Small Business Research Programs: More Guidance and Oversight Needed to Comply with Spending and Reporting Requirements
Published: 2014-06-06T00:00:00

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 budgets that meet certain thresholds for participation—$100 million for SBIR and $1 billion for STTR—must spend a percentage of these annual budgets 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, and other program aspects. This report addresses, for fiscal year 2012, (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 agencies' total R&D budgets, and (4) what is known about the amounts spent administering the programs. GAO reviewed agency spending data and required reports for fiscal year 2012 and interviewed program officials from SBA and the participating agencies.
section_title: What GAO Found
paragraphs: Agency data indicate that 8 of the 11 agencies participating in the Small Business Innovation Research (SBIR) program and 2 of the 5 agencies participating in the Small Business Technology Transfer (STTR) program complied with spending requirements in fiscal year 2012. Program managers for agencies that did not comply with the requirements identified reasons for noncompliance. For example, program managers at two of the agencies told GAO that they believe their agencies comply with spending requirements if the agencies spend the total amount reserved or budgeted for the program, regardless of the year the funding is spent. However, the authorizing legislation for the programs requires agencies to “expend” a certain amount of funding each year. This difference in the interpretation of spending requirements occurred, in part, because the Small Business Administration's (SBA) policy directives for the programs inaccurately state that the authorizing legislation requires agencies to “reserve” the minimum amount each year. Additionally, some officials told GAO their agencies did not comply with spending requirements because the recent reauthorization of the programs included an increased spending requirement in fiscal year 2012, but the reauthorization was enacted a full quarter into the fiscal year, after some agencies had planned their programs and made awards.
Participating agencies and SBA did not fully comply with certain reporting requirements for the SBIR and STTR programs. For example, participating agencies are required to submit reports to SBA describing their methodologies for calculating their budgets for extramural research or research and development (R&D)—which is generally conducted by nonfederal employees outside of federal facilities—within 4 months of the enactment of appropriations. However, all 11 participating agencies were late in submitting these reports because SBA allowed them to submit the reports later. As a result, SBA was unable to analyze the reports and provide timely feedback to assist agencies in accurately calculating these budgets.
Potential effects of basing each participating agency's spending requirement on its total R&D budget instead of its extramural R&D budget include an increase in the amount of the spending requirement—for some agencies more than others—and, if the thresholds for participation in the programs did not change, an increase in the number of agencies required to participate. Officials identified benefits of such a change, such as funding more projects, but they generally said the drawbacks could outweigh the benefits.
Little is known about the total amounts agencies spent administering the SBIR and STTR programs because agencies did not consistently collect such information for fiscal year 2012. Agencies are not required to track costs for administering the programs. Most agencies provided GAO with some data on such costs for fiscal year 2012, ranging from about $200,000 to about $8 million, but the data were wide-ranging, incomplete, and unverifiable. With the start of a pilot program in fiscal year 2013 that allows agencies to use up to 3 percent of SBIR program funds for administrative costs, agencies will be required to report to SBA on the amount spent for such activities. However, even with the pilot program, agencies will likely not identify or track all administrative costs.
section_title: What GAO Recommends
paragraphs: GAO recommends, among other things, that SBA revise program policy directives to accurately summarize spending requirements and request that agencies submit their methodology reports on time. SBA and participating agencies generally agreed with GAO's findings and recommendations.

section_title: Letter
paragraphs: Since the early 1980s, federal agencies have awarded more than  156,000 contracts and grants totaling nearly $40 billion through two small  business research programs: the Small Business Innovation Research  (SBIR) and Small Business Technology Transfer (STTR) programs. The  SBIR and STTR programs are similar in that participating agencies  identify topics for research or research and development (R&D) projects  and make awards to small businesses to develop and commercialize  innovative technologies. However, for the SBIR program, a for-profit small  business performs the work associated with an 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 a budget of $100 million or more for extramural  R&D are required to establish and operate an SBIR program, while  federal agencies with budgets of $1 billion or more for extramural R&D  are required to establish and operate an STTR program.  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 budget that must be  spent on the programs annually. In fiscal year 2012, agencies  participating in the SBIR program were required to spend at least 2.6  percent of their extramural R&D budgets on the program and agencies  participating in the STTR program were required to spend at least 0.35  percent of their extramural R&D budgets on the program. The SBIR and  STTR policy directives require participating agencies to submit data to the  Small Business Administration (SBA) each year on the amount of their  extramural R&D budgets and the amount obligated for awards, among  other information. The Small Business Act also establishes certain  reporting requirements for participating agencies and SBA. Among other  things, agencies are to report to SBA on their methodologies for  calculating their extramural R&D budgets within 4 months of the  enactment of their annual appropriations. Furthermore, SBA is to annually  report to Congress on all participating agencies’ SBIR and STTR  programs.
In addition, the 2011 reauthorization of the programs mandates that GAO  review the participating agencies’ compliance with spending and reporting  requirements for the programs, as well as other aspects of the programs.  We issued our first annual report in response to this mandate in  September 2013, which covered fiscal years 2006 through 2011. In that  report, we recommended, among other things, that SBA provide more  guidance to agencies for calculating spending requirements under certain  circumstances and provide more timely reports to Congress. This second  annual report determines for fiscal year 2012 (1) the extent to which  participating agencies complied with the programs’ spending  requirements, (2) the extent to which participating agencies and SBA  complied with certain reporting requirements, (3) the potential effects of  basing the spending requirements for the SBIR and STTR programs on  agencies’ total R&D budgets instead of their extramural R&D budgets,  and (4) what is known about the amounts participating agencies spent for  administering the programs.
