Small Business Research Programs:

Actions Needed to Improve Compliance with Spending and Reporting Requirements

GAO-13-421: Published: Sep 9, 2013. Publicly Released: Sep 9, 2013.

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What GAO Found

Using data agencies had reported to the Small Business Administration (SBA), GAO found that 8 of the 11 agencies participating in the Small Business Innovation Research (SBIR) program and 4 of the 5 agencies participating in the Small Business Technology Transfer (STTR) program did not consistently comply with spending requirements for fiscal years 2006 to 2011. In calculating their annual spending requirements for these programs, some agencies made improper exclusions from their extramural research and development (R&D) budgets and used differing methodologies. SBA, which oversees the programs, provided guidance in policy directives for agencies on calculating these requirements, but the directives do not provide guidance on calculating the requirements when appropriations are late and spending is delayed, resulting in agencies using differing methodologies. This made it difficult to determine whether agencies' calculations were correct. Without further SBA guidance, agencies will likely continue calculating spending requirements in differing ways.

The participating agencies and SBA have not consistently complied with certain program reporting requirements. For example, in their methodology reports to SBA, the agencies submitted different levels of detail on their methodologies, such as the programs excluded from the extramural budget and the reasons for the exclusions. SBA's guidance states that the methodology reports are to itemize each R&D program excluded from the calculation of the agency's extramural budget and explain why a program is excluded but does not specify the format of the methodology reports to ensure consistency. Also, SBA's annual reports to Congress contained limited analysis of the agencies' methodologies, often not including information on particular agencies. Without more guidance to agencies on the formats of their methodology reports and more analysis of the contents of those reports, SBA cannot provide Congress with information on the extent to which agencies are reporting what is required. Further, SBA has not submitted an annual report on these programs for fiscal years 2009 to 2011 but plans to submit the reports to Congress later in 2013--making the data available to Congress on the programs 2 to 4 years late.

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--depending on how much of the agency's R&D budget is composed of extramural spending. Also, if the thresholds of the spending requirements for participation in the programs did not change, changing the base to an agency's total R&D budget would increase the number of agencies required to participate.

The agencies' cost of administering the programs could not be determined because the agencies have not consistently tracked that cost as they are not required to by the authorizing legislation of the programs. Nine of the 11 agencies in SBIR provided GAO with estimates of some of these costs for fiscal year 2011--most of which were for salaries and expenses. With the start of a pilot program allowing agencies to use up to 3 percent of SBIR program funds for administrative costs in 2013, SBA plans to require agencies to track and report administrative costs paid from program funds.

Why GAO Did This Study

The Small Business Act established the SBIR and STTR programs to use small businesses to meet federal R&D needs. The law mandates that agencies, with extramural R&D budgets that meet the thresholds for participation, must spend a percentage of these annual budgets on the SBIR and STTR programs. The agencies are to report on their activities to SBA and, in turn, SBA is to report to Congress. Eleven agencies participate in SBIR, and five of them also participate in STTR. The act's 2011 reauthorization mandates that GAO review SBA's and the agencies' compliance with spending and reporting requirements, and other program aspects, for fiscal years 2006 to 2011. GAO determined (1) the extent to which participating agencies complied with spending requirements and how the agencies calculated these requirements, (2) the extent to which participating agencies and SBA complied with certain reporting requirements, (3) the potential effects of basing the spending requirements on an agency's total R&D budget, and (4) the cost to participating agencies of SBIR and STTR program administration. GAO reviewed agency calculations of spending requirements and the required reports and interviewed SBA and participating agency program and financial officials.

What GAO Recommends

GAO recommends, among other things, that SBA provide additional guidance to agencies for spending and reporting requirements and provide Congress with a more timely annual report with more analysis of the agencies' methodologies. SBA stated that it agrees with the recom-mendations and will implement them.

For more information, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov

Recommendations for Executive Action

  1. Status: Open

    Comments: According to SBA officials, the timing of appropriations does not affect how agencies should calculate their spending requirements. We believe that the existing guidance on calculating spending requirements addresses the first part of this recommendation. With regard to the format agencies are to use for their methodology reports, in response to our recommendation, SBA updated its annual report template, which asked agencies to provide certain information for their methodology reports as part of their annual reports. The revised template was used for the fiscal year 2013 data that agencies reported to SBA in June 2014 and similar information was requested for fiscal year 2014. Further, SBA's program policy directive, published in the Federal Register in April 2016, included additional information that agencies are to include in their methodology reports. However, according to SBA officials, in January 2017, the policy directive was withdrawn from the Office of Management and Budget and is under further internal consideration in light of a recent executive order. As of April 2017, SBA has not established a time frame for publication of the final policy directive.

    Recommendation: To ensure that participating agencies and SBA comply with spending and reporting requirements for the SBIR and STTR programs, the SBA Administrator should provide additional guidance on how agencies should calculate spending requirements when agency appropriations are received late in the fiscal year and the format agencies are to include in their methodology reports.

    Agency Affected: Small Business Administration

  2. Status: Open

    Comments: In April 2017, SBA officials said that SBA provided feedback to all agencies regarding their agency methodology reports. When SBA provides documentation of this feedback, we will review the information and determine whether it meets the intent of the recommendation.

    Recommendation: To ensure that participating agencies and SBA comply with spending and reporting requirements for the SBIR and STTR programs, the SBA Administrator should provide timely annual feedback to each agency following submission of its methodology report on whether its method for calculating the extramural R&D budget used as the basis for the SBIR and STTR spending requirements complies with program requirements including an itemization of and an explanation for all exclusions from the basis for the calculations.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Comments: SBA updated its template that agencies use to report program information annually for fiscal year 2013 data, which was submitted in June 2014. The updated template included a place for agencies to include their methodologies for calculating their extramural R&D budgets. Further, SBA updated the annual report template for the agencies' fiscal year 2015 data to request information from agencies that did not meet the spending requirement on the reasons why and measures the agency is taking to meet or exceed the spending requirement in the next fiscal year.

    Recommendation: To ensure that participating agencies and SBA comply with spending and reporting requirements for the SBIR and STTR programs, the SBA Administrator should direct participating agencies to include in their annual reports the calculation of the final extramural R&D budget used as the basis for their SBIR and STTR spending requirements and, if they did not meet the spending requirements, the reasons why not and how they plan to meet the spending requirements in the future.

    Agency Affected: Small Business Administration

  4. Status: Open

    Comments: According to SBA officials, as of April 2017, SBA had completed a draft of its report to Congress for fiscal year 2014 and planned to send it to the participating agencies and Office of Management and Budget for review after SBA completed its internal review. The officials said that the report for fiscal year 2015 is being drafted, and SBA is in the process of reviewing the participating agencies' data for fiscal year 2016, which was due to SBA in March 2017. As of April 2017, SBA did not have an anticipated issuance date for the reports to Congress for fiscal years 2014, 2015, or 2016.

    Recommendation: To ensure that participating agencies and SBA comply with spending and reporting requirements for the SBIR and STTR programs, the SBA Administrator should 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.

    Agency Affected: Small Business Administration

 

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