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

Letter

Background

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).

SBA and Participating Agencies Have Implemented About One-Third of Our Prior Recommendations

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.

HHS Implemented Recommendation on Spending Requirements, and SBA Implemented Half of Recommendations Related to Those Requirements

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.

SBA Implemented One of Five Recommendations to Improve Compliance with Other Reporting Requirements

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.

SBA Has Implemented One of Two Recommendations Relating to the Administrative Pilot Program

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.

SBA and DOD Plan to Implement April 2017 Recommendations on Fraud, Waste, and Abuse Prevention Requirements

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.

GAO Contact and Staff Acknowledgments

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.

Appendix I: GAO’s Prior Recommendations on Small Business Research Programs

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.

Related GAO Products

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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