Small Business Research Programs: Challenges Remain in Meeting Spending and Reporting Requirements
Published: 2015-04-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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 requires agencies with extramural R&D obligations that meet certain thresholds for participation—$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 mandated GAO to review compliance with spending and reporting requirements, as well as other program aspects. This report examines, for fiscal year 2013, (1) the extent to which 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 budgets, and (4) what is known about the amounts spent on administering the programs. GAO reviewed agency spending data and required reports for fiscal year 2013 and interviewed program officials from SBA and the participating agencies.
section_title: What GAO Found
paragraphs: The Small Business Administration's (SBA) ability to fully determine compliance with spending requirements for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs for fiscal year 2013 is limited because most agencies submitted incorrect data. Nevertheless, analyzing agency data submitted to SBA suggests that 9 of the 11 agencies participating in the SBIR program and 4 of the 5 agencies participating in the STTR program complied with spending requirements for fiscal year 2013. Specifically, agencies are required to submit the actual amount obligated for extramural research or research and development (R&D)—which is generally conducted by nonfederal employees outside of federal facilities—and these obligations are the basis for calculating the agencies' spending requirements. However, most agencies submitted budget data instead. Program managers raised concerns about the difficulties in determining the amount of extramural R&D obligations and the challenges in using this amount to calculate spending requirements, as extramural R&D obligations are not known until after the end of the fiscal year. However, without the required data, SBA cannot accurately report on agencies' compliance with spending requirements—as defined in the law—to Congress.
Some agencies did not comply with certain methodology reporting requirements for the programs. For example, 3 of the 11 participating agencies did not itemize the specific programs they excluded from their extramural R&D in their required methodology reports, or did not explain the reasons why they excluded the programs, or both. GAO also found that SBA did not assess whether the information it collected was adequate to appropriately analyze agencies' methodology reports. Without such an assessment, SBA cannot provide Congress with an accurate analysis of how agencies calculate their extramural R&D. Furthermore, SBA has not issued its required report to Congress on the programs for fiscal year 2013.
Basing the programs' spending requirements on total R&D instead of extramural R&D could increase the amount of each agency's spending requirement and increase the number of agencies required to participate. Some agency officials said that basing the calculation methodology on their total R&D budget would make administering their programs easier, but officials at other agencies said that the change could result in reduced funding for intramural research and extramural research outside of the SBIR and STTR programs.
Little is known about total administrative spending on the programs for fiscal year 2013 because the agencies that participate are not required to and do not fully track these costs. Six agencies participated in an administrative pilot program that allowed them to spend program funds on new administrative and oversight activities in fiscal year 2013. These agencies reported spending $12.3 million on these activities, but this amount does not represent total administrative spending. Additionally, this is about 20 percent of what the agencies had planned to spend on the administrative pilot program at the beginning of the fiscal year. Program managers at seven agencies told GAO that they would prefer that the administrative pilot program were either extended or made permanent.
section_title: What GAO Recommends
paragraphs: GAO recommends, among other things, that SBA notify Congress if it cannot determine agency compliance with spending requirements and assess the adequacy of the methodology reporting requirement. 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 and have awarded more than 156,000 contracts and grants,  totaling nearly $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, Mapp  Biopharmaceutical, Inc. received SBIR awards in 2007 and 2011 totaling  more than $3.5 million to develop the ZMapp drug that was administered  to two Americans infected with the Ebola virus in West Africa in 2014. The  SBIR and STTR programs are similar in that participating agencies  identify topics for R&D projects and make awards to small businesses to  develop and commercialize innovative technologies. For the SBIR  program, a for-profit 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 budgets of $100 million or more for extramural  R&D are required to establish and administer an SBIR program, and  federal agencies with budgets 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 2013, agencies  participating in the SBIR program were required to spend at least 2.7  percent of their extramural R&D obligations on the program, and agencies  participating in the STTR program were required to spend at least 0.35   The SBIR  percent of their extramural R&D obligations on the program.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   The Small Business Act  obligated for awards, among other information.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. 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.
National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, § 5141, 125  Stat. 1298, 1852, codified at 15 U.S.C. § 638(mm) (2012). issued in June 2014, covered fiscal year 2012.fiscal year 2013 (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 instead of its extramural R&D obligations,  and (4) what is known about how much agencies spent to administer the  programs.
If an agency’s spending for the SBIR or STTR programs as a percentage of its  extramural R&D budget was within a rounding error of the required level, we considered  that agency to be in compliance. that agencies follow to help them more consistently meet their annual  spending requirements.
To examine the extent to which participating agencies and SBA complied  with certain reporting requirements for fiscal year 2013, we compared  information in the methodology reports that each agency submitted with  requirements in the Small Business Act and program policy directives.  We also discussed agencies’ efforts to follow new guidance issued by  SBA. Additionally, we requested SBA’s report to Congress for fiscal year  2013 and discussed the status of that report with SBA program officials.
To examine the potential effects of basing spending requirements for the  SBIR and STTR programs on agencies’ total R&D budgets instead of  their extramural R&D obligations, we used fiscal year 2013 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 budgets.  We also assumed that current spending thresholds that require agencies  to participate in SBIR and STTR programs when applied to extramural  R&D budgets would apply to the total R&D budgets. 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 2013. 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 agencies and discussed the  data with program officials. We determined that the administrative cost  data were too incomplete and from such varied sources that an  assessment of the available data was not possible. For the administrative  pilot program data, we reviewed the agencies’ proposals for the  administrative pilot program, calculated the total amount that agencies  spent on the administrative pilot program in fiscal year 2013, and  compared these totals with the amount agencies estimated they would  spend on the pilot. To ensure the reliability of the data associated with the  administrative pilot program, we discussed the completeness and  accuracy of the data with the six agencies that participated in the  program. We determined that the data were sufficiently reliable for the  purposes of this report.
