Small Business Research Programs: Agencies Have Improved Compliance with Spending and Reporting Requirements, but Challenges Remain
Published: 2016-05-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Federal agencies have awarded contracts and grants totaling more than $40 billion through the SBIR and STTR programs to small businesses to develop and commercialize innovative technologies. The Small Business Act requires agencies with extramural R&D obligations that meet certain thresholds—$100 million for SBIR and $1 billion for STTR—to spend a percentage of these funds on the programs. The agencies are to report on their activities to SBA, and in turn, SBA is to report to Congress.
The 2011 reauthorization of the programs includes a provision for GAO to review compliance with spending and reporting requirements and other program aspects. This report examines, for fiscal year 2014, (1) the extent to which participating agencies complied with spending requirements, (2) the extent to which agencies and SBA complied with certain reporting requirements, (3) the potential effects of basing spending requirements on total R&D budget authority, and (4) what is known about the amounts spent to administer the programs. GAO reviewed agency spending data and reports and interviewed program officials from SBA and the 11 participating agencies.
section_title: What GAO Found
paragraphs: Agency data indicate that 9 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 complied with spending requirements in fiscal year 2014. One agency—the Department of Agriculture (USDA)—had extramural R&D obligations greater than $1 billion, but did not implement an STTR program, as required in the Small Business Act. This is, in part, because the Small Business Administration's (SBA) guidance does not address when an agency should establish a new STTR program. As a result, in fiscal year 2014, less money was available for awards to small businesses through this program.
Most participating agencies did not fully comply with certain reporting requirements. For example, while all participating agencies submitted the required methodology reports for fiscal year 2014, 6 of the 11 did not fully itemize the specific programs they excluded from their extramural R&D, did not fully explain the reasons why they excluded the programs, or both. Additionally, 2 agencies did not submit complete information on the dollar amounts of exclusions in fiscal year 2014 because of a change in SBA's fiscal year 2014 guidance. Restoring this guidance could provide information to help SBA assess the accuracy of agency methodology reports.
GAO's analysis shows that basing SBIR and STTR spending requirements on an agency's total R&D budget authority instead of its extramural R&D obligations could increase the amount each agency has to spend on the programs and increase the number of agencies required to participate in the programs. Some agency officials identified benefits of this potential change, such as more funding to make awards to small businesses, but some agencies identified drawbacks, such as limiting resources for other R&D programs.
Total administrative spending on the SBIR and STTR programs in fiscal year 2014 is unknown, but agencies participating in the administrative pilot program spent about $19 million on new activities. Agencies do not and are not required to track total administrative costs, and therefore total spending could not be calculated for fiscal year 2014. Seven agencies participated in the administrative pilot program and tracked the amounts of program funds they spent on new administrative and oversight activities in fiscal year 2014. While these 7 agencies spent more on the program in fiscal year 2014 than in the previous year, some of these agencies identified constraints that limited their participation. For example, agency officials pointed to guidance that requires agencies to only spend money on new initiatives and the limited length of the pilot. Agency officials told GAO these constraints kept them from achieving program goals by preventing them from undertaking some initiatives and hiring individuals for administrative purposes. SBA plans to include its required evaluation of the pilot program in its annual report to Congress, which could include an evaluation of such constraints and the steps needed to address them, but it has not yet submitted its fiscal year 2014 report to Congress. Until SBA submits its evaluation of the pilot program, SBA and Congress will not have needed information about the pilot for fiscal year 2014 or potential constraints for participants.
section_title: What GAO Recommends
paragraphs: GAO recommends that SBA clarify guidance for when an agency is to start up an STTR program, restore guidance about dollar amounts of exclusions in the methodology report, and complete the required report to Congress for fiscal year 2014.
SBA generally agreed with GAO's findings and recommendations.

section_title: Letter
paragraphs: Federal agencies support research or research and development (R&D)  projects at small businesses through the Small Business Innovation  Research (SBIR) and Small Business Technology Transfer (STTR)  programs. Federal agencies have awarded more than 150,000 contracts  and grants, totaling more than $40 billion, through these programs since  their inception in 1982 and 1992, respectively. These awards have  supported development and commercialization of innovative  technologies. For example, one company, Sanaria, received multiple  SBIR awards totaling approximately $10.8 million to develop a vaccine  aimed at preventing malaria infection and disease among individuals  living in severely affected areas. Another company, HandHold Adaptive,  received $950,000 in SBIR awards to develop applications that rapidly  incorporate images from smartphone or tablet cameras and the Internet  into individualized visual supports for students with autism spectrum  disorders. The SBIR and STTR programs are similar in that participating  agencies identify topics for R&D projects and support small businesses.  For the SBIR program, a small business performs the work associated  with the award, while the STTR program requires the small business to  partner with a nonprofit research institution—such as a nonprofit college  or university or federally funded research and development center—to  perform the work.
Federal agencies with obligations of $100 million or more for extramural  R&D are required to establish and administer an SBIR program, and  federal agencies with obligations of $1 billion or more for extramural R&D  are also required to establish and administer an STTR program.  Currently, 11 agencies participate in the SBIR program, and 5 of these  agencies also participate in the STTR program, as shown in table 1.
The Small Business Act, which authorizes the programs, establishes the  minimum percentage of an agency’s extramural R&D obligations that  must be spent on the programs annually. In fiscal year 2014, agencies  participating in the SBIR program were required to spend at least 2.8  percent of their extramural R&D obligations on the program and agencies  participating in the STTR program were required to spend at least 0.40  percent of their extramural R&D obligations on the program. The SBIR  and STTR policy directives, which provide direction to the participating  agencies for the general operation of the programs, require participating  agencies to submit data to the Small Business Administration (SBA) each  year on the amount of their extramural R&D obligations 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 must, within 4 months of the  enactment of their annual appropriations, report to SBA on their  methodologies for calculating their extramural R&D obligations.  Furthermore, SBA must annually report to Congress on the participating  agencies’ SBIR and STTR programs.
The 2011 reauthorization of the programs directed SBA to allow agencies  to participate in a pilot program that permits the funding of administrative,  oversight, and contract processing costs in fiscal years 2013 through  2015. In November 2015, the National Defense Authorization Act for  Fiscal Year 2016 extended the program through September 30, 2017.  This administrative pilot program, as outlined in the reauthorization and  policy directives, allows agencies to use not more than 3 percent of the  funding allocated to the SBIR program for new activities, including  program administration; outreach; commercialization; standardization and  simplification of program procedures; prevention of waste, fraud, and  abuse; and reporting. The SBIR and STTR policy directives specifically  note that funding under the pilot program may not replace current agency  administrative funding support for SBIR or STTR activities. Instead, the  administrative pilot program is intended to supplement the agency’s  existing administrative efforts.
