oversight

Small Business Research Programs: Agencies Are Implementing New Fraud, Waste, and Abuse Requirements

Published by the Government Accountability Office on 2012-11-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States Government Accountability Office
Washington, DC 20548




           November 15, 2012

           Congressional Committees

           Subject: Small Business Research Programs: Agencies Are Implementing New
           Fraud, Waste, and Abuse Requirements

           For 30 years, federal agencies have made awards to small businesses for
           technology research and development through the Small Business Innovation
           Research (SBIR) program and, more recently, through the Small Business
           Technology Transfer (STTR) program. Over the past 6 years, agencies have
           obligated about $2.4 billion annually for these two programs. Federal agencies with
           a budget of more than $100 million for extramural research or research and
           development—which is conducted by nonfederal employees outside of federal
           facilities—must establish and operate an SBIR program. Eleven federal agencies
           currently participate in the SBIR program: the departments of Agriculture,
           Commerce, Defense (DOD), Education, Energy, Health and Human Services,
           Homeland Security, and Transportation; the Environmental Protection Agency
           (EPA); the National Aeronautics and Space Administration (NASA); and the National
           Science Foundation. Federal agencies with a budget of more than $1 billion for
           extramural research or research and development must establish and operate an
           STTR program, in addition to their SBIR program. Five of the 11 federal agencies
           that participate in the SBIR program also participate in the STTR program: DOD,
           the departments of Energy and of Health and Human Services, NASA, and the
           National Science Foundation.

           Each participating agency must manage its SBIR and STTR programs in
           accordance with program laws, regulations, and policy directives issued by the Small
           Business Administration (SBA), whose Office of Technology oversees and
           coordinates agency efforts for the programs by setting overarching policy and
           issuing policy directives, collecting program data, reviewing agency progress, and
           reporting annually to Congress, among other responsibilities. Each participating
           agency has considerable flexibility to design and manage the specifics of these
           programs, such as determining research topics, selecting award recipients, and
           administering funding agreements.

           The National Defense Authorization Act for Fiscal Year 2012 (the act), 1 enacted on
           December 31, 2011, reauthorized the SBIR and STTR programs through September

           1
            Pub. L. No. 112-81.

                                                   GAO-13-70R: Small Business Research Programs
30, 2017. 2 Among other things, the act required SBA to make certain changes by
March 30, 2012, to its SBIR and STTR policy directives to prevent fraud, waste, and
abuse. 3 The act did not specify time frames for agencies to implement the revised
policy directives. According to the SBIR and STTR policy directives, potential fraud,
waste, and abuse in the programs include, among others, misrepresentation of the
use of funds expended under an award, misuse of award funds, falsification in
reporting results from an award, or extravagant or needless spending of an award.

In addition to reauthorizing the programs, the act directed GAO to establish a
baseline of changes made to the SBIR and STTR programs to fight fraud, waste,
and abuse by December 31, 2012, and identified additional areas for future
evaluation. 4 In this context, this report summarizes (1) the status of the revised SBIR
and STTR policy directives; information regarding fraud, waste, and abuse included
in the revised directives; and steps taken to revise the directives and (2) participating
agencies’ plans for implementing the new fraud, waste, and abuse requirements in
the revised policy directives, including whether participating agencies anticipate
challenges to implementing the changes.

To determine the status of the revised SBIR and STTR policy directives, information
included in the revised directives, and steps taken to revise the directives, we
tracked the directives through the revision process and, once the directives were
issued, we reviewed the information contained in the directives, with a particular
focus on the new fraud, waste, and abuse requirements. We compared the revised
policy directives with GAO’s fraud-prevention framework to determine the extent to
which the revised directives included elements of the framework. 5 We also
interviewed SBIR and STTR program managers from SBA and the 11 agencies that
participate in one or both of the SBIR and STTR programs, as well as
representatives from a working group of the Council of the Inspectors General on
Integrity and Efficiency that has been discussing fraud in these programs. 6



2
Pub. L. No. 112-81, Div. E.
3
 Other provisions of the act required SBA to make changes to other sections of the policy directives,
such as increasing the maximum dollar value of awards and revising requirements for agencies to
report certain information to SBA, by June 28, 2012. SBA decided to revise the policy directives to
incorporate all of the changes required by the act at one time, rather than issuing multiple revisions to
the directives.
4
Pub. L. No. 112-81 § 5143(b).
5
 We identified the elements of the fraud prevention framework in GAO, Service-Disabled Veteran-
Owned Small Business Program: Vulnerability to Fraud and Abuse Remains, GAO-12-697
(Washington, D.C.: Aug. 1, 2012).
6
 The Council of the Inspectors General on Integrity and Efficiency was statutorily established as an
independent entity within the executive branch by the Inspector General Reform Act of 2008 to
address integrity, economy, and effectiveness issues that transcend individual government agencies
and increase the professionalism and effectiveness of personnel by developing policies, standards,
and approaches to aid in the establishment of a well-trained and highly skilled workforce in the offices
of the Inspectors General. Pub. L. No. 110-409, §7, 122 Stat. 4302, 4305-4313 (codified at 5 U.S.C.
App. 3, § 11 (2006)).