We conducted this performance audit from August 2014 through April  2015 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 has four main purposes: (1)  stimulate technological innovation, (2) use small businesses to meet  federal R&D needs, (3) encourage participation in technological  innovation by small businesses owned by women and disadvantaged  individuals, and (4) increase commercialization of innovations derived  from federal R&D efforts. The purpose of the STTR program—initiated  about a decade later in 1992—is to stimulate a partnership of ideas and  technologies between innovative small businesses and research  institutions through federally funded R&D. Legislation enacted in 2011  reauthorized the programs from fiscal year 2012 through fiscal year  2017. The Small Business Act requires agencies to spend a certain  percentage on programs each year. 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 R&D 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 2.7 percent for fiscal year 2013 and will increase  incrementally to 3.2 percent of extramural R&D obligations by fiscal year  2017, and the STTR allocation was set at 0.35 percent for fiscal year  2013 and will increase incrementally to 0.45 percent by fiscal year 2017.
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 6 to 9 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 from 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 has 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 obligations amount and the  amount obligated for awards for the programs.
Each participating agency must administer its SBIR and STTR programs  in accordance with program laws, regulations, and the policy directives  issued by SBA. In general, the programs are similar across agencies. All  of the 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  to design and manage the specifics of their 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 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 agency  determines whether the funding for awards will be provided as grants or  contracts. According to an agency program administrator, 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 highly focused topics 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 topics that  allow for more flexibility.
section_title: SBA Cannot Fully Determine Compliance with Spending Requirements, but Data Submitted to SBA Indicate Most Agencies Met the Requirements
paragraphs: SBA cannot fully determine if all 11 agencies met their spending  requirements for fiscal year 2013, as 9 of the 11 participating agencies  did not follow SBA’s guidance in submitting data on their total extramural  R&D obligations. Nevertheless, data the agencies submitted to SBA  indicate that most agencies complied with their SBIR and STTR spending  requirements for fiscal year 2013.
subsections: section_title: SBA’s Ability to Determine Compliance Is Limited by Incorrect Data
paragraphs: SBA cannot fully determine whether the participating agencies complied  with their fiscal year 2013 spending requirements using the data that  agencies submitted to SBA because 9 of the 11 agencies provided  incorrect data. The Small Business Act requires agencies to calculate  their spending requirements based on their extramural R&D budget, but it  defines the extramural R&D budget as the actual obligations over the  course of the year—which are not fully known until the end of the year— rather than the amount that agencies propose to spend on the program  early in the fiscal year. For years before fiscal year 2013, most agencies  provided the amount that they proposed to spend on extramural R&D and  not the amount they actually obligated in their data submitted to SBA after  the end of the fiscal year. SBA issued a revised template for data  submission for fiscal year 2013 to clarify what information was needed to  calculate spending requirements and directed agencies to submit data on  their extramural R&D obligations. SBA officials said that they changed the  template for data submission to respond to our past recommendations to  provide additional guidance to agencies about submitting data and  calculating spending requirements. SBA provided agency program  managers with new guidance describing how to submit the relevant data  and information to SBA. In addition, SBA officials told us that they  discussed this issue at length with the agencies. However, SBA’s efforts  did not fully address the problem, as NASA and the Department of Health  and Human Services (HHS) are the only agencies that submitted data on  extramural R&D obligations to SBA for fiscal year 2013, as requested by  SBA in accordance with the law. The remaining nine agencies submitted  incorrect data by providing their extramural R&D budget estimates.
Program officials said that the requirement to use extramural R&D  obligations rather than extramural R&D budget makes it difficult for  agencies 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  agency to a target that is not known until the end of the year, when it is  not possible to obligate additional money. In addition, some program  officials told us that they do not have systems in place to easily calculate  extramural R&D obligations. For example, DOD officials said that it would  likely not be possible to determine a final extramural R&D obligations  figure until 6 months after the end of the fiscal year. Furthermore, some  agency officials told us that their agency does not calculate total  extramural R&D obligations. For example, officials at the Environmental  Protection Agency (EPA) said that their financial system did not provide  the level of detail necessary to calculate extramural R&D obligations, and  modifying the current system would require a level of effort beyond what  is justified for an agency with a small extramural R&D budget.  Nevertheless, the Small Business Act requires agencies to use  extramural R&D obligations to calculate their annual spending  requirements. Moreover, SBA’s guidance for fiscal year 2013 continues to  direct agencies to use this approach, and SBA officials told us that the  best way to ensure compliance with spending requirements is to use  obligations.
