Small Business Innovation Research and Small Business Technology Transfer programs attract billions of dollars in federal spending. These flagship Small Business Administration programs, known as SBIR and SBTT, are also rife with fraud. To find out why and how to reduce it, Tom Temin and Federal Drive spoke with Rebecca Shea, Director of Forensic Audits at the Government Accountability Office.
Tom Temin, this is you. And, please briefly review the contents of SBIR and the Small Business Technology Transfer Program. And actually, it’s not just the SBA, these things are being replicated across government, right?
Rebecca Shea Yes, that’s right. So these are programs that have been around for quite some time. SBIR was started 42 years ago in 1982 and STTR dates back to 1992. So 10 years later STTR was launched. And, as you said, we give awards to small and medium-sized enterprises to develop their research and development. And clearly there is something for the government. Therefore, government agencies have the necessary projects to meet their research and development needs and technology areas. So they award these grants, contracts, cooperation agreements. But it also benefits the general public in two important ways. They support American innovation, and it’s always good for the United States to stay on the cutting edge of research and development. It also supports the development of small businesses that are important to the U.S. economy. So this is kind of a win-win program. And here are a couple of quick examples of how this works. So the Department of Defense (DoD) and Department of Health and Human Services (HHS) say they need a way to quickly identify airborne microorganisms and aerosolized threats in public spaces. So they put out a call for ideas and projects in this area in a completely different field: the Department of Transport. They are looking for bridge inspection technology that can scan passing traffic without having to stop the flow. And for people in the DMV, DC, Maryland, and Virginia areas, we really appreciate that the subways are safe, too, and we don’t have to wait or stop on bridges when we take the subway or commute to work. And let’s get back to how they are managed. Yes, the SBA is the main entity, the Small Business Administration, and they oversee the program, but there are 11 participating agencies that administer and deliver the awards. And, as I said, they do that in the form of grants, contracts, cooperation agreements.
Tom Temin Okay. So GAO examined more than 10,000 awards over a five-year period. And we found that nearly 1,000 of them had risk indicators that indicated they might not receive a grant, cooperation agreement or contract. Please tell me more details