Page 2                                            GAO-13-70R: Small Business Research Programs
To determine agencies’ plans for implementing changes to the revised policy
directives and potential challenges to implementing the changes, we reviewed
documentation from SBA about changes to the policy directives and expected time
frames for implementing the new fraud, waste, and abuse requirements.
Additionally, we interviewed SBIR and STTR program managers and
representatives from the Offices of Inspectors General at SBA and the 11 agencies
that participate in one or both of the SBIR and STTR programs. To the extent
possible, we corroborated information on the changes that agencies have
implemented—as well as tools agencies already had in place—by reviewing relevant
agency documents, such as agency websites and SBIR and STTR funding
solicitations.

We conducted this performance audit from March 2012 to November 2012 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.

Results in Brief

SBA issued revised policy directives for the SBIR and STTR programs in August
2012 that included new requirements designed to help agencies identify and prevent
potential fraud, waste, and abuse in the SBIR and STTR programs—changes that
SBA developed in consultation with agencies that participate in the programs and a
working group of inspectors general. Among other changes, the revised SBIR and
STTR policy directives each include a new section on preventing fraud, waste, and
abuse in the programs. They also include 10 minimum requirements related to fraud,
waste, and abuse that the 11 participating agencies must meet, such as providing
information on how to report fraud, waste, and abuse on their program websites and
in solicitations. The revised policy directives include elements of our fraud-
prevention framework. Based on our prior work, an effective fraud-prevention
framework should include up-front preventive controls, detection and monitoring, and
investigations and prosecutions. The 10 requirements in the revised directives
include elements of the framework, but the effectiveness of the requirements in
helping agencies identify and prevent potential fraud, waste, and abuse will depend
on how participating agencies implement the requirements. SBA incorporated input
from key stakeholders, specifically the SBIR and STTR program managers and
representatives from an inspectors general working group, when developing the
revised policy directives. Additionally, SBA chose to solicit comments through a 60-
day public comment period on the revised directives.

Agencies that participate in the SBIR and STTR programs vary in their plans to
implement the new fraud, waste, and abuse requirements; however, none of the
agencies anticipate challenges in doing so. Each of the participating agencies
already had in place some tools to address or partially address the new fraud,
waste, and abuse requirements in the revised policy directives before SBA issued
them. According to our analysis of the requirements and the tools agencies had in
place, each of the agencies needs to modify some existing tools and implement


Page 3                                   GAO-13-70R: Small Business Research Programs
additional tools to meet all of the requirements in the revised policy directives. The
act and revised directives do not establish time frames by which agencies must
implement the new requirements. At the time of our review, most agencies were in
the process of determining their planned time frames for implementing the new
requirements. Program managers at each of the agencies that participate in one or
both of the programs told us that they do not anticipate significant challenges to
implementing most of the new fraud, waste, and abuse requirements.

Background

The SBIR program was initiated in 1982 and has four purposes: to use small
businesses to meet federal research and development needs, to stimulate
technological innovation, to increase commercialization of innovations derived from
federal research and development efforts, and to encourage participation in
technological innovation by small businesses owned by disadvantaged individuals
and women. The 11 agencies that participate in the SBIR program reported
obligating more than $2.2 billion for about 5,500 awards in fiscal year 2011. 7 The
purpose of the STTR program—initiated in 1992—is to stimulate a partnership of
ideas and technologies between innovative small businesses and research
institutions through federally funded research or research and development. 8 A key
difference between the SBIR and STTR programs is the requirement that small
businesses receiving STTR awards must partner with a nonprofit research institution
that must perform at least 30 percent of the research and development for the
project. The five agencies that participated in the STTR program reported obligating
about $250 million for more than 700 awards in fiscal year 2011.

Agencies follow the same general process to obtain proposals from and make
awards to small businesses for both the SBIR and STTR programs. At least
annually, each participating agency issues a solicitation requesting proposals for
projects in topic areas determined by the agency. Each agency uses its own process
to review proposals and determine which proposals should receive awards. Also,
each agency determines whether the funding for awards will be provided as grants
or contracts.

In August 2009, the Senate Committee on Commerce, Science, and Transportation
held a hearing on fraud, waste, and abuse in the SBIR program. 9 In that hearing,
Members of the Committee raised concerns about a prior case of fraud in the SBIR
program, as well as the potential for additional fraud, waste, and abuse in the
programs. Shortly after that hearing, the Council of the Inspectors General on
Integrity and Efficiency’s Misconduct in Research Working Group began to discuss

7
 We are reviewing agencies’ compliance with required expenditure amounts for the SBIR and STTR
programs, among other requirements, as part of a separate review required by Pub. Law No. 112-81
§ 5136.
8
 Research institutions include nonprofit colleges or universities, domestic nonprofit research
organizations, and federally funded research and development centers.
9
Hearing before the Committee on Commerce, Science, and Transportation, United States Senate;
Waste, Fraud, and Abuse in the SBIR Program; August 6, 2009.



