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entitled 'Small Business Research Programs: More Guidance and 
Oversight Needed to Comply with Spending and Reporting Requirements' 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

June 2014: 

Small Business Research Programs: 

More Guidance and Oversight Needed to Comply with Spending and 
Reporting Requirements: 

GAO-14-431: 

GAO Highlights: 

Highlights of GAO-14-431, a report to congressional committees. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-14-431]. For more 
information, contact Frank Rusco at (202) 512-3841or ruscof@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Data Indicate Not All Agencies Met Spending Requirements: 

Agencies Did Not Fully Comply with Certain Reporting Requirements and 
Submitted Incorrect Data: 

Changing the Calculation Methodology Could Increase Spending 
Requirements and Participation, with Potential Benefits and Drawbacks: 

Little Information Is Known About Total Administrative Costs: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Agencies' Compliance with Spending Requirements for the 
Small Business Innovation Research Program for Fiscal Year 2012: 

Appendix II: Agencies' Compliance with Spending Requirements for the 
Small Business Technology Transfer Program for Fiscal Year 2012: 

Appendix III: Affect of Different Methodologies on Calculation of 
Department of Defense Spending for Fiscal Years 2006 through 2011: 

Appendix IV: Comments from the Small Business Administration: 

Appendix V: Comments from the Department of Health and Human Services: 

Appendix VI: Comments from the Department of Agriculture: 

Appendix VII: Comments from the Department of Defense: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Agencies Participating in the Small Business Innovation 
Research (SBIR) and Small Business Technology Transfer (STTR) Programs: 

Table 2: Agency Compliance with Small Business Innovation Research 
(SBIR) Program Spending Requirements for Fiscal Year 2012: 

Table 3: Agency Compliance with Small Business Technology Transfer 
(STTR) Program Spending Requirements for Fiscal Year 2012: 

Table 4: Comparison of GAO and DOD Calculations for Small Business 
Innovation Research (SBIR) Program Spending for Fiscal Years 2006 
through 2011: 

Table 5: Comparison of GAO and DOD Calculations for Small Business 
Technology Transfer (STTR) Program Spending for Fiscal Years 2006 
through 2011: 

Figures: 

Figure 1: Percentage of Extramural Research or Research and 
Development Budgets That Participating Agencies Spent for the Small 
Business Innovation Research Program in Fiscal Year 2012: 

Figure 2: Percentage of Extramural Research or Research and 
Development Budgets That Participating Agencies Spent for the Small 
Business Technology Transfer Program in Fiscal Year 2012: 

Figure 3: Comparison of Fiscal Year 2012 Spending Requirements under 
the Current Law and an Alternative Scenario Based on Agencies' Total 
Research and Development Budgets: 

Abbreviations: 

R&D: research or research and development: 

SBA: Small Business Administration: 

SBIR: Small Business Innovation Research: 

STTR: Small Business Technology Transfer: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

June 6, 2014: 

Congressional Committees: 

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.[Footnote 1] 
Currently, 11 agencies participate in the SBIR program, and 5 of these 
agencies also participate in the STTR program, as shown in table 1. 

Table 1: Agencies Participating in the Small Business Innovation 
Research (SBIR) and Small Business Technology Transfer (STTR) Programs: 

Agency: Department of Agriculture (USDA); 
Program: SBIR. 

Agency: Department of Commerce; 
Program: SBIR. 

Agency: Department of Defense (DOD); 
Program: SBIR; STTR. 

Agency: Department of Education; 
Program: SBIR. 

Agency: Department of Energy (DOE); 
Program: SBIR; STTR. 

Agency: Department of Health and Human Services (HHS); 
Program: SBIR; STTR. 

Agency: Department of Homeland Security (DHS); 
Program: SBIR: X. 

Agency: Department of Transportation (DOT); 
Program: SBIR: X. 

Agency: Environmental Protection Agency (EPA); 
Program: SBIR: X. 

Agency: National Aeronautics and Space Administration (NASA); 
Program: SBIR; STTR. 

Agency: National Science Foundation (NSF); 
Program: SBIR; STTR. 

Source: Small Business Administration. 

[End of table] 

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.[Footnote 2] 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.[Footnote 3] We issued our first annual report in 
response to this mandate in September 2013, which covered fiscal years 
2006 through 2011.[Footnote 4] 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.[Footnote 5] 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.[Footnote 
6] 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.[Footnote 7] 
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. 

Background: 

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.[Footnote 8] The National 
Defense Authorization Act for Fiscal Year 2012, enacted on December 
31, 2011, reauthorized the SBIR and STTR programs through September 
30, 2017.[Footnote 9] 

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.[Footnote 10] 

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. 

Data Indicate Not All Agencies Met Spending Requirements: 

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. 

Agency Data Indicate Most Agencies Complied with SBIR Spending 
Requirements: 

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).[Footnote 11] 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.[Footnote 12] 

Figure 1: Percentage of Extramural Research or Research and 
Development Budgets That Participating Agencies Spent for the Small 
Business Innovation Research Program in Fiscal Year 2012: 

[Refer to PDF for image: vertical bar graph] 

Minimum spending requirement: 2.6%. 

Agency: DHS; 
Percentage spent: 4.01%. 

Agency: Education; 
Percentage spent: 4.01%. 

Agency: DOD; 
Percentage spent: 2.78%. 

Agency: DOT; 
Percentage spent: 2.77%. 

Agency: DOE; 
Percentage spent: 2.76%. 

Agency: HHS; 
Percentage spent: 2.62%. 

Agency: Commerce[A]; 
Percentage spent: 2.57%. 

Agency: NSF; 
Percentage spent: 2.57%. 

Agency: EPA; 
Percentage spent: 2.46%. 

Agency: NASA; 
Percentage spent: 2.44%. 

Agency: USDA; 
Percentage spent: 2.26%. 

Sources: GAO analysis of agency data submitted to SBA. GAO-14-431. 

Note: We defined compliance as spending at least 2.6 percent of an 
agency's extramural research or research and development (R&D) budget 
on the Small Business Innovation Research (SBIR) program in fiscal 
year 2012, as required by the Small Business Act. This method is 
consistent with SBA's approach for determining compliance with 
spending requirements in its reports to Congress on the program. We 
used the agencies' obligations data to represent spending for the 
programs, in part because obligations data were readily available from 
each of the agencies for program purposes, and because obligations 
provided a reasonable measure of the spending for the programs in each 
year. 

[A] Officials from one subunit within the Department of Commerce--the 
National Institute of Standards and Technology--said that they 
calculate their spending requirement for the program based on their 
actual obligations for extramural R&D for the previous fiscal year, 
rather than their extramural R&D budget for the current fiscal year, 
but they do not report this figure to SBA. We used the data that the 
Department of Commerce submitted to SBA to calculate its spending 
requirements. 

[End of figure] 

Agency Data Indicate Two Agencies Complied with STTR Spending 
Requirements: 

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).[Footnote 13] 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.[Footnote 
14] 

Figure 2: Percentage of Extramural Research or Research and 
Development Budgets That Participating Agencies Spent for the Small 
Business Technology Transfer Program in Fiscal Year 2012: 

[Refer to PDF for image: vertical bar graph] 

Minimum spending requirement: 0.35%. 

