Small Business Research Programs: Status of Prior Recommendations
Published: 2017-05-04T00:00:00

Fast Facts:
Agencies have awarded about $2 billion per year to small businesses through the Small Business Innovation Research and Small Business Technology Transfer programs.
Since 2013, we've made 20 recommendations to the Small Business Administration and two other agencies that participate in the programs. Only about one-third of those recommendations have been implemented.
Fully implementing the remaining recommendations could improve the programs by improving compliance with spending and reporting requirements; increasing participation in the administrative pilot program; and enhancing fraud, waste, and abuse prevention activities.

Highlights:
section_title: Why GAO Did This Study
paragraphs: For about 35 years, federal agencies have made awards to small businesses for technology research and development through the SBIR program and, for the last 25 years, through the STTR program, totaling more than $40 billion. Currently, 11 agencies participate in the SBIR program, and 5 of these agencies also participate in the STTR program. The SBIR/STTR Reauthorization Act of 2011 included provisions for GAO to review aspects of the programs.
This statement addresses GAO's key findings and recommendations related to the SBIR and STTR programs since 2012. This statement is based on GAO reports issued in response to the act's provisions from November 2012 through April 2017. Those reports examined SBA's and agencies' compliance with spending and other reporting requirements for the programs and their implementation of fraud, waste, and abuse prevention measures. For those reports, GAO compared documentation from SBA and participating agencies with the respective requirements. In April 2017, GAO updated the status of its prior recommendations.
section_title: What GAO Found
paragraphs: The Small Business Administration (SBA), which oversees the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, and agencies participating in the programs have implemented about one-third of GAO's 20 prior recommendations regarding the programs. From September 2013 through April 2017, GAO made 17 recommendations to SBA and 3 to participating agencies to improve the oversight and implementation of spending requirements; reporting requirements; the administrative pilot program; and fraud, waste, and abuse prevention requirements. SBA has implemented 5 recommendations, and participating agencies have implemented 1 (see figure), although GAO made 4 of these recommendations to SBA and 2 to participating agencies in April 2017.
SBA and participating agencies have taken some actions to address GAO's recommendations. For example, in June 2014, GAO recommended that SBA clarify how agencies are to submit data on allowable spending. In response, SBA revised its annual report template, requesting that agencies identify obligations for the programs outside of awards. This change has improved the accuracy of the data that agencies report to SBA. However, SBA and the participating agencies have not fully implemented 14 recommendations that, if implemented, could improve the oversight and implementation of the programs. For example, in each of its four reports on agencies' compliance with spending and other reporting requirements, GAO found that SBA had not submitted required annual reports to Congress on the programs. SBA issued its most recent required report on the programs for fiscal year 2013 in March 2016. In a September 2013 report, GAO concluded that without more rigorous oversight by SBA and more timely and detailed reporting, it would be difficult for SBA to ensure that intended benefits of the programs were being attained and that Congress was receiving critical information to oversee these programs. GAO recommended that SBA provide Congress with a timely annual report, as required by the act. SBA agreed and stated that it planned to implement the recommendation. However, SBA has not yet done so and, as of April 2017, SBA did not have an estimated date for submitting its reports for fiscal years 2014 through 2016. GAO continues to believe that it is important for SBA to provide a timely annual report to Congress to further improve oversight of the programs.
section_title: What GAO Recommends
paragraphs: GAO has made 17 recommendations to SBA to improve oversight and implementation of the SBIR and STTR programs. SBA generally agreed with the recommendations. SBA has taken or described planned actions to address the recommendations, which GAO will continue to monitor.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our work on the Small Business  Innovation Research (SBIR) and Small Business Technology Transfer  (STTR) programs. For about 35 years, federal agencies have made  awards to small businesses for technology research or research and  development (R&D) through the SBIR program and, for the last 25 years,  through the STTR program. Federal agencies have awarded an average  of about $2 billion a year through these programs and a total of more than  $40 billion for 150,000 contracts and grants since their inception in 1982  and 1992, respectively. Currently, 11 agencies participate in the SBIR  program, and 5 of these agencies also participate in the STTR program,  as shown in table 1.