The 2011 reauthorization includes a provision for us to annually review  the participating agencies’ compliance with spending and reporting  requirements for the programs, as well as other aspects of the programs.  We have issued three reports in response to this provision. The first  report, issued in November 2013, covered fiscal years 2006 through  2011; the second report, issued in June 2014, covered fiscal year 2012;  and the third report, issued in April 2015, covered fiscal year 2013. This  report covers fiscal year 2014 and addresses (1) the extent to which  agencies met SBIR and STTR program spending requirements, (2) the  extent to which agencies and SBA complied with certain program  reporting requirements, (3) the potential effects of basing the spending  requirements for the programs on an agency’s total R&D budget authority  instead of its extramural R&D obligations, and (4) what is known about  how much agencies spent to administer the programs.
To address these objectives, we generally followed the methodology that  we used for our previous three reports on these issues. Specifically, to  examine the extent to which participating agencies met the programs’  spending requirements in fiscal year 2014, we used the data that  agencies submitted to SBA and calculated each agency’s spending  requirement by applying the mandated percentages to the agency’s  reported extramural R&D obligations for fiscal year 2014. We then  compared the spending requirements we calculated with the total  program obligations data the agency submitted to SBA for fiscal year  2014. We reported that an agency complied with its spending requirement  if the agency’s spending for these programs was greater than or equal to  the spending requirement we calculated. To assess the reliability of these  data, we interviewed agency officials about the source and quality control  procedures for the data; examined the integrity of the data, which  included looking for outliers and obvious errors; and reviewed relevant  documentation. We discussed any discrepancies with program officials  and made corrections as needed. We found these data to be sufficiently  reliable for the purposes of assessing whether agencies met their  spending requirements. We discussed agencies’ compliance with the  spending requirements, including reasons agencies did not meet the  spending requirements, with program managers at each of the  participating agencies. We also discussed agencies’ efforts to follow  guidance issued by SBA to report total extramural R&D obligations rather  than their proposed program budgets.
To examine the extent to which participating agencies and SBA complied  with certain reporting requirements for fiscal year 2014, we compared  information in the reports that agencies submit to SBA to describe the  methodology for calculating their extramural R&D obligations, referred to  as their methodology reports, with requirements in the Small Business Act  and program policy directives. Additionally, we requested SBA’s report to  Congress for fiscal year 2014 and discussed the status of that report with  SBA program officials. We reported that a participating agency complied  with its reporting requirements if the agency submitted a methodology  report to SBA, submitted the report on time (within 4 months of receiving  appropriations), itemized exclusions from its extramural R&D obligations,  and explained those exclusions.
To examine the potential effects of basing spending requirements for the  SBIR and STTR programs on agencies’ total R&D budget authority  instead of their extramural R&D obligations, we used fiscal year 2014  data on total R&D budget authority from the President’s budget to  calculate potential spending requirements for each federal agency under  alternate scenarios, assuming that the same spending percentages  currently required by the Small Business Act would apply to total R&D  budget authority. We also assumed that current spending thresholds that  require agencies to participate in SBIR and STTR programs when applied  to extramural R&D obligations would apply to the total R&D budget  authority. As in our previous reports, we compared the spending  requirements from the alternate scenarios with those under current law to  determine the potential effects that changing this methodology would  have had in fiscal year 2014. We also analyzed additional scenarios using  smaller percentages than those currently required by the Small Business  Act to determine if they would lead to different outcomes. We spoke to  program managers at all participating agencies about how potential  changes to the methodology for calculating the spending requirements  could affect their programs.
To examine what is known about how much agencies spent to administer  the programs, we collected administrative cost data and data associated  with the administrative pilot program from the 7 agencies that participated  in the pilot and discussed the data with program officials. We determined  that the administrative cost data for all 11 participating agencies were  incomplete and from such varied sources that we could not calculate the  total amount spent to administer their programs. We also reviewed the  total amounts the 7 agencies estimated they would spend on the  administrative pilot program in fiscal year 2014 as described in their  proposals for the program, calculated the total amount that these  agencies spent on the administrative pilot program in fiscal year 2014,  and compared these numbers. We also reviewed the actions that  agencies took using administrative pilot program funds to meet program  goals. To ensure the reliability of the data associated with the  administrative pilot program, we discussed the completeness and  accuracy of the data with officials from the 7 agencies that participated in  the program. We determined that the data were sufficiently reliable for the  purposes of evaluating the amounts that agencies spent on the  administrative pilot program.
We conducted this performance audit from July 2015 to May 2016 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.
subsections: section_title: Background
paragraphs: The SBIR program was initiated in 1982 and, as described on the SBIR  website, has four main purposes: (1) use small businesses to meet  federal R&D needs, (2) stimulate technological innovation, (3) increase  commercialization of innovations derived from federal R&D efforts, and  (4) encourage participation in technological innovation by small  businesses owned by women and disadvantaged individuals. The STTR  program was initiated about a decade later in 1992 and, as described on  the SBIR website, has three main purposes: (1) to stimulate technological  innovation, (2) foster technology transfer through cooperative R&D  between small businesses and research institutions, and (3) increase  private sector commercialization of innovations derived from federal R&D.  Legislation enacted in 2011 reauthorized the programs from fiscal year  2012 through fiscal year 2017.
The spending requirements for SBIR and STTR are to be calculated as a  percentage of each agency’s extramural R&D obligations, provided their  extramural obligations exceed the participation thresholds of $100 million  for SBIR and $1 billion for STTR. Under the 2011 reauthorization, the  SBIR extramural spending requirement was set at 2.8 percent for fiscal  year 2014 and will increase incrementally to 3.2 percent of the extramural  R&D obligations in fiscal year 2017. The STTR allocation was set at 0.40  percent in fiscal year 2014 and will increase to 0.45 percent in fiscal year  2016.
The SBIR and STTR programs each include the following three phases:  In phase I, agencies make awards to small businesses to determine  the scientific and technical merit and feasibility of ideas that appear to  have commercial potential. Phase I awards normally do not exceed  $150,000. For SBIR, phase I awards generally last up to 6 months.  For STTR, these awards generally last 1 year.
In phase II, small businesses with phase I projects that demonstrate  scientific and technical merit and feasibility, in addition to commercial  potential, may compete for awards of up to $1 million to continue the  R&D for an additional period, normally not to exceed 2 years.
Phase III is for small businesses to pursue commercialization of  technology developed in prior phases. Phase III work derives from,  extends, or completes an effort made under prior phases, but it is  funded by sources other than the SBIR or STTR programs. In this  phase, small businesses are expected to raise additional funds from  private investors, the capital markets, or funding sources within the  agency that made the initial award other than its SBIR or STTR  program. While SBIR or STTR funding cannot be used for phase III,  agencies can participate in phase III by, for example, purchasing the  technology developed in prior phases.