To address these objectives, we followed the methodology that we used  for our first annual report on these issues. To determine the extent to  which participating agencies complied with the programs’ spending  requirements in fiscal year 2012, we used the data that each agency  submitted to SBA and calculated each agency’s spending requirement by  applying the mandated percentages to the agency’s extramural R&D  budget. We then compared the spending requirements to the total  obligations data the agencies submitted to SBA for fiscal year 2012. We  determined that an agency complied with its spending requirement if the  agency’s spending for these programs was equal to or greater than the  calculated spending requirement. To assess the reliability of these data,  we interviewed agency officials about the source of the data and data  quality control procedures for the data, reviewed relevant documentation,  and compared the agency’s submissions to SBA with SBA’s version of  documents received from the agencies. We determined the data were  sufficiently reliable for the purposes of this report. We discussed  agencies’ compliance with spending requirements, including reasons  agencies did not meet spending requirements, with program officials at  each of the participating agencies.
To determine the extent to which participating agencies and SBA  complied with certain reporting requirements for fiscal year 2012, we  compared information in the methodology reports that each agency  submitted to SBA to requirements in the law and SBA policy directives.  Additionally, we requested SBA’s report to Congress for fiscal year 2012  and discussed the status of that report with SBA program officials, who  said it had not been submitted at the time of our review.
To determine 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 budgets, we used fiscal year 2012 data on total  R&D budget authority from the President’s budget to calculate potential  spending requirements for each federal agency. In calculating these  potential spending requirements, we assumed that the same spending  percentages currently required by the Small Business Act would apply to  total R&D budgets. We also assumed that the current spending  thresholds that require agency participation in the SBIR and STTR  programs when applied to extramural R&D budgets would apply to total  R&D budgets. In other words, an agency with a total annual R&D budget  of $100 million or more would be required to participate in the SBIR  program, while an agency with a total annual R&D budget of $1 billion or  more would be required to participate in both the SBIR and STTR  programs. We compared the spending requirements that would result  under this scenario with the spending requirements under the current law  to determine the potential effects that changing the methodology to  calculate the spending requirements could have had for fiscal year 2012,  recognizing that changes to the thresholds for participating in the  programs or the mandated percentages could have different effects. We  also calculated spending requirements under another scenario to  determine whether different assumptions would lead to different  outcomes. Under this scenario, we applied a lower percentage than is  required under current law to each agency’s total R&D budget.  Additionally, we discussed the effects of changing the methodology for  calculating the spending requirements for the programs with program  officials at each of the agencies currently participating in the programs  and offered the agencies that could be affected by the change an  opportunity to comment on our analysis.
To determine what is known about the amounts participating agencies  spent for administering the programs, we collected administrative cost  data from agencies and discussed the data with program officials. We  determined that these data were too incomplete and from such varied  sources that an assessment of the available data’s reliability was not  possible. Consequently, we could not use the data to draw conclusions  about agencies’ administrative costs in our report.
We conducted this performance audit from November 2013 to June 2014  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)  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 purpose of the STTR program—initiated  in 1992—is to stimulate a partnership of ideas and technologies between  innovative small businesses and research institutions through federally  funded R&D. The National Defense Authorization Act for Fiscal Year  2012, enacted on December 31, 2011, reauthorized the SBIR and STTR  programs through September 30, 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 and  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 by setting overarching policy and issuing policy  directives, collecting program data, reviewing agency progress, and  reporting annually to Congress, among other responsibilities. As part of  its oversight and coordination role, SBA issued SBIR and STTR policy  directives in September 2002 and December 2005, respectively, and  updated them in August 2012, January 2014, and February 2014. These  directives explain and outline additional requirements for agencies’  implementation of the SBIR and STTR programs. Among the topics  discussed, the policy directives include a listing of the data that agencies  are to submit to SBA annually—such as their extramural R&D budget  amounts and the amounts obligated for awards for the programs—and  call for agencies to submit reports describing their methodologies for  calculating their extramural R&D budgets within 4 months of the  enactment of appropriations.
Each participating agency must manage 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. For  those agencies that have both SBIR and STTR programs, agencies  usually use the same process for both programs. Each participating  agency has considerable flexibility to design and manage the specifics of  these programs, such as determining research topics, selecting award  recipients, and administering funding agreements. 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.  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. Also, each agency determines whether  the funding for awards will be provided as grants or contracts.
section_title: Data Indicate Not All Agencies Met Spending Requirements
paragraphs: Agency data indicate that not all agencies complied with the SBIR and  STTR spending requirements for fiscal year 2012. Program managers  identified several reasons why agencies did not comply with the spending  requirements.
subsections: section_title: Agency Data Indicate Most Agencies Complied with SBIR Spending Requirements
paragraphs: The data agencies submitted to SBA indicates that 8 of the 11  participating agencies met or exceeded their fiscal year 2012 spending  requirements for the SBIR program, while 3 of the agencies did not meet  the requirements (see fig. 1 and app. I for additional data). According to  the agencies’ data, the 8 agencies that met or exceeded the requirements  spent between 2.6 percent and 4.0 percent of their extramural R&D  budgets on the program, and the remaining 3 agencies spent between  2.3 percent and 2.5 percent. In comparison, agency data indicated that 10  of the 11 agencies met or exceeded spending requirements in fiscal year  2011, and that 3 of the 11 agencies complied with spending requirements  each fiscal year from 2006 through 2011, as we found in September  2013.
section_title: Agency Data Indicate Two Agencies Complied with STTR Spending Requirements
paragraphs: Our analysis of the data agencies submitted to SBA indicates that two of  the five agencies participating in the STTR program met or exceeded  their fiscal year 2012 spending requirements, while the remaining three  agencies did not meet the requirements (see fig. 2 and app. II for  additional data). According to the agencies’ data, the two agencies that  complied with the requirements spent between 0.35 percent and 0.38  percent of their extramural R&D budgets on their STTR programs, and  the three agencies that did not comply spent between 0.30 percent and  0.32 percent. In comparison, the data that agencies submitted to SBA  indicated that two of the five agencies, HHS and NASA, complied with  spending requirements in fiscal year 2011, and one of the agencies— HHS—complied with spending requirements each fiscal year from 2006  to 2011, as we found in September 2013.
