In  calculating their spending requirements, some participating agencies  made improper exclusions and used differing methodologies. Specifically, 8 of the 11  agencies did not consistently meet annual spending requirements for  SBIR. Without such guidance, agencies will likely continue to calculate  spending requirements in differing ways. Agencies and SBA Have Not Consistently Complied with Certain Reporting Requirements

Agencies participating in the SBIR and STTR programs have not  consistently complied with Small Business Act requirements for annually  reporting a description of their methodologies for calculating their  extramural R&D budgets to SBA. Specifically, the SBA policy directives state that the  methodology report must include an itemization of each R&D program  excluded from the calculation of the agency’s extramural budget and a  brief explanation of why it is excluded. In our review, we found that  two of the participating agencies—EPA and HHS—complied fully with  the requirements because they included in their methodology reports  an itemization of the programs excluded from the calculation of their  extramural R&D budget and an explanation of why the programs were  excluded for all 6 fiscal years in our review; and six agencies—DHS, DOD, DOE, DOT, NASA and NSF—did not fully  meet these requirements for the 6 fiscal years in our review because  their methodology reports either identified some excluded programs  but not others that we identified or the reports omitted explanations for  exclusions. As a result, agencies submitted different information, including different  levels of detail on their methodologies. SBA Annual Reports to Congressional Committees Are Often Late and Incomplete

SBA has not consistently complied with the requirement for reporting its  analysis of the agencies’ methodologies in its annual report to  Congress, as required by the Small Business Act. For example, SBA’s analysis was limited to a table attached  to the annual report to Congress that often did not include information on  particular agencies; SBA provided no other documentation showing the  results of its analysis of the agency methodology reports. Without more comprehensive analysis and accurate information  on participating agencies in SBA’s annual report, Congress does not have  information on the extent to which agencies are reporting what is required  by law or if they are under spending by, for example, taking improper  exclusions. The agency plans to  submit the reports to Congress in 2013, making the data available to  Congress on the programs 2 to 4 years after the end of the fiscal year. Basing Spending Requirements on Agencies’ Total R&D Budgets Could Increase Spending and Program Participation

Changing the methodology to calculate the SBIR and STTR spending  requirements based on each agency’s total R&D budget instead of each  agency’s extramural R&D budget would increase the amount of each  agency’s spending requirement for the programs, some much more than  others, depending on the assumptions about how the funding base  change is implemented. Changing the Calculation Methodology Would Increase the Number of Agencies Required to Participate

Changing the calculation methodology to the total R&D budget would also  increase the number of agencies that would be required to participate in  the SBIR and STTR programs, assuming the same dollar thresholds for  participating in the programs were applied to the total R&D budget rather  than only the extramural R&D budget. With the implementation in 2013 of a pilot program allowing  agencies under certain conditions to use up to 3 percent of SBIR program  funds for certain administrative costs, SBA expects to require agencies in  the pilot program to track and report the spending of that 3 percent but  not all of their administrative costs. Neither the authorizing legislation for the programs nor SBA guidance  directs agencies to track and estimate administrative costs, and neither  the law nor SBA guidance defines these administrative costs. In turn, SBA is to review this information and report on it annually to  Congress. Agencies also submitted  differing information in these reports because SBA’s policy directives do  not specify the format for the reports. Without more rigorous oversight by SBA and more timely and detailed  reporting on the part of both SBA and participating agencies, it will be  difficult for SBA to ensure that intended benefits of these programs are  being attained and that Congress receives critical information to oversee  these programs. Recommendations for Executive Action

To ensure that participating agencies and SBA comply with spending and  reporting requirements for the SBIR and STTR programs, we recommend  the SBA Administrator take the following four actions:
Provide additional guidance on how agencies should calculate  spending requirements when agency appropriations are received late  in the fiscal year and the format agencies are to include in their  methodology reports. Direct participating agencies to include in their annual reports the  calculation of the final extramural R&D budget used as the basis for  their SBIR and STTR spending requirements and, if they did not meet  the spending requirements, the reasons why not and how they plan to  meet the spending requirements in the future. Appendix I: Comparison of Participating Agencies’ Reported Requirements and Spending for the SBIR and STTR Programs, Fiscal Years 2006 to 2011

