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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. First, some agencies did not comply with the  requirement to spend program funds annually because SBA’s policy  directives inaccurately summarize the requirement. 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.
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.