Agency: DOE; 
Percentage spent: 0.38%. 

Agency: HHS; 
Percentage spent: 0.35%. 

Agency: NASA; 
Percentage spent: 0.32%. 

Agency: DOD; 
Percentage spent: 0.31%. 

Agency: NSF; 
Percentage spent: 0.3%. 

Sources: GAO analysis of agency data submitted to SBA. GAO-14-431. 

Note: We defined compliance as spending at least 0.35 percent of an 
agency's extramural R&D budget on the STTR program in fiscal year 
2012, as required by the Small Business Act. This method is consistent 
with SBA's approach for determining compliance with spending 
requirements in its reports to Congress on the program. We used the 
agencies' obligations data to represent spending for the programs, in 
part because obligations data were readily available from each of the 
agencies for program purposes, and because obligations provided a 
reasonable measure of the spending for the programs in each year. 

[End of figure] 

Program Managers Identified Reasons Agencies Did Not Comply with 
Spending Requirements: 

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. 

Some Agencies Reserved Funds to Spend in a Subsequent Fiscal Year: 

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. 
[Footnote 15] 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.[Footnote 16] 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). 

Spending Requirements Increased Partway Through the Year: 

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. 

Agencies Did Not Submit Complete Information on Program Spending: 

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.[Footnote 17] 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.[Footnote 18] 
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. 

Extramural R&D Was Higher Than Estimated at the Beginning of the 
Fiscal Year: 

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. 

Agencies Did Not Fully Comply with Certain Reporting Requirements and 
Submitted Incorrect Data: 

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. 

Agencies Did Not Fully Comply with Methodology Reporting Requirements: 

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.[Footnote 19] 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.[Footnote 20] 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.[Footnote 21] 
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.[Footnote 22] 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.[Footnote 23] 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. 

Two Agencies Submitted Incorrect Data for the STTR Program: 

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.[Footnote 24] 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. 

SBA Has Not Submitted Its Annual Report for Fiscal Year 2012: 

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.[Footnote 25] 
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.[Footnote 26] 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. 

Changing the Calculation Methodology Could Increase Spending 
Requirements and Participation, with Potential Benefits and Drawbacks: 

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. 

Changing the Calculation Methodology Could Increase Spending 
Requirements and Participation in the Programs: 

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.[Footnote 27] 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. 

Figure 3: Comparison of Fiscal Year 2012 Spending Requirements under 
the Current Law and an Alternative Scenario Based on Agencies' Total 
Research and Development Budgets: 

[Refer to PDF for image: illustrated table] 

Dollars in millions: 

Agency: DOD; 
Agency's budget: 
Total research and development budget[A]: $72,811; 
Extramural research or research and development budget[B]: $38,816; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $1,009; 
Spending requirement under alternative scenario[D]: $1,893; 
Percentage difference between current law and alternative scenario: 
88%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: $136; 
Spending requirement under alternative scenario[F]: $255; 
Percentage difference between current law and alternative scenario: 
88%. 

Agency: HHS; 
Agency's budget: 
Total research and development budget[A]: $31,209; 
Extramural research or research and development budget[B]: $24,763; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $644; 
Spending requirement under alternative scenario[D]: $811; 
Percentage difference between current law and alternative scenario: 
26%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: $87; 
Spending requirement under alternative scenario[F]: $109; 
Percentage difference between current law and alternative scenario: 
26%. 

Agency: NASA; 
Agency's budget: 
Total research and development budget[A]: $11,175; 
Extramural research or research and development budget[B]: $5,728; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $149; 
Spending requirement under alternative scenario[D]: $291; 
Percentage difference between current law and alternative scenario: 
95%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: $20; 
Spending requirement under alternative scenario[F]: $39; 
Percentage difference between current law and alternative scenario: 
95%. 

Agency: DOE; 
Agency's budget: 
Total research and development budget[A]: $9,942; 
Extramural research or research and development budget[B]: $6,143; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $160; 
Spending requirement under alternative scenario[D]: $258; 
Percentage difference between current law and alternative scenario: 
62%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: $22; 
Spending requirement under alternative scenario[F]: $35; 
Percentage difference between current law and alternative scenario: 
62%. 

Agency: NSF; 
Agency's budget: 
Total research and development budget[A]: $5,101; 
Extramural research or research and development budget[B]: $5,111; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $133; 
Spending requirement under alternative scenario[D]: $133; 
Percentage difference between current law and alternative scenario: 
0[G]; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: $18; 
Spending requirement under alternative scenario[F]: $18; 
Percentage difference between current law and alternative scenario: 
0[G]. 

Agency: USDA; 
Agency's budget: 
Total research and development budget[A]: $2,242; 
Extramural research or research and development budget[B]: $746; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $19; 
Spending requirement under alternative scenario[D]: $58; 
Percentage difference between current law and alternative scenario: 
200%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [H][*]; 
Spending requirement under alternative scenario[F]: $8[*]; 
Percentage difference between current law and alternative scenario: 
[H][*]. 

Agency: Veterans Affairs; 
Agency's budget: 
Total research and development budget[A]: $1,160; 
Extramural research or research and development budget[B]: [H]; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: [H][*]; 
Spending requirement under alternative scenario[D]: $30[*]; 
Percentage difference between current law and alternative scenario: 
[H][*]; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [H][*]; 
Spending requirement under alternative scenario[F]: $4[*]; 
Percentage difference between current law and alternative scenario: 
[H][*]. 

Agency: Commerce; 
Agency's budget: 
Total research and development budget[A]: $1,023; 
Extramural research or research and development budget[B]: $175; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $5; 
Spending requirement under alternative scenario[D]: $27; 
Percentage difference between current law and alternative scenario: 
485%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [H][*]; 
Spending requirement under alternative scenario[F]: $4[*]; 
Percentage difference between current law and alternative scenario: 
[H][*]. 

Agency: DOT; 
Agency's budget: 
Total research and development budget[A]: $896; 
Extramural research or research and development budget[B]: $330; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $9; 
Spending requirement under alternative scenario[D]: $23; 
Percentage difference between current law and alternative scenario: 
172%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [I]; 
Spending requirement under alternative scenario[F]: [I]; 
Percentage difference between current law and alternative scenario: 
[I]. 

Agency: Interior; 
Agency's budget: 
Total research and development budget[A]: $817; 
Extramural research or research and development budget[B]: [H][*]; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: [H][*]; 
Spending requirement under alternative scenario[D]: $21[*]; 
Percentage difference between current law and alternative scenario: 
[H]; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [I]; 
Spending requirement under alternative scenario[F]: [I]; 
Percentage difference between current law and alternative scenario: 
[I]. 

Agency: EPA; 
Agency's budget: 
Total research and development budget[A]: $563; 
Extramural research or research and development budget[B]: $174; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $5; 
Spending requirement under alternative scenario[D]: $15; 
Percentage difference between current law and alternative scenario: 
223%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [I]; 
Spending requirement under alternative scenario[F]: [I]; 
Percentage difference between current law and alternative scenario: 
[I]. 