Page 4                                            GAO-13-70R: Small Business Research Programs
fraud in the SBIR and STTR programs and coordinate efforts related to these
programs among the inspectors general from SBA and each of the 11 participating
agencies. The working group also established a separate subgroup of investigative
agents from SBA, the 11 participating agencies, and the Department of Justice to
share information on ongoing cases, lessons learned, and best practices related to
SBIR investigations.

We have issued several reports on various aspects of the SBIR program dating back
to the 1980s. In our August 2009 testimony before the Senate Committee on
Commerce, Science, and Transportation, we summarized our previous findings
related to the SBIR program, including our finding that the SBIR program could be
improved by collecting better data and establishing a database so that SBA and
participating agencies can share information and enhance their efforts to monitor
and evaluate the program. 10 More recently, we reported on the availability of data to
evaluate progress in increasing commercialization (e.g., sales) of SBIR
technologies. 11

SBA Issued Revised Policy Directives with New Fraud, Waste, and Abuse
Requirements after Consulting Key Stakeholders

SBA issued revised policy directives for the SBIR and STTR programs in August
2012 that included new requirements designed to help agencies identify and prevent
potential fraud, waste, and abuse in the SBIR and STTR programs—changes that
SBA developed in consultation with agencies that participate in the program and a
working group of inspectors general. The revised policy directives include elements
of our fraud-prevention framework; however, the effectiveness of these requirements
in preventing potential fraud, waste, and abuse will depend on how participating
agencies implement the requirements. In developing the revised directives, SBA
incorporated input from SBIR and STTR program managers and an inspectors
general working group, and SBA later sought public comments on the revised
directives.

SBA Issued Revised SBIR and STTR Policy Directives That Include New Fraud,
Waste, and Abuse Requirements

SBA published revised policy directives for the SBIR and STTR programs in the
Federal Register on August 6, 2012; the directives took effect that day. Among other
changes, the revised policy directives each include a new section on preventing
fraud, waste, and abuse in the programs. The fraud, waste, and abuse sections
contain the same information and requirements for both programs. The revised
policy directives include 10 new minimum requirements related to identifying and
preventing potential fraud, waste, and abuse that the 11 participating agencies must
implement, but the directives do not specify deadlines by which agencies must


10
 GAO, Small Business Innovation Research: Observations on Agencies’ Data Collection and
Eligibility Determination Efforts, GAO-09-956T (Washington, D.C.: Aug. 6, 2009).
11
 GAO, Small Business Innovation Research: SBA Should Work with Agencies to Improve the Data
Available for Program Evaluation, GAO-11-698 (Washington, D.C.: Aug. 15, 2011).


Page 5                                       GAO-13-70R: Small Business Research Programs
implement the changes. To meet the requirements, each agency participating in the
programs must, at a minimum, take the 10 actions summarized below:

   1. Require certifications from award recipients that they are in compliance with
       specific program requirements at the time of the award, as well as after the
       award and during the life cycle of the funding agreement.
   2. Include information explaining how an individual can report fraud, waste, and
       abuse on the agency’s respective program website and in each funding
       solicitation using the method provided by the agency’s Office of the Inspector
       General, such as publishing the agency’s fraud hotline number.
   3. Designate at least one individual in the agency to, at a minimum, serve as the
       liaison for the SBIR or STTR program, the Office of the Inspector General,
       and the agency’s suspension and debarment official, and ensure that
       inquiries regarding fraud, waste, and abuse are referred to the appropriate
       offices.
   4. Include on its program website information concerning successful
       prosecutions of fraud, waste, and abuse in the programs.
   5. Establish a written policy requiring all personnel involved with the program to
       notify the Office of the Inspector General if anyone suspects fraud, waste,
       and/or abuse and ensure the policy is communicated to all personnel.
   6. Create or ensure there is an adequate system to enforce accountability by
       developing standardized templates for referrals to the Office of the Inspector
       General and the suspension and debarment official, as well as a process for
       tracking such referrals.
   7. Ensure compliance with program eligibility requirements and terms of funding
       agreements.
   8. Work with the agency’s Office of the Inspector General in its efforts to
       establish fraud detection indicators; coordinate sharing of information on
       fraud, waste, and abuse between federal agencies; and improve education
       and training to program officials, applicants, and award recipients.
   9. Develop policies and procedures to avoid funding essentially equivalent work
       already funded by another agency.
   10. Consider enhanced reporting requirements during the funding agreement.