SBA’s ability to conduct an accurate assessment of whether agencies are  complying with spending requirements is dependent on agencies  submitting the correct data. For example, during fiscal year 2013, NASA  estimated its extramural R&D budget to be about $4.9 billion, and it  developed a spending plan for the SBIR and STTR programs based on  this budget. However, according to data submitted to SBA, NASA’s end- of-year extramural R&D obligations totaled about $5.2 billion, causing  NASA’s actual spending requirements for the programs to be higher than  anticipated at the beginning of the year, as shown in table 2. NASA spent  $132.5 million on its SBIR program, which would have been enough to  comply with its estimated spending requirement, but it was less than the  actual spending requirement. NASA officials told us that they did not  know what the final extramural R&D obligations would be until after the  end of the fiscal year and, therefore, were unable to spend more to meet  the higher-than-anticipated spending requirements. Consistent with our  findings for fiscal year 2012, this increase in extramural R&D obligations  compared with the budget contributed to NASA’s noncompliance with  SBIR spending requirements in fiscal year 2013, according to program  officials. NASA submitted the correct data to SBA, and our analysis  showed it did not meet the spending requirements in fiscal year 2013.  However, had NASA provided SBA with its extramural R&D budget rather  than extramural R&D obligations, as other agencies provided, NASA  would have—incorrectly—appeared to have met its SBIR spending  requirement.
Other agencies that appeared to have met their spending requirement  based on extramural R&D budget data may not actually have complied  with their spending requirement if their extramural R&D obligations were  higher than the amount they budgeted for the year. Conversely, an  agency that appeared to spend less than the required amount on the  programs could have actually met the spending requirements if the  agency’s extramural R&D obligations at the end of the year were lower  than the amount the agency budgeted at the beginning of the year. As  discussed earlier, most agencies did not provide extramural R&D  obligations data to SBA, which is a key piece of data for determining  whether an agency met the spending requirements. SBA uses the data  that agencies submit to determine the agencies’ compliance with  spending requirements and reports this information to Congress as part of  its annual report on the programs. However, without the correct data on  the amount that agencies obligated for extramural R&D, SBA cannot fully  determine agencies’ compliance with the spending requirements and  cannot accurately report to Congress on their compliance. If SBA cannot  fully determine agencies’ compliance based on data those agencies are  submitting, then notifying Congress of this limitation would be important to  help ensure that Congress receives critical information for overseeing  these programs. Further, if SBA determines that calculating spending  requirements based on extramural R&D obligations is not feasible, then  developing a proposal for Congress to change the requirement could  better position SBA and the agencies in determining requirements to help  ensure that the intended benefits of these programs are being attained.
section_title: Agency Data Indicate Most Agencies Met SBIR and STTR Spending Requirements
paragraphs: While it was generally the wrong data, the data agencies did submit to  SBA indicate that 9 of the 11 participating agencies met or exceeded their  fiscal year 2013 spending requirements for the SBIR program, while the  remaining 2 agencies did not meet the requirements. According to the  agencies’ data, the 9 agencies that appeared to meet or exceed the  requirements spent from 2.7 percent to 4.7 percent of their extramural  R&D obligations for the program, and the remaining 2 agencies spent  from 2.1 to 2.5 percent. In comparison, agency data indicated that 8 of  the 11 agencies met or exceeded spending requirements in fiscal year  2012, 10 of the 11 agencies met or exceeded spending requirements in  fiscal year 2011, and 3 of the 11 agencies met spending requirements  each fiscal year from 2006 through 2011, as we found in our two prior  reports. Figure 1 shows the percentage of extramural R&D obligations  that agencies spent on the SBIR program, based on the data the  agencies submitted to SBA. Appendix I provides additional detail.
The data agencies submitted to SBA indicated that four of the five  participating agencies met or exceeded their fiscal year 2013 spending  requirements for the STTR program, while the remaining agency did not  meet the requirements. According to the agencies’ data, the four  agencies that complied with the requirements spent from 0.35 percent to  0.38 percent of their submitted extramural R&D obligations on their STTR  programs, and the agency that did not comply spent 0.34 percent. In  comparison, as we reported in the past, the data that agencies submitted  to SBA indicated that two of the five agencies complied in fiscal year 2011  and 2012, and only one of the agencies complied with spending  requirements each fiscal year from 2006 through 2012. Figure 2 shows  the percentage of extramural R&D obligations that agencies spent on  STTR, based on the data the agencies submitted to SBA. Appendix II  provides additional detail.
Program managers told us that one reason agencies did not comply with  spending requirements in fiscal year 2013 is because they reserved  program funds that were appropriated in fiscal year 2013 and plan to  spend those funds in future years. Specifically, program officials from one  agency that did not comply with SBIR spending requirements— Commerce—and the agency that did not comply with STTR spending  requirements—DOD—told us that they reserved the required amount for  the program and spent the remaining funds in fiscal year 2014. In  addition, agency officials told us that extenuating circumstances, such as  late appropriations and spikes in funding related to natural disasters, also  affected their ability to meet annual spending requirements in fiscal year  2013. For example, Commerce officials said that in fiscal year 2013 the  National Oceanic and Atmospheric Administration received additional  funding from supplemental appropriations related to Super Storm Sandy  late in the fiscal year—after the agency’s internal deadline for issuing new  contracts—which kept them from obligating enough money to meet the  spending requirement that increased due to the supplemental funding.  They said that the money not obligated in fiscal year 2013 was obligated  in fiscal year 2014. Consistent with the findings from our June 2014  report, some program managers said their agency did not meet spending  requirements, but the officials said they will spend all of the funding that  was budgeted for the programs before the funding expires. However, they  did not spend the minimum required amount in fiscal year 2013 and,  therefore, did not comply with the spending requirements.
