Small Business Research Programs: Agencies Did Not Consistently Comply with Spending and Reporting Requirements
Released: 2014-04-24T00:00:00

Letter

Data Indicated Most Agencies Did Not Consistently Comply with Spending Requirements

In 2013, we found that most agencies did not comply with spending requirements for the SBIR or STTR programs in all 6 years, based on data the agencies submitted to SBA for fiscal years 2006 to 2011. Specifically, 8 of the 11 agencies did not consistently meet annual spending requirements for SBIR. Data from 3 of the agencies—DHS, Education, and HHS—indicated that they met their spending requirements for all 6 years. For STTR, 4 of 5 agencies did not consistently meet annual spending requirements. Data from 1 agency— HHS—indicated that it met its STTR spending requirements for all 6 years. Figure 1 shows the number of years that each agency complied with spending requirements for fiscal years 2006 through 2011. Additional data on each agency’s spending on the programs is included in our 2013 report.

SBIR and STTR program managers identified reasons why spending the required amount in a given fiscal year could be difficult, which we described in our 2013 report. For example, in that report, we found that delays in receiving final appropriations can delay agencies’ awarding of contracts for SBIR or STTR projects. Some program managers said that they tend to wait to award some grants and contracts until receiving their final appropriations in case the agency’s extramural R&D budget—and, therefore, its SBIR or STTR spending requirement—differs significantly from the expected amount. Because the award process can be lengthy, a delay can push the awards and spending into the following fiscal year.

As we found in our 2013 report, when appropriations were received late in the year, agencies used differing methodologies to calculate their spending requirements, making it difficult to determine whether agencies’ calculations were correct. Although SBA provided guidance in policy directives on calculating their spending requirements, we found that the policy directives did not provide guidance to agencies on how to calculate such spending requirements when agency appropriations are delayed. We found that, without such guidance, that agencies would likely continue to calculate spending requirements in differing ways. In our 2013 report, we recommended that SBA provide additional guidance on how agencies should calculate spending requirements when agency appropriations are received late in the fiscal year. SBA has since begun taking steps to address this recommendation.

Agencies and SBA Did Not Consistently Comply with Certain Reporting Requirements

We also found in 2013 that agencies participating in the SBIR and STTR programs did not consistently comply with requirements in the Small Business Act to annually report a description of their methodologies for calculating their extramural R&D budgets to SBA and that SBA did not consistently comply with the act’s requirements for annually reporting to Congress.

With the exception of NASA in certain years, agencies did not submit their methodology reports to SBA within the time frame required by the Small Business Act for fiscal years 2006 through 2011 for the SBIR and STTR programs. As noted earlier, the act requires that agencies report to SBA their methodologies for calculating their extramural budgets within 4 months after the date of enactment of their respective appropriations acts. However, most participating agencies documented their methodologies for calculating their extramural R&D budgets for these fiscal years and submitted them to SBA after the close of the fiscal year with their annual reports. SBA officials said that they did not hold the agencies to the act’s deadline for submitting methodology reports, in part because delays in receiving annual appropriations pushed the required reporting date until late in the fiscal year and it was more convenient for agencies to submit their methodology reports with their annual reports. By not having the methodology reports earlier in the year as specified by law, however, SBA did not have an opportunity to analyze these methodologies and provide the agencies with timely feedback to assist agencies in accurately calculating their spending requirements. By not providing such feedback, SBA was forgoing the opportunity to assist agencies in correctly calculating their program spending requirements and to help ensure that they spent the mandated amounts.

More significantly, we found in 2013 that the majority of the agencies did not include an itemization of each R&D program excluded from the calculation of the agency’s extramural budget and a brief explanation of why it was excluded, as required. We found that it was difficult for SBA to comprehensively analyze the methodologies and determine whether agencies were accurately calculating their spending requirements without having more consistent information from agencies. We also found that agencies could have benefited from guidance on the format of methodology reports, and that without such guidance, participating agencies might continue to provide SBA with broad, incomplete, or inconsistent information about their methodologies and spending requirements. We recommended that SBA provide additional guidance to agencies on the format that they are to include in their methodology reports. We also recommended 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, including an itemization of and an explanation for all exclusions from the basis for the calculations. SBA is in the process of taking steps to address these recommendations.

We also found in 2013 that SBA had not consistently complied with the requirement to report its analysis of the agencies’ methodologies in its annual report to Congress, as required by the Small Business Act. Over the 6 years covered in our review, SBA reported to Congress for 3 of those; fiscal years 2006, 2007, and 2008. We found that these reports contained limited analyses of the agencies’ methodologies, and some of the analyses were inaccurate. For example, SBA’s analysis was limited to a table attached to the annual report to Congress that often did not include information on particular agencies. In our 2013 report, we found that, without more comprehensive analysis and accurate information on participating agencies in SBA’s annual report, Congress did not have information on the extent to which agencies are reporting what is required by law. 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, providing a clear basis for SBA’s conclusions about whether these calculations meet program requirements. SBA is in the process of taking steps to address this recommendation.

Changing the Calculation Methodology Could Increase Spending Requirements and Participation

In 2013, we also found that changing the methodology to calculate the SBIR and STTR spending requirements based on each agency’s total R&D budget instead of each agency’s extramural R&D budget would increase the amount of each agency’s spending requirement for the programs, some much more than others, depending on how the change was implemented. Also, such a change would increase the number of agencies that would be required to participate in the programs if the threshold for participating in the programs remained the same. For example, two additional agencies—the Departments of Veterans Affairs (VA) and the Interior—would have been required to participate in SBIR in fiscal year 2011 if total R&D budgets had been the criteria because these agencies reported total R&D budgets in excess of $100 million. For STTR, three additional agencies—Commerce, USDA, and VA—would also have been required to participate in the program for fiscal year 2011 if total R&D budgets had been the criteria because these agencies reported total R&D budgets in excess of $1 billion.

Some agencies told us in 2013 that changing the methodology to calculate the SBIR and STTR spending requirements could have effects on their R&D programs and create challenges. For example, changing the base would increase SBIR and STTR budgets and could result in reductions in certain types of intramural R&D, with corresponding reductions in full-time equivalent staffing of these programs. In addition, some agency officials said there would potentially be changes in the content of the agency’s extramural R&D effort because of changes in the types of businesses that receive grants and contracts.

Administrative Costs Could Not Be Determined Because the Agencies Did Not Identify or Track All Costs

We found in 2013 that the participating agencies’ cost of administering the SBIR and STTR programs could not be determined because the agencies neither collected that information nor had the systems to do so. Neither the authorizing legislation for the programs nor SBA policy directives require agencies to track and estimate all administrative costs, and neither the law nor the policy directives define these administrative costs. Estimates agencies provided for our report indicated that the greatest amounts of administrative costs in fiscal year 2011 were for salaries and expenses, contract processing, outreach programs, technical assistance programs, support contracts, and other purposes. With the implementation in 2013 of a pilot program allowing agencies under certain conditions to use up to 3 percent of SBIR program funds for certain administrative costs, SBA expected to require agencies in the pilot program to track and report the spending of that 3 percent but not all of their administrative costs.

Chairwoman Cantwell, Ranking Member Risch, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time.

GAO Contact and Staff Acknowledgments

If you or your staff have any questions about this testimony, please contact me at (202) 512-3841 or neumannj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Hilary Benedict, Assistant Director; Antoinette Capaccio; Cindy Gilbert; Rebecca Makar; Cynthia Norris; and Daniel Semick.

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