Agency: Education; 
Agency's budget: 
Total research and development budget[A]: $397; 
Extramural research or research and development budget[B]: $327; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $8; 
Spending requirement under alternative scenario[D]: $10; 
Percentage difference between current law and alternative scenario: 
22%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [I]; 
Spending requirement under alternative scenario[F]: [I]; 
Percentage difference between current law and alternative scenario: 
[I]. 

Agency: DHS; 
Agency's budget: 
Total research and development budget[A]: $384; 
Extramural research or research and development budget[B]: $322; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $8; 
Spending requirement under alternative scenario[D]: $10; 
Percentage difference between current law and alternative scenario: 
19%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: [I]; 
Spending requirement under alternative scenario[F]: [I]; 
Percentage difference between current law and alternative scenario: 
[I]. 

Agency: Total; 
Agency's budget: 
Total research and development budget[A]: $137,720; 
Extramural research or research and development budget[B]: $82,634; 
Small Business Innovation Research Program: 
Spending requirement under current law[C]: $2,148; 
Spending requirement under alternative scenario[D]: $3,581; 
Percentage difference between current law and alternative scenario: 
67%; 
Small Business Technology Transfer Program: 
Spending requirement under current law[E]: $282; 
Spending requirement under alternative scenario[F]: $471; 
Percentage difference between current law and alternative scenario: 
67%. 

[*] Agency did not participate in the program in fiscal year 2012, but 
it would be required to do so if participation was based on the total 
research and development budget, and the thresholds for participating 
in the programs remained the same. 

Sources: GAO analysis of agency data. GAO-14-431. 

Note: Calculations may be affected by rounding. 

[A] Each agency's total research and development budget authority is 
from the Analytical Perspectives volume of the President's budget. The 
category of "Facilities and Equipment" is not included in the total 
shown in this table. 

[B] Each agency's extramural research or research and development 
(R&D) budget is the amount the agency submitted to SBA. 

[C] Each agency's spending requirement under the current law for the 
Small Business Innovation Research (SBIR) program is calculated as 2.6 
percent of its extramural R&D budget. 

[D] Each agency's SBIR spending requirement under the alternative 
scenario is calculated as 2.6 percent of the total research and 
development budget authority and assumes no reductions for excluded 
programs. 

[E] Each agency's spending requirement under the current law for the 
Small Business Technology Transfer (STTR) program is calculated as 
0.35 percent of its extramural R&D budget. 

[F] Each agency's STTR spending requirement under the alternative 
scenario is calculated as 0.35 percent of the total research and 
development budget authority and assumes no reductions for excluded 
programs. 

[G] NSF's total research and development budget authority is less than 
its extramural R&D budget due to differences in the sources of data, 
according to NSF officials. NSF officials said that the amount 
reported in the Analytical Perspectives is based only on the actual 
budget authority for that particular year, while the amount submitted 
to SBA is based on total obligations resulting from budget authority 
provided in previous years. 

[H] Agency did not participate in the program in fiscal year 2012. 

[I] The agency's total research and development budget authority did 
not meet the threshold for participating in the STTR program for this 
alternative scenario. 

[End of figure] 

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.[Footnote 28] 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.[Footnote 29] 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.[Footnote 
30] 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. 

Program Managers Identified Benefits and Drawbacks of Changing the 
Calculation Methodology: 

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. 

Little Information Is Known About Total Administrative Costs: 

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.[Footnote 31] 
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. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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 [hyperlink, 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. 

Signed by: 

Frank Rusco: 
Director, Natural Resources and Environment: 

List of Committees: 

The Honorable Maria Cantwell: 
Chairwoman: 
The Honorable James E. Risch: 
Ranking Member: 
Committee on Small Business & Entrepreneurship: 
United States Senate: 

The Honorable Lamar Smith: 
Chairman: 
The Honorable Eddie Bernice Johnson: 
Ranking Member: 
Committee on Science, Space and Technology: 
House of Representatives: 

The Honorable Sam Graves: 
Chairman: 
The Honorable Nydia M. Velázquez: 
Ranking Member: 
Committee on Small Business: 
House of Representatives: 

[End of section] 

Appendix I: Agencies' Compliance with Spending Requirements for the 
Small Business Innovation Research Program for Fiscal Year 2012: 

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. 

Table 2: Agency Compliance with Small Business Innovation Research 
(SBIR) Program Spending Requirements for Fiscal Year 2012: 

Dollars in millions: 

Department of Defense (DOD); 
Extramural research or research and development (R&D) budget: $38,816; 
Amount spent[A]: $1,080.3; 
Calculated spending requirement[B]: $1,009.2; 
Difference between amount spent and spending requirement: $71.1; 
Percentage of extramural R&D budget spent for SBIR: 2.8%. 

Department of Health and Human Services (HHS); 
Extramural research or research and development (R&D) budget: $24,763; 
Amount spent[A]: $648.6[C]; 
Calculated spending requirement[B]: $643.8; 
Difference between amount spent and spending requirement: $4.7; 
Percentage of extramural R&D budget spent for SBIR: 2.6%. 

Department of Energy (DOE); 
Extramural research or research and development (R&D) budget: $6,143; 
Amount spent[A]: $169.8[C]; 
Calculated spending requirement[B]: $159.7; 
Difference between amount spent and spending requirement: $10.1; 
Percentage of extramural R&D budget spent for SBIR: 2.8%. 

National Aeronautics and Space Administration (NASA); [shaded] 
Extramural research or research and development (R&D) budget: $5,728; 
Amount spent[A]: $140.0; 
Calculated spending requirement[B]: $148.9; 
Difference between amount spent and spending requirement: ($9.0); 
Percentage of extramural R&D budget spent for SBIR: 2.4%. 

National Science Foundation (NSF); 
Extramural research or research and development (R&D) budget: $5,111; 
Amount spent[A]: $131.3; 
Calculated spending requirement[B]: $132.9; 
Difference between amount spent and spending requirement: ($1.6)[D]; 
Percentage of extramural R&D budget spent for SBIR: 2.6%. 

U.S. Department of Agriculture (USDA); [shaded] 
Extramural research or research and development (R&D) budget: $746; 
Amount spent[A]: $16.9; 
Calculated spending requirement[B]: $19.4; 
Difference between amount spent and spending requirement: ($2.5); 
Percentage of extramural R&D budget spent for SBIR: 2.3%. 

Department of Education (Education); 
Extramural research or research and development (R&D) budget: $327; 
Amount spent[A]: $13.1; 
Calculated spending requirement[B]: $8.5; 
Difference between amount spent and spending requirement: $4.6; 
Percentage of extramural R&D budget spent for SBIR: 4.0%. 

Department of Homeland Security (DHS); 
Extramural research or research and development (R&D) budget: $322; 
Amount spent[A]: $12.9; 
Calculated spending requirement[B]: $8.4; 
Difference between amount spent and spending requirement: $4.5; 
Percentage of extramural R&D budget spent for SBIR: 4.0%. 

Department of Transportation (DOT); 
Extramural research or research and development (R&D) budget: $330; 
Amount spent[A]: $9.1; 
Calculated spending requirement[B]: $8.6; 
Difference between amount spent and spending requirement: $0.6; 
Percentage of extramural R&D budget spent for SBIR: 2.8%. 