SBA’s Office of Investment and Innovation is responsible for overseeing  and coordinating the participating agencies’ efforts for the SBIR and  STTR programs. As part of SBA’s oversight and coordination role, the  agency issued SBIR and STTR policy directives to explain and outline  requirements for agencies’ implementation of these programs. The policy  directives include a list of the data that agencies must submit to SBA  annually—such as their extramural R&D obligation amounts and the  amount obligated for awards for the programs.
Each participating agency must manage its SBIR and STTR programs in  accordance with program laws and regulations and the policy directives  issued by SBA. In general, the programs are similar across participating  agencies. All of the participating agencies follow the same general  process to obtain proposals from and make awards to small businesses  for both the SBIR and STTR programs. However, each participating  agency has considerable flexibility in designing and managing the  specifics of these programs, such as determining research topics,  selecting award recipients, and administering funding agreements. At  least annually, each participating agency issues a solicitation requesting  proposals for projects in topic areas determined by the agency. Each  participating agency uses its own process to review proposals and  determine which proposals should receive awards. For those agencies  that have both SBIR and STTR programs, agencies usually use the same  process for both programs. Also, each participating agency determines  whether the funding for awards will be provided as grants or contracts.  According to a SBIR/STTR program manager at one of the participating  agencies, agencies such as the Department of Defense (DOD), the  Department of Homeland Security (DHS), and the National Aeronautics  and Space Administration (NASA) typically issue contracts that address  topic areas and include a number of requirements that small business  must comply with, while agencies like the Department of Energy (DOE)  and the National Science Foundation (NSF) often issue grants for less  specified topic areas that allow for more flexibility.
section_title: Agency Data Indicate Most Met Spending Requirements, but Not All Submitted Correct Data and One Agency Did Not Establish a Required STTR Program
paragraphs: Agency data indicate that most participating agencies complied with their  SBIR and STTR spending requirements for fiscal year 2014. The  accuracy of these data remains an issue, but more agencies submitted  correct data to SBA in fiscal year 2014 than in past years, providing  extramural R&D obligations instead of their proposed budgets. However,  one agency’s total extramural R&D obligations reached the $1 billion  threshold for an STTR program, but it did not establish an STTR program  as required by law.
subsections: section_title: Agency Data Indicate Most Agencies Met SBIR and STTR Spending Requirements, and More Agencies Submitted Correct Data
paragraphs: Agency data indicate that 9 of the 11 agencies participating in the SBIR  program met or exceeded their fiscal year 2014 spending requirements,  while the remaining 2 agencies did not (see fig. 1). According to the  agencies’ data, the 9 agencies that appeared to meet or exceed SBIR  spending requirements spent from 2.8 percent to 5.1 percent of their  extramural R&D obligations for the program, and the remaining 2  agencies spent from 1.8 to 2.3 percent—less than the required 2.8  percent. As we previously found, the number of agencies that have  complied with SBIR spending requirements—according to their data—has  varied since fiscal year 2011, with 9 of the 11 agencies meeting these  requirements in fiscal year 2013, 8 of the 11 agencies meeting them in  fiscal year 2012, and 10 of the 11 agencies meeting them in fiscal year  2011. None of the agencies participating in the SBIR program were out  of compliance for all 4 fiscal years.
Agency data indicate that 4 of the 5 agencies participating in the STTR  program met or exceeded their fiscal year 2014 spending requirements,  while 1 agency did not (see fig. 2). According to the agencies’ data, DOE,  the Department of Health and Human Services (HHS), NASA, and NSF  appeared to meet or exceed STTR spending requirements, spending  from the required 0.40 percent to 0.45 percent of their extramural R&D  obligations on their STTR programs, while DOD did not comply, spending  0.21 percent. As we previously found, the number of agencies that have  complied with STTR spending requirements—according to their data— has increased since fiscal year 2011. For example, data that agencies  submitted to SBA indicated that 4 of the 5 agencies complied with  spending requirements in fiscal year 2013, as compared to 2 of 5  agencies that complied with spending requirements in fiscal years 2011  and 2012. HHS is the only agency to comply with STTR spending  requirements in each of the past 4 fiscal years.
Officials at those agencies that did not meet the spending requirement for  the SBIR and STTR programs said that they were unable to do so  because of multi-year funding and extenuating circumstances.  Specifically, program managers at DOD told us that their agency did not  comply with STTR spending requirements in fiscal year 2014 because  their 2-year funding cycles enable them to spend funds across 2 years.  This is consistent with the findings from our previous reports, when  program managers said that their agency did not meet spending  requirements in certain years because of multi-year funding, but they  would spend the funding on the programs before it expires. As we have  also found in previous reports, while some agencies receive multi-year  appropriations, which may, generally, be carried forward from one year to  the next, the Small Business Act nevertheless requires agencies to spend  the required amount on the programs in each fiscal year. Officials at the  Department of Commerce (Commerce) told us that they were unable to  meet their SBIR spending requirement in fiscal year 2014 because they  received more funding for their SBIR program than they had planned for,  in addition to SBIR funding that they carried over from fiscal year 2013  from supplemental appropriations for Superstorm Sandy, and they did not  include enough topics in their solicitation for applications to allow them to  make enough awards to meet the spending requirement. This is  consistent with what Commerce officials told us in fiscal year 2013. U.S.  Department of Agriculture (USDA) officials said that they did not comply  with SBIR spending requirements because their extramural R&D  obligations—a key figure in calculating the spending requirement—nearly  doubled from what they planned based on their proposed budget. In  addition, the officials told us that they have multi-year funding, which  enables them to spend funds in years other than when they were  appropriated. Commerce and USDA officials said that they plan to  spend all of their SBIR funds on the program before the funding expires.
In fiscal year 2014, 8 of the 11 participating agencies correctly submitted  data on their actual extramural R&D obligations as opposed to their  proposed budgets. The Small Business Act requires agencies to calculate  their spending requirements based on their actual obligations over the  course of the year, and SBA has requested that agencies submit  obligations rather than proposed budget data. As we found in fiscal year  2013, 2 agencies reported their extramural R&D obligations, and the  other 9 agencies provided the amount that they proposed to spend on  extramural R&D to SBA, rather than the amount they actually obligated.  Officials at the 2 agencies that submitted extramural R&D obligations for  the first time cited our previous reports as leading to the change in the  data they submitted to SBA. Three agencies did not submit data on  extramural R&D obligations to SBA for fiscal year 2014—DOD, NSF, and  the Environmental Protection Agency (EPA). Instead, these agencies  continued to submit their proposed extramural R&D budgets. Agency  officials from NSF and EPA said the requirement to use extramural R&D  obligations rather than proposed extramural R&D budgets is a challenge  for agencies trying to comply with spending requirements because  extramural R&D obligations are not known until the end of the fiscal year.  Several program managers told us that they believe it is unfair or  impractical to hold their agencies to a requirement that is not known until  the end of the year, when it is not possible to obligate additional money.  In addition, DOD officials told us that they do not have systems in place to  easily calculate extramural R&D obligations. For example, DOD officials  said they are unsure if all their comptrollers track extramural R&D  obligations. In contrast, the 8 agencies that reported obligations in fiscal  year 2014 told us that they faced no challenges in reporting obligations.  SBA officials told us that they were continuing to work with agencies to  obtain extramural R&D obligations data for fiscal year 2014.