section_title: Program Managers Identified Reasons Agencies Did Not Comply with Spending Requirements
paragraphs: Program managers at the agencies that did not comply with spending  requirements for fiscal year 2012 identified reasons that the agencies did  not comply: (1) some agencies reserved funds to spend in a subsequent  fiscal year without spending the minimum required amount in fiscal year  2012; (2) the spending requirement increased part of the way through the  year, after agencies made spending plans; (3) agencies did not submit  data on all of their spending; and (4) the amount agencies spent on  extramural R&D was higher than estimated at the beginning of the fiscal  year. Some of these circumstances also applied to agencies that  complied with spending requirements in fiscal year 2012.
subsections: section_title: Some Agencies Reserved Funds to Spend in a Subsequent Fiscal Year
paragraphs: Two of the agencies that did not comply with spending requirements— DOD and USDA—reserved funds to spend in a subsequent fiscal year  without spending the minimum required amount in fiscal year 2012. The  Small Business Act requires participating agencies to “expend” the  minimum percentages of their extramural R&D budgets with small  businesses annually. Additionally, SBA officials said they expect agencies  to spend at least the minimum required percentages on the programs  each year. However, program officials at DOD and USDA told us that  they believe their agencies comply with spending requirements if the  agencies spend the total amount reserved or budgeted for the program,  regardless of the year the funding is spent. We found that these two  agencies did not implement the annual program spending requirements  as written in the Small Business Act, in part because SBA’s SBIR and  STTR policy directives inaccurately summarize the law. Specifically, the  policy directives say that the relevant statutory provision requires  participating agencies to “reserve” the minimum percentages for awards  to small businesses each year.
Some of the participating agencies receive multiyear appropriations and  choose to carry over some funding from one fiscal year to the next, in part  because of this misinterpretation of the spending requirements. For  example, if the amount of funding remaining in the program account is  less than the amount of a phase I or phase II award, program managers  said they carry over the funding to the next year, rather than make a  smaller award to a recipient. An agency can carry over funding from one  year to the next and comply with spending requirements if the agency  spends the minimum required amount during the fiscal year, regardless of  the year the funding was appropriated.
Carrying over funds to the next fiscal year without spending the minimum  required amount contributed to two agencies—DOD and USDA—not  complying with spending requirements in fiscal year 2012. Program  managers from DOD and USDA said their agencies did not meet  spending requirements using our method of calculating compliance, but  DOD and USDA officials said they will spend all of the funding that was  budgeted for the programs before the funding expires, which they believe  meets the intent of the law. Program managers from both agencies  explained that they receive multiyear appropriations for research and  development funding, which would generally allow them to carry over  funds from one year to the next. However, if an agency carries over  funding from one year to the next without spending the minimum required  amount on the program in each fiscal year, then the agency is not in  compliance with the spending requirements. According to SBA officials,  SBA agrees with our methodology for calculating compliance and  interprets the Small Business Act as requiring agencies to spend, rather  than reserve, the required percentages each year.
Carrying over funds from one year to the next without spending the  minimum required amount in fiscal year 2012 also contributed to at least  one agency—DOD—not complying with spending requirements in prior  years. To demonstrate the effect that carrying over funds can have, we  made the following calculations for DOD for fiscal years 2006 to 2011  using two different methodologies for calculating program spending.  First, we determined the amount spent in a specific year, regardless of  the year the funding was appropriated, from DOD’s total program  obligations data submitted to SBA; this is the method that we used to  calculate compliance with spending requirements for this report and the  method SBA uses. Second, we calculated the amount of the funding  appropriated in a fiscal year that was spent in that year or the next year;  this is how DOD believes it should determine its compliance. We found  that DOD complied with SBIR spending requirements in 2 of the 6 years  from fiscal years 2006 through 2011 and with STTR spending  requirements in 4 of the 6 years using our method. DOD’s method is  incorrect; however, if it were correct, it would yield a compliance  determination in each of the 6 years for SBIR and in 5 years for STTR  (see app. III for additional detail on our analysis).
section_title: Spending Requirements Increased Partway Through the Year
paragraphs: Increases to the spending requirements partway through fiscal year 2012  contributed to two agencies not complying with spending requirements in  fiscal year 2012, according to program managers. The 2011  reauthorization of the SBIR and STTR programs increased the minimum  percentages to be spent for the programs for fiscal year 2012, but the law  was enacted on December 31, 2011—a full quarter into fiscal year 2012.  These increases were the first increases in many years for the programs:  the SBIR levels had remained at a minimum of 2.5 percent of the  extramural R&D budget from 1997 through 2011, and STTR levels had  remained at a minimum of 0.3 percent from 2004 through 2011.  Appropriations for fiscal year 2012 were enacted in November and  December 2011, so some agencies had already planned their spending  for the programs and had started to make awards to meet the prior  percentages of 2.5 percent of their extramural R&D budgets for SBIR  awards and 0.3 percent for STTR awards. For some agencies, this  increase totaled millions of dollars. For example, NASA’s SBIR spending  requirement increased by about $5.5 million, and its STTR spending  requirement increased by about $2.7 million over its estimates at the  beginning of the fiscal year due to the higher percentages included in the  reauthorization. If the spending requirements had remained at fiscal year  2011 levels, one of the three agencies that did not meet SBIR spending  requirements for the year would have met the requirements, and the  remaining two agencies would have been much closer to meeting the  SBIR spending requirements, and all five agencies would have met the  STTR requirements.
The increased spending requirements also affected agencies that  complied with spending requirements for the year. For example, program  managers at one agency that met SBIR spending requirements told us it  was difficult to spend SBIR and STTR funds at the increased levels in the  remaining portion of the fiscal year because the agencies had already  begun to make awards, and their spending plans for the programs  included funding a certain number of projects at a certain level. Program  officials at one agency said that, as a result of the increased spending  requirements, they increased the amounts of their awards for fiscal year  2013. The officials anticipate that the increased award amounts will help  them meet their minimum spending requirements in future years.  Program managers from two agencies that met SBIR spending  requirements also told us it was difficult to obtain additional funding within  their agency to meet the increased spending requirements for the  programs because the reauthorization act and resulting increased  spending requirements became effective after appropriations were  enacted for the year.
section_title: Agencies Did Not Submit Complete Information on Program Spending
paragraphs: Program managers at two agencies said that they did not include  technical assistance funds as part of their total spending data for the  SBIR program, which contributed to the appearance that agencies were  more out of compliance than they were for fiscal year 2012. Program  managers from three other agencies also told us they could not submit  these data. In certain circumstances, amounts spent for discretionary  technical assistance count as part of the agency’s funding for SBIR or  STTR. However, SBA’s policy directives for the programs call for  agencies to submit data on the amounts spent for awards, but not the  amount spent on technical assistance. According to SBA officials, they  did not request information on the amounts that agencies spent for  technical assistance because SBA does not report the information to  Congress.