Department of Commerce (Commerce); 
Extramural research or research and development (R&D) budget: $175; 
Amount spent[A]: $4.5; 
Calculated spending requirement[B]: $4.5[E]; 
Difference between amount spent and spending requirement: (0.0)[D]; 
Percentage of extramural R&D budget spent for SBIR: 2.6%. 

Environmental Protection Agency (EPA); [shaded] 
Extramural research or research and development (R&D) budget: $174; 
Amount spent[A]: $4.3[C]; 
Calculated spending requirement[B]: $4.5; 
Difference between amount spent and spending requirement: ($0.2); 
Percentage of extramural R&D budget spent for SBIR: 2.5%. 

Total; 
Extramural research or research and development (R&D) budget: $82,634; 
Amount spent[A]: $2,230.7; 
Calculated spending requirement[B]: $2,148.5; 
Difference between amount spent and spending requirement: $82.3; 
Percentage of extramural R&D budget spent for SBIR: 2.7%. 

Source: GAO analysis of agency data reported to SBA. 

Notes: Calculations may be affected by rounding. 

Cells shaded gray indicate the agency did not meet its spending 
requirement in fiscal year 2012. 

[A] The amount spent is the total obligations that the agency 
submitted to the Small Business Administration (SBA). 

[B] We calculated the spending requirement as 2.6 percent of the 
agency's extramural R&D budget. 

[C] Three agencies--DOE, EPA, and HHS--provided us revised spending 
data for fiscal year 2012 based on adding in their funding for 
discretionary technical assistance. We did not include the revised 
data in our analysis because we used the data that agencies submitted 
to SBA and the agencies had not provided the updated data to SBA at 
the time of our review. 

[D] If an agency's spending for the SBIR program as a percentage of 
its extramural R&D budget was within a rounding error of the required 
level, we considered that agency to be in compliance with the spending 
requirement. This was the case with NSF and Commerce. In the latter 
case, the amount spent was slightly below $4.5 million. 

[E] Officials from one subunit within Commerce--the National Institute 
of Standards and Technology--said that they calculate the spending 
requirement for the program based on its actual spending on extramural 
R&D for the previous fiscal year, rather than the extramural R&D 
budget for the current fiscal year, but did not report this figure to 
SBA. We used the data that Commerce submitted to SBA to calculate its 
spending requirements. 

[End of table] 

[End of section] 

Appendix II: Agencies' Compliance with Spending Requirements for the 
Small Business Technology Transfer Program for Fiscal Year 2012: 

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. 

Table 3: Agency Compliance with Small Business Technology Transfer 
(STTR) Program Spending Requirements for Fiscal Year 2012: 

Dollars in millions: 

Department of Defense (DOD); [shaded] 
Extramural research or research and development (R&D) budget: 
$38,816[C]; 
Amount spent[A]: $118.8; 
Calculated spending requirement[B]: $135.9; 
Difference between amount spent and spending requirement: ($17.0); 
Percentage of extramural R&D budget spent for STTR: 0.31%. 

Department of Health and Human Services (HHS); 
Extramural research or research and development (R&D) budget: 
$24,763[C]; 
Amount spent[A]: $86.9; 
Calculated spending requirement[B]: $86.7; 
Difference between amount spent and spending requirement: $0.3; 
Percentage of extramural R&D budget spent for STTR: 0.35%. 

Department of Energy (DOE); 
Extramural research or research and development (R&D) budget: $6,143; 
Amount spent[A]: $23.5; 
Calculated spending requirement[B]: $21.5; 
Difference between amount spent and spending requirement: $2.0; 
Percentage of extramural R&D budget spent for STTR: 0.38%. 

National Space and Aeronautics Administration (NASA); [shaded] 
Extramural research or research and development (R&D) budget: $5,728; 
Amount spent[A]: $18.5; 
Calculated spending requirement[B]: $20.0; 
Difference between amount spent and spending requirement: ($1.5); 
Percentage of extramural R&D budget spent for STTR: 0.32%. 

National Science Foundation (NSF); [shaded] 
Extramural research or research and development (R&D) budget: $5,111; 
Amount spent[A]: $15.6; 
Calculated spending requirement[B]: $17.9; 
Difference between amount spent and spending requirement: ($2.3); 
Percentage of extramural R&D budget spent for STTR: 0.30%. 

Total; 
Extramural research or research and development (R&D) budget: $80,560; 
Amount spent[A]: $263.3; 
Calculated spending requirement[B]: $282.0; 
Difference between amount spent and spending requirement: ($18.6); 
Percentage of extramural R&D budget spent for STTR: 0.32%. 

Source: GAO analysis of agency data reported to SBA. 

Notes: Calculations may be affected by rounding. 

Cells shaded gray indicate the agency did not meet its spending 
requirement in fiscal year 2012. 

[A] The amount spent is the total obligations that the agency 
submitted to the Small Business Administration (SBA). 

[B] We calculated the spending requirement as 0.35 percent of the 
agency's extramural R&D budget. 

[C] We found that two agencies--DOD and HHS--submitted different 
figures to SBA for their extramural R&D budgets for the SBIR and STTR 
programs for fiscal year 2012. The difference in the extramural R&D 
budget figures would not have affected our assessment of DOD's or 
HHS's compliance with spending requirements for fiscal year 2012. 
Specifically, DOD did not meet its STTR spending requirements using 
either the higher or lower extramural R&D budget figures, and HHS's 
spending for the STTR program was high enough that it met its spending 
requirements even using the higher figure. Because we determined that 
the STTR extramural R&D budget figures were incorrect for DOD and HHS, 
we used the SBIR extramural R&D budget figures to determine DOD's and 
HHS's compliance with STTR spending requirements for this report. 

[End of table] 

[End of section] 

Appendix III: Affect of Different Methodologies on Calculation of 
Department of Defense Spending for Fiscal Years 2006 through 2011: 

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.[Footnote 32] 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). 

Table 4: Comparison of GAO and DOD Calculations for Small Business 
Innovation Research (SBIR) Program Spending for Fiscal Years 2006 
through 2011: 

Dollars in millions: 

Year: 2006; 
Extramural research or research and development (R&D) budget: $45,437; 
Spending requirement[A]: $1,136; 
GAO's method: 
Dollars spent: $1,159; 
Spending as a percentage of extramural R&D budget: 2.6%; 
DOD's method: 
Dollars spent: $1,196; 
Spending as a percentage of extramural R&D budget: 2.6%. 

Year: 2007; 
Extramural research or research and development (R&D) budget: $46,782; 
Spending requirement[A]: $1,170; 
GAO's method: 
Dollars spent: $1,107; [shaded] 
Spending as a percentage of extramural R&D budget: 2.4%; [shaded] 
DOD's method: 
Dollars spent: $1,218; 
Spending as a percentage of extramural R&D budget: 2.6%. 

Year: 2008; 
Extramural research or research and development (R&D) budget: $46,857; 
Spending requirement[A]: $1,171; 
GAO's method: 
Dollars spent: $1,101; [shaded] 
Spending as a percentage of extramural R&D budget: 2.4%; [shaded] 
DOD's method: 
Dollars spent: $1,230; 
Spending as a percentage of extramural R&D budget: 2.6%. 