section_title: One Agency’s Obligations Exceeded the STTR Threshold, but It Did Not Establish a Program
paragraphs: In fiscal year 2014, USDA reported extramural R&D obligations of $1.1  billion but did not establish an STTR program as required. The Small  Business Act and the STTR policy directive state that each federal  agency with extramural obligations for R&D in excess of $1 billion must  participate in the STTR program. USDA officials told us that they did not  establish an STTR program because they did not expect their extramural  R&D obligations to exceed $1 billion in fiscal year 2014. Specifically,  USDA’s proposed extramural R&D budget for fiscal year 2014 was $682  million and the department was unaware of its actual obligations until  after the end of the fiscal year, when it was too late to retroactively begin  an STTR program. The officials said that they believe the agency’s  obligations in fiscal year 2014 were an anomaly, and they did not expect  them to reach this level in subsequent years. They told us that some of  their agency’s subunits that have multi-year funding obligated funds in  fiscal year 2014 that were appropriated in prior years. Additionally, they  said that the agency received $1.3 million in additional R&D funds in fiscal  year 2014, as well as increased appropriations for the Agriculture and  Food Research Initiative. Agency officials said that setting up an STTR  program at this point would not make sense, as they expected that USDA  would be under the $1 billion threshold in fiscal year 2015. The  preliminary data that USDA submitted to SBA in April 2016 indicated that  its extramural R&D obligations for fiscal year 2015 totaled $904 million,  which is below the threshold for participating in the STTR program.
Although the legislation is clear about the dollar threshold for starting an  SBIR or STTR program, neither the law nor SBA’s guidance specifies  when an agency should establish a program, such as whether the agency  should begin its program at the beginning of the year, partway through  the year, or at the end of the year. SBA’s policy directive provides  guidance on when an agency may exit the programs, as required by the  Small Business Act, but does not provide specific guidance on when it  should set up a program beyond the requirement to do so when the  agency’s extramural R&D obligations are above the thresholds for  participating. Specifically, the policy directives state that an agency may  be considered by SBA for a phased withdrawal from participation in the  SBIR or STTR program over a period of time sufficient to minimize any  adverse impact on small businesses, and any withdrawal will be  accomplished in a standardized and orderly manner. This could  potentially be a model for SBA to follow in updating guidance for starting  up a program.
One potential challenge identified by officials is that in setting up a new  program, total extramural R&D obligations may be difficult to calculate  until after the end of the fiscal year, as agencies can obligate extramural  R&D funding through the end of the fiscal year. Therefore, according to  USDA and SBA officials, USDA would not have been in a position to  know that it needed to start an STTR program in fiscal year 2014, in  accordance with the law and program policy directive. Moreover, SBA  officials said they did not urge USDA to implement an STTR program  because it was unclear if the department’s extramural R&D obligations in  fiscal year 2014 would be maintained in future years. The officials told us  that it takes approximately 2 years to establish and implement a robust  STTR program. SBA officials agreed with USDA that it would not be  worthwhile for the department to begin an STTR program one year and  close it the following year, as it would negatively affect the small  businesses involved with the program. The purpose of the policy  directives is to provide guidance on how to conduct the programs, and  agencies are required to comply with both the law and the additional  details in the policy directives. If SBA provided more information on the  timing of starting an SBIR or STTR program, agencies may have more  certainty about when to establish a program.
section_title: Some Agencies Have Taken Steps to Meet Certain Reporting Requirements, but Most Agencies Are Still Not Fully Compliant
paragraphs: All of the agencies participating in the SBIR and STTR programs  submitted methodology reports to SBA for fiscal year 2014, and some  agencies provided more detail than they did in fiscal year 2013. However,  many agencies did not provide all the required information and most were  late in submitting their reports. Additionally, SBA has not issued its  required report to Congress on the programs for fiscal year 2014.
subsections: section_title: All Agencies Submitted Methodology Reports, but Most Did Not Provide All of the Required Information and Continued to Submit Reports Late
paragraphs: Each participating agency submitted a methodology report to SBA for  fiscal year 2014, and some agencies submitted additional information  about their exclusions in their methodology reports, as compared to fiscal  year 2013. As discussed in the policy directive, agencies are required to  submit reports to SBA each year that itemize the programs excluded from  their extramural R&D calculations and the reasons for the exclusions.  For fiscal year 2014, 10 of the 11 participating agencies submitted at least  partially itemized exclusions from their calculations of extramural R&D,  and 9 of the 11 agencies at least partially explained these exclusions (see  table 2). In addition, 5 agencies provided additional information in fiscal  year 2014 that they did not provide in fiscal year 2013.
Most agencies did not provide dollar amounts for their exclusions in fiscal  year 2014. Five agencies—USDA, HHS, NSF, DOD, and DHS— provided partial information on their exclusions but did not fully itemize or  explain them. For example, USDA’s report listed exclusion information for  four of its seven sub-units. In addition, 1 agency, NASA, did not list  whether it had exclusions. Agencies are not explicitly required to state  that they have no exclusions. However, without such information SBA  cannot determine whether agencies are accurately reporting whether they  have exclusions to their extramural R&D calculations. Officials at SBA  told us that they are developing written guidance in their policy directive  on how agencies should complete the methodology report.
In fiscal year 2014, 5 of the 11 participating agencies—Commerce, DHS,  the Department of Education (Education), EPA, and USDA—provided  some or all of the dollar amounts associated with each of their exclusions.  As we reported in June 2014, SBA officials told us that they would like  agencies to include more information about exclusions in their  methodology reports. SBA has requested dollar amounts of exclusions  in the past, but it is not explicitly required by statute or in the policy  directive. However, in fiscal year 2014, the guidance requesting agencies  to provide dollar amounts for their exclusions was removed from the  annual report template, leading some agencies to omit information that  they provided in the past, according to officials at 2 of the participating  agencies. Specifically, in fiscal year 2013, the Department of  Transportation (DOT) provided an itemized description of its exclusions,  including dollar amounts. However, in fiscal year 2014, DOT itemized  exclusions but did not report the dollar amounts excluded. DOT officials  told us that these amounts were not provided because SBA removed  language requesting that agencies list the programs excluded from the  extramural R&D obligations calculation from the guidance for their fiscal  year 2014 methodology reports. In addition, USDA officials told us that  they did not provide dollar amounts for all exclusions in fiscal year 2014  because SBA did not request this information in its guidance for  submitting the annual report.