SBA officials agree that meeting the spending requirements for the SBIR  and STTR programs requires agencies to spend at least the minimum  required percentages on the programs each fiscal year. However, we  found in our June 2014 report that SBA’s most recent SBIR policy  directive states that agencies must reserve the minimum percentages for  awards to small business, and we recommended that SBA revise its  policy directives to correctly summarize the law. officials told us that they are planning to review and clarify the language in  future policy directives, but, as the officials told us in January 2015, they  disagree that the policy directive inaccurately summarizes the law. The  officials told us that the inclusion of the word “reserve” in the policy  directive does not lead agencies to reserve money for multiple years.  However, we found that agencies continue to reserve money, and we  continue to believe that a clarification is needed to help minimize this  practice.
GAO-14-431.
Several agencies have also implemented certain practices designed to  help ensure they meet their spending requirements. Examples of such  practices include the following:
Budgeting more than the minimum required amount for the  program. Education officials told us that they budget more than the  minimum amount they calculate as required for the SBIR program,  which increases the likelihood that the agency will meet or exceed the  spending requirement. In addition, if appropriations are higher than  anticipated, the officials review their planned budget for the SBIR  program and determine if the program budget should be increased.  DHS officials told us that their agency also obligates additional funds  beyond those budgeted for the SBIR program. For example, DHS  officials said that the agency obligated nearly $2.8 million in addition  to the amount originally budgeted for the program for fiscal year 2013.
Tracking program obligations and centralizing funds. Officials  from DOE and one component in DHS said that they review how  much the agency has obligated for the programs each month to help  ensure that they obligate all of the SBIR and STTR funds. DOE  components also transfer funds directly to the centralized SBIR and  STTR program office, making it easier for the program office to ensure  that all funds are obligated.
Allowing voluntary participation. DOD officials said that some  components within the agency voluntarily participate in the SBIR  program even though they are not required to by law because the  components see benefit in the program. Including these other  components increases the total amount obligated toward the  program.
section_title: Agencies Did Not Comply with All Methodology Reporting Requirements
paragraphs: Each of the agencies participating in the SBIR and STTR programs  submitted the required reports describing the methodology used for  calculating the amount of their extramural R&D budgets to SBA for fiscal  year 2013, but agencies did not comply with all methodology reporting  requirements. The act also requires SBA to include an analysis of the  agencies’ methodology reports in its annual report to Congress. SBA has  not yet issued its required report to Congress on the programs for fiscal  year 2013, but the fiscal year 2012 report to Congress, which SBA  submitted in November 2014, did not include the required analysis of  agencies’ methodology reports.
subsections: section_title: Some Agencies Did Not Provide All Required Information, and Most Submitted Methodology Reports Late
paragraphs: As we found for previous years in past reports, some agencies did not  provide all the information required in their methodology reports for fiscal  year 2013. As discussed in the SBIR policy directive, agencies are  required to submit reports to SBA each year that itemize the programs  excluded from their extramural R&D calculations and explain the reasons   SBA also requested that agencies provide the dollar  for the exclusions.amounts of the programs excluded from their extramural R&D.
For fiscal year 2013, all 11 agencies submitted a methodology report to  SBA. However, three agencies did not itemize the specific programs they  excluded from their extramural R&D, or did not explain the reasons for the  exclusions from their calculations of extramural R&D, or both. Specifically,  DOD, EPA, and NSF either did not itemize the specific programs that they  excluded, did not explain the reasons why they excluded the programs, or  both. Two of these three agencies’ methodology reports—DOD and  EPA—included general categories of exclusions but did not itemize the  programs that were excluded. For example, DOD’s fiscal year 2013 report  stated that some of its programs were exempted by the Small Business  Act, which exempts programs in the intelligence community. However,  DOD’s report did not itemize the specific programs or subunits that were  excluded, as required by the policy directives. In addition, four agencies  did not indicate to SBA whether they had exclusions for some or all of  their programs. Specifically, the Departments of Agriculture (USDA),  Education, and Commerce, and HHS did not indicate in their  methodology reports to SBA whether they had exclusions for some or all  of their programs. Agencies are not explicitly required to state if they have  no exclusions, but without that information it will be difficult for SBA to  determine whether these agencies may have had exclusions that were  not included in their reports to SBA. Two of the participating agencies— the Department of Transportation (DOT) and DHS—provided the dollar  amounts associated with each of their exclusions, consistent with SBA  guidance.
Additionally, 10 of the 11 agencies submitted their methodology reports  for calculating extramural R&D to SBA later than the date required in the  Small Business Act. According to the Small Business Act, agencies must  submit their methodology reports to SBA within 4 months of enactment of  their annual appropriations. Fiscal year 2013 appropriations for each of  the participating agencies were enacted in March 2013, so the  methodology reports were due in July 2013. However, for fiscal year  2013, nine 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 June through September 2014—about a year after  the deadline for the methodology reports. One agency, HHS, met the  deadline by submitting its methodology report to SBA in July 2013. 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  9 of the 10 agencies that submitted their reports late said that they could  have provided the reports to SBA within 4 months of their appropriation if  SBA had requested them. SBA is not required to request the reports from  agencies, and SBA officials told us that they did not request the  methodology reports for fiscal year 2013 sooner because they were  focused on updating the template that the agencies used to submit  program data to SBA.