Each participating agency is to manage its SBIR and STTR programs in  accordance with program laws and regulations and the policy directives  issued by the Small Business Administration (SBA), which oversees the  two programs. Federal agencies with obligations of $100 million or more  for extramural R&D are required to establish and administer an SBIR  program, and federal agencies with obligations of $1 billion or more for  extramural R&D are also required to establish and administer an STTR  program. The Small Business Act, which authorizes the programs,  establishes the amount of an agency’s funding that must be spent on the  SBIR and STTR programs each year. In fiscal year 2017, agencies  participating in the SBIR program are required to spend at least 3.2  percent of their extramural R&D obligations on the program, and agencies  participating in the STTR program are required to spend at least 0.45  percent of their extramural R&D obligations on the program.
The SBIR/STTR Reauthorization Act of 2011 (reauthorization act)  included provisions for us to review aspects of the SBIR and STTR  programs. In response to those provisions, we have issued four reports  on SBA and agencies’ compliance with spending and other reporting  requirements for the programs, and two reports on SBA and agencies’  implementation of fraud, waste, and abuse prevention measures.
This statement describes our key findings and recommendations related  to the SBIR and STTR programs since 2012 and actions taken to address  those recommendations. This statement is based on our prior reports on  the SBIR and STTR programs issued from November 2012 through April  2017. For those reports, we reviewed documentation from SBA and the  participating agencies and interviewed officials from SBA and the  participating agencies. We compared documentation from SBA and the  participating agencies with their respective requirements. Our prior  reports include detailed information on the methods used to conduct our  prior work. In April 2017, we consulted with agencies on the current status  of open recommendations and updated our prior recommendations.
We conducted the work on which this statement is based 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 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 purposes: (1) to use  small businesses to meet federal R&D needs, (2) to stimulate  technological innovation, (3) to increase commercialization of innovations  derived from federal R&D efforts, and (4) to encourage participation in  technological innovation by small businesses owned by disadvantaged  individuals and women. 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 SBIR and STTR programs are similar in that  participating agencies identify topics for R&D projects and support small  businesses, but the STTR program requires the small business to partner  with a research institution—such as a nonprofit college or university or  federally funded R&D center. The programs are currently authorized  through fiscal year 2022.
The SBIR and STTR policy directives require participating agencies to  submit data to SBA each year on the amount of their extramural R&D  obligations and the amount obligated for awards, among other  information. The Small Business Act also establishes certain reporting  requirements for participating agencies and SBA. Among other things,  agencies must, within 4 months of the enactment of their annual  appropriations, report to SBA on their methodologies for calculating their  extramural R&D obligations. Furthermore, SBA must annually report to  Congress on the participating agencies’ SBIR and STTR programs.  Additionally, the reauthorization act directed SBA to allow agencies to  participate in a pilot program, known as the administrative pilot program,  which permitted the funding of administrative and certain other costs in  fiscal years 2013 through 2015. Under this administrative pilot program,  agencies are allowed 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 congressional reporting. The SBIR and STTR policy directives  specifically note that funding under the pilot program may not replace  current agency administrative funding for SBIR or STTR activities.  Instead, the administrative pilot program is intended to supplement  existing administrative efforts. In November 2015, the National Defense  Authorization Act for Fiscal Year 2016 extended the pilot program through September 30, 2017. In December 2016, the National Defense  Authorization Act for Fiscal Year 2017 extended the SBIR and STTR  programs through fiscal year 2022, but did not extend the pilot program.
The reauthorization act required SBA to add fraud, waste, and abuse  prevention requirements to the policy directives for agencies to  implement. In 2012, SBA issued revised policy directives for the SBIR  and STTR programs that included new requirements designed to help  agencies prevent potential fraud, waste, and abuse in the programs. In  addition to the requirements for the participating agencies, the  reauthorization act included requirements for those agencies’ Offices of  the Inspectors General (OIG).
section_title: SBA and Participating Agencies Have Implemented About One-Third of Our Prior Recommendations
paragraphs: SBA has implemented 5 of the 17 recommendations we have made on  the SBIR and STTR programs and the participating agencies to which we  have made recommendations—the Departments of Health and Human  Services (HHS) and Defense (DOD)—have implemented 1 of the 3  recommendations we made. From September 2013 through April 2017,  we made recommendations to SBA and participating agencies to improve  oversight and implementation of the programs in four areas: (1) spending  requirements; (2) other reporting requirements; (3) the administrative pilot  program; and (4) fraud, waste, and abuse prevention requirements. The  complete list of recommendations and the status of agencies’  implementation of the recommendations is included in appendix I.