Year: 2009; 
Extramural research or research and development (R&D) budget: $48,884; 
Spending requirement[A]: $1,222; 
GAO's method: 
Dollars spent: $1,150; [shaded] 
Spending as a percentage of extramural R&D budget: 2.4%; [shaded] 
DOD's method: 
Dollars spent: $1,251; 
Spending as a percentage of extramural R&D budget: 2.6%. 

Year: 2010; 
Extramural research or research and development (R&D) budget: $47,955; 
Spending requirement[A]: $1,199; 
GAO's method: 
Dollars spent: $1,154; [shaded] 
Spending as a percentage of extramural R&D budget: 2.4%; [shaded] 
DOD's method: 
Dollars spent: $1,241; 
Spending as a percentage of extramural R&D budget: 2.6%. 

Year: 2011; 
Extramural research or research and development (R&D) budget: $41,678; 
Spending requirement[A]: $1,042; 
GAO's method: 
Dollars spent: $1,082; 
Spending as a percentage of extramural R&D budget: 2.6%; 
DOD's method: 
Dollars spent: $1,081; 
Spending as a percentage of extramural R&D budget: 2.6%. 

Source: GAO analysis of agency data reported to the Small Business 
Administration (SBA). 

Notes: Calculations may be affected by rounding. 

Cells shaded gray indicate the agency did not meet its spending 
requirement. 

These figures may differ from the figures presented in SBA's report to 
Congress for fiscal years 2009 through 2011 because DOD submitted 
updated to data to SBA after it provided the data to us and we needed 
the level of detail in the agency's data to SBA to perform the 
analysis. 

[A] The spending requirement for fiscal years 2006 through 2011 was 
2.5 percent of the extramural R&D budget. 

[End of table] 

Table 5: Comparison of GAO and DOD Calculations for Small Business 
Technology Transfer (STTR) Program Spending for Fiscal Years 2006 
through 2011: 

Year: 2006; 
Extramural research or research and development (R&D) budget: $45,437; 
Spending requirement[A]: $130.9; 
GAO's method: 
Dollars spent: $134.3; 
Spending as a percentage of extramural R&D budget: 0.31%; 
DOD's method: 
Dollars spent: $133.0; 
Spending as a percentage of extramural R&D budget: 0.31%. 

Year: 2007; 
Extramural research or research and development (R&D) budget: $46,782; 
Spending requirement[A]: $134.1; 
GAO's method: 
Dollars spent: $134.8; 
Spending as a percentage of extramural R&D budget: 0.31%; 
DOD's method: 
Dollars spent: $137.7; 
Spending as a percentage of extramural R&D budget: 0.31%. 

Year: 2008; 
Extramural research or research and development (R&D) budget: $46,857; 
Spending requirement[A]: $133.8; 
GAO's method: 
Dollars spent: $116.9; [shaded] 
Spending as a percentage of extramural R&D budget: 0.26%; [shaded] 
DOD's method: 
Dollars spent: $139.2; 
Spending as a percentage of extramural R&D budget: 0.31%. 

Year: 2009; 
Extramural research or research and development (R&D) budget: $48,884; 
Spending requirement[A]: $139.1; 
GAO's method: 
Dollars spent: $136.0; [shaded] 
Spending as a percentage of extramural R&D budget: 0.29%; [shaded] 
DOD's method: 
Dollars spent: $137.2; 
Spending as a percentage of extramural R&D budget: 0.30%. 

Year: 2010; 
Extramural research or research and development (R&D) budget: $47,955; 
Spending requirement[A]: $135.2; 
GAO's method: 
Dollars spent: $149.6; 
Spending as a percentage of extramural R&D budget: 0.33%; 
DOD's method: 
Dollars spent: $138.0; 
Spending as a percentage of extramural R&D budget: 0.31%. 

Year: 2011; 
Extramural research or research and development (R&D) budget: $41,678; 
Spending requirement[A]: $117.7; 
GAO's method: 
Dollars spent: $120.9; 
Spending as a percentage of extramural R&D budget: 0.31%; 
DOD's method: 
Dollars spent: $122.6; 
Spending as a percentage of extramural R&D budget: 0.31%. 

Source: GAO analysis of agency data reported to the Small Business 
Administration (SBA). 

Notes: Calculations may be affected by rounding. 

Cells shaded gray indicate the agency did not meet its spending 
requirement. 

These figures may differ from the figures presented in SBA's report to 
Congress for fiscal years 2009 through 2011 because DOD submitted 
updated to data to SBA after it provided the data to us and we needed 
the level of detail in the agency's data to SBA to perform the 
analysis. 

[A] The spending requirement for fiscal years 2006 through 2011 was 
0.3 percent of the extramural R&D budget. Unlike the assessment in the 
body of the report, we used the extramural R&D budget figure DOD 
submitted for the STTR program because that was the amount the agency 
planned to spend for the year. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Small Business Administration: 

U.S. Small Business Administration: 
Washington, DC 20416: 

May 23, 2014: 

Frank Rusco: 
Director: 
Natural Resources and Environment: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Rusco: 

Thank you for providing the U.S. Small Business Administration (SBA) 
with a copy of the Government Accountability Office (GAO) report 
titled "Small Business Research Programs: More Guidance and OverSight
Needed to Comply with Spending and Reporting Requirements." In this 
report, GAO identifies several issues and inconsistencies with the 
current reporting on SBIR/STTR program funding compliance. GAO 
recommends that SBA revise program policy directives and provide 
additional guidance on program funding requirements. 

SBA generally agrees with the issues and recommendations provided in 
the GAO report. However, SBA notes the following: 

* Page 10 of the GAO report indicates that some agencies assert they 
"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." GAO found that "these two agencies did not 
implement the annual spending requirements as written in the Small 
Business Act, in part because SBA's SBIR and STTR policy directives 
inaccurately summarize the law." We do not believe that our policy 
directive inaccurately summarizes the law. SBA's policy directive
clearly defines extramural budget as obligations, per the statutory 
definition. SBA's use of the term "reserve" in the policy directive 
refers to the allocation of "extramural budget" (again defined as 
obligations per statute). SBA believes that the statutory term 
"extramural budget" is the more predominant reason for agencies seeking
to use "budget" versus obligations in complying with spending 
requirements. Recognizing that the term "extramural budget" may be 
confusing to some participating agencies, SBA has provided further 
clarification to all agencies that SBA looks at obligations in each 
fiscal year regardless of the year the money was appropriated. SBA 
intends to begin utilizing the term "extramural obligations" to help 
reduce any further confusion caused by the statutory term. However, 
SBA will review all language in its policy directive to ensure
that the SBIR and STIR funding requirements are clear. 

* SBA is currently clarifying its reporting requirements regarding 
agency compliance with the minimum funding requirements. SBA is asking 
agencies to report their total extramural obligations beginning with 
the FY 2013 Annual Report. The revised reporting will be fully in 
place for the FY2014 Annual Report. These clarifications will allow 
SBA to report for each fiscal year, the total program obligations that 
were made during that year as a percent of total extramural 
obligations made during that year. Agency budget and funding processes 
will necessarily continue to vary across agencies due to differences 
in administrative structures, but all participating agencies will be 
held to a consistent, measurable metric of funding compliance 
calculated upon the completion of each fiscal year. 