The agencies’ late submission of the methodology reports makes it  difficult for SBA to promptly analyze their 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 incorrectly, which  could lead to agencies spending less than the required amounts on the  programs. We previously recommended in June 2014 that SBA request  that the agencies submit their methodology reports within 4 months of the  enactment of appropriations, as required by the Small Business Act and  the program policy directives, and SBA agreed with the  recommendation. However, SBA has not yet taken action to address  this recommendation. We continue to believe this recommendation has  merit and should be fully implemented. Doing so could better position  SBA to analyze agencies’ methodologies and provide timely feedback.
section_title: SBA Has Not Submitted Its Required Report to Congress for Fiscal Year 2013
paragraphs: SBA has not issued its report to Congress on the programs for fiscal year  2013. The Small Business Act requires SBA to report to certain  congressional committees on the SBIR and STTR programs not less than  annually, but the act does not specify a date that the report is due. In  October 2014, SBA officials told us that they had recently begun  reviewing the agencies’ annual data submissions for fiscal year 2013 and  anticipated that it would take 6 to 9 months to complete their report and  submit it to Congress. Officials said that their review of the data  submissions was delayed because of changes SBA had made to the data  submission template, which prompted SBA to extend the reporting date  for agencies from March 2014, as required by SBA’s policy directives, to  June 2014. We previously concluded in September 2013 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 these programs are being  attained and that Congress was receiving critical information to oversee  these programs. In our September 2013 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.with our recommendation and stated in its comments on that report that it  planned to implement the recommendation. Although SBA officials told us  in January 2015 that they were still in the process of verifying the data  they had requested from agencies for SBA’s fiscal year 2013 report to   SBA agreed  Congress, they said that that they plan to provide a more timely report to  Congress in the future.
The information in the agencies’ methodology reports may not be  adequate for SBA to provide Congress with its required analysis of how  agencies calculated their extramural R&D for fiscal year 2013. The Small  Business Act requires agencies to submit a report to SBA describing the  methodology used for calculating the amount of their extramural R&D  budgets. The act also requires SBA to include an analysis of the  agencies’ methodology reports in its annual report to Congress. The fiscal  year 2012 report to Congress, which SBA submitted to Congress in  November 2014 and is the most recent report available, did not include  the required analysis of agencies’ methodology reports. SBA officials told  us that they did not provide clear guidance to the agencies about the  information to submit to SBA in their fiscal year 2012 methodology reports  and, therefore, it could be unclear how agencies calculated their  extramural R&D. For fiscal year 2013, SBA provided agencies with  additional guidance requesting the identification of all R&D programs  excluded from the determination of extramural R&D and the dollar  amounts of those programs, but they have not yet assessed whether the  information is adequate to determine whether agencies are calculating  their extramural R&D correctly. Currently, each of the agencies submits  methodology reports of varying detail, with some providing limited  information on how they calculated their extramural R&D budgets that  make it difficult for SBA to determine how the agencies are calculating  their extramural R&D. For example, one agency submitted a methodology  report that states that agency budget officers estimate funds available for  extramural R&D and use a formula to calculate the spending requirement.  The methodology report does not provide additional information on how  the budget officers made the calculation. Program officials from this  agency told us that they need SBA to tell them whether additional  information is needed in the methodology report before they can obtain it  from their budget office. Without assessing whether the information it  collects is adequate to analyze agencies’ methodology reports, SBA  cannot provide Congress with an accurate analysis of how agencies  calculate their extramural R&D.
In January 2015, SBA officials told us that they had begun to analyze the  methodology reports for fiscal year 2013 and said that they plan to  include an analysis of the methodology reports in the fiscal year 2013  report, but the officials did not provide GAO with any documentation of  the analysis and did not discuss their preliminary findings. In addition,  officials from most of the agencies told us that their methodologies for  determining their extramural obligations have not changed for years, and  they report similar information to SBA every year. We previously  concluded in September 2013 that, without guidance from SBA,  participating agencies are likely to continue to provide SBA with broad,  incomplete, or inconsistent information on their methodologies for  calculating their extramural R&D, and we recommended that SBA provide  timely annual feedback to each agency following the submission of its  methodology report. SBA agreed with our recommendation and stated  in its comments on our report that it planned to implement the  recommendation but, as of January 2015, it has not provided agencies  substantive feedback on their fiscal year 2013 methodology reports. We  continue to believe our recommendation has merit and should be fully  implemented.
section_title: Changing the Calculation Methodology for Determining Spending Requirements Could Increase Spending Requirements and Participation with Potential Benefits and Drawbacks
paragraphs: Potential effects of changing the methodology to calculate the SBIR and  STTR spending requirements based on each agency’s total R&D budget  instead of its extramural R&D obligations include an increase in the  amount of each agency’s spending requirement—for some agencies  more than others—and an increase in the number of agencies required to  participate. 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 to Use an Agency’s Total R&D Budget 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 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 rather than its extramural R&D obligations  using the same percentages and participation thresholds defined in  current law, total spending requirements in fiscal year 2013 would have  increased from $2.3 billion to $3.9 billion, an increase of roughly $1.6  billion or 70 percent, according to our analysis of budget data and data  submitted to SBA. This increase would have occurred both because  agencies that currently participate would be required to spend more on  the programs—because an agency’s total R&D budget is larger than its  extramural R&D budget—and because additional agencies would be  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 budgets. These effects are  consistent with our findings in previous reports on these issues.
As shown in figure 3, some agencies’ spending requirements would  increase 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 also affected by the  inclusion of programs in total R&D that were excluded from extramural  R&D by statute. Agencies that fund primarily extramural research would  see smaller increases to their spending requirements under the  alternative scenario, while agencies that fund more intramural research  would see larger increases in their spending requirements, a finding  consistent with those of our previous reports. Examples are as follows:
NSF used more than 95 percent of its total R&D budget to fund  extramural research in fiscal year 2013 and was required, based on  data submitted to SBA, to spend $131.7 million on its SBIR program  that year. Under the alternative scenario, NSF’s SBIR spending  requirement would have been $133.6 million, an increase of about 1  percent.