subsections: section_title: HHS Implemented Recommendation on Spending Requirements, and SBA Implemented Half of Recommendations Related to Those Requirements
paragraphs: From September 2013 through April 2017, we made six  recommendations to SBA and one to HHS to improve oversight and  implementation of the SBIR and STTR spending requirements. SBA has  fully implemented three of these recommendations and HHS has  implemented its recommendation in this area (see app. I). Some actions  that SBA and HHS have taken to address our recommendations include  the following:  In certain circumstances, amounts that the agencies spend for items  other than awards count as part of the agencies’ spending for the  programs. In our June 2014 report, we found that SBA did not request  that agencies submit data on such spending and recommended that  the agency clarify how to submit such data. In response to our  recommendation, SBA revised its annual report templates for data  reported since fiscal year 2013 to identify obligations for the programs  outside of awards, such as funds spent on discretionary technical  assistance to small businesses. This change has improved the  accuracy of participating agencies’ obligations data that they report to  SBA and that SBA, in turn, reports to Congress.
In our September 2013 report, we found that SBA did not request that  agencies include information in their annual reports that would enable  SBA to conduct better oversight, including information on (1) whether  agencies met the mandated spending requirements, (2) the reasons  for any noncompliance with these requirements, and (3) the agencies’  plans for attaining compliance in future years. We recommended  that SBA direct participating agencies to include this information in  their annual reports to SBA. In response, SBA updated the annual  report template to request this information starting in fiscal year 2015,  which should help SBA more fully oversee the programs and provide  more complete information to Congress.
In our June 2014 report, we found that HHS used different extramural  R&D budget data to calculate its SBIR and STTR spending  requirements. We recommended that HHS include all of its  extramural R&D budget in the calculation of STTR spending  requirements and in the data submitted to SBA to help ensure that the  agency spends the required amount for the STTR program. According  to program documents and agency officials, HHS included all of its  extramural R&D in its budget data for the STTR program beginning  with its annual report for fiscal year 2014, which was submitted in  March 2015.
SBA has not yet fully implemented three of our recommendations related  to the spending requirements. For example, in our May 2016 report, we  found that USDA’s extramural R&D obligations exceeded the threshold  for participating in the STTR program, but USDA did not start an STTR program. For that report, USDA officials told us that they did not  establish an STTR program because they did not expect their extramural  R&D obligations to exceed $1 billion in fiscal year 2014 and that they  believed the agency’s obligations were an anomaly. Further, because the  spending requirement is based on actual obligations, which cannot be  known until after the end of the fiscal year, USDA was unaware of its  actual obligations until it was too late to retroactively begin an STTR  program. Although the Small Business Act is clear about the dollar  threshold for starting an SBIR or STTR program, neither the law nor  SBA’s guidance specifies when an agency should establish a program— for example, at the beginning of the year, partway through the year, or at  the end of the year. We recommended that SBA review its guidance  regarding when an agency is required to start up an SBIR or STTR  program, and if necessary, update the guidance to provide greater clarity  to agencies. SBA agreed with our recommendation and, as of April 2017,  SBA officials said they were working to develop language to update  SBA’s policy directives to provide guidance on when an agency must start  an SBIR or STTR program. We continue to believe that fully implementing  this recommendation is important because such information may help  ensure that agencies will establish programs when required and ensure  that the required amount of money is available for small businesses  participating in the programs.
section_title: SBA Implemented One of Five Recommendations to Improve Compliance with Other Reporting Requirements
paragraphs: The Small Business Act requires SBA to report annually to Congress on  the programs and requires participating agencies to report to SBA within  4 months of the enactment of appropriations on their methodologies for  determining their extramural R&D budgets. We have made five  recommendations to SBA to improve compliance with these reporting  requirements. SBA has fully implemented one recommendation (see app.  I), but four remain open. For example:  In each of our four reports on agencies’ compliance with spending and  other reporting requirements, we found that SBA had not submitted  timely reports to Congress on the SBIR and STTR programs. The  Small Business Act requires SBA to report to certain congressional  committees on the SBIR and STTR programs not less than annually.  SBA issued its most recent required report to Congress on the SBIR  and STTR programs for fiscal year 2013 in March 2016. In our  September 2013 report, we concluded that without more rigorous  oversight by SBA and more timely and detailed reporting on the part  of both SBA and participating agencies, it would be difficult for SBA to  ensure that intended benefits of the SBIR and STTR programs were  being attained and that Congress was receiving critical information to  oversee these programs. In that report, we recommended that SBA  provide Congress with a timely annual report that includes a  comprehensive analysis of the methodology each agency used for  calculating the SBIR and STTR spending requirements. SBA agreed  and stated at the time that it planned to implement the  recommendation. SBA officials told us that they have taken some  steps to help them develop the required reports to Congress, but have  not submitted SBA’s reports for fiscal years 2014, 2015, or 2016. We  continue to believe that it is important for SBA to provide a timely  annual report to Congress to further improve oversight of the  programs.