Thank you for the opportunity to comment on this report and for taking 
our views into consideration. 

Sincerely, 

Signed by: 

Pravina Raghavan: 
Deputy Associate Administrator for Investment: 
Office of Investment and Innovation: 

[End of section] 

Appendix V: Comments from the Department of Health and Human Services: 

Department of Health & Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

May 21 2014: 

Frank Rusco, Director: 
Natural Resources Environment: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Rusco: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled, "Small Business Research Programs: More 
Guidance and Oversight Needed to Comply with Spending and Reporting 
Requirements" (GAO-14-431). 

The Department appreciates the opportunity to review this report prior 
to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office's (GAO) Draft Report Entitled. 
"Small Business Research Programs: More Guidance And Oversight Needed 
To Comply With Spending And Reporting Requirements" (GAO-14-431): 

The Department appreciates the opportunity to review and comment on 
this draft report. 

GAO Recommendation: To help ensure that the agency continues to spend 
the required amount for the STIR 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. 

HHS Response: HHS concurs with GAO's finding and corresponding 
recommendation regarding inclusion of all of the agency's extramural 
R&D budget in the calculation of STIR spending requirements and in the 
data submitted to SBA. 

HHS will ensure the agency extramural R&D budget calculation is the 
same for SBIR and STTR in all future Annual Reports (FY 2015 and 
beyond, as FY 2014 funding is already under way). Additionally, HHS 
will adjust its STIR set-aside calculation appropriately to ensure 
continued compliance with the spending requirements starting in FY 
2015. Additionally, HHS will ensure that this update is reflected in 
its methodology narrative included in the annual report submitted
to SBA. 

[End of section] 

Appendix VI: Comments from the Department of Agriculture: 

USDA: 
United States Department of Agriculture: 
Research, Education, and Economics: 
National Institute of Food and Agriculture: 
1400 Independence Avenue SW: 
Washington, DC 20250: 

May 27, 2014: 

Mr. Frank Rusco: 
Director, Natural Resources and Environment: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Rusco: 

The U.S. Department of Agriculture (USDA) appreciates the opportunity 
to respond to the U.S. Government Accountability Office (GAO) draft 
report "Small Business Research Programs: More Guidance and Oversight 
Needed to Comply with Spending and Reporting Requirements (GAO-14-
431)" dated June 2014. 

USDA generally agrees with the findings in the GAO final draft report; 
however, USDA does not agree that it did not comply with the spending 
requirements of the Small Business Innovation Research (SBIR) program 
as set forth in Small Business Act (15 U.S.C. 638). We would like to
provide the following comments, in addition to technical comments 
previously provided to GAO. 

The Small Business Innovation Research (SBIR) program was, in part, 
established to address the difficulty high tech small business firms 
encountered when competing for federal Research & Development (R&D) 
funds. The SBIR program is administered in a coordinated manner
government-wide. All Federal agencies with an extramural R&D budget 
over $100,000,000 must expend a certain percentage of fiscal year 
funds on small business concerns. 

The draft report indicates that USDA was among one of the 11 
participating agencies that did not meet the SBIR spending requirement 
for fiscal year (FY) 2012. GAO determined that agencies were compliant 
with the SBIR as "spending at least 2.6 percent of an agency's 
extramural R&D budget on the SBIR program in fiscal year 2012." USDA 
reserved 2.6 percent of FY 2012 funds for SBIR program use; however, 
the funds were not all obligated in FY 2012 as some were carried over 
for obligation in FY 2013. USDA did not obligate the required 
percentage of its extramural R&D budget in FY 2012 due to the language 
in the Small Business Administration's (SBA) Policy Directive and the 
spending authority of the dollars NIFA dedicated to the SBIR program. 
USDA has always spent the required percentage of its extramural R&D 
budget on the SBIR program; however, the funds are not always 
obligated in the same fiscal year but may be carried over for 
obligation in the following year. The attached spreadsheet provides 
details on how NIF A has obligated its SBIR funds. 

The SBA Policy Directive, required by 15 U.S.C. 6380), summarizes the 
statutory provisions of the Small Business Act and directs applicable 
Federal agencies to "reserve the ... minimum percentage of their 
extramural RJR&D budget for awards to small business concerns." USDA 
has consistently reserved the minimum required percentage of its 
extramural R&D budget for the SBIR program. 

USDA has not always obligated the minimum required percentage of its 
extramural R&D budget for the SBIR program in a single fiscal year 
because the funding authority of the money is no-year and funds are 
available for obligation without fiscal year limitation. 

One of the sources of USDA extramural R&D funds that supports the SBIR 
program is the primary extramural R&D program, the Agriculture Food 
Research Initiative (AFRI). Approximately $7 million of the annual 
SBIR funds come from AFRI. AFRI program funds "shall remain available 
until expended," and are thus, no-year funds. (Consolidated 
Appropriations Act, 2014; Pub. L. 113-76). Previous appropriations 
legislation has provided similar no-year funding authority. There are 
ten different USDA extramural R&D programs that are drawn from to 
support the USDA SBIR program. Nine of the ten sources of funds are 
funds that must be fully expended in the fiscal year of appropriation 
and are obligated for the SBIR program prior to expiration. The AFRI 
funds dedicated to SBIR are the only USDA funds carried over, when 
appropriate. 

Funds that are available until expended provide USDA with the 
flexibility to make the best use of program funds. This flexibility 
has three primary advantages; (1) only the best proposals are funded; 
(2) the award size in a given year can be increased without reducing 
the number of awards made; and (3) the effective administration of the 
SBIR program, in accordance with 15 U.S.C.638(mm). 

With the option to carryover some of the SBIR program funds in a given 
year to the following year, USDA has the flexibility to only fund 
those proposals truly deserving of funding. Alternatively, in a given 
year there may be many outstanding proposals and funds carried over
can be awarded. In some years the funds allocated for awards exceeds 
the minimum percentage of the extramural R&D budget dedicated to SBIR, 
while in other years, such as in FY 2012, the funds actually obligated 
in that year fall below the minimum percentage. Furthermore, USDA
can increase award sizes without significantly reducing the number of 
awards when carryover funds are available. 

For three fiscal years beginning after 2011, no more than 3 percent of 
SBIR program funds can be spent on expenses associated with 
administration, oversight, and processing costs of the SBIR program. 
These funds can also be used for commercialization and outreach 
initiatives. Given the unique funding structure of the SBIR program, 
to effectively spend the allowable percentage on administrative 
expenses, USDA relies on the availability of funding throughout the 
fiscal year. Without the ability to carryover funds, funds might not 
be available until Congress appropriates funding, sometime late in the 
fiscal year. 

The USDA SBIR program will continue to comply with all reporting 
requirements. Future USDA reports to SBA will more clearly indicate 
the fiscal year in which the funds were reserved and the fiscal year 
in which the funds were actually obligated (see sample below). 

Thank you again for the opportunity to review and respond to the GAO 
draft report. 

