The spending requirements for SBIR and STTR are to be calculated as a  percentage of each agency’s extramural R&D obligations, provided their  extramural obligations exceed the participation thresholds of $100 million  for SBIR and $1 billion for STTR. Instead, these agencies  continued to submit their proposed extramural R&D budgets. One Agency’s Obligations Exceeded the STTR Threshold, but It Did Not Establish a Program

In fiscal year 2014, USDA reported extramural R&D obligations of $1.1  billion but did not establish an STTR program as required. Some Agencies Have Taken Steps to Meet Certain Reporting Requirements, but Most Agencies Are Still Not Fully Compliant

All of the agencies participating in the SBIR and STTR programs  submitted methodology reports to SBA for fiscal year 2014, and some  agencies provided more detail than they did in fiscal year 2013. Specifically, in fiscal year 2013, the Department of  Transportation (DOT) provided an itemized description of its exclusions,  including dollar amounts. SBA Has Not Submitted Its Required Report to Congress for Fiscal Year 2014

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. For  example, if the spending requirements were calculated based on an  agency’s total R&D budget authority rather than its extramural R&D  obligations using the same percentages and participation thresholds  defined in current law, we estimate that total spending requirements in  fiscal year 2014 for the SBIR and STTR programs would have increased  from $2.3 billion to $4.2 billion, an increase of roughly $1.9 billion, or 83  percent, based on our analysis of budget authority data and data  submitted to SBA. In particular, some program managers said that increasing the  amount of money that goes to the SBIR and STTR programs could  reduce the amount of resources available for other R&D conducted by the  agency. Total Administrative Spending in Fiscal Year 2014 Is Unknown, but Seven Agencies Spent $19.1 Million on the Administrative Pilot Program

Little is known about total administrative spending for fiscal year 2014  because the agencies that participate in the SBIR and STTR programs do  not—and are not required to—fully track these costs. SBA Has Not Evaluated Potential Constraints in the Administrative Pilot Program

More agencies participated in the administrative pilot program in fiscal  year 2014 than in the previous year, but some agencies identified  potential constraints that limited their participation, including the  temporary nature of the program and the requirement to expend funds  only on new activities. Such a report could include an evaluation of the constraints that have  hindered agencies’ participation in the program. SBA officials told us that they plan to include information on the  administrative pilot program in their annual report to Congress. Until SBA  submits its fiscal year 2014 report and includes information on the  administrative pilot program, SBA and Congress will not have the  information they need to know whether the administrative pilot program  has met its goals or whether there are constraints to participating, such as  those that we identified. Conclusions

Federal agencies have spent billions of dollars with small businesses  under the SBIR and STTR programs to develop and commercialize  innovative technologies. Restoring this guidance could help SBA  fully evaluate and report to Congress on the accuracy of agencies’  methodology reports. Third, because SBA has not submitted a report on  the administrative pilot program to Congress for fiscal year 2014, it has  not evaluated the effects of potential constraints on agencies’ ability to  participate in the pilot program for that year and the steps needed to  address these constraints. Recommendations for Executive Action

To ensure full compliance with SBIR and STTR spending and reporting  requirements and improve participation in the administrative pilot  program, we recommend that the SBA Administrator take the following  three actions:
Review SBA guidance regarding when an agency is required to start  up an SBIR or STTR program, and if necessary, update the guidance  to provide greater clarity to agencies with R&D obligations greater  than the thresholds for participating. In an e-mail response, SBA generally  agreed with our recommendations. Appendix I: Agencies’ Compliance with Spending Requirements for the Small Business Innovation Research Program for Fiscal Year 2014, according to Agency Data

The data that the agencies submitted to the Small Business  Administration (SBA) indicate that 9 of the 11 participating agencies spent  amounts for the Small Business Innovation Research (SBIR) program  that met or exceeded their fiscal year 2014 spending requirements, while  spending for the remaining 2 agencies did not meet the requirements. Appendix II: Agencies’ Compliance with Spending Requirements for the Small Business Technology Transfer Program for Fiscal Year 2014, according to Agency Data

The data that the agencies submitted to the Small Business  Administration (SBA) indicate that four of the five participating agencies  spent amounts for the Small Business Technology Transfer (STTR)  program that met or exceeded their fiscal year 2014 spending  requirements, while 1 agency did not.
Why GAO Did This Study

Federal agencies have awarded contracts and grants totaling more than $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 obligations that meet certain thresholds—$100 million for SBIR and $1 billion for STTR—to spend a percentage of these funds 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 includes a provision for GAO to review compliance with spending and reporting requirements and other program aspects. This report examines, for fiscal year 2014, (1) the extent to which participating 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 total R&D budget authority, and (4) what is known about the amounts spent to administer the programs. GAO reviewed agency spending data and reports and interviewed program officials from SBA and the 11 participating agencies.

What GAO Found

Agency data indicate that 9 of the 11 agencies participating in the Small Business Innovation Research (SBIR) program and 4 of the 5 agencies participating in the Small Business Technology Transfer (STTR) program complied with spending requirements in fiscal year 2014. One agency—the Department of Agriculture (USDA)—had extramural R&D obligations greater than $1 billion, but did not implement an STTR program, as required in the Small Business Act. This is, in part, because the Small Business Administration's (SBA) guidance does not address when an agency should establish a new STTR program. As a result, in fiscal year 2014, less money was available for awards to small businesses through this program.
Most participating agencies did not fully comply with certain reporting requirements. For example, while all participating agencies submitted the required methodology reports for fiscal year 2014, 6 of the 11 did not fully itemize the specific programs they excluded from their extramural R&D, did not fully explain the reasons why they excluded the programs, or both. Additionally, 2 agencies did not submit complete information on the dollar amounts of exclusions in fiscal year 2014 because of a change in SBA's fiscal year 2014 guidance. Restoring this guidance could provide information to help SBA assess the accuracy of agency methodology reports.
GAO's analysis shows that basing SBIR and STTR spending requirements on an agency's total R&D budget authority instead of its extramural R&D obligations could increase the amount each agency has to spend on the programs and increase the number of agencies required to participate in the programs. Some agency officials identified benefits of this potential change, such as more funding to make awards to small businesses, but some agencies identified drawbacks, such as limiting resources for other R&D programs.
Total administrative spending on the SBIR and STTR programs in fiscal year 2014 is unknown, but agencies participating in the administrative pilot program spent about $19 million on new activities. Agencies do not and are not required to track total administrative costs, and therefore total spending could not be calculated for fiscal year 2014. Seven agencies participated in the administrative pilot program and tracked the amounts of program funds they spent on new administrative and oversight activities in fiscal year 2014. While these 7 agencies spent more on the program in fiscal year 2014 than in the previous year, some of these agencies identified constraints that limited their participation. For example, agency officials pointed to guidance that requires agencies to only spend money on new initiatives and the limited length of the pilot. Agency officials told GAO these constraints kept them from achieving program goals by preventing them from undertaking some initiatives and hiring individuals for administrative purposes. SBA plans to include its required evaluation of the pilot program in its annual report to Congress, which could include an evaluation of such constraints and the steps needed to address them, but it has not yet submitted its fiscal year 2014 report to Congress. Until SBA submits its evaluation of the pilot program, SBA and Congress will not have needed information about the pilot for fiscal year 2014 or potential constraints for participants.

What GAO Recommends

GAO recommends that SBA clarify guidance for when an agency is to start up an STTR program, restore guidance about dollar amounts of exclusions in the methodology report, and complete the required report to Congress for fiscal year 2014.
SBA generally agreed with GAO's findings and recommendations.