DOD provides over 50 percent of SBIR funding. It Appears That Agencies Are Adhering to Statutory Funding Requirements; However, the Definition of Extramural R&D on Which the Funding Levels Are Based May Not Be Consistently Applied

The agencies’ SBIR officials reported that they have adhered to the act’s requirements that they not use SBIR funds to pay for the administrative costs of the program, such as salaries and expenses for support services used in processing awards. Only Two of the Agencies We Reviewed Have Conducted Audits of Their Extramural Budgets

Of the five agencies we reviewed, only two—NSF and NASA—have recently audited their extramural R&D budgets. NSF estimated that these unallowable costs totaled over $100 million. Application Review Process and Current Funding Cycles Are Not Adversely Affecting Recipients’ Financial Status or the Commercialization of Projects

The SBIR officials we interviewed felt that neither the application review process nor the current funding cycles are having an adverse effect on award recipients’ financial status or their ability to commercialize their projects. While the effects of the review processes and funding cycles on the recipients’ financial status and ability to commercialize projects were not specifically mentioned as problems, SBIR officials did state that some recipients had said that any interruption in funding awards, for whatever reason, affects them negatively. Overall, 515 respondents, or 35 percent, indicated that their projects had resulted in the sales of products or processes, while 691, or 47 percent, had received additional developmental funding. Multiple-Award Recipients Commercialize at Rates Similar to Those of Non-Multiple-Award Recipients

Using SBA’s data, we determined the number of phase I award recipients who had received 15 or more phase II awards in the preceding 5 years. Both DOE’s and NASA’s SBIR officials reported that they did not receive any single proposals for this time period. All of the agencies we reviewed reported participating in activities targeted at women-owned or socially and economically disadvantaged small businesses. The other agencies believe that the research being conducted falls within one of the two lists. The geographic distribution of awards by state is presented in figure 1. Conclusions

SBIR program officials have said that they are uncertain whether the agencies are correctly adhering to the requirements for establishing their extramural research budgets. Legislative Requirements

Public law 102-564, dated October 28, 1992, mandated that the Comptroller General of the United States provide the Congress with a report on the Small Business Innovation Research program that containing the following: (1) a review of the progress made by federal agencies in meeting the requirements of section 9(f) of the Small Business Act (as amended by this Act), including increases in expenditures required by that subsection; (2) an analysis of participation by small business concerns in the third phase of SBIR programs, including a systematic evaluation of the techniques adopted by federal agencies to foster commercialization; (3) an analysis of the extent to which awards under SBIR programs are made pursuant to section 9(l) of the Small Business Act (as amended by section 103(h)) in cases in which a program solicitation receives only one proposal; (4) an analysis of the extent to which awards in the first phase of the SBIR program are made to small business concerns that have received more than 15 second phase awards under the SBIR program in the preceding 5 fiscal years, considering (A) the extent to which such concerns were able to secure federal or private sector follow-on funding; (B) the extent to which the research developed under such awards was commercialized; (C) the amount of commercialization of research developed under such awards, as compared to the amount of commercialization of SBIR research for the entire SBIR program; (5) the results of periodic random audits of the extramural budget of each such federal agency; (6) a review of the extent to which the purposes of this title and the Small Business Innovation Development Act of 1982 have been met with regard to fostering and encouraging the participation of women-owned small business concerns and socially and economically disadvantaged small business concerns (as defined in the Small Business Act) in technological innovation, in general, and the SBIR program, in particular; (7) an analysis of the effectiveness of the SBIR program in promoting the development of the critical technologies identified by the Secretary of Defense and the National Critical Technologies Panel (or its successor), as described in subparagraph 9(j)(2)(E) of the Small Business Act; (8) an analysis of the impact of agency application review periods and funding cycles on SBIR program awardees’ financial status and ability to commercialize; and (9) recommendations to the Congress for tracking the extent to which foreign firms, or United States firms with substantial foreign ownership interests, benefit from technology or products developed as a direct result of SBIR research or research and development. U.S. General Accounting Office P.O.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO provided a final report on aspects of the Small Business Innovation Research (SBIR) program, focusing on: (1) agencies' adherence to statutory funding requirements; (2) agencies' audits of extramural (external) research and development (R&D) budgets; (3) the effect of the application review process and funding cycles on award recipients; (4) the extent of companies' project activity after receiving SBIR funding and agencies' techniques to foster commercialization; (5) the number of multiple-award recipients and the extent of their project-related activity after receiving SBIR funding; (6) the occurrence of funding for single-proposal awards; (7) participation by women-owned businesses and socially and economically disadvantaged businesses; (8) SBIR's promotion of the critical technologies; (9) the extent to which foreign firms benefit from the results of SBIR; and (10) the geographical distribution of SBIR awards.

What GAO Found

GAO noted that: (1) the agencies' SBIR officials reported that they have adhered to the requirements that preclude them from using SBIR finds to pay for the administrative costs of the program; (2) the program officials also believe that they are adhering to statutory funding levels for the program; (3) however, some said that they are uncertain whether the agencies are correctly adhering to the requirements for establishing their extramural research budgets; (4) only two of the five agencies that GAO reviewed have conducted audits of their extramural research budgets; (5) in 1997, the Office of Inspector General at the National Science Foundation audited the agency's extramural budget and found that it contained over $100 million of unallowable costs; (6) while most of the SBIR officials GAO interviewed said that neither the application review process nor current funding cycles have had an adverse effect on award recipients' financial status or ability to commercialize their ideas, some recipients have said that any interruption in funding awards, for whatever reason, affects them negatively; (7) the companies responding to GAO's and the Department of Defense's (DOD) surveys reported that approximately 50 percent of their projects had sales of products or services related to the research or received additional developmental funding after receiving SBIR funding; (8) the number of companies receiving multiple awards, defined here as those phase I award recipients that also received 15 or more phase II awards in the preceding 5 years, grew from 10 companies in 1989 to 17 in 1996; (9) GAO found that the funding of single-proposal awards was rare; (10) all of the agencies GAO examined reported that they engaged in activities to foster the participation of women-owned businesses or socially and economically disadvantaged small businesses; (11) all of the agencies' SBIR officials GAO interviewed felt that the listings of critical technologies are used in developing their respective research topics or that the research being conducted falls within one of the two lists; (12) GAO found little evidence of foreign firms, or U.S. firms with substantial foreign ownership interests, benefiting from technology or products developed as a direct result of SBIR-funded research; (13) SBIR awards are concentrated in the states of California and Massachusetts; (14) however, every state received at least two awards; and (15) previous studies have linked the concentration of awards to local characteristics, such as the prevalence of small high-tech firms.