According to SBA officials, these requirements—along with other information in the
revised directives—were designed to address the changes required by the act
regarding fraud, waste, and abuse. For example, the act required SBA to include in
the revised directives definitions or descriptions of fraud, waste, and abuse. The
fraud, waste, and abuse sections of each of the revised directives define these terms
and provide examples of what would constitute fraud, waste, and abuse by award
recipients or agency personnel. Additionally, the act required SBA to establish
guidelines for monitoring and overseeing applicants for and recipients of SBIR or
STTR awards. According to SBA officials, the fraud, waste, and abuse section of the
revised directives collectively addresses this requirement in the act.

SBA officials expect that other changes incorporated into the revised directives will
also help agencies identify and prevent potential fraud, waste, and abuse in the
programs. For example, the policy directives require agencies and small businesses
to submit information to seven databases to satisfy additional reporting requirements


Page 6                                  GAO-13-70R: Small Business Research Programs
included in the act. Six of the seven databases will be part of Tech-Net, SBA’s
database for tracking information on SBIR and STTR awards. According to SBA,
one of the new databases—the Company Registry—will help prevent fraud, waste,
and abuse because a company must register itself and use the same name and
registration number each time when applying for awards. Program managers told us
that they expect this registry will help them determine whether a small business has
received an award for similar work in the past. Additionally, this registry is expected
to include information on eligibility requirements for the programs to ensure that
businesses understand the program requirements before applying for an award.

SBA’s Revised Directives Include Elements of GAO’s Fraud-Prevention Framework

In analyzing the revised policy directives, we found that they include elements of our
fraud-prevention framework. We developed this framework and have applied it in our
past work on fraud prevention in various federal programs, including other small
business programs and disaster payments. 12 The framework consists of three
crucial elements: (1) up-front preventive controls, (2) detection and monitoring, and
(3) investigations and prosecutions. (See fig. 1.)

Figure 1: GAO’s Fraud-Prevention Framework




Our past work has shown that the most effective and efficient part of a fraud-
prevention framework involves the institution of rigorous controls to prevent fraud.
Such preventive controls can include efforts such as verifying that a business is
eligible for the program. Even with effective preventive controls, there is a residual
risk for fraud, waste, and abuse, which makes detection and monitoring an essential
part of the framework. Detection and monitoring can include activities such as
conducting periodic reviews of suspicious businesses and evaluating businesses to
provide reasonable assurance that they continue to meet program requirements.
Finally, we have previously reported that fraud-prevention controls are not fully


12
 See, for example, GAO-12-697.


Page 7                                    GAO-13-70R: Small Business Research Programs
effective unless identified fraud is aggressively prosecuted or businesses are
suspended, debarred, or otherwise held accountable for committing fraud.

SBA included in the revised SBIR and STTR policy directives requirements for
agencies to put in place tools that include elements of our fraud-prevention
framework and the associated controls we have identified in our past work.
However, the effectiveness of the minimum requirements in helping agencies
identify and prevent potential fraud, waste, and abuse will depend on how
participating agencies implement the requirements, as discussed below.

   •     Preventive controls: One preventive control identified in our prior work is
         performing system checks to identify potential duplication before payments
         are made. The revised SBIR and STTR policy directives require participating
         agencies to develop policies and procedures to avoid funding essentially
         equivalent work already funded by another agency. The revised directives
         include a number of examples of procedures that agencies can implement,
         and the directives give agencies flexibility in implementing procedures to
         satisfy the requirement. However, the effectiveness of the agencies’ efforts to
         identify potentially duplicative awards will depend in large part on the
         procedures that the agencies choose to implement.
   •     Detection and monitoring: One detection and monitoring control identified in
         our prior work is for agencies to perform periodic reviews of eligibility for
         programs. The SBIR and STTR policy directives require agencies to require
         firms to self-certify their compliance with program regulations—including
         eligibility—at the time of an award and throughout the life cycle of the
         associated funding agreement. However, the effectiveness of the
         certifications required in the revised SBIR and STTR policy directives will
         depend, in part, on how agencies implement the certifications, and
         specifically whether agencies implement verification processes to supplement
         the required certifications.
   •     Investigations and prosecutions: One prosecution control identified in our
         prior work is to maximize the deterrent value of successful prosecutions and
         disbarments. The revised SBIR and STTR policy directives require agencies
         to include on their program websites information on successful prosecutions
         of fraud, waste, and abuse in the programs. However, program managers
         and representatives from the Offices of the Inspectors General at 8 of the 11
         participating agencies told us that they are not aware of any prosecutions for
         fraud, waste, or abuse in the SBIR or STTR programs in their agencies.