The annual report template requested that agencies provide their  accounting procedure used to determine their obligations, but did not  explicitly require agencies to provide dollar amounts of exclusions.  According to SBA officials, SBA and several of the participating agencies  interpreted “accounting procedure” to include reporting the dollar amount  associated with exclusions. SBA officials told us that they planned to  contact the agencies that did not provide information on exclusions for  fiscal year 2014 and planned to update the guidance to request dollar  amounts for exclusions in future reports in the future. Inclusion of this  instruction could have reminded agency officials to provide the  information, which may have helped SBA fully evaluate and report to  Congress on the accuracy of DOT or USDA’s methodologies. Federal  standards for internal control state that management should communicate  with, and obtain quality information from, external parties using  established reporting lines so that external parties can help the entity  achieve its objectives and address related risks.
Additionally, 9 of the 11 agencies submitted their methodology reports for  calculating extramural R&D to SBA later than the date required by the  Small Business Act, as shown in table 2. According to the Small Business  Act, agencies must submit their methodology reports to SBA within 4  months of enactment of their annual appropriations. Agency  appropriations for fiscal year 2014 were enacted in January 2014, so the  methodology reports were due by May 2014. For fiscal year 2014, 2  agencies—HHS and DOD—complied with the reporting requirement by  submitting their methodology reports to SBA in May 2014. Several of the  agencies provided their methodology reports to SBA as a part of their  annual data submissions to SBA, which were generally submitted to SBA  from January through April 2015. Most agency officials told us that they  submitted their methodology reports late because SBA did not request  the reports at an earlier date. Officials from 5 of the 9 agencies that  submitted their reports late said that they could have provided the reports  to SBA within 4 months of appropriations if SBA had requested them.  SBA is not required to request the reports from agencies. In contrast,  officials at 2 agencies told us that they submitted their methodology  reports late because each of their agencies requires an approved spend  plan before officials can calculate extramural R&D obligations and provide  them in the methodology report, and those plans were not approved in  enough time to submit the methodology reports on time.
As we found in our September 2013 report, the late submission of the  methodology reports makes it difficult for SBA to promptly analyze these  methodologies and provide agencies with timely feedback to assist them  in accurately calculating their spending requirements. Without such  review and feedback, agencies may be calculating their extramural R&D  obligations incorrectly, which could lead to agencies spending less than  the required amounts on the programs. In that report, we recommended  that SBA request that the agencies submit their methodology reports  within 4 months of the enactment of appropriations, and SBA agreed with  the recommendation. When we followed up on SBA’s response to the  recommendation, we were told that SBA officials sent an e-mail to  participating agencies in February 2016 requesting that they submit their  fiscal year 2015 methodology reports to SBA in a time frame that meets  the 4 month requirement. We will continue to monitor the extent to which  agencies submitted their methodology reports within the required 4-month  time frame in fiscal year 2015 as part of our next mandated review.
section_title: SBA Has Not Submitted Its Required Report to Congress for Fiscal Year 2014
paragraphs: The Small Business Act requires SBA to report to certain congressional  committees on the SBIR and STTR programs—including an analysis of  the agencies’ methodology reports—not less than annually, but the act  does not specify a date that the report is due. SBA issued its required  report to Congress on the SBIR and STTR programs for fiscal year 2013  in March 2016, but it has not issued its report for fiscal year 2014.
In our September 2013 report, we concluded that without more rigorous  oversight by SBA and more timely and detailed reporting on the part of  both SBA and participating agencies, it would be difficult for SBA to  ensure that intended benefits of the SBIR and STTR programs are being  attained and that Congress was receiving critical information to oversee  these programs. 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. SBA agreed and stated that it planned  to implement the recommendation. However, SBA has not yet done so,  and as we found in this review, it continues to lag in its submissions to  Congress. Specifically, each year agencies are required to report their  data to SBA by March following the end of the fiscal year. SBA’s fiscal  year 2012 report to Congress, issued in November 2014, was submitted  19 months after the agencies’ data were due to SBA. Similarly, SBA  submitted its fiscal year 2013 report to Congress in March 2016, two  years after the agencies’ data were due to SBA. At the time of our review,  SBA officials said that they had not set a date for submitting the fiscal  year 2014 report. SBA officials told us that they have undertaken steps to  address developing the required reports to Congress, including reporting  improvements to the SBIR website that they expected would expedite the  verification of agencies’ data and lead to faster reporting. In addition, the  officials said that fiscal years 2013 and 2014 were transitional periods for  reporting due to changes in reporting requirements and the creation of  new databases.
section_title: Changing the Calculation Methodology Could Increase Spending Requirements and Participation with Potential Benefits and Drawbacks
paragraphs: Changing the methodology for determining SBIR and STTR spending  requirements could increase agencies’ spending requirements and  increase the number of agencies required to participate in the programs.  Agency officials identified several benefits and drawbacks that changing  the calculation methodology could have on their agencies’ SBIR and  STTR programs.
subsections: section_title: Changing the Calculation Methodology Could Increase Spending Requirements and Participation in the Programs
paragraphs: Changing the methodology for determining SBIR and STTR spending  requirements to use an agency’s total R&D budget authority rather than  its extramural R&D obligations could increase spending requirements. For  example, if the spending requirements were calculated based on an  agency’s total R&D budget authority rather than its extramural R&D  obligations using the same percentages and participation thresholds  defined in current law, we estimate that total spending requirements in  fiscal year 2014 for the SBIR and STTR programs would have increased  from $2.3 billion to $4.2 billion, an increase of roughly $1.9 billion, or 83  percent, based on our analysis of budget authority data and data  submitted to SBA. This increase would have occurred for two reasons: (1)  an agency’s total R&D budget authority is larger than its extramural R&D  obligations therefore agencies that currently participate would have been  required to spend more on the programs and (2) additional agencies  would have been required to participate. Figure 3 shows the effects of  changing spending requirements at each agency from current law, which  is based on a percentage of extramural R&D obligations, to an alternative  scenario that applies the same percentages to total R&D budget  authority. These effects are consistent with our findings in previous  reports.
As shown in figure 3, some agencies’ spending requirements would have  increased more than others under the alternative scenario. This variation  is due primarily to differences in the relative proportions of the agencies’  extramural and intramural R&D obligations, but is also affected by how  many programs are excluded by statute. Agencies that fund primarily  extramural research would have seen smaller increases to their spending  requirements for the SBIR and STTR programs under the alternative  scenario, while agencies that fund more intramural research would have  seen larger increases in their spending requirements, a finding consistent  with those of our previous reports. Examples are as follows:
NSF used 86.3 percent of its total R&D budget authority to fund  extramural research in fiscal year 2014 and was required, based on  data it submitted to SBA, to spend $131 million on its SBIR program  that year. Under the alternative scenario, NSF’s SBIR spending  requirement would have been $152 million, an increase of about 16  percent.