Program officials at seven agencies—DOD, DOE, DHS, EPA, HHS, NSF,  and USDA—said that they provided between about $125,000 and $3.5  million for discretionary technical assistance to certain SBIR or STTR  award recipients in fiscal year 2012. Only two of the agencies—DOD and  NSF—included this assistance in their total spending data. Several  program managers indicated that they did not submit data to SBA on the  amounts spent for discretionary technical assistance because SBA did  not provide written guidance on whether or how such spending should be  included in their data.  As a result, agencies did not report the total  amounts that they spent on the programs and, therefore, Congress does  not have access to complete and accurate information about the amounts  spent on the SBIR and STTR programs. For the two agencies that  provided technical assistance to award recipients but did not comply with  spending requirements, including the amount spent on technical  assistance in their total spending figures would have brought the  agencies closer to meeting their spending requirements, but it would not  have brought the agencies into compliance for the year.
section_title: Extramural R&D Was Higher Than Estimated at the Beginning of the Fiscal Year
paragraphs: Program officials at one agency said that changes to the amount of the  agency’s extramural R&D budget between the estimates early in the fiscal  year and the actual amount obligated, which is determined at the end of  the year, contributed to the agency not complying with the spending  requirements. The Small Business Act requires agencies to calculate their  extramural R&D budget by subtracting amounts obligated for intramural  R&D from total obligations for R&D. However, the total amount obligated  for extramural R&D is not known until the end of the fiscal year. For fiscal  year 2012, NASA estimated its extramural R&D budget at the beginning  of the year as about $5.5 billion and developed a spending plan for the  SBIR and STTR programs based on this budget. However, according to  program officials, NASA’s extramural R&D budget increased to about  $5.7 billion based on the total amount obligated for extramural R&D  during the fiscal year. This increase in the extramural R&D budget  throughout the year led to an unexpected increase in NASA’s minimum  spending requirements of about $6.3 million. The officials said that they  had no way of knowing what the final extramural R&D budget number  would be until after the end of the fiscal year, and by then it was too late  to adjust their spending plan for the SBIR or STTR programs. As a result,  the increase contributed to NASA’s noncompliance with spending  requirements in fiscal year 2012.
section_title: Agencies Did Not Fully Comply with Certain Reporting Requirements and Submitted Incorrect Data
paragraphs: Participating agencies and SBA did not fully comply with certain reporting  requirements for the SBIR and STTR programs. Specifically, participating  agencies did not comply with requirements related to reporting their  methodologies for calculating their extramural R&D budgets, and two  agencies submitted incorrect data to SBA on the size of their extramural  R&D budgets for the STTR program. Additionally, SBA has not yet  submitted its report on the programs to Congress for fiscal year 2012.
subsections: section_title: Agencies Did Not Fully Comply with Methodology Reporting Requirements
paragraphs: Each of the agencies submitted its required report on the methodology for  calculating the extramural R&D budget to SBA later than required by the  Small Business Act and at least 6 of the agencies did not itemize and  explain all exclusions from their calculations of their extramural R&D  budgets, as called for in the policy directives. Agencies are required by  the Small Business Act to submit their methodology reports to SBA within  4 months of enactment of their annual appropriations. However, for fiscal  year 2012, the 11 agencies included their methodology reports as part of  their data submissions to SBA. Agencies generally submitted their data to  SBA from March to July 2013—more than a year after agency  appropriations for fiscal year 2012 were enacted on November 18, 2011,  and December 23, 2011—because SBA allowed them to submit the  reports later. SBA officials said that, as in previous years, they did not  need the methodology reports before the program data were due  because the officials use the methodology reports to prepare SBA’s  report to Congress, which cannot be completed without the program data.
As we found in our first annual report on these issues, as a result of not  having the methodology reports earlier in the year, SBA does not have an  opportunity to promptly analyze these methodologies and provide the  agencies with timely feedback to assist agencies in accurately calculating  their spending requirements. Without such review and feedback,  agencies may be calculating their extramural R&D budgets incorrectly,  which could lead to agencies spending less than the required amounts on  the programs. We recommended in that report that SBA provide timely  annual feedback to each agency following submission of its methodology  report on whether its method for calculating the extramural R&D budget  complies with program requirements. SBA officials said as of May 2014  that they plan to provide feedback to agencies on their methodology  reports for fiscal year 2013 shortly after they receive the reports from the  agencies, which are expected in June 2014.
Additionally, at least six agencies did not itemize and explain exclusions  from their calculations of their extramural R&D budgets. Agencies are  required to exclude certain subunits or programs in calculating the  extramural R&D budget. For example, agencies with subunits in the  intelligence community are to exclude those subunits from their  extramural R&D budget. SBA’s policy directives call for agencies to  itemize their exclusions and their reasons for such exclusions in their  reports to SBA. Six of the 11 agencies’ methodology reports—DOD,  DOE, EPA, NASA, NSF, and DOT—noted that the agencies excluded  some programs from their calculations, but these agencies either did not  itemize the specific programs that they excluded, did not specify the  reasons why they excluded the programs, or both. In the case of DOD,  the agency’s report stated that some of its programs were exempted by  the section of the Small Business Act described above, which exempts  programs in the intelligence community. However, DOD’s report does not  itemize the specific programs or subunits that were excluded, as required  by the policy directives. Also, DOE, EPA, NASA, and NSF provided  general categories of exclusions but not particular itemized programs.  DOT excluded the research expenditures of the Federal Aviation  Administration and the Federal Highway Administration from its  extramural R&D budget without explanation in the report about why the  programs were excluded.