Sincerely, 

Signed by: 

Sonny Ramas: 
Director: 

Attachment: 

Table: USDA SBIR Funding Breakdown: 

FDC: 33610; 
Amount: $9,179,129.00; 
Obligated in FY12: 
Awards: $9,029,129.00; 
Commercialization: $150,000.00. 

FDC: 39140; 
Amount: $811,416.00; 
Obligated in FY12: 
Awards: $811,416.00. 

FDC: 51103; 
Amount: $128,910.00; 
Obligated in FY12: 
Awards: $128,910.00. 

FDC: 39411; 
Amount: $108,654.00; 
Obligated in FY12: 
Awards: $108,654.00. 

FDC: 39413; 
Amount: $3,959.00; 
Obligated in FY12: 
Awards: $3,959.00. 

FDC: 39414; 
Amount: $15,030.00; 
Obligated in FY12: 
Awards: $15,030.00. 

FDC: 33530[A]; 
Amount: $6,833,980.66; 
Obligated in FY12: 
Awards: $4,724,991.65; 
Commercialization: $319,940.56; 
Obligated in FY13: 
Awards: $1,789,048.45. 

FDC: 39412; 
Amount: $1,053,841.00; 
Obligated in FY12: 
Awards: $1,053,841.00. 

FDC: 39539; 
Amount: $24,401.00; 
Obligated in FY12: 
Awards: $24,401.00. 

FDC: 40000; 
Amount: $1,248,000.00; 
Obligated in FY12: 
Awards: $1,248,000.00. 

FDC: Totals; 
Amount: $19,407,320.66; 
Obligated in FY12: 
Awards: $17,618,272.21; 
Obligated in FY13: 
Awards: $1,789,048.45. 

Total Allocation of FY12 Funds: 
$19,407,320.66. 

[A] This is the FDC code for the no-year, AFRI funds. 

[End of table] 

[End of section] 

Appendix VII: Comments from the Department of Defense: 

Office of The Under Secretary of Defense: 
Acquisition, Technology and Logistics
3010 Defense Pentagon: 
Washington, DC 20301-3000: 

May 21, 2014: 

Mr. Frank Rusco: 
Director: 
Natural Resources and Environment-Energy and Science: 
Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Rusco: 

Thank you for the opportunity to review and comment on the GAO Draft 
Report, GAO-14-431, "Small Business Research Programs; More Guidance 
and Oversight Needed to Comply with Spending and Reporting 
Requirements," dated April 29, 2014 (GAO Code 361530). 

The Department of Defense (DoD) would like to comment on assertions in 
the report that the Department has not been in compliance with 
spending requirements under section 9 of the Small Business Act, 15 
U.S.C 638. Specifically, we believe that the conclusions drawn on pages
10-12 do not accurately reflect that DoD's methodology is reasonable 
and consistent with the law. 

Although we concur with your finding on page lOaf the draft report 
that states DoD does not "expend" all SBIR and STTR funds appropriated 
to the Department in the same fiscal year that they are received, we 
continue to believe that we are in compliance with the law in that we
obligate the minimum percentage of SBIR and STTR funds each year in 
accordance with the obligation authority conferred by Congress and 
longstanding DoD procedures. 

Thank you for the opportunity to comment on the report. 

Sincerely, 

Signed by: 

Christopher S. Rinaldi: 
Administrator, DoD SBIR and STTR Programs: 
DoD Office of Small Business Programs: 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Frank Rusco, (202) 512-3841 or ruscof@gao.gov: 

Staff Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] Agencies' R&D programs generally include funding for two types of 
R&D: intramural and extramural. Intramural R&D is conducted by 
employees of a federal agency in or through government-owned, 
government-operated facilities. Extramural R&D is generally conducted 
by nonfederal employees outside of federal facilities. Agencies are 
required to calculate their extramural R&D budget by subtracting 
amounts obligated for intramural R&D from total obligations for R&D. 

[2] In this report, we refer to the amounts resulting from applying 
these mandated percentages to extramural R&D budgets as "spending 
requirements." 

[3] National Defense Authorization Act for Fiscal Year 2012, Pub. L. 
No. 112-81, 125 Stat. 1298, § 5136. 

[4] GAO, Small Business Research Programs: Actions Needed to Improve 
Compliance with Spending and Reporting Requirements, [hyperlink, 
http://www.gao.gov/products/GAO-13-421] (Washington, D.C.: Sept. 9, 
2013). In addition to our first annual report to address this mandate, 
we have issued several other reports on the SBIR and STTR programs 
dating back to the 1980s, including, most recently, Small Business 
Innovation Research: Data Rights Protections, [hyperlink, 
http://www.gao.gov/products/GAO-14-116R] (Washington, D.C.: Nov. 4, 
2013) and Small Business Research Programs: Agencies Are Implementing 
New Fraud, Waste, and Abuse Requirements, [hyperlink, 
http://www.gao.gov/products/GAO-13-70R] (Washington, D.C.: Nov. 15, 
2012). 

[5] We used the agencies' total program obligations data to represent 
spending for the programs, in part because obligations data were 
readily available from each of the agencies for program purposes, and 
because obligations provided a reasonable measure of the spending for 
the programs in each year. 

[6] If an agency's spending for the SBIR or STTR programs as a 
percentage of its extramural R&D budget was within a rounding error of 
the required level, we considered that agency to be in compliance with 
the spending requirement. 

[7] Office of Management and Budget, Fiscal Year 2014 Analytical 
Perspectives, Budget of the U.S. Government (Washington, D.C.: Apr. 
10, 2013). Because agencies did not include their total R&D budget 
authority in their data submitted to SBA, and we were seeking 
information across all government agencies, we relied on the amount of 
budget authority reported in the Analytical Perspectives volume for 
calculation of the spending requirements for the alternative scenarios. 

[8] Research institutions include nonprofit colleges or universities 
and federally funded research and development centers. 

[9] Pub. L. No. 112-81, Div. E. 

[10] For examples of how one agency has used phase III awards, see 
GAO, Small Business Innovation Research: DOD's Program Supports Weapon 
Systems, but Lacks Comprehensive Data on Technology Transition 
Outcomes, [hyperlink, http://www.gao.gov/products/GAO-14-96] 
(Washington, D.C.: Dec. 20, 2013). 

[11] For the purposes of this report, we defined compliance as 
spending at least 2.6 percent of an agency's extramural R&D budget on 
the SBIR program in fiscal year 2012, as required by the Small 
Business Act. This method is consistent with SBA's approach for 
determining compliance with spending requirements in its annual report 
to Congress on the program. We used the agencies' obligations data to 
represent spending for the programs, in part because obligations data 
were readily available from each of the agencies for program purposes, 
and because obligations provided a reasonable measure of the spending 
for the programs in each year. 