Additionally, the minimum requirements in the policy directives may not fully address
the vulnerabilities of the programs to fraud, waste, and abuse. For example, the
revised directives include a requirement for small businesses to certify their
compliance with certain program requirements and another requirement allows
agencies to rely on the small business to certify that it has not received funding for
essentially equivalent work already funded by another agency. However, the revised
policy directives do not require agencies to take steps to verify the accuracy of the
information in these certifications. We have previously reported that a different small
business program that relied exclusively on self-certification of eligibility was
particularly vulnerable to fraud and abuse and that the self-certification process did


Page 8                                     GAO-13-70R: Small Business Research Programs
not prevent ineligible firms from receiving contracts. 13 Additionally, in our past work
we identified the conduct of unannounced site visits to locations where contracted
work is performed as an element of an effective fraud-prevention framework. 14 The
revised policy directives require agencies to ensure compliance with the terms of
funding agreements, but they do not specify how agencies should implement this
requirement. We have previously reported that instituting elements, such as
unannounced site visits, can help minimize the likelihood of fraud occurring while
maximizing the possibility of detecting fraudulent activity that may occur. 15

Because agencies have not yet implemented the requirements included in the
revised policy directives, it is too early for us to determine the effectiveness of these
requirements in helping agencies address the vulnerabilities in the program and
identify and prevent potential fraud, waste, and abuse. We plan to evaluate the
changes to the policy directives as part of our future reviews of fraud, waste, and
abuse in the SBIR and STTR programs.

SBA’s Process for Revising the Policy Directives Included Input from Key
Stakeholders

According to officials from SBA and participating agencies, SBA sought input from
key stakeholders when revising the SBIR and STTR policy directives. Starting in
January 2012, SBA met with the SBIR and STTR program managers at the 11
participating agencies and representatives from the Council of the Inspectors
General on Integrity and Efficiency’s Misconduct in Research working group to
discuss the changes to the policy directives, including changes to help prevent fraud,
waste, and abuse. In addition to attending these meetings, program managers and
representatives from the inspectors general working group provided comments on
multiple drafts of the revised policy directives. Program managers and members of
the Inspectors General working group said that they were satisfied with the process
SBA used to update the SBIR and STTR policy directives, particularly with the
amount of input that SBA requested from these stakeholders. Furthermore, we have
previously reported that early and frequent communication with stakeholders and
two-way communication that allows stakeholders to provide feedback can be an
effective strategy when implementing changes in a program. 16

Although SBA began working to incorporate changes to the policy directives
required by the act in January 2012, officials told us that the agency had begun
discussing fraud, waste, and abuse and potential changes to the directives with
SBIR and STTR program managers and representatives from the Inspectors

13
 GAO-12-697.
14
 GAO, Service-Disabled Veteran-Owned Small Business Program: Additional Improvements to
Fraud Prevention Controls Are Needed, GAO-12-152R (Washington, D.C.: Oct. 26, 2011) and
Hubzone Program: Fraud and Abuse Identified in Four Metropolitan Areas, GAO-09-519T
(Washington, D.C.: March 25, 2009).
15
 GAO-09-519T.
16
 GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).


Page 9                                        GAO-13-70R: Small Business Research Programs
General working group in August 2009. According to the SBA officials, the August
2009 hearing before the Senate Committee on Commerce, Science, and
Transportation led to several meetings and discussions about fraud, waste, and
abuse in the SBIR and STTR programs, which resulted in many of the ideas for
updates and revisions to the policy directives.

In addition to incorporating input from program managers and the inspectors general
working group before issuing the revised directives, SBA chose to solicit comments
from the public on the policy directives. Specifically, SBA published the revised
directives in the Federal Register, which started a 60-day public comment period
that ended on October 5, 2012. SBA was not required by the act to obtain public
comments on the revised directives; however, SBA officials chose to solicit
comments. The officials said they plan to incorporate the comments that they
receive into future revisions to the directives. In addition, SBA held two webinar
sessions to explain the changes to the revised policy directives and answer
questions from session participants on the changes to the policy directives. Partly on
the basis of questions asked at these sessions, SBA posted on its program website
a list of “frequently asked questions” and answers about the revised directives. This
list covers questions and answers on a variety of topics, including the new fraud,
waste, and abuse requirements.

Agencies’ Plans to Implement New Requirements in the Policy Directives Vary,
and Officials Do Not Anticipate Implementation Challenges

Agencies that participate in the SBIR and STTR programs vary in their plans to
implement the new fraud, waste, and abuse requirements in the policy directives;
however, none of the agencies anticipate challenges in doing so. The variation in the
agencies’ plans is due to differences in the tools that agencies already have in place
for identifying and preventing potential fraud, waste, and abuse, as well as
differences in when they plan to complete implementation of the changes to the
policy directives. Agency officials do not anticipate significant challenges in making
the changes, either because of the tools they already have in place or because the
changes seem straightforward.