As we found in our first annual report on these issues, agencies  submitted different levels of detail on their methodologies, such as the  programs excluded from the extramural budget and the reasons for the  exclusions, and SBA did not raise questions about details of the  methodologies. SBA officials told us they would like agencies to include  more information about exclusions in their methodology reports. In our  first annual report, we concluded 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 budgets. At that time, we recommended  that SBA provide additional guidance on the format agencies are to  include in their methodology reports, among other issues. As of May  2014, SBA said that a working group of program managers had  developed a template for agencies to use to submit their methodology  reports. Agencies will be encouraged to use the template for their fiscal  year 2013 submission and required to use it beginning in fiscal year 2014.
section_title: Two Agencies Submitted Incorrect Data for the STTR Program
paragraphs: Two agencies—DOD and HHS—submitted incorrect figures to SBA for  the size of their extramural R&D budgets for the STTR program for fiscal  year 2012. The Small Business Act requires federal agencies to spend a  certain amount of their extramural R&D budgets on the SBIR and STTR  programs if the agency meets certain thresholds for participation. The  threshold for participating in the programs is based on the entire agency’s  extramural R&D budget and not that of the specific subunits within the  agency. Additionally, the extramural R&D budget figures for the SBIR and  STTR programs should be consistent because the budget must be  calculated the same way for both programs under the act. However, DOD  submitted an extramural R&D budget for SBIR that was about $2.7 billion  more than its budget for STTR, and HHS submitted an extramural R&D  budget for SBIR that was about $337 million more than its budget for  STTR. This occurred because the two agencies incorrectly excluded the  budgets of subunits within the agencies that spent less than $1 billion per  year on extramural R&D from the budget calculation for the STTR  program.  For example, HHS calculated its extramural R&D budget data  for STTR using the amount of the extramural R&D budget of the National  Institutes of Health and excluded the extramural R&D funding from the  other subunits that participate in the SBIR program—the Centers for  Disease Control and Prevention, the Food and Drug Administration, and  the Administration for Children and Families—from its calculation.
As a result of the incorrect data, DOD and HHS underestimated their  STTR spending requirements by about $9.3 million and $1.2 million,  respectively, for fiscal year 2012. Using the correct extramural R&D  budget figures did not change our assessment of DOD’s or HHS’s  compliance with spending requirements for fiscal year 2012 because  DOD did not meet its spending requirement using the lower extramural  R&D budget figure and HHS’s spending for the STTR program was high  enough that it met its spending requirements even using the higher  extramural R&D budget amount from its SBIR report. However, since  spending requirements are calculated as a percentage of the extramural  R&D budget, using an incorrect budget figure could lead to an agency not  spending the required amount for the programs in the future. For  example, the National Institutes of Health is the only subunit that  participated in HHS’s STTR program in fiscal year 2012. If the National  Institutes of Health had not exceeded the minimum spending  requirements for HHS in fiscal year 2012, HHS would not have complied  with its agencywide spending requirements.
DOD officials said they were aware of the problem because we identified  it in our first annual report, but it was too late for them to correct it for  fiscal year 2012. The officials said that they have corrected the problem  and plan to use the same extramural R&D budget numbers for the SBIR  and STTR programs starting with the data submitted for fiscal year 2013.  HHS officials told us they did not correct the budget numbers for fiscal  year 2012 because it was too late to do so. However, they also said that  they have not corrected this problem for fiscal years 2013 or 2014  because HHS has not received guidance from SBA to do so. SBA officials  said they have discussed this issue with HHS. According to SBA’s report  to Congress for fiscal years 2009 through 2011, SBA and HHS were  discussing the appropriate extramural budget figure.
section_title: SBA Has Not Submitted Its Annual Report for Fiscal Year 2012
paragraphs: SBA has not issued its report to Congress on the programs for fiscal year  2012. 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 officials  said that they had begun drafting the report for fiscal year 2012 but, early  in 2014 two agencies—DOD and EPA—notified SBA that they needed to  submit updated data, so SBA postponed its work on the report. According  to SBA officials, SBA’s report to Congress depends on the timeliness and  quality of the participating agencies’ submissions to SBA, and they  delayed the submission of the last report and the fiscal year 2012 report  to provide Congress with more accurate information on the SBIR and  STTR programs. SBA officials told us they planned to submit their report  for fiscal year 2012 by the end of fiscal year 2014—2 years after the  subject fiscal year.
In our first annual report on these issues, we found that SBA had issued  reports on 3 of the 6 years covered by our review—2006 through 2008— and those reports contained limited analyses of the agencies’  methodologies, and some of the analyses were inaccurate. SBA issued  its report to Congress for fiscal years 2009 through 2011 in December  2013, making the data available to Congress about 2 to 4 years after the  end of the subject year. In that 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 will be difficult for SBA to  ensure that intended benefits of these programs are being attained and  that Congress receives critical information to oversee these programs.  Consequently, 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 with our recommendation and stated  in its comments on the report that it planned to implement the  recommendation. SBA’s policy directives for the programs call for  agencies to submit their program data to SBA by March 15 each year.  However, SBA officials said that they have no enforcement mechanism to  ensure that agencies submit their final data by that date. SBA introduced  a scorecard in its report to Congress for fiscal years 2009 through 2011 to  document agencies’ timeliness in submitting data for fiscal year 2011.  SBA officials expect that publishing the information in the report to  Congress will encourage the agencies to submit their data on time, which,  according to the officials, should improve SBA’s timeliness in reporting to  Congress.
section_title: Changing the Calculation Methodology Could Increase Spending Requirements and Participation, with Potential Benefits and Drawbacks
paragraphs: Potential effects of basing each participating agency’s spending  requirement on its total R&D budget instead of its extramural R&D budget  include an increase in the amount of the spending requirement—for some  agencies more than others—and, if the thresholds for participation in the  programs did not change, an increase in the number of agencies required  to participate. Agency officials identified some benefits and drawbacks of  changing the methodology for calculating the spending requirements for  the SBIR and STTR programs.
