SBA: The Small Business Innovation 

Research (SBIR) and Small Business Technology Transfer (STTR) Program Annual 

Report Fiscal Years 2009-2011 (Washington, D.C.: December 2013).
Page 8 GAO-14-567T 

found that, without more comprehensive analysis and accurate 

information on participating agencies in SBA’s annual report, Congress 

did not have information on the extent to which agencies are reporting

what is required by law. In that report, we recommended that SBA provide 

Congress with a timely annual report that includes a comprehensive 

analysis of the methodology each agency used for calculating the SBIR 

and STTR spending requirements, providing a clear basis for SBA’s 

conclusions about whether these calculations meet program 

requirements. SBA is in the process of taking steps to address this 

recommendation.

In 2013, we also found that changing the methodology to calculate the 

SBIR and STTR spending requirements based on each agency’s total 

R&D budget instead of each agency’s extramural R&D budget would 

increase the amount of each agency’s spending requirement for the 

programs, some much more than others, depending on how the change 

was implemented. Also, such a change would increase the number of 

agencies that would be required to participate in the programs if the 

threshold for participating in the programs remained the same. For 

example, two additional agencies—the Departments of Veterans Affairs 

(VA) and the Interior—would have been required to participate in SBIR in 

fiscal year 2011 if total R&D budgets had been the criteria because these 

agencies reported total R&D budgets in excess of $100 million.12 For 

STTR, three additional agencies—Commerce, USDA, and VA—would 

also have been required to participate in the program for fiscal year 2011 

if total R&D budgets had been the criteria because these agencies 

reported total R&D budgets in excess of $1 billion.13

Some agencies told us in 2013 that changing the methodology to 

calculate the SBIR and STTR spending requirements could have effects 

on their R&D programs and create challenges. For example, changing the 

base would increase SBIR and STTR budgets and could result in 

reductions in certain types of intramural R&D, with corresponding 

reductions in full-time equivalent staffing of these programs. In addition, 

 12Federal agencies with a budget of $100 million or more for extramural R&D are required 

to establish and operate an SBIR program

13Federal agencies with budgets of $1 billion or more for extramural R&D are required to 

establish and operate an STTR program.

Changing the 

Calculation 

Methodology Could 

Increase Spending 

Requirements and 

Participation
Page 9 GAO-14-567T 

some agency officials said there would potentially be changes in the 

content of the agency’s extramural R&D effort because of changes in the 

types of businesses that receive grants and contracts.

We found in 2013 that the participating agencies’ cost of administering 

the SBIR and STTR programs could not be determined because the 

agencies neither collected that information nor had the systems to do so. 

Neither the authorizing legislation for the programs nor SBA policy 

directives require agencies to track and estimate all administrative costs, 

and neither the law nor the policy directives define these administrative 

costs. Estimates agencies provided for our report indicated that the 

greatest amounts of administrative costs in fiscal year 2011 were for 

salaries and expenses, contract processing, outreach programs, technical 

assistance programs, support contracts, and other purposes. With the 

implementation in 2013 of a pilot program allowing agencies under certain 

conditions to use up to 3 percent of SBIR program funds for certain 

administrative costs, SBA expected to require agencies in the pilot 

program to track and report the spending of that 3 percent but not all of 

their administrative costs.

Chairwoman Cantwell, Ranking Member Risch, and Members of the 

Committee, this completes my prepared statement. I would be pleased to 

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

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

contact me at (202) 512-3841 or neumannj@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this statement. GAO staff who made key contributions 

to this testimony are Hilary Benedict, Assistant Director; Antoinette 

Capaccio; Cindy Gilbert; Rebecca Makar; Cynthia Norris; and Daniel 

Semick.

Administrative Costs 

Could Not Be 

Determined Because 

the Agencies Did Not 

Identify or Track All 

Costs

GAO Contact and 

Staff 

Acknowledgments

(361571)
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