For 2 of the 11 agencies, we could not determine  compliance with the spending requirements because these agencies did  not submit required obligations data to SBA. Most Agencies Submitted the Obligations Data Required to Determine Whether Spending Requirements Were Met, But Two Agencies Did Not Collect and Submit These Data

Nine of the 11 agencies participating in the SBIR program and 4 of the 5  agencies also participating in the STTR program submitted to SBA the  extramural R&D obligations data required to determine whether they met  the respective program spending requirements for fiscal year 2015. The  Small Business Act requires agencies to spend a minimum percentage of  their extramural R&D obligations on the SBIR and STTR programs  annually. Officials at most agencies, including DOD and EPA, identified difficulties  in using extramural R&D obligations data to determine spending  requirements. Because of these  difficulties, a working group of several participating agencies is  considering proposing a recommendation to base spending requirements  on extramural R&D budget authority, according to a Department of  Energy (DOE) official involved in leading the effort. Participating Agencies Inconsistently Met Certain Reporting Requirements, and SBA Officials Report Having Taken Steps to Expedite Its Reporting to Congress

All of the agencies participating in the SBIR and STTR programs  submitted methodology reports to SBA for fiscal year 2015, and about  half of these agencies submitted them on time. While most agencies  provided detailed information in their methodology reports, they did not  consistently provide all of the information required by SBA’s policy  directive. As of May 2017, SBA had not submitted its annual report on the  programs to Congress for fiscal year 2015, but SBA officials said they  have taken steps to expedite reporting. Basing Spending Requirements on Total R&D Budget Authority Would Have Increased Spending Requirements and Participation with Potential Benefits and Drawbacks

Changing the methodology for calculating SBIR and STTR spending  requirements to use total R&D budget authority rather than extramural  R&D obligations would have increased agencies’ spending requirements  and the number of agencies required to participate in the programs for  fiscal year 2015. Agency Officials Identified Potential Benefits and Drawbacks to Changing the Calculation Methodology to Total R&D Budget Authority

Officials at each of the participating agencies identified potential benefits  or drawbacks to changing the calculation methodology for their SBIR and  STTR spending requirements to use total R&D budget authority rather  than extramural R&D obligations. Total Administrative Spending for Fiscal Year 2015 Is Unknown, but Nine Agencies Spent $33.9 Million on the Administrative Pilot Program

Total administrative spending for the SBIR and STTR programs for fiscal  year 2015 is unknown because the agencies that participate in the  programs generally do not—and are not required to—fully track these  costs. Conclusions

Under the SBIR and STTR programs, federal agencies have awarded  billions of dollars to small businesses to develop and commercialize  innovative technologies. Until DOD and EPA find ways to provide the required data or  until the spending requirements are changed or the identified data  collection challenges are resolved, DOD and EPA will not know whether  they have met the spending requirements, and SBA will be limited in its  ability to accurately report that information to Congress. Recommendation for Executive Action

To ensure full compliance with SBIR and STTR spending and reporting  requirements, we recommend that the Secretary of Defense and the EPA  Administrator establish procedures to collect and submit obligations data  or—through SBA, independently,  or through a working group of agencies  participating in the SBIR and STTR programs—propose to Congress an  alternative methodology for calculating spending requirements for their  agencies. In written comments, DOD and EPA  agreed with the recommendation, and EPA stated that it will work with  SBA to develop an alternative methodology for calculating spending  requirements. GAO staff who made key contributions to  this report are listed in appendix V.

Appendix I: Agencies’ Spending and Spending Requirements for the Small Business Innovation Research Program for Fiscal Year 2015, According to Agency Data

Nine of the 11 agencies participating in the SBIR program submitted the  extramural research or research and development (R&D) obligations data  required to determine compliance with program spending requirements  for fiscal year 2015.
Why GAO Did This Study

Through the SBIR and STTR programs, federal agencies have awarded contracts and grants totaling about $44 billion 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 agencies' compliance with SBIR and STTR spending and reporting requirements and other program aspects. This report examines, for fiscal year 2015, (1) the extent to which participating agencies met spending requirements, (2) the extent to which agencies and SBA met certain reporting requirements, (3) the potential effects of basing spending requirements on total R&D budget authority instead of on extramural R&D obligations, and (4) what is known about the amounts agencies 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

Data submitted to the Small Business Administration (SBA) indicate that most of the agencies participating in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs met spending requirements for fiscal year 2015. Nine of the 11 agencies participating in the SBIR program and 4 of the 5 agencies participating in the STTR program submitted the required data on obligations for extramural research or research and development (R&D)—which is generally conducted by nonfederal employees outside of federal facilities—needed to determine whether they met spending requirements. Of the agencies that submitted the required obligations data, 8 of 9 met SBIR spending requirements and all 4 met STTR spending requirements for fiscal year 2015. GAO could not determine compliance for 2 agencies—the Department of Defense (DOD) and the Environmental Protection Agency (EPA)—because these agencies did not submit the required obligations data. Officials at most agencies, including DOD and EPA, identified difficulties in using extramural R&D obligations data to calculate spending requirements and determine compliance. A working group of several participating agencies is considering proposing an alternative methodology to calculate spending requirements, according to an agency official involved in leading the effort. Until DOD and EPA find ways to provide obligations data or until the calculation methodology is changed, these 2 agencies will not know whether they have met the spending requirements, which limits SBA's reporting of that information to Congress.
Agencies inconsistently met certain requirements to report to SBA on their methodologies for calculating their extramural R&D budgets in fiscal year 2015, and SBA officials said they are taking steps to expedite SBA's required reporting to Congress. Five of the 11 agencies submitted their required methodology reports on time. Most agencies provided detailed information in these reports, but they did not consistently provide all of the information required. Regarding SBA's own reporting requirements, as of May 2017, SBA had not submitted its report for fiscal year 2015. GAO has previously made recommendations to SBA to address these issues, and SBA is in the process of implementing them.
GAO's analysis shows that basing SBIR and STTR spending requirements on an agency's total R&D budget authority instead of on its extramural R&D obligations for fiscal year 2015 would have increased spending requirements and the number of agencies required to participate in the programs. Officials from each of the participating agencies identified benefits or drawbacks of this potential change. For example, agency officials identified more awards to small businesses as a benefit, but officials from several agencies also stated that such a change could limit resources for other R&D programs.
Total administrative spending for the SBIR and STTR programs for fiscal year 2015 is unknown, but 9 agencies participating in an administrative pilot program—which permits agencies to fund new administrative activities—reported spending about $33.9 million on these activities for that year. Agencies are not required to and generally do not track their total administrative costs, so GAO could not determine total spending.

What GAO Recommends

GAO recommends that DOD and EPA establish procedures to report obligations data or propose to Congress an alternative methodology for calculating spending requirements. DOD and EPA agreed with GAO's recommendation.