The Department of Commerce, on the other hand, used more than 20  percent of its total R&D budget to fund extramural R&D in fiscal year  2013 and was required to spend about $7 million on its SBIR program  in that year. Under the alternative scenario, Commerce’s spending  requirement would have more than quadrupled to $30.9 million.  Furthermore, assuming that the thresholds for participating in the  program did not change, this scenario would have required  Commerce to spend $4 million on a new STTR program in fiscal year  2013. Consequently, the alternative scenario would have required  Commerce to spend an additional $27.9 million on SBIR and STTR  programs in fiscal year 2013, an increase of about 400 percent.
As noted above, changing the calculation methodology from basing the  spending requirement on extramural R&D obligations to total R&D budget  would also require additional agencies to participate in SBIR and STTR,  assuming that the dollar thresholds for participation remain the same.  Two additional agencies—the Departments of Veterans Affairs and the  Interior—would have been required to participate in SBIR during fiscal  year 2013 under the alternative scenario. Adding these agencies to the  SBIR program would have increased total federal SBIR spending  requirements by $52.5 million, in addition to the $1.3 billion increase in  spending requirements at the 11 agencies that currently participate in the  SBIR program. Likewise, three additional agencies—USDA and the  Departments of Commerce and Veterans Affairs—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 $15.2 million, in addition to the  spending requirement increases of $163 million at the five agencies that  currently participate in STTR.
Basing the SBIR and STTR spending requirements on an agency’s total  R&D budget, 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, 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 had been 1.6 percent for SBIR and 0.2 percent for STTR in fiscal  year 2013, 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 or the Department of  Commerce. In contrast, spending requirements would have decreased at  agencies, such as HHS and NSF, which primarily fund extramural  research. In this scenario, spending requirement reductions, including  $175.8 million at HHS and $59.7 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 of these programs, agencies identified  several 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. For example, several  program managers said that basing the SBIR and STTR spending  requirements on total R&D would reduce the complexity of calculating  spending requirements since agencies would no longer have to identify  the extramural portion of their total R&D budgets. Some agency officials  said that extramural R&D obligations are not calculated for any purpose  beyond determining SBIR and STTR spending requirements. DOD  program managers also told us that changing the calculation method  would significantly simplify administration of their program. Currently,  DOD’s program managers receive funding for SBIR and STTR from the  comptrollers of all 3 military departments and about 21 other components  that conduct R&D. According to DOD program officials, receiving money  from all of these components can take months. If the spending  requirements were calculated based on total R&D budgets, DOD program  officials said that the SBIR program could receive funding from a single  comptroller, which would allow DOD to make awards faster and better  align SBIR and STTR awards with DOD-wide priorities.
Program officials also identified potential drawbacks to changing the  methodology, as we found in our previous reviews. In particular, several  program managers said that increasing the amount of money that goes to  SBIR could potentially reduce the amount of resources directed toward  intramural research and extramural research outside of the SBIR and  STTR programs. Program managers at one agency told us that the goals  of extramural and intramural R&D spending are different since spending  on intramural R&D is driven directly by an agency’s mission, while  spending on extramural R&D provides special expertise that may not  exist in the agency. These officials said that shifting money away from  intramural R&D to small businesses that may not have the necessary  expertise could diminish an agency’s ability to address specialized areas  of R&D. Furthermore, program officials at another agency said they did  not think it would make sense to calculate spending requirements for  SBIR and STTR based on total R&D budgets since small businesses are  only involved in extramural R&D, and total R&D budgets include funding  for both intramural and extramural R&D. These officials said that  structuring the spending requirements in this way could result in  intramural research programs paying to support research at small  businesses that does not directly benefit the programs, depending on how  agencies decide to implement the change. In addition, some program  managers raised concerns that a significant increase in the funding for  the programs could be a challenge in the short term because they do not  currently receive enough quality applications to meet the potential  increased spending requirements, and it could take several years before  they would have enough quality applications to meet the new spending  requirements.
section_title: Total Administrative Spending in Fiscal Year 2013 Is Unknown, but Six Agencies Spent $12.3 Million on the Administrative Pilot Program
paragraphs: Little is known about total administrative spending for fiscal year 2013  because the agencies that participate in the SBIR and STTR programs  are not required to and do not fully track these costs. Agencies  participating in the administrative pilot program reported spending $12.3  million on various new administrative and oversight activities in fiscal year  2013, but this amount does not represent total administrative spending.  Furthermore, officials at some agencies expressed concern about the  temporary nature of the pilot.
subsections: section_title: Little Is Known about Total Administrative Spending
paragraphs: Little is known about the total amount that agencies spent to administer  their SBIR and STTR programs for fiscal year 2013 because the agencies  are not required to and do not fully track these costs. For example,  officials we interviewed told us that they do not have systems in place to  accurately track the cost of all personnel who participate in the SBIR and  STTR programs on a part-time basis, such as those who review  applications or monitor contracts. Officials at three agencies said that  tracking total administrative costs for the SBIR and STTR programs would  require that they develop a more accurate time accounting system with  codes for the programs. In response to our requests for data on their  fiscal year 2013 administrative costs, most agencies provided information  on some categories of administrative costs and partial estimates of costs.  We received estimates for administrative costs from 9 of the 11 agencies  participating in the programs. These estimates ranged from about  $388,000 to $27 million. As with the data for fiscal years 2011 and 2012  provided for our previous reports, these data were incomplete and  unverifiable.
section_title: Six Agencies Participated in the Administrative Pilot Project in Fiscal Year 2013 and Spent $12.3 Million
paragraphs: Six agencies—DOD, DOE, HHS, NSF, USDA, and the Department of  Transportation—participated in the administrative pilot program in fiscal  year 2013, and these agencies reported spending $12.3 million on  administrative and oversight activities as part of the program. Under the  2011 reauthorization of the SBIR and STTR programs, agencies could  spend up to 3 percent of SBIR funds on program administration and  similar costs beginning in fiscal year 2013. 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. SBA is supposed to use the  information to report on the pilot program to Congress.