Commerce, on the other hand, used 22.2 percent of its total R&D  budget authority to fund extramural research in fiscal year 2014 and  was required to spend about $8 million on its SBIR program in that  year. Under the alternative scenario, Commerce’s spending  requirement would have more than quadrupled to $38 million.  Furthermore, assuming that the thresholds for participating in the  program did not change, this scenario would have required  Commerce to spend approximately $5 million on a new STTR  program in fiscal year 2014. The alternative scenario would have  required Commerce to spend an additional $34.6 million on the SBIR  and STTR programs in fiscal year 2014, an increase of more than 400  percent.
As noted above, changing the calculation methodology from basing the  spending requirement on extramural R&D obligations to total R&D budget  authority would also require additional agencies to participate in the SBIR  and STTR programs, assuming that the dollar thresholds for participation  remain the same. Two additional agencies—the Departments of Veterans  Affairs (VA) and the Interior—would have been required to participate in  SBIR during fiscal year 2014 under the alternative scenario. Adding  these agencies to the SBIR program would have increased total federal  SBIR spending requirements by $54 million, in addition to the $1.6 billion  increase in spending requirements at the 11 agencies that currently  participate in the SBIR program. Likewise, three additional agencies— USDA, Commerce, and VA—would have been required to participate in  STTR under the alternative scenario. Adding these three agencies to  the STTR program would have increased total federal STTR spending  requirements by $18.8 million, in addition to the spending requirement  increases of $214 million at the five agencies that currently participate in  STTR.
Alternatively, basing the SBIR and STTR spending requirements on an  agency’s total R&D budget authority and applying a lower percentage  than under current law could result in a total federal commitment to the  programs that is similar to what would result under current law. However,  our analysis shows that such a scenario would lower spending  requirements at some agencies and raise them at others. As shown in  figure 4, if the percentage applied to an agency’s total R&D budget  authority had been 1.6 percent for the SBIR program and 0.2 percent for  the STTR program in fiscal year 2014, and the thresholds for participating  had remained the same, total required federal spending on the programs  would be similar to required federal spending under current law. Using  these lower percentages, spending requirements would have increased at  agencies that primarily fund intramural research, such as EPA and  Commerce. In contrast, spending requirements would decrease at  agencies, such as HHS and NSF, which primarily fund extramural  research. In this scenario, the spending requirement reductions, including  $230.7 million at HHS and $53.9 million at NSF, were large enough to  offset increases in spending requirements at other agencies.
section_title: Program Managers Identified Potential Benefits and Drawbacks to Changing the Calculation Methodology
paragraphs: As we found in our previous review on these programs, agencies  identified potential benefits and drawbacks to changing the calculation  methodology for their SBIR and STTR spending requirements from  extramural R&D obligations to total R&D budget authority. For example,  officials at DOD told us in the past that changing the calculation method  would simplify administration of their program. As we found in previous  reports, officials said that it can take months for DOD’s program  managers to receive funding for the SBIR and STTR programs from the  comptrollers of all three military departments and approximately 21 other  components that conduct R&D. However, in technical comments on a  draft of this report, a DOD official told us that, based on additional  analysis, the Office of Small Business Programs believes that changing  the calculation methodology would complicate the administration of the  programs because services and components would still need to calculate  their extramural R&D budgets and DOD would need to apply different  percentages to the services and components to compensate for the wide  variation in extramural budgets within the department. In addition,  program managers at one agency told us that basing the spending  requirement on total R&D would result in more SBIR program awards,  and officials at another agency said that the change would allow the  agency to set up an STTR program. If spending requirements were based  on total R&D budget authority, DOD officials told us that the percentages  for the SBIR and STTR spending requirements should be lowered to  offset using total R&D.
Agency officials also identified potential drawbacks to changing the  methodology, which is also consistent with our findings in previous  reports. In particular, some program managers said that increasing the  amount of money that goes to the SBIR and STTR programs could  reduce the amount of resources available for other R&D conducted by the  agency. Furthermore, program managers from one agency told us that  basing the SBIR and STTR spending requirements on total R&D would  not substantially reduce the time required to calculate their spending  requirements. For example, officials at one agency said that they would  still have to request data from all of their line offices during the year, as  total R&D obligations can fluctuate. Some program managers also said  that basing the spending requirement on total R&D would put an  unsustainable strain on their programs and make it difficult to find high- quality awardees in the near term.
section_title: Total Administrative Spending in Fiscal Year 2014 Is Unknown, but Seven Agencies Spent $19.1 Million on the Administrative Pilot Program
paragraphs: Little is known about total administrative spending for fiscal year 2014  because the agencies that participate in the SBIR and STTR programs do  not—and are not required to—fully track these costs. The seven  agencies that participated in the administrative pilot program reported  spending $19.1 million to address the six program goals in fiscal year  2014, but this amount does not represent total administrative spending.  Furthermore, officials at some agencies identified constraints to  participation in the administrative pilot program.
subsections: section_title: Little Is Known about Total Administrative Spending
paragraphs: Little is known about the total amount that the 11 participating agencies  spent to administer their SBIR and STTR programs for fiscal year 2014  because the agencies do not—and are not required to—fully track these  costs. For example, as we reported in the past, officials told us that it is  challenging to accurately estimate total administrative costs because  many staff and contractors help administer the program part time.
Program managers also told us that many of their staff and contractors  spend time on different programs, and they do not have systems in place  to track their time specifically to the SBIR and STTR programs.
In response to our requests for data on their fiscal year 2014  administrative costs, 9 of the 11 participating agencies provided  information on some categories of administrative costs and partial  estimates of costs. These estimates ranged from about $8,500 to  $2,200,000. As with the cost data for fiscal years 2011, 2012, and 2013  provided for our previous reports, these data were incomplete and  unverifiable.
section_title: Seven Agencies Participated in the Administrative Pilot Project in Fiscal Year 2014 and Spent $19.1 Million
paragraphs: Seven agencies—DOD, DOE, HHS, NSF, USDA, Commerce, and DOT— participated in the administrative pilot program in fiscal year 2014, and  these agencies reported spending $19.1 million on administrative and  oversight activities as part of the program. The 2011 reauthorization of  the SBIR and STTR programs directed SBA to allow agencies to spend  up to 3 percent of SBIR funds on program administration and similar  costs in fiscal years 2013 through 2015. In November 2015, the  National Defense Authorization Act for Fiscal Year 2016 extended the  program through September 30, 2017.
