Specifically, 8 of the 11 agencies did not consistently meet annual  spending requirements for SBIR. Additional  data on each agency’s spending on the programs is included in our 2013  report. SBIR and STTR program managers identified reasons why spending the  required amount in a given fiscal year could be difficult, which we  described in our 2013 report. For example, in that report, we found that  delays in receiving final appropriations can delay agencies’ awarding of  contracts for SBIR or STTR projects. As we found in our 2013 report, when appropriations were received late in  the year, agencies used differing methodologies to calculate their  spending requirements, making it difficult to determine whether agencies’  calculations were correct. Although SBA provided guidance in policy  directives on calculating their spending requirements, we found that the  policy directives did not provide guidance to agencies on how to calculate  such spending requirements when agency appropriations are delayed. We found that, without such guidance, that agencies would likely continue  to calculate spending requirements in differing ways. Agencies and SBA Did Not Consistently Comply with Certain Reporting Requirements

We also found in 2013 that agencies participating in the SBIR and STTR  programs did not consistently comply with requirements in the Small  Business Act to annually report a description of their methodologies for  calculating their extramural R&D budgets to SBA and that SBA did not  consistently comply with the act’s requirements for annually reporting to  Congress. With the exception of NASA in certain years, agencies did not submit their  methodology reports to SBA within the time frame required by the Small  Business Act for fiscal years 2006 through 2011 for the SBIR and STTR  programs. More significantly, we found in 2013 that the majority of the agencies did  not 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 was excluded, as required. We also found in 2013 that SBA had not consistently complied with the  requirement to report its analysis of the agencies’ methodologies in its  annual report to Congress, as required by the Small Business Act. We found that these  reports contained limited analyses of the agencies’ methodologies, and  some of the analyses were inaccurate. In our 2013 report, we  found that, without more comprehensive analysis and accurate  information on participating agencies in SBA’s annual report, Congress  did not have information on the extent to which agencies are reporting  what is required by law. SBA is in the process of taking steps to address this  recommendation. Changing the Calculation Methodology Could Increase Spending Requirements and Participation

In 2013, we also found that 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 how the change  was implemented. Also, such a change would increase the number of  agencies that would be required to participate in the programs if the  threshold for participating in the programs remained the same. For  STTR, three additional agencies—Commerce, USDA, and VA—would  also have been required to participate in the program for fiscal year 2011  if total R&D budgets had been the criteria because these agencies  reported total R&D budgets in excess of $1 billion. Administrative Costs Could Not Be Determined Because the Agencies Did Not Identify or Track All Costs

We found in 2013 that the participating agencies’ cost of administering  the SBIR and STTR programs could not be determined because the  agencies neither collected that information nor had the systems to do so. Estimates agencies provided for our report indicated that the  greatest amounts of administrative costs in fiscal year 2011 were for  salaries and expenses, contract processing, outreach programs, technical  assistance programs, support contracts, and other purposes. 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 expected to require agencies in the pilot  program to track and report the spending of that 3 percent but not all of  their administrative costs.
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 mandates that agencies, with extramural R&D budgets that meet the thresholds for participation, must spend a percentage of these annual budgets on the two programs. The agencies are to report to SBA and SBA is to report to Congress.
This testimony is based on a report GAO issued in September 2013 and addresses for fiscal years 2006 through 2011, (1) the extent to which participating agencies complied with program spending requirements, (2) the extent to which participating agencies and SBA complied with certain reporting requirements, (3) the potential effects of basing the spending requirements for the SBIR and STTR programs on agencies' total R&D budgets instead of their extramural R&D budgets, and (4) what is known about the amounts participating agencies spent for administering the programs. For that report, GAO reviewed agency calculations of spending requirements and required reports, and interviewed SBA and participating agency officials.

What GAO Found

Using data agencies had reported to the Small Business Administration (SBA), GAO found in its 2013 report 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. SBA, which oversees the programs, provided guidance in policy directives for agencies on calculating these requirements, but the directives did not provide guidance on calculating the requirements when appropriations are late and spending is delayed. Some SBIR and STTR program managers told GAO that it can be difficult to spend the required amount because delays in receiving final appropriations can delay agencies' awarding of contracts. As GAO found in its 2013 report, when appropriations were received late in the year agencies used differing methodologies to calculate their spending requirements, which made it difficult to determine whether agencies' calculations were correct. GAO found that, without further SBA guidance, agencies would likely continue calculating spending requirements in differing ways.
GAO also found in 2013 that the participating agencies and SBA had not consistently complied with certain program reporting requirements. For example, participating agencies did not itemize each program excluded from the calculation of their extramural research or research and development (R&D) budgets and explain why the program was excluded, as required. (Extramural R&D is generally conducted by nonfederal employees outside of federal facilities.) Also, SBA's annual reports to Congress that were available at the time of GAO's review contained limited analysis of the agencies' methodologies, often not including information on particular agencies. By providing more analysis of the agencies' reports, as GAO recommended in its 2013 report, SBA can provide information to Congress on the extent to which agencies were reporting what is required.
In 2013, GAO found that the potential effects of basing each participating agency's spending requirement on its total R&D budget instead of its extramural R&D budget would increase the amount of the spending requirement—for some agencies more than others, depending on how the change was implemented. 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.
In addition, GAO found in 2013 that the agencies' cost of administering the programs could not be determined because the agencies had not consistently tracked costs as they were not required to do so by the authorizing legislation of the programs. Estimates agencies provided to GAO indicated that the greatest amounts of administrative costs in fiscal year 2011 were for salaries and expenses, contract processing, outreach programs, technical assistance programs, support contracts, and other purposes. With the start of a pilot program allowing agencies to use up to 3 percent of SBIR program funds for administrative costs in fiscal year 2013, SBA planned to require participating agencies to track and report administrative costs paid from program funds.

What GAO Recommends

GAO is not making any new recommendations, but made several to SBA in GAO's 2013 report on this topic. SBA agreed with those recommendations and is taking steps to implement them.