Figures 2 through 12 compare reported spending requirements of the 11  agencies participating in the Small Business Innovation Research (SBIR)  program with their reported spending over fiscal years 2006 to 2011.
Why GAO Did This Study

The Small Business Act established the SBIR and STTR programs to use small businesses to meet federal R&D needs. The law mandates that agencies, with extramural R&D budgets that meet the thresholds for participation, must spend a percentage of these annual budgets on the SBIR and STTR programs. The agencies are to report on their activities to SBA and, in turn, SBA is to report to Congress. Eleven agencies participate in SBIR, and five of them also participate in STTR. The act's 2011 reauthorization mandates that GAO review SBA's and the agencies' compliance with spending and reporting requirements, and other program aspects, for fiscal years 2006 to 2011. GAO determined (1) the extent to which participating agencies complied with spending requirements and how the agencies calculated these requirements, (2) the extent to which participating agencies and SBA complied with certain reporting requirements, (3) the potential effects of basing the spending requirements on an agency's total R&D budget, and (4) the cost to participating agencies of SBIR and STTR program administration. GAO reviewed agency calculations of spending requirements and the required reports and interviewed SBA and participating agency program and financial officials.

What GAO Found

Using data agencies had reported to the Small Business Administration (SBA), GAO found that 8 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 did not consistently comply with spending requirements for fiscal years 2006 to 2011. In calculating their annual spending requirements for these programs, some agencies made improper exclusions from their extramural research and development (R&D) budgets and used differing methodologies. SBA, which oversees the programs, provided guidance in policy directives for agencies on calculating these requirements, but the directives do not provide guidance on calculating the requirements when appropriations are late and spending is delayed, resulting in agencies using differing methodologies. This made it difficult to determine whether agencies' calculations were correct. Without further SBA guidance, agencies will likely continue calculating spending requirements in differing ways.
The participating agencies and SBA have not consistently complied with certain program reporting requirements. For example, in their methodology reports to SBA, the agencies submitted different levels of detail on their methodologies, such as the programs excluded from the extramural budget and the reasons for the exclusions. SBA's guidance states that the methodology reports are to itemize each R&D program excluded from the calculation of the agency's extramural budget and explain why a program is excluded but does not specify the format of the methodology reports to ensure consistency. Also, SBA's annual reports to Congress contained limited analysis of the agencies' methodologies, often not including information on particular agencies. Without more guidance to agencies on the formats of their methodology reports and more analysis of the contents of those reports, SBA cannot provide Congress with information on the extent to which agencies are reporting what is required. Further, SBA has not submitted an annual report on these programs for fiscal years 2009 to 2011 but plans to submit the reports to Congress later in 2013--making the data available to Congress on the programs 2 to 4 years late.
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--depending on how much of the agency's R&D budget is composed of extramural spending. Also, if the thresholds of the spending requirements for participation in the programs did not change, changing the base to an agency's total R&D budget would increase the number of agencies required to participate.
The agencies' cost of administering the programs could not be determined because the agencies have not consistently tracked that cost as they are not required to by the authorizing legislation of the programs. Nine of the 11 agencies in SBIR provided GAO with estimates of some of these costs for fiscal year 2011--most of which were for salaries and expenses. With the start of a pilot program allowing agencies to use up to 3 percent of SBIR program funds for administrative costs in 2013, SBA plans to require agencies to track and report administrative costs paid from program funds.

What GAO Recommends

GAO recommends, among other things, that SBA provide additional guidance to agencies for spending and reporting requirements and provide Congress with a more timely annual report with more analysis of the agencies' methodologies. SBA stated that it agrees with the recom-mendations and will implement them.