According to the programs’ policy directives, funding for the pilot program  cannot replace current agency administrative funding. SBA’s policy  directives require each agency to submit a work plan to SBA that  includes, among other information, a prioritized list of initiatives, the  estimated amounts to be spent on each initiative, and the expected  results to be achieved. The policy directives require SBA to evaluate the  work plan and provide initial comments within 15 calendar days of receipt  of the plan. If SBA does not provide initial comments within 30 calendar  days of receipt of the plan, the work plan is deemed approved. In our April  2015 report, we found that SBA requested that agencies submit data on  the total amount spent on the administrative pilot program, but did not  request that agencies submit information on how they used the funds. In  that report, we recommended that SBA request that agencies  participating in the administrative pilot program provide data on the use of  the funds, rather than a total cost for all the activities under the pilot. SBA  generally agreed with our recommendation and, in fiscal year 2014,  requested that agencies provide additional information on how they spent  administrative pilot program funds. SBA is required to use the information  from the agencies to report on the pilot program to Congress.
Agencies participating in the administrative pilot program used funds  towards six goals developed by SBA in consultation with agency officials,  as shown in table 3.
Under the administrative pilot program, some goals received more  attention than others based on our review of the funds spent on each  goal. In particular, all seven of the agencies that participated in the  administrative pilot program spent funds to increase outreach to  underserved communities. For example, officials at one agency told us  that they spent approximately $1 million under the administrative pilot  program to expand assistance, through budget support and proposal  review, among other assistance, to women-owned small businesses,  minority-owned small businesses, and small businesses from states that  are underrepresented in the SBIR and STTR programs. According to  agency officials, their efforts resulted in 43 applications from companies  that received such assistance. Other agencies also took steps to improve  outreach, including traveling to underserved states, launching websites,  enhancing social media platforms, or attending trade shows. On the other  hand, only two agencies used funds for congressional and inter-agency  reporting. Officials at one agency told us that it is not clear from the law or  SBA guidance if all six goals require equal attention.
In fiscal year 2014, agencies proposed that they would spend $55.5  million on the administrative pilot program, but our analysis of the  agencies’ work plans and data submitted to SBA shows that agencies  obligated $19.1 million, or 34 percent of the proposed amount (see table  4). This compares with obligations of $12.3 million in fiscal year 2013, or  21 percent of the proposed amount. Of the seven agencies that  participated in the administrative pilot program, DOE obligated most of  what it estimated it would spend, and Commerce obligated the lowest  percentage of what it planned to spend. Program managers at Commerce  told us that they originally planned to spend money on a joint SBA  database, but agencies faced difficulties in getting permission to use the  money for the database and the project was completed with other funds.  In addition, they said that the agency received appropriations late in fiscal  year 2014, requiring them to reserve money they planned to spend for  outreach efforts in fiscal year 2014.
section_title: SBA Has Not Evaluated Potential Constraints in the Administrative Pilot Program
paragraphs: More agencies participated in the administrative pilot program in fiscal  year 2014 than in the previous year, but some agencies identified  potential constraints that limited their participation, including the  temporary nature of the program and the requirement to expend funds  only on new activities. First, officials at 2 agencies told us that the  temporary nature of the administrative pilot program constrained them  from using the funds to make new hires. For example, officials at one  agency said that they could have used the funds to hire a new contract  specialist but were concerned that they would not have funding to pay the  employee after the end of the pilot program. Program officials at another  agency, which did not participate in the administrative pilot program, told  us that if they hired additional contractors, they could not continue to pay  them after the administrative pilot ended. Program managers at 10 of the  11 agencies supported making the administrative pilot program  permanent, including 3 of the 4 agencies that did not participate in the  pilot program. For example, officials at one agency told us that the  administrative pilot program gives them opportunities to experiment with  different approaches to promote their programs. While NSF officials said  that the agency already has substantial programs in place, administrative  funds enabled them to start new ones, particularly around social media.  SBA officials told us that administrative pilot program funding is  necessary to increase staff levels. Officials at the 1 agency that did not  support making the administrative pilot program permanent at this time  said that it is too early to tell whether the pilot program is successful and  that more information is needed to decide whether the administrative pilot  program should be made permanent.
Second, program officials at 2 agencies told us that the requirement to  expend funds on only new activities constrained their ability to participate  in the program. Officials at one of the agencies that did not participate in  the administrative pilot program told us that the requirement to spend  money on only new initiatives restricted them from using funds for existing  administrative activities, whereas agencies that do not already have these  types of activities are not constrained from using their funds for the same  activities. The officials also told us that the requirement puts a heavy  burden on offices with smaller budgets, as they must start up new  activities as well as continue existing activities with limited budgets.
As we discussed previously, SBA is required to provide Congress with an  annual report each fiscal year. In addition to addressing issues in the  annual report such as agencies’ methodologies to calculate extramural  R&D obligations, SBA is also required to collect data and report on the  funds used to achieve the objectives of the administrative pilot program.  Such a report could include an evaluation of the constraints that have  hindered agencies’ participation in the program. As outlined in GAO’s  guide for designing evaluations, an evaluation gives an agency the  opportunity to refine the design of a program and provides a useful tool  for determining whether program operations have resulted in the desired  benefits for participants. In its fiscal year 2013 report to Congress on the  programs, SBA identified some potential constraints to the amounts that  agencies spent on the program, including the amount of time available for  making obligations after the necessary budget information was received.
SBA officials told us that they plan to include information on the  administrative pilot program in their annual report to Congress.  However, as we previously noted, SBA submitted its fiscal year 2013  report 2 years after agencies’ data were due and has not submitted its  fiscal year 2014 annual report to Congress in a timely manner. Until SBA  submits its fiscal year 2014 report and includes information on the  administrative pilot program, SBA and Congress will not have the  information they need to know whether the administrative pilot program  has met its goals or whether there are constraints to participating, such as  those that we identified. Further, an assessment of the effect of potential  constraints on agencies’ abilities to participate in the pilot program and  the steps needed to address these constraints may help to eliminate  inconsistencies in the activities that agencies can currently consider new  and help address agencies’ views that they are limited in their ability to  hire individuals for administrative purposes.
section_title: Conclusions
paragraphs: Federal agencies have spent billions of dollars with small businesses  under the SBIR and STTR programs to develop and commercialize  innovative technologies. In our previous reports on these issues, we  identified some areas where SBA could take actions to better ensure  agencies’ compliance with spending and reporting requirements, as well  as management of the administrative pilot program. SBA has taken  actions to address some of these recommendations and SBA officials  have told us of their plans to address others. As SBA takes steps to  address issues we previously identified, we found three additional issues  that could continue to affect compliance with spending and reporting  requirements in the future. First, because SBA’s guidance does not  address the timing for when an agency should start up programs,  agencies may not know when to start a program. Such information may  help ensure that agencies will establish programs when required and  ensure that the required amount of money is available for small  businesses participating in the programs. Second, because SBA removed  language requesting agencies to list the dollar amounts of exclusions  from the guidance for submitting data for fiscal year 2014, some agencies  did not provide this information. Restoring this guidance could help SBA  fully evaluate and report to Congress on the accuracy of agencies’  methodology reports. Third, because SBA has not submitted a report on  the administrative pilot program to Congress for fiscal year 2014, it has  not evaluated the effects of potential constraints on agencies’ ability to  participate in the pilot program for that year and the steps needed to  address these constraints. As a result, some agencies may not have  implemented the administrative pilot program to the fullest extent.  Performing such an analysis and notifying Congress of constraints may  help to eliminate inconsistencies in the activities that agencies can  currently consider new and help address agencies’ views that they are  limited in their ability to hire individuals for administrative purposes.