Program officials at four agencies that participated in the pilot program  said they used funding from the administrative pilot program to, for  example, hire new staff; conduct outreach to previously underserved  populations such as minority-owned small businesses; take steps to  reduce fraud, waste, and abuse; and upgrade internal data systems. Of  the five agencies that chose not to participate in the administrative pilot  program—Commerce, Education, EPA, DHS, and NASA—three said that  participation in the program would take money away from making awards  to small businesses. Another agency that chose not to participate, DHS,  submitted a program proposal to SBA for the administrative pilot program,  but agency officials told us that they decided not to participate because  internal policies kept them from hiring a dedicated contracting  officer/specialist, and a conference they planned to attend to conduct  outreach to underserved communities was cancelled.
Program officials at most of the agencies that participated in the pilot  program told us that SBA’s approval of the work plans after the fiscal year  started or late appropriations from Congress contributed to agencies  spending less than they planned to spend in fiscal year 2013. In fiscal  year 2013, agencies estimated that they would spend $58.2 million on the  administrative pilot program, but our analysis of the agencies’ work plans  and data provided to SBA shows that agencies obligated $12.3 million or  21 percent of the proposed amount (see table 3). Of the six agencies that  participated, DOE obligated most of what it estimated it would spend. One  program manager said that the small amount of money the agency spent  through the administrative pilot program in fiscal year 2013 is somewhat  misleading, as many of the agency’s activities were just getting started,  and agency officials expected to spend more in the future on allowable  administrative pilot activities. Another agency official told us that the  agency did not participate in the administrative pilot program in fiscal year  2013 because the agency drafted its plan late in the fiscal year and could  not make planned expenditures, but that the agency participated in the  pilot program in fiscal year 2014. Finally, officials at one agency raised  concerns that it was challenging to find new activities, in part because the  agency was already doing or had recently done some things that they  wanted to fund. For example, program managers for one agency told us  that they wanted to use funds from the administrative pilot program to  reinstate in-person award review panels, which were discontinued due to  lack of funding. However, SBA refused to allow it, stating that funds from  the administrative pilot program could only be used to support new  activities. The agency officials said that they understand SBA’s reasoning  but believed that restoring discontinued administrative activities should be  considered new activities and allowed.
In fiscal year 2013, SBA requested that agencies submit data on the total  amount spent on the administrative pilot program, but it did not request  agencies to submit information on how they used the funds. The 2011  reauthorization of the programs requires SBA to provide Congress with a  report on the use of administrative pilot program funds.was the first year of the pilot program, and SBA officials said they were  still determining the information they needed to report to Congress. SBA  officials told us that they did not have information about how agencies  used their funds for the administrative pilot program and acknowledged   Fiscal year 2013  that it would be useful to have. A list of the activities agencies initiated  and the costs of each of these activities is one way that SBA could obtain  further information on the use of funds. In response to our questions, SBA  officials sent an e-mail to the 11 participating agencies requesting that  they provide SBA with a summary of how funds for the administrative pilot  program were used. In March 2015, the SBA officials said that they were  in the process of receiving and clarifying the agency responses. Ten of  the agencies told us that they could provide the information to SBA if  requested. Because SBA has not required agencies to submit  information on how they used the funds, SBA cannot undertake a  comprehensive evaluation of the performance of the administrative pilot  program and provide greater transparency when reporting to Congress.
Some program managers told us that they planned to spend more money  on the administrative pilot program in fiscal years 2014 and 2015, but  there is concern about the future of the pilot beyond fiscal year 2015.  Specifically, officials at 7 of the 11 agencies that participated in the SBIR  and STTR programs told us that they would prefer that the administrative  pilot program were either extended or made permanent. Some officials  said that the program should be extended to give SBA enough time to  track whether pilot-funded initiatives were successful, while other officials  were concerned about hiring new staff when the funding for the positions  might not be available after fiscal year 2015.
section_title: Conclusions
paragraphs: Federal agencies have awarded billions of dollars to 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. For  example, in our last report, we recommended that SBA clarify in the SBIR  and STTR policy directives that agencies are supposed to spend the  required amount each year, rather than reserving funds for future years to  meet spending requirements. We also recommended that SBA request  that agencies submit their methodology reports within 4 months of  appropriations, as required by law. SBA officials said that they plan to  take actions to address both of these recommendations but had not done  so before agencies submitted their fiscal year 2013 data, and we found  that these issues continue. Thus, we continue to believe the  recommendations have merit and should be fully implemented.