subsections: section_title: Changing the Calculation Methodology Could Increase Spending Requirements and Participation in the Programs
paragraphs: If the methodology for calculating the spending requirements had been  changed so that the same percentages and thresholds for participating in  the programs as under current law were applied to an agency’s total R&D  budget rather than to its extramural R&D budget in fiscal year 2012, all  but one agency would have been required to spend more than under  current law, according to our analysis of budget data and data submitted  to SBA. The change would have had this effect because an agency’s  extramural R&D budget is a part of and, therefore, smaller than its total  R&D budget, and the same percentages would have been applied to a  larger amount of funding. Figure 3 shows a comparison of the agencies’  spending requirements for the SBIR and STTR programs in fiscal year  2012 under the current law, based on an agency’s extramural R&D  budget, and this alternative methodology. These figures are generally  consistent with the findings in our first annual report 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 to differences in the relative proportions of the extramural and  intramural R&D budgets among agencies. Under the alternative scenario,  agencies with a larger proportion of their total R&D budget for extramural  R&D would experience a smaller increase in their spending requirements  relative to the other agencies, as discussed in the following examples:
DHS used about 84 percent of its total R&D budget for extramural  R&D in fiscal year 2012 and was required to spend about $8 million  on its SBIR program in that year.  The agency would have a relatively  small increase in its SBIR spending if the spending requirement were  based on its total R&D budget instead of its extramural R&D budget:  DHS would have been required to spend about $2 million more in  fiscal year 2012 if the calculation methodology changed.
The Department of Commerce used a relatively small percentage of  its total R&D budget—about 17 percent—for extramural R&D in fiscal  year 2012, and its spending requirement for SBIR would have  increased more than five times, from about $5 million to $27 million in  fiscal year 2012 if the calculation methodology had changed. While  Commerce did not participate in the STTR program in fiscal year  2012, it would have been required to participate in the STTR program  if the calculation methodology had changed and the thresholds for  participating in the program had remained the same. Its spending  requirement for the STTR program would have been $4 million rather  than $0. Consequently, if the funding percentage required in law in  fiscal year 2012 applied to the total R&D budget instead of the  extramural budget, Commerce’s SBIR and STTR spending would  have increased by a total of about $26 million.
Changing the calculation methodology to the total R&D budget instead of  the extramural R&D budget would also increase the number of agencies  that would be required to participate in the SBIR and STTR programs,  assuming the dollar thresholds for participating in the programs remained  the same. Two additional agencies—the Departments of Veterans Affairs  and the Interior—would have been required to participate in the SBIR  program in fiscal year 2012 if the dollar thresholds for participating in the  programs applied to the total R&D budgets. Adding these two agencies  to the other agencies that participated in the SBIR program in fiscal year  2012 would have increased total federal SBIR spending requirements by  about $51 million, in addition to the increased spending requirements for  the other agencies. For STTR, three additional agencies—Commerce,  USDA, and the Department of Veterans Affairs—would have been  required to participate in the STTR program for fiscal year 2012 if the  dollar thresholds for participating in the programs were applied to the total  R&D budgets. Adding these three agencies to the other agencies that  participated in the STTR program in fiscal year 2012 would have  increased total federal STTR spending requirements by about $16 million,  in addition to the increased spending requirements for the other agencies.
We recognize that other scenarios could have different effects on the  spending requirements. For example, basing the SBIR and STTR  spending requirement on an agency’s total R&D budget and applying a  lower percentage than under current law could result in reduced spending  requirements for some agencies. Specifically, if the percentage applied to  the total R&D budget had been 1.5 percent instead of 2.6 percent, and  the thresholds for participating in the programs had remained the same,  the spending requirement for the total SBIR programs would have slightly  decreased in fiscal year 2012. Using this lower percentage, the  spending requirements for some agencies, such as Commerce and DOD,  would have increased, while the spending requirements for other  agencies, such as DHS and NSF, would have decreased.
section_title: Program Managers Identified Benefits and Drawbacks of Changing the Calculation Methodology
paragraphs: Program managers identified benefits and drawbacks that basing the  methodology for calculating the spending requirements on the total R&D  budget could have for their agencies’ programs. For example, several  program managers indicated that more funding for the programs would  allow their agencies to fund more projects, which was viewed as a benefit  because the agencies tend to receive more proposals than they can fund  in a year under current budgets. Additionally, several program managers  told us that basing the SBIR and STTR spending requirements on the  total R&D budget could improve transparency and reduce complexity in  determining the SBIR and STTR spending requirements because the  agencies would no longer need to identify the extramural portion of their  R&D budgets, which the agencies have to determine internally. Similarly,  program managers at some agencies said that the calculation to  determine the agency’s extramural R&D budget can be complex or  difficult and that avoiding it would save time and effort, which would be a  benefit.
Program managers also identified drawbacks to changing the  methodology for calculating the spending requirements, with most  program managers indicating that the potential drawbacks of such a  change could outweigh the benefits. For example, most program  managers said that increasing the amount of funding for the SBIR and  STTR programs could be a drawback because funding used to support  the agency’s other R&D efforts would have to be spent on the SBIR and  STTR programs. In addition, most program managers said that changing  the methodology for calculating spending requirements for these  programs could affect agency operations, depending on how the change  is implemented within the agency. For example, several program  managers said that basing spending requirements on the total R&D  budget could increase SBIR and STTR budgets, which may lead to a  decision within the agency to reduce intramural R&D programs and, in  turn, lead to reductions in staffing of these programs.  Most program  managers also said that basing spending requirements on the total R&D  budget could mean shifting money from other extramural R&D projects  currently funded within the agency to SBIR and STTR.
section_title: Little Information Is Known About Total Administrative Costs
paragraphs: Little is known about the total amounts agencies spent administering the  SBIR and STTR programs because agencies do not consistently collect  such information. Agencies are not required to track or estimate all costs  for administering the programs. In response to our requests to agencies  for data on their fiscal year 2012 administrative costs, most agencies  provided information on some categories of administrative costs and  partial estimates of costs. Agencies provided information on several  types of administrative costs, such as staff, contractor, and travel costs  for preparing and awarding contracts and grants and for monitoring them.  Administrative cost estimates that the agencies provided for fiscal year  2012 ranged from about $200,000 to about $8 million. As with the data on  fiscal year 2011 for our first annual report, these data were wide-ranging,  incomplete, and unverifiable.
