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 R&D obligations  exceed the participation thresholds of $100 million for SBIR and $1 billion  for STTR. SBA Cannot Fully Determine Compliance with Spending Requirements, but Data Submitted to SBA Indicate Most Agencies Met the Requirements

SBA cannot fully determine if all 11 agencies met their spending  requirements for fiscal year 2013, as 9 of the 11 participating agencies  did not follow SBA’s guidance in submitting data on their total extramural  R&D obligations. The Small Business Act requires agencies to calculate  their spending requirements based on their extramural R&D budget, but it  defines the extramural R&D budget as the actual obligations over the  course of the year—which are not fully known until the end of the year— rather than the amount that agencies propose to spend on the program  early in the fiscal year. SBA’s ability to conduct an accurate assessment of whether agencies are  complying with spending requirements is dependent on agencies  submitting the correct data. Agencies Did Not Comply with All Methodology Reporting Requirements

Each of the agencies participating in the SBIR and STTR programs  submitted the required reports describing the methodology used for  calculating the amount of their extramural R&D budgets to SBA for fiscal  year 2013, but agencies did not comply with all methodology reporting  requirements. Specifically,  DOD, EPA, and NSF either did not itemize the specific programs that they  excluded, did not explain the reasons why they excluded the programs, or  both. SBA Has Not Submitted Its Required Report to Congress for Fiscal Year 2013

SBA has not issued its report to Congress on the programs for fiscal year  2013. Without assessing whether the information it  collects is adequate to analyze agencies’ methodology reports, SBA  cannot provide Congress with an accurate analysis of how agencies  calculate their extramural R&D. Changing the Calculation Methodology for Determining Spending Requirements Could Increase Spending Requirements and Participation with Potential Benefits and Drawbacks

Potential effects of changing the methodology to calculate the SBIR and  STTR spending requirements based on each agency’s total R&D budget  instead of its extramural R&D obligations include an increase in the  amount of each agency’s spending requirement—for some agencies  more than others—and an increase in the number of agencies required to  participate. However, such a scenario would  lower spending requirements at some agencies and raise them at others. Total Administrative Spending in Fiscal Year 2013 Is Unknown, but Six Agencies Spent $12.3 Million on the Administrative Pilot Program

Little is known about total administrative spending for fiscal year 2013  because the agencies that participate in the SBIR and STTR programs  are not required to and do not fully track these costs. Agencies  participating in the administrative pilot program reported spending $12.3  million on various new administrative and oversight activities in fiscal year  2013, but this amount does not represent total administrative spending. The 2011  reauthorization of the programs requires SBA to provide Congress with a  report on the use of administrative pilot program funds.was the first year of the pilot program, and SBA officials said they were  still determining the information they needed to report to Congress. Conclusions

Federal agencies have awarded billions of dollars to small businesses  under the SBIR and STTR programs to develop and commercialize  innovative technologies. Recommendations for Executive Action

To ensure full compliance with SBIR and STTR spending and reporting  requirements, we recommend that the SBA Administrator take the  following three actions:
Notify Congress in SBA’s annual report if it cannot determine agency  compliance with program spending requirements when agencies that  participate in the SBIR and/or STTR programs do not report  extramural R&D obligations data, or develop a proposal to Congress  that would change the requirement. GAO staff who made key contributions to  this report are listed in appendix V.

Appendix I: Agencies’ Compliance with Spending Requirements for the Small Business Innovation Research Program for Fiscal Year 2013, 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 2013 spending requirements, while  spending for the remaining 2 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 obligations that meet certain thresholds for participation—$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 mandated GAO to review compliance with spending and reporting requirements, as well as other program aspects. This report examines, for fiscal year 2013, (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 total R&D budgets, and (4) what is known about the amounts spent on administering the programs. GAO reviewed agency spending data and required reports for fiscal year 2013 and interviewed program officials from SBA and the participating agencies.

What GAO Found

The Small Business Administration's (SBA) ability to fully determine compliance with spending requirements for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs for fiscal year 2013 is limited because most agencies submitted incorrect data. Nevertheless, analyzing agency data submitted to SBA suggests that 9 of the 11 agencies participating in the SBIR program and 4 of the 5 agencies participating in the STTR program complied with spending requirements for fiscal year 2013. Specifically, agencies are required to submit the actual amount obligated for extramural research or research and development (R&D)—which is generally conducted by nonfederal employees outside of federal facilities—and these obligations are the basis for calculating the agencies' spending requirements. However, most agencies submitted budget data instead. Program managers raised concerns about the difficulties in determining the amount of extramural R&D obligations and the challenges in using this amount to calculate spending requirements, as extramural R&D obligations are not known until after the end of the fiscal year. However, without the required data, SBA cannot accurately report on agencies' compliance with spending requirements—as defined in the law—to Congress.
Some agencies did not comply with certain methodology reporting requirements for the programs. For example, 3 of the 11 participating agencies did not itemize the specific programs they excluded from their extramural R&D in their required methodology reports, or did not explain the reasons why they excluded the programs, or both. GAO also found that SBA did not assess whether the information it collected was adequate to appropriately analyze agencies' methodology reports. Without such an assessment, SBA cannot provide Congress with an accurate analysis of how agencies calculate their extramural R&D. Furthermore, SBA has not issued its required report to Congress on the programs for fiscal year 2013.
Basing the programs' spending requirements on total R&D instead of extramural R&D could increase the amount of each agency's spending requirement and increase the number of agencies required to participate. Some agency officials said that basing the calculation methodology on their total R&D budget would make administering their programs easier, but officials at other agencies said that the change could result in reduced funding for intramural research and extramural research outside of the SBIR and STTR programs.
Little is known about total administrative spending on the programs for fiscal year 2013 because the agencies that participate are not required to and do not fully track these costs. Six agencies participated in an administrative pilot program that allowed them to spend program funds on new administrative and oversight activities in fiscal year 2013. These agencies reported spending $12.3 million on these activities, but this amount does not represent total administrative spending. Additionally, this is about 20 percent of what the agencies had planned to spend on the administrative pilot program at the beginning of the fiscal year. Program managers at seven agencies told GAO that they would prefer that the administrative pilot program were either extended or made permanent.

What GAO Recommends

GAO recommends, among other things, that SBA notify Congress if it cannot determine agency compliance with spending requirements and assess the adequacy of the methodology reporting requirement. SBA generally agreed with GAO's findings and recommendations.