Agencies’ Plans to Implement New Fraud, Waste, and Abuse Requirements Vary

Participating agencies vary in their plans to implement new requirements designed
to help agencies identify and prevent potential fraud, waste, and abuse in the
revised SBIR and STTR policy directives. The agencies vary in part because some
agencies already have some tools in place that address or partially address the
requirements included in the revised policy directives. As discussed below, these
tools were either in place before SBA began revising the policy directives or were
put in place while SBA was in the process of revising the directives. However, our
analysis of the requirements in the revised policy directives and the tools agencies
have in place indicates that each of the agencies still needs to modify some existing
tools and implement additional tools to meet all of the new requirements.

Even before SBA began revising the policy directives in January 2012, each of the
11 participating agencies already had in place some tools that addressed or partially


Page 10                                  GAO-13-70R: Small Business Research Programs
addressed the new fraud, waste, and abuse requirements in the revised policy
directives. These tools differed among agencies, in part because of the flexibility
each agency has in designing and managing its own SBIR and STTR programs. For
example, before SBA revised the directives, EPA required small businesses to
certify compliance with eligibility requirements when they received their award and
when they submitted the final report on their research—as is now required in the
revised policy directives; the previous versions of the policy directives required small
businesses to certify compliance only at the time of the proposal. Additionally, with
the revisions to the policy directives, agencies are now required to ensure
compliance with program eligibility criteria and terms of funding agreements. At least
two agencies had in place tools that addressed or partially addressed this
requirement before SBA issued the revised directives. For example, to help ensure
they are complying with program regulations and the terms of their funding
agreements, NASA has performed “virtual site visits” through the internet for certain
new award recipients, and the Department of Education has held quarterly meetings
with each of its SBIR award recipients.

While agencies were not required to do so, 8 of the 11 agencies began to use
additional tools to address expected requirements in the revised directives between
the time SBA began drafting the revised directives in January 2012 and the time
SBA issued them in August 2012. For example, six of the participating agencies that
had begun to use additional tools—the National Institute of Standards and
Technology within the Department of Commerce, the Department of Homeland
Security, the Department of Transportation, DOD, EPA, and NASA—updated their
program websites to include information on how an individual can report fraud,
waste, and abuse while SBA was revising the directives. Program managers at the
three remaining agencies that decided to wait until SBA issued the revised policy
directives before implementing the new fraud, waste, and abuse requirements—the
departments of Agriculture, Education, and Health and Human Services—indicated
that they chose to wait until SBA issued the final policy directives because they
wanted to avoid making unnecessary revisions to agency procedures if there were
significant changes between the draft and final directives. Table 1 shows when the
agencies began to use additional tools designed to help agencies identify and
prevent potential fraud, waste, and abuse, as well as their planned time frames for
completing implementation of the requirements in the policy directives.




Page 11                                   GAO-13-70R: Small Business Research Programs
Table 1: Participating Agencies’ Approaches to and Time Frames for Implementing New Fraud, Waste,
and Abuse Requirements in the SBIR and STTR Policy Directives

Agency                 Agency began                 Agency waited until               Anticipated time frame for
                       implementing changes         SBA issued revised             completing implementation of
                       before SBA issued            policy directives to                                changes
                       revised policy               begin implementing
                       directives                   changes
                                                                                                                       a
Department of                                                   X
Agriculture
                                                                                                                       b
Department of                      X
Commerce
                                                                                                                       a
DOD                                X
                                                                                                                       c
Department of                                                    X                    Before next SBIR solicitation
Education
                                                                                                                       a
Department of                      X
Energy
                                                                                                                       a
Department of                                                    X
Health and Human
Services
                                                                                                                       a
Department of                      X
Homeland Security
                                                                                                                       c
Department of                      X                                                  Before next SBIR solicitation
Transportation
                                                                                                                       c
EPA                                X                                                  Before next SBIR solicitation
NASA                               X                                                  No later than October 1, 2013
                                                                                                                       d
National Science                   X
Foundation

Source: GAO analysis of agency responses.
a
 Agency was in the process of determining the time frames for implementing the new fraud, waste, and abuse
requirements at the time of our review.
b
 The National Institute of Standards and Technology plans to implement the new fraud, waste, and abuse
requirements before its next SBIR solicitation, which is expected to be issued in mid-November 2012. The
National Oceanic and Atmospheric Administration was in the process of determining the time frames for
implementing the new fraud, waste, and abuse requirements at the time of our review.
c
 Agencies differ in when they expect to issue their next SBIR solicitations. The Department of Education expects
to issue its solicitation for one organization within the agency that participates in the program by the end of 2012
and the other organization that participates in the program early in 2013.The Department of Transportation
expects to issue its solicitation in December 2012. EPA expects to issue its solicitation in March 2013.
d
 Agency was awaiting guidance on the time frames for implementing the new fraud, waste, and abuse
requirements from SBA at the time of our review.