In our September 2013 report, we found that agencies submitted  different levels of detail on their methodologies in their required  reports to SBA. In that report, we recommended that SBA provide  agencies with additional guidance on the format to use for  methodology reports. Further, we found in our April 2015 report that,  as a result of the varying detail that agencies provide in their  methodology reports, it was difficult for SBA to complete its required  analysis of the methodology reports. We recommended that SBA  assess and update, if needed, the methodology reporting requirement  to ensure it generates adequate information. In response to that  recommendation, SBA proposed expanded guidance to agencies.  However, the proposed guidance has not yet been finalized.  According to SBA officials, SBA withdrew the draft policy directive  from Office of Management and Budget consideration in January  2017 and it is under further internal consideration in light of a recent  executive order. Without finalizing the proposed guidance,  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 SBA cannot ensure that it is  able to provide Congress with an accurate analysis of how agencies  calculate their extramural R&D. Additionally, in our September 2013  report—and others—we found that SBA had not consistently provided  feedback to agencies on the content of their methodology reports, and recommended that SBA provide timely annual feedback to agencies  on whether their methods for calculating their extramural R&D  budgets complies with program requirements. We concluded that,  without such review and feedback, agencies may be calculating their  extramural R&D incorrectly, which could lead to their spending less  than the required amounts on the programs. We continue to believe  that updating its guidance on information to include in the  methodology reports and providing feedback to agencies on their  methodologies could help SBA ensure that agencies are spending the  required amounts on the SBIR and STTR programs.
section_title: SBA Has Implemented One of Two Recommendations Relating to the Administrative Pilot Program
paragraphs: Since fiscal year 2013, agencies have been allowed to spend some of  their SBIR funding for certain administrative costs related to the  programs. We have made two recommendations to SBA to improve its  oversight of the administrative pilot programs. SBA has implemented one  of the two recommendations.
In our April 2015 report, we found that for fiscal year 2013, SBA had  requested that agencies submit information on the total amounts spent on  the administrative pilot program, but it did not request agencies to submit  information on how they used the funds. Fiscal year 2013 was the first  year of the pilot program, and, as we found in that report, SBA officials  were still determining the information they needed to report to Congress.  We recommended that SBA require participating agencies to provide data  on the use of the funds, rather than a total cost for all of the activities  under the pilot. In response, SBA updated the annual report template  used to collect program data from the agencies for fiscal year 2014, which  was submitted in the spring of 2015, to collect this information. This  improved the information available to SBA on the amounts spent on  activities through the administrative pilot program.
In our May 2016 report, we found that participation in the administrative  pilot program had increased in fiscal year 2014 compared with prior  years, but agency officials identified potential constraints that limited their  participation, including the temporary nature of the program and the  requirement to expend funds only on new activities. SBA is required to  collect data and report on the use of funds to achieve the objectives of the  administrative pilot program, but had not yet submitted a report. We  recommended that SBA complete its required evaluation of the  administrative pilot program, which could include an evaluation of the  constraints that have hindered agencies’ participation in the  administrative pilot program and steps to address these constraints. SBA  has not submitted a report to Congress on the administrative pilot  program for fiscal year 2014. We continue to believe that having SBA  include an evaluation of potential constraints to participating in the  administrative pilot program, whether as part of the annual report or in a  separate report, could be useful if Congress decides to continue the  program in the future. We concluded that, without such information, SBA  and Congress will not have the information they need to address the  constraints and help ensure agencies are implementing the administrative  pilot program to the fullest extent if Congress chooses to extend the pilot  program beyond fiscal year 2017.