section_title: Recommendations for Executive Action
paragraphs: To ensure full compliance with SBIR and STTR spending and reporting  requirements and improve participation in the administrative pilot  program, we recommend that the SBA Administrator take the following  three actions:
Review SBA guidance regarding when an agency is required to start  up an SBIR or STTR program, and if necessary, update the guidance  to provide greater clarity to agencies with R&D obligations greater  than the thresholds for participating.
Restore guidance requesting that agencies provide dollar amounts for  exclusions in agency methodology reports to SBA.
Complete the required reporting on the administrative pilot program  for fiscal year 2014, which could include an evaluation of the potential  constraints that may hinder agencies’ participation and any steps to  address these constraints.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to SBA and the 11 participating  agencies for review and comment. In an e-mail response, SBA generally  agreed with our recommendations. SBA also provided technical  comments, as did DHS, DOD, DOE, HHS, and NASA, which we  incorporated, as appropriate. As part of its technical comments, SBA  provided additional information on steps it has taken to identify why its  annual reports to Congress have taken so long to complete and  corrective actions it has taken to address the delays. Based on this  information, we deleted a proposed recommendation on this issue. Five  of the agencies—Commerce, DOT, Education, EPA, and NSF—had no  technical or written comments. The remaining agency, USDA, provided  written comments, which we reproduced in appendix III.
In written comments, the Chief Scientist for USDA raised three issues.  First, USDA raised issues with how we determine compliance with  spending requirements in the report. USDA explained that it uses a two- step process to determine its annual spending requirement—first, USDA  determines a “set aside” based on appropriations, and second, USDA  calculates end-of-year total obligations. USDA said that we focused only  on the end of year obligations process in determining whether agencies  met the spending requirements and omitted the calculations that show  compliance at the front-end of the process. The Small Business Act  defines extramural R&D budget in terms of obligations, however. As we  found in our April 2015 report, nothing in the Act indicates that  “obligations” should be construed as “planned obligations.” Because  extramural R&D budget is defined as actual obligations over the course of  the year, we therefore use end-of-year obligations to determine whether  an agency has met its annual spending requirement. Further, in its  comments, USDA states that the spending compliance calculation needs  further review and it appears that neither we nor SBA have recommended  a change to the calculation methodology. However, in our April 2015  report, we recommended that SBA notify Congress in its annual report if it  cannot determine agency compliance with program spending  requirements when agencies that participate in the SBIR and/or STTR  programs do not report extramural R&D obligations data, or develop a  proposal to Congress that would change the requirement. In response to  this recommendation, SBA reported to Congress in its fiscal year 2013  report that it could not determine compliance with spending requirements  and has worked with the agencies to collect obligations data.
Second, in its written comments, USDA states that it was not possible to  initiate an STTR program in fiscal year 2014 based on end of year  obligations. We recognize in this report that one potential challenge for  agencies setting up a new STTR program is that total extramural R&D  obligations may be difficult to calculate until after the end of the fiscal  year, as agencies can obligate extramural R&D funding through the end  of the fiscal year. To address this potential challenge, we recommend in  this report that SBA review guidance regarding when an agency is  required to start up an SBIR or STTR program and, if necessary, update  the guidance to provide greater clarity to agencies with R&D obligations  greater than the thresholds for participating.
Third, in its written comments, USDA stated that it can spend multi-year  or no-year funds in years other than when they were appropriated, which  can have a negative effect on the ability of the SBIR program to comply  with spending requirements under the current calculation. USDA raised  concerns that footnote 18 in the report, which restates the spending  requirements, could lead to a misinterpretation of USDA’s authority. We  agree with USDA that the Small Business Act does not supersede the  authority USDA has to use multi-year or no-year funds in general.  However, the Small Business Act imposes more specific yearly spending  requirements for the SBIR and STTR programs. We clarified the cited  footnote to make clear that the referenced spending requirements only  pertain to the SBIR and STTR programs.
We are sending copies of this report to the appropriate congressional  committees; the Secretaries of Agriculture, Commerce, Defense,  Education, Energy, Health and Human Services, Homeland Security, and  Transportation; the Administrators of the Small Business Administration,  the Environmental Protection Agency, and the National Aeronautics and  Space Administration; the Director of the National Science Foundation;  and other interested parties. In addition, the report is available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff members have any questions about this report,  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 report. GAO staff who made key  contributions to this report are listed in appendix IV.
section_title: Appendix I: Agencies’ Compliance with Spending Requirements for the Small Business Innovation Research Program for Fiscal Year 2014, according to Agency Data
paragraphs: The data that the agencies submitted to the Small Business  Administration (SBA) indicate that 9 of the 11 participating agencies spent  amounts for the Small Business Innovation Research (SBIR) program  that met or exceeded their fiscal year 2014 spending requirements, while  spending for the remaining 2 agencies did not meet the requirements. For  the purposes of this report, we defined compliance as spending at least  2.8 percent of an agency’s reported extramural research or research and  development obligations on the SBIR program in fiscal year 2014, as  required by the Small Business Act. This method is consistent with SBA’s  approach for calculating spending requirements in its reports to Congress  on the program (see table 5).
section_title: Appendix II: Agencies’ Compliance with Spending Requirements for the Small Business Technology Transfer Program for Fiscal Year 2014, according to Agency Data
paragraphs: The data that the agencies submitted to the Small Business  Administration (SBA) indicate that four of the five participating agencies  spent amounts for the Small Business Technology Transfer (STTR)  program that met or exceeded their fiscal year 2014 spending  requirements, while 1 agency did not. For the purposes of this report, we  defined compliance as spending at least 0.4 percent of an agency’s  reported extramural research or research and development obligations on  the STTR program in fiscal year 2014, as required by the Small Business  Act. This method is consistent with SBA’s approach for calculating  spending requirements in its reports to Congress on the program. (See  table 6.)
section_title: Appendix III: Comments from the U.S. Department of Agriculture
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Hilary Benedict (Assistant  Director), Jeffrey Barron, Lisa Brown, Antoinette Capaccio, Cindy Gilbert,  Jordan Kudrna, Alison O’Neill, and Sara Sullivan made key contributions  to this report.