As shown in table 1, agencies also vary in when they plan to complete
implementation of the new fraud, waste, and abuse requirements. While the policy
directives took effect immediately, not all of the changes are expected to be
implemented immediately, according to SBA. For example, SBA set a goal of
October 1, 2012, for agencies to include information on reporting fraud, waste, and
abuse on their program websites and in their solicitations and to begin requiring
awardees to certify they are complying with specific program requirements during
the life cycle of the funding agreement. As of October 4, 2012, 10 of the 11
participating agencies had implemented or had begun implementing these
changes. 17 Similarly, SBA set a goal of October 1, 2013, for agencies to fully
implement their life cycle certification processes. As shown in table 1, three
agencies—the departments of Education and of Transportation and EPA—plan to
17
    A Department of Agriculture official said that the agency had not yet implemented the changes.


Page 12                                                 GAO-13-70R: Small Business Research Programs
implement all of the required changes before they issue their fiscal year 2013
solicitations for SBIR proposals, and NASA plans to implement all of the changes no
later than the beginning of fiscal year 2014. However, as of August 2012, most of the
program managers were in the process of determining time frames for implementing
the changes to the revised policy directives.

Agency Officials Do Not Anticipate Significant Challenges to Implementing Most
Changes to the Revised Policy Directives

Program managers at the 11 participating agencies told us that they do not
anticipate significant challenges to implementing most of the new fraud, waste, and
abuse requirements for two reasons. First, program managers told us that they
already have some tools in place that either meet or require minimal modification to
meet requirements in the revised policy directives. For example, according to the
National Science Foundation program manager, the only change needed to the
agency’s existing certification process, which has been in place for several years,
will be a revision to the language on the certification form because the agency
already requires award recipients to certify their compliance with program
requirements at several points throughout the life cycle of the funding agreement.
Second, some program managers told us that some changes that agencies have not
yet implemented seem straightforward. For example, NASA program officials stated
that they have not yet published examples of successful prosecutions of fraud,
waste, and abuse on their SBIR and STTR website, but that posting this information
should be easy because NASA has had several such successful prosecutions.

While program officials do not anticipate significant challenges in implementing most
of the changes to the policy directives, agencies have sought guidance and
information from several sources, including those listed below, on how to minimize
potential challenges.

   •   The agencies’ own inspectors general: Several of the participating agencies
       have worked with or plan to work with their Office of Inspector General to
       implement the new fraud, waste, and abuse requirements. Some program
       managers we spoke with stated that enhanced coordination with their Office
       of Inspector General should generate benefits in identifying fraud, waste, and
       abuse in the SBIR and STTR programs. For example, the Department of
       Transportation’s SBIR program manager and officials from the department’s
       Office of Inspector General met about a month before SBA issued the revised
       policy directives to discuss anticipated changes to the revised directives,
       particularly changes to help agencies identify and prevent potential fraud,
       waste, and abuse. The program manager told us that representatives from
       the Office of Inspector General provided information and examples that the
       program manager used to implement some of the requirements in the revised
       directives, including updating the agency’s SBIR website and solicitations with
       information on reporting fraud, waste, and abuse.
   •   The Council of the Inspectors General on Integrity and Efficiency’s
       Misconduct in Research Working Group: Representatives from each
       participating agency’s Office of Inspector General attend this working group.
       Officials told us this working group provided a forum for the members to share


Page 13                                  GAO-13-70R: Small Business Research Programs
       information and best practices related to identifying and preventing fraud,
       waste, and abuse in the SBIR and STTR programs. The working group also
       sponsored a conference in 2011 on fraud, waste, and abuse in the programs
       that officials told us was attended by representatives from the Offices of
       Inspectors General and program officials.
   •   Other agencies with experience using tools to identify and prevent fraud,
       waste, and abuse: Some program officials told us they obtained information
       about implementing the requirements in the revised policy directives from
       other agencies that already use some of the tools. For example, program
       officials from the Department of Energy and the National Oceanic and
       Atmospheric Administration within the Department of Commerce met with
       National Science Foundation program officials on their life cycle certification
       process to understand and implement a similar certification process at their
       own agencies.
   •   SBA working groups: Officials anticipate that two SBA-sponsored working
       groups will be useful in sharing information on and best practices for
       implementing all of the changes to the policy directives, including the new
       fraud, waste, and abuse requirements. One group is the SBIR and STTR
       program managers group, which meets quarterly to discuss a variety of
       issues that affect the SBIR and STTR programs. SBA officials and program
       managers expect that this group will be used to discuss experiences in
       implementing changes to the policy directives, among the other issues that
       the group discusses. The second group, which SBA recently established, is a
       separate implementation working group comprising SBIR and STTR program
       managers that will focus exclusively on issues related to implementing the
       revised policy directives, including the new fraud, waste, and abuse
       requirements. Some program managers expect that this group will provide a
       forum to discuss and resolve questions about implementing the revised policy
       directives.