section_title: SBA and DOD Plan to Implement April 2017 Recommendations on Fraud, Waste, and Abuse Prevention Requirements
paragraphs: In our April 2017 report on the SBIR and STTR programs, we reviewed  the implementation of fraud, waste, and abuse prevention measures by  SBA and the participating agencies and their OIGs. SBA amended the  SBIR and STTR policy directives in 2012, as required by the  reauthorization act, to include 10 minimum requirements to help agencies  prevent potential fraud, waste, and abuse in the programs. In that report,  we found that the extent to which the participating agencies have fully  implemented each of the 10 minimum requirements varies. We made  four recommendations to SBA and recommendations to HHS and DOD to  improve implementation of the requirements (see app. I). HHS disagreed  with our recommendation, but we continue to believe the  recommendation is valid and should be implemented. SBA and DOD  plan to implement all of their recommendations. For example:
We found that SBA had taken few actions to oversee agencies’  implementation of the policy directives’ minimum requirements to  address fraud, waste, and abuse in the SBIR and STTR programs.  SBA officials said they checked on the implementation of one of the  requirements but did not know whether the participating agencies  were implementing the other requirements because they had not  confirmed this information. We concluded that, without confirming that  each participating agency is implementing the fraud, waste, and  abuse prevention requirements in the policy directives, SBA did not  have reasonable assurance that each agency has a system in place  to reduce its’ vulnerability to fraud, waste, and abuse. SBA agreed  with the recommendation and stated that it will request that each  participating agency confirm its implementation of the minimum fraud,  waste, and abuse prevention requirements.
Although SBA updated the SBIR and STTR policy directives in 2012  to include the fraud, waste, and abuse prevention requirements, SBA  officials said they have not taken action since 2012 to review them to  determine whether they are effective or whether any revisions are  needed. We identified requirements that some agency officials said  were not clear or may be unnecessary, and we recommended that  SBA review all of the SBIR and STTR fraud, waste, and abuse  prevention requirements and clarify any that are unclear. SBA stated it  will contact all agencies to inquire if additional clarity is needed  regarding any of the fraud, waste, and abuse requirements, and will  provide additional guidance, if necessary.
We found that SBA had not evaluated the outcomes of the agencies’  implementation of the fraud, waste, and abuse prevention  requirements and therefore did not have reasonable assurance that  the requirements are necessary, appropriate, and meet the intended  purpose of preventing fraud, waste, and abuse in the SBIR and STTR  programs. We recommended that SBA ensure that the requirements  are appropriate and meeting their intended purposes. In response to  that recommendation, SBA stated that it would survey the  participating agencies regarding whether the requirements are  necessary and meeting their intended purposes; are placing undue  burdens on the agencies; or need to be revised, updated, or  eliminated.
We look forward to reviewing the agencies’ progress in implementing  these important recommendations.
Chairman Knight, Chairwoman Comstock, Ranking Members Murphy and  Lipinksi, and Members of the Subcommittees, this completes my  prepared statement. I would be pleased to respond to any questions that  you have.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this testimony, please  contact John Neumann, Director, Natural Resources and Environment at  (202) 512-3841 or neumannj@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Individuals making key contributions to this statement  included Hilary Benedict (Assistant Director), Antoinette Capaccio,  Rebecca Makar, and Kiki Theodoropoulos.
section_title: Appendix I: GAO’s Prior Recommendations on Small Business Research Programs
paragraphs: Table 2 lists our prior recommendations to the Small Business  Administration (SBA) and the agencies participating in the Small Business  Innovation Research (SBIR) and Small Business Technology Transfer  (STTR) programs, and the status of those recommendations, in four  areas: (1) spending requirements, (2) other reporting requirements, (3)  the administrative pilot program, and (4) fraud, waste, and abuse  prevention requirements.
section_title: Related GAO Products
paragraphs: Small Business Research Programs: Additional Actions Needed to  Implement Fraud, Waste, and Abuse Prevention Requirements.  GAO-17-337. Washington, D.C.: April 25, 2017.
Small Business Research Programs: Agencies Have Improved  Compliance with Spending and Reporting Requirements, but Challenges  Remain. GAO-16-492. Washington, D.C.: May 26, 2016.
Small Business Research Programs: Challenges Remain in Meeting  Spending and Reporting Requirements. GAO-15-358. Washington, D.C.:  April 15, 2015.
Small Business Innovation Research: Change in Program Eligibility Has  Had Little Impact. GAO-15-68. Washington, D.C.: November 20, 2014.
Small Business Research Programs: More Guidance and Oversight  Needed to Comply with Spending and Reporting Requirements.  GAO-14-431. Washington, D.C.: June 6, 2014.
Small Business Research Programs: Agencies Did Not Consistently  Comply with Spending and Reporting Requirements. GAO-14-567T.  Washington, D.C.: April 24, 2014.
Small Business Research Programs: Actions Needed to Improve  Compliance with Spending and Reporting Requirements. GAO-13-421.  Washington, D.C.: September 9, 2013.
Small Business Research Programs: Agencies Are Implementing New  Fraud, Waste, and Abuse Requirements. GAO-13-70R. Washington,  D.C.: November 15, 2012.
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