[12] See [hyperlink, http://www.gao.gov/products/GAO-13-421]. NSF was 
the agency that did not comply with SBIR spending requirements in 
fiscal year 2011. DHS, Education, and HHS complied with their SBIR 
spending requirements each fiscal year from 2006 to 2011. The agency 
data we reported differed from some of the data included in SBA's 
report to Congress for fiscal years 2009 to 2011, which SBA issued in 
December 2013. According to SBA officials, some agencies submitted 
updated data to SBA for those years after they provided the data to 
us. These changes did not affect the number of agencies that complied 
with spending requirements in fiscal year 2011 or in all 6 fiscal 
years from 2006 through 2011. For SBA's annual report to Congress, see 
SBA: The Small Business Innovation Research (SBIR) and Small Business 
Technology Transfer (STTR) Program Annual Report Fiscal Years 2009-
2011 (Washington, D.C.: December 2013). 

[13] For the purposes of this report, we defined compliance as 
spending at least 0.35 percent of an agency's extramural R&D budget on 
the STTR program in fiscal year 2012, as required by the Small 
Business Act. This method is consistent with SBA's approach for 
determining compliance with spending requirements in its reports to 
Congress on the program. We used the agencies' obligations data to 
represent spending for the programs, in part because obligations data 
were readily available from each of the agencies for program purposes, 
and because obligations provided a reasonable measure of the spending 
for the programs in each year. 

[14] See [hyperlink, http://www.gao.gov/products/GAO-13-421]. The 
agency data that we reported differed from some of the data included 
in SBA's report to Congress for fiscal years 2009 to 2011, which SBA 
issued in December 2013. According to SBA officials, some agencies 
submitted updated data to SBA for those years after they provided the 
data to us. These changes did not affect the agencies that complied 
with spending requirements in fiscal year 2011 or in all 6 fiscal 
years from 2006 through 2011. For SBA's report, see SBA: SBIR and STTR 
Program Annual Report Fiscal Years 2009-2011. 

[15] We determined that an agency complied with spending requirements 
for the SBIR or STTR programs if the agency spent at least the minimum 
required percentage of the extramural R&D budget. We used the data 
that each agency submitted to SBA for total program obligations for 
fiscal year 2012, regardless of the year the funding was appropriated, 
to represent program spending for the year. 

[16] We used DOD for this comparison because DOD is the only agency 
that submitted its spending data to SBA in a way that allowed us to 
determine the year that funding was appropriated and spent. We could 
not perform the analysis for DOD's fiscal year 2012 data because the 
amount of DOD's fiscal year 2012 appropriation that was obligated in 
fiscal year 2013 will be included in DOD's fiscal year 2013 data 
submission to SBA, which had not yet been submitted at the time of our 
review. Agencies' data submissions are typically due to SBA in the 
March following the end of the fiscal year, but SBA officials said 
they extended the deadline for the fiscal year 2013 data submissions. 

[17] Agencies are allowed to spend up to $5,000 of program funds per 
year for each phase I or phase II award through the SBIR or STTR 
programs for discretionary technical assistance. According to the 
program policy directives, the purpose of technical assistance is to 
assist the award recipients in making better technical decisions, 
solving technical problems that arise during the project, minimizing 
technical risks associated with the project, and commercializing the 
product of the research. This funding can be provided either to a 
vendor that provides the technical assistance to the award recipient 
or directly to the award recipient. The policy directives also state 
that funding for technical assistance will be in addition to the 
award, but counts as part of the agency's funding for SBIR or STTR, 
unless the agency funds the technical assistance using funds outside 
of those set aside for SBIR or STTR. 

[18] Three agencies--DOE, EPA, and HHS--provided us revised spending 
data for fiscal year 2012 based on adding in their funding for 
discretionary technical assistance. We did not include the revised 
data in our analysis because we used the data that agencies submitted 
to SBA, and the agencies had not provided the updated total spending 
data to SBA at the time of our review. 

[19] The remaining five agencies did not indicate in their methodology 
reports to SBA whether they had exclusions for some or all of their 
programs. Agencies are not explicitly required to do so. However, we 
cannot judge whether these agencies may have had exclusions that were 
not included in the report to SBA. 

[20] See Consolidated and Further Continuing Appropriations Act, 2012, 
Pub. L. No. 112-55, 125 Stat. 552; Consolidated Appropriations Act, 
2012, Pub. L. No. 112-74, 125 Stat. 786. 

[21] [hyperlink, http://www.gao.gov/products/GAO-13-421]. 

[22] 15 U.S.C. § 638 (e)(2) (2012). 

[23] [hyperlink, http://www.gao.gov/products/GAO-13-421]. 

[24] These agencies also submitted incorrect figures for their 
extramural R&D budgets for the STTR program in previous years, as we 
found in our September 2013 report. Because we determined that the 
STTR extramural R&D budget figures were incorrect, we used the SBIR 
extramural R&D budget figures, which were higher than the STTR 
figures, to determine DOD's and HHS's compliance with STTR spending 
requirements for this report. 

[25] [hyperlink, http://www.gao.gov/products/GAO-13-421]. 

[26] According to SBA officials, they extended the deadline for fiscal 
year 2013 data submissions. As of May 2014, SBA officials expected 
that agencies would submit their data for fiscal year 2013 in June 
2014. 

[27] NSF's total R&D budget authority in the Analytical Perspectives 
volume of the President's budget is less than its extramural R&D 
budget data submitted to SBA for fiscal year 2012 because the data are 
drawn from different sources, according to NSF officials. NSF 
officials said that the amount reported in the Analytical Perspectives 
is based only on the actual budget authority for that particular year, 
while the amount submitted to SBA is based on total obligations 
resulting from budget authority provided in previous years. 

[28] Based on data in the President's budget, these two agencies had 
total R&D budget authority in excess of $100 million; federal agencies 
with a budget of $100 million or more for extramural R&D are required 
to establish and operate an SBIR program. 

[29] These agencies reported total R&D budget authority in excess of 
$1 billion; federal agencies with budgets of $1 billion or more for 
extramural R&D are required to establish and operate an STTR program. 

[30] We selected 1.5 percent as an alternative percentage because it 
is roughly equal to the average of the agencies' spending requirements 
for fiscal year 2012 as a percentage of the total R&D budgets. 

[31] One additional agency--Commerce --provided administrative cost 
data for fiscal year 2012 that did not provide data for previous 
years. However officials at two agencies, HHS and DOD, said they could 
not provide administrative costs for fiscal year 2012. HHS officials 
said it would be very difficult to determine how much is spent on the 
administrative costs of the program since such funding for salaries, 
expenses, training, and travel, comes from accounts other than the 
SBIR and STTR programs. DOD officials said they do not have an 
estimate of administrative costs largely because thousands of 
employees throughout the department are involved with the SBIR and 
STTR programs and DOD does not have the ability to track the 
percentage of these employees' workload to support the two programs. 
HHS did not provide an estimate for fiscal year 2011 for our last 
report, but DOD provided an estimate of about $30 million for fiscal 
year 2011. 

[32] We could not perform the analysis for DOD's fiscal year 2012 data 
because the amount of DOD's fiscal year 2012 appropriations that were 
obligated in fiscal year 2013 will be included in DOD's fiscal year 
2013 data submission to SBA, which had not yet been submitted at the 
time of our review. Agencies' data submissions are typically due to 
SBA in the March following the end of the fiscal year, but SBA 
officials said they are extending the deadline for the fiscal year 
2013 data submissions. 

[End of section] 

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