While program officials are in the process of implementing the new fraud, waste and
abuse requirements, some program officials identified potential limitations to certain
tools that are currently available for this purpose. Specifically, the revised policy
directives require agencies to develop policies and procedures to avoid funding
essentially equivalent work already funded by another agency, also referred to as
“duplicate” awards. All of the agencies already have in place some procedures to try
to avoid funding duplicate awards, such as searching Tech-Net or other agency
databases or requiring small businesses to certify that they have not submitted the
same proposal to another agency. However, officials, including program managers
and some representatives from the Office of the Inspector General at most of the
participating agencies, raised three key issues about using Tech-Net as currently
implemented to identify duplicate awards.

   •   First, officials stated that Tech-Net does not always include up-to-date award
       information. These officials told us that before the revision to the policy
       directives, agencies were required to update award information in Tech-Net
       annually. As a result, information on recent awards for some agencies might
       not be included in Tech-Net when a program manager searched the database
       for duplicate awards. Without up-to-date information on awards, program


Page 14                                  GAO-13-70R: Small Business Research Programs
       managers could not ensure that a proposal they were considering funding
       had not recently received an award from another agency. The revised policy
       directives require agencies to update most award information in Tech-Net
       quarterly, rather than annually.

   •   Second, according to officials, Tech-Net contains incomplete or inaccurate
       data for some awards. For example, program managers at two agencies told
       us they found errors in their own agencies’ data when reviewing the data in
       Tech-Net within the past year. Similarly, some program managers stated it
       can be difficult to determine whether small businesses with similar names are
       the same company or different companies. Officials expect that the new
       Company Registry database within Tech-Net, which SBA expects to
       implement after finalizing the updated eligibility requirements for the programs
       in early 2013, will help address this issue.

   •   Third, officials told us that the previous interface used to access Tech-Net had
       limited search capabilities, making it difficult for agencies to search for
       potentially duplicative awards in the system. Within the past year, SBA
       installed a new interface to access Tech-Net, referred to as “SBIR.gov.”
       Officials said they have not yet had much opportunity to use the new interface
       to search for duplicate awards but expect that the changes will make such
       searches easier.

It is too early to assess the effectiveness of the recent and planned changes to
Tech-Net and other tools designed to help agencies identify and prevent potential
fraud, waste, and abuse in the SBIR and STTR programs. We plan to further review
these tools in our future work on fraud, waste, and abuse in the programs, as
required by the act.

Agency Comments and Our Evaluation

We requested comments from SBA and the 11 participating agencies on a draft of
this report. In its written comments, reproduced in enclosure I, SBA generally agreed
with the information and findings in our report. SBA believed that we suggested in
the report that self-certification for SBIR and STTR program eligibility is not sufficient
and SBA should require agencies to verify the information in the self certifications.
We note in the report that it is too early for us to assess the effectiveness of the new
fraud, waste, and abuse requirements and we do not draw any conclusions in this
report about whether the self certification requirements for SBIR and STTR program
eligibility are sufficient. As we reported, we plan to evaluate the changes to the
policy directives in our future reviews. The Departments of Commerce, Education,
and Homeland Security and the National Science Foundation provided technical
comments that we incorporated, as appropriate. The remaining agencies—the
Departments of Agriculture, Energy, Health and Human Services, and
Transportation; DOD; EPA; and NASA—had no comments on our draft report.

                                         -----




Page 15                                    GAO-13-70R: Small Business Research Programs
We are sending copies of this report to the Secretaries of Agriculture, Commerce,
Defense, Education, Energy, Health and Human Services, Homeland Security, and
Transportation; the Administrators of EPA, NASA, and SBA; the Director of the
National Science Foundation; the appropriate congressional committees; and other
interested parties. In addition, this report is available at no charge on the GAO
website at http://www.gao.gov/.

If you or your staff have any questions about this report, please contact me at (202)
512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report. Key
contributors to this report were Tim Minelli, Assistant Director; Hilary Benedict;
Antoinette Capaccio; Jennifer Costello; Cynthia Norris; and Rajneesh Verma.




Frank Rusco
Director
Natural Resources and Environment




Page 16                                  GAO-13-70R: Small Business Research Programs
List of Committees

The Honorable Mary L. Landrieu
Chairman
The Honorable Olympia J. Snowe
Ranking Member
Committee on Small Business and Entrepreneurship
United States Senate

The Honorable Ralph M. Hall
Chairman
The Honorable Eddie Bernice Johnson
Ranking Member
Committee on Science, Space, and Technology
House of Representatives

The Honorable Sam Graves
Chairman
The Honorable Nydia M. Velázquez
Ranking Member
Committee on Small Business
House of Representatives




Page 17                              GAO-13-70R: Small Business Research Programs
Enclosure I: Comments from the Small Business Administration




Page 18                            GAO-13-70R: Small Business Research Programs
(361395)


Page 19    GAO-13-70R: Small Business Research Programs
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