In addition to issues that could be addressed by implementing our prior  recommendations, we identified three issues that—if left unaddressed— could affect compliance with spending and reporting requirements in the  future. First, most agencies continued to provide SBA with data on their  extramural R&D budgets, rather than the amounts they actually obligated  for extramural R&D. In doing so, agencies have limited SBA’s ability to  accurately assess whether they complied with program spending  requirements. Without information on how much agencies obligated for  extramural R&D, SBA cannot accurately determine and report to  Congress on compliance with spending requirements. Program managers  told us that they face challenges in submitting obligations data to SBA.  For example, they cited difficulties in calculating their actual extramural  R&D obligations and challenges in complying with spending requirements  based on a figure that is not known until after the end of the fiscal year— when it is too late to obligate additional funds to comply with the  requirements. Nevertheless, the Small Business Act defines the annual  spending requirements as a percentage of their extramural R&D  obligations. Without SBA notifying Congress or developing a proposal for  Congress to change the requirement, agencies are likely to continue to  face challenges in submitting the correct data to SBA and in complying  with the law. Second, SBA did not include an analysis of agencies’  methodology reports in its most recent report to Congress for fiscal year  2012, and SBA officials told us it was not clear from the methodology  reports how agencies were calculating their extramural R&D. Moreover,  some program managers told us that the purpose of the methodology  reports is not clear. The law requires SBA to include an analysis of the  agencies’ methodology reports to Congress. However, each of the  agencies submits methodology reports of varying detail, with some  providing limited information on how they calculated their extramural R&D  budgets, making it difficult for SBA to analyze the agencies’ methodology  reports. Without assessing whether the information it collects is adequate  to analyze agencies’ methodology reports, SBA cannot ensure that it is  providing Congress with an accurate analysis of how agencies calculate  their extramural R&D. Third, the administrative pilot program provides  agencies with an opportunity to expand their oversight and administration  of the programs. In fiscal year 2013, SBA requested the total amount that  agencies spent on the administrative pilot program from the agencies but  did not require agencies to submit information on how they used the  funds. Without this additional information, SBA cannot undertake a  comprehensive evaluation of the performance of the administrative pilot  program allowing it to provide greater transparency on the program to  Congress.
section_title: Recommendations for Executive Action
paragraphs: To ensure full compliance with SBIR and STTR spending and reporting  requirements, we recommend that the SBA Administrator take the  following three actions:
Notify Congress in SBA’s 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.
Assess the methodology reporting requirement to determine whether  it generates adequate information for SBA to analyze the accuracy of  agencies’ calculations of their extramural R&D. If SBA finds that the  information is inadequate, SBA should update its guidance to require  adequate information.
Provide greater transparency for the administrative pilot program by  requiring participating agencies to provide data on the use of the  funds, rather than a total cost for all of the activities under the pilot.
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 agreed  with our recommendations. SBA also provided technical comments, as  did DHS and HHS, which we incorporated as appropriate. Seven of the  agencies—Commerce, DOE, DOT, Education, EPA, NASA, and NSF had  no technical or written comments. The remaining agencies—DOD and  USDA—provided written comments, which were reproduced in  appendixes III and IV, respectively.
In its written comments, the DOD Acting Director for the Office of Small  Business programs raised two issues. First, DOD recommended that we  remove the assertion that the extramural budget is defined as actual  obligations over the course of the year. DOD stated that the spending  requirement is calculated within 4 months following the enactment of  annual appropriations; therefore the spending requirement must be based  on the planned extramural R&D budget, which has an obligation period of  2 years, and not over the course of the year as defined in this report.  DOD is not required to calculate its spending requirement in the first four  months after it receives its appropriation, but only required to submit its  methodology for calculating its spending requirement. In addition, we  acknowledge that DOD generally has two years to obligate its R&D funds,  but agencies are specifically required to spend it in each fiscal year.  Moreover, the Small Business Act defines extramural R&D budget in  terms of obligations. Nothing in the act indicates that “obligations” should  be construed as “planned obligations.” Therefore, we continue to believe  that the extramural R&D budget is defined as actual obligations over the  course of the year. In their second point, DOD recommends submitting  the extramural budget calculated in the methodology report, rather than  actual extramural obligations, to SBA in the annual report. We recognize  that using extramural R&D obligations makes it difficult for agencies to  comply with spending requirements and we recommend in this report that  SBA notify Congress if it cannot determine compliance with spending  requirements when agencies do not report extramural R&D obligations  data, or develop a proposal to Congress that would change the  requirement.
In its written comments, USDA’s Director of the National Institute of Food  and Agriculture stated that USDA generally agrees with our report. The  official stated that because total obligations for extramural R&D are not  known until the end of the fiscal year, it makes it difficult for the agency to  ensure that funding targets for SBIR are met every year. USDA agreed  with our recommendation that SBA should submit a proposal to Congress  to change the requirement.
We are sending copies of this report to the appropriate congressional  committees; the Secretaries of Agriculture, Commerce, Defense,  Education, Energy, Homeland Security, Health and Human Services, 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 V.
section_title: Appendix I: Agencies’ Compliance with Spending Requirements for the Small Business Innovation Research Program for Fiscal Year 2013, 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 2013 spending requirements, while  spending for the remaining 2 agencies did not meet the requirements.  (See table 4.)
section_title: Appendix II: Agencies’ Compliance with Spending Requirements for the Small Business Technology Transfer Program for Fiscal Year 2013, 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 2013 spending  requirements, while one agency did not. (See table 5.)
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: Comments from the Department of Agriculture
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Hilary Benedict, Assistant  Director; Jeffrey Barron; Andrew Burton; Antoinette Capaccio; Cindy  Gilbert; Marya Link; Perry Lusk; Cynthia Norris; and Dan Royer made key  contributions to this report.