The 2011 reauthorization of the programs created a pilot program  beginning in fiscal year 2013 that allows agencies to spend up to 3  percent of SBIR funds for administrative costs of the programs beginning  in fiscal year 2013. The SBIR policy directive requires agencies to submit  information to SBA on the funding used for administrative costs through  the pilot program. As such, we anticipate that agencies that participate in  the pilot program will have additional information on administrative costs  for fiscal year 2013, which we will examine in our next annual review of  the programs. As of May 2014, SBA officials expected that agencies  would submit their data for fiscal year 2013 in June 2014. According to  SBA’s policy directives, funding under the pilot program must not replace  current agency administrative funding for SBIR. Consequently, even with  the pilot program, agencies will likely not identify or track all administrative  costs for SBIR.
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 first annual report on these issues, we  identified some areas where SBA could take actions to ensure that  agencies comply with spending and reporting requirements. Our report  was issued in September 2013, after agencies’ fiscal year 2012 data and  reports were due to SBA, and, as a result, some of the issues we  identified in the data and reports for fiscal years 2006 through 2011  remained in fiscal year 2012. For example, in our prior report, we found  that the agencies submitted different levels of detail in their methodology  reports, such as the programs excluded from the extramural R&D budget  and the reasons for the exclusions. In that report, we recommended that  the SBA Administrator provide the format for agencies to include in their  methodology reports and to provide timely annual feedback to agencies  on whether their methodology calculations for extramural R&D budgets  comply with program requirements. We found similar issues with  agencies’ reports for fiscal year 2012 and continue to believe that this  oversight is needed and that the recommendation is valid and should be  fully implemented. Additionally, as part of its oversight role, SBA is  required to provide Congress with annual reports on the SBIR and STTR  programs.  However, SBA has faced challenges in submitting its report in  a timely manner—particularly with agencies revising their data  submissions well after the fiscal year is over—leading to reports that are  submitted between 2 and 4 years after the subject year. 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. We continue to believe that providing a timely report to  Congress is important and that the recommendation continues to have  merit and should be fully implemented.  Moreover, such a report could  demonstrate SBA’s oversight to help ensure that the programs are  meeting their intended goals.
In addition to those issues that could be addressed by implementing our  prior recommendations, we identified four additional issues that—if left  unaddressed—could affect compliance with spending and reporting  requirements in the future. First, some agencies did not comply with the  requirement to spend program funds annually because SBA’s policy  directives inaccurately summarize the requirement. Without correct  information in the policy directives, such misinterpretations could lead to  agencies spending less than required. Second, agencies did not report  the total amounts spent on the programs because SBA has not provided  guidance on whether or how to submit information on spending for  reasons other than awards, such as technical assistance. As a result,  Congress does not have access to complete and accurate information on  the amounts spent on the programs. Third, agencies have continued to  submit their methodology reports to SBA significantly later than required  by law. In fiscal year 2012, most agencies submitted their methodology  reports more than a year after the deadline established in the Small  Business Act. Without holding agencies to the deadlines in the law, SBA  did not have an opportunity to perform timely oversight by analyzing these  methodologies and providing the agencies with feedback, if needed, to  correct problems with the calculations and help to ensure that agencies  meet mandated spending requirements.  Fourth, two agencies have  calculated their extramural R&D budgets for the STTR program  incorrectly. DOD officials told us that they will use the same extramural  R&D budget figure for both programs moving forward, but HHS officials  do not plan to do so. Using the wrong figure could lead to spending less  than the required amount for the programs in the future.
section_title: Recommendations for Executive Action
paragraphs: To improve compliance with the Small Business Act and enhance SBA’s  ability to provide oversight of the programs, we recommend that the SBA  Administrator take the following three actions:
Revise the language in the SBIR and STTR policy directives to  accurately summarize the statutory provisions that describe the  program spending requirements.
Provide written guidance to agencies clarifying whether and how  agencies should submit data to SBA on spending outside of awards  that is allowed under the programs, such as discretionary technical  assistance.
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.
To help ensure that the agency continues to spend the required amount  for the STTR program, we recommend that the Secretary of Health and  Human Services include all of the agency’s extramural R&D budget in the  calculation of STTR spending requirements and in the data submitted to  SBA.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of Health and Human  Services, Agriculture, Commerce, Defense, Education, Energy,   Homeland Security, and Transportation; the Administrators of the Small  Business Administration, the Environmental Protection Agency, and the  National Aeronautics and Space Administration; and the Director of the  National Science Foundation for review and comment. In response, six of  the agencies—Commerce, Education, DOE, DHS, DOT, and EPA— stated by email that they had no technical or written comments. Two  agencies—NASA and NSF—provided technical comments by e-mail but  did not provide formal written comments. We incorporated these technical  comments, as appropriate. The remaining four agencies—SBA, HHS,  USDA, and DOD—provided written comments, which are reproduced in  appendixes IV through VII and discussed below.
In written comments, reproduced in appendix IV, SBA generally agreed  with the issues and recommendations included in our report. The letter  states that SBA does not believe that the policy directive inaccurately  summarizes the law and that the use of the term “reserve” refers to the  allocation of the extramural budget. SBA officials plan to start using the  term “extramural obligations” instead of “extramural budget” to address  confusion with participating agencies, but they will review all language in  the policy directives to ensure that the funding requirements are clear.  SBA’s proposed change could help address some confusion among  participating agencies, but we continue to believe that SBA should  implement our first recommendation to revise the language in the SBIR  and STTR policy directives to accurately summarize the statutory  provisions that describe the program spending requirements. Specifically,  the policy directives currently say that the relevant statutory provision  requires participating agencies to “reserve” a minimum percentage of  their extramural budget for awards to small businesses each year,  whereas the law requires participating agencies to “expend” the minimum  percentages. As reflected in USDA’s agency comments (see app. VI), the  use of the term “reserve” is a specific point of confusion for at least one of  the participating agencies.
In written comments, reproduced in appendix V, HHS concurred with our  recommendation regarding the inclusion of all of the agency’s extramural  R&D budget in the calculation of the STTR spending requirements and in  the data submitted to SBA. HHS plans to ensure that the agency’s  extramural R&D budget is calculated the same way for the SBIR and  STTR programs beginning in fiscal year 2015, as funding for the  programs in fiscal year 2014 is already under way.
In written comments, reproduced in appendix VI, USDA’s Director of the  National Institute of Food and Agriculture, stated that USDA generally  agrees with our report, but the agency does not agree that it did not  comply with the spending requirements for the SBIR program. USDA’s  written comments state that USDA has not always obligated the minimum  percentage of its extramural R&D budget for the SBIR program in a single  fiscal year because some of the funds used for the program are available  without fiscal year limitations, referred to as “no-year money.” USDA’s  written comments explain that USDA did not obligate the required  amounts due to the language in the program policy directive, which  directs federal agencies to “reserve” the minimum percentage of their  extramural R&D budgets for awards to small business concerns. This is  consistent with what officials told as during our review. We recognize that  agencies with multiyear appropriations are generally allowed to carry  funds over from one year to the next and that there are benefits to doing  so, but we continue to believe that the Small Business Act requires  participating agencies to spend at least the minimum percentage of their  extramural R&D budgets on the program each year, regardless of the  year the dollars spent were appropriated. In other words, an agency can  use a mix of funds from different fiscal years, consistent with the  limitations specific to its appropriations, to meet the spending requirement  in any given fiscal year, but it must still meet the spending requirement in  each fiscal year. Conversely, as we state in the report, if an agency  carries over funding from one year to the next without spending, or at  least obligating, the minimum required amount on the program in each  fiscal year, then the agency is not in compliance with spending  requirements. As noted above, we continue to believe that a change to  the program policy directives is needed to address this misinterpretation  of the spending requirements.
In written comments, reproduced in appendix VII, the DOD Administrator  for the SBIR and STTR programs stated that DOD concurs with our  finding that DOD does not expend all SBIR and STTR funds appropriated  to the department in the same fiscal year that they are received, but DOD  believes that the agency is in compliance with the law in that it obligates  the minimum percentage of SBIR and STTR funds each year in  accordance with the obligation authority conferred by Congress and long- standing DOD procedures. We neither state in the report, nor do we  believe, that agencies are required to spend all of the SBIR or STTR  funds appropriated in the same year that they are received. As we state in  the report, we used the total obligations data that agencies submitted to  SBA to calculate compliance with spending requirements. These data  represent the amount obligated in a specific year, regardless of the year  the funding was appropriated. Additionally, we agree that an agency is in  compliance with program spending requirements if it obligates the  minimum percentage of program funds each year. However, using the  spending data that DOD submitted to SBA for fiscal year 2012, DOD did  not comply with the spending requirements for the STTR program.
We are sending copies of this report to the Secretaries of Health and  Human Services, Agriculture, Commerce, Defense, Education, Energy,  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; the appropriate congressional committees;  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 ruscof@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 VIII.
section_title: Appendix I: Agencies’ Compliance with Spending Requirements for the Small Business Innovation Research Program for Fiscal Year 2012
paragraphs: Our analysis of the data that the agencies submitted to the Small  Business Administration (SBA) indicate that the amounts that 8 of the 11  participating agencies spent for the Small Business Innovation Research  (SBIR) program met or exceeded their fiscal year 2012 spending  requirements, while spending for the remaining 3 agencies did not meet  the requirements. See table 2 for data on agency compliance.
section_title: Appendix II: Agencies’ Compliance with Spending Requirements for the Small Business Technology Transfer Program for Fiscal Year 2012
paragraphs: Our analysis of the data that the agencies submitted to the Small  Business Administration (SBA) indicate that two of the five agencies  participating in the Small Business Technology Transfer (STTR) program  met or exceeded their fiscal year 2012 spending requirements, while the  remaining three agencies did not. See table 3 for data on agency  compliance.
section_title: Appendix III: Affect of Different Methodologies on Calculation of Department of Defense Spending for Fiscal Years 2006 through 2011
paragraphs: Differences in how agencies interpret the spending requirements for the  Small Business Innovation Research (SBIR) and Small Business  Technology Transfer (STTR) programs can lead to different results when  calculating compliance with spending requirements. To demonstrate the  effect that these differences can have, we made the following calculations  for the Department of Defense (DOD). First, we used the methodology we  used for this report, as well as our first annual report on these issues, in  which we compared the agency’s spending in each year to the spending  requirements for that year. Second, we used the methodology that DOD  uses to calculate its spending. DOD calculates its spending for the year  as the funding that was appropriated in one year and spent in the same  year and the following year. For example, for fiscal year 2006, DOD  calculated its spending as the sum of the funding appropriated in fiscal  year 2006 and spent in fiscal year 2006 and the funding appropriated in  fiscal year 2006 and spent in fiscal year 2007. We used DOD for this  comparison because DOD is the only agency that submits its spending  data to the Small Business Administration (SBA) in a way that allows us  to determine the year that funding was appropriated and spent. We  found that DOD complied with SBIR spending requirements in 2 of the 6  fiscal years from 2006 to 2011 and with STTR spending requirements in 4  of the 6 years using our method. DOD’s method is incorrect, but if it were  correct, it would yield a compliance determination in each of the 6 years  for both the SBIR and STTR programs (see tables 4 and 5).
section_title: Appendix IV: Comments from the Small Business Administration
section_title: Appendix V: Comments from the Department of Health and Human Services
section_title: Appendix VI: Comments from the Department of Agriculture
section_title: Appendix VII: Comments from the Department of Defense
section_title: Appendix VIII: 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; Antoinette Capaccio; Cindy Gilbert; Richard Johnson; Armetha  Liles; Rebecca Makar; Cynthia Norris; and Daniel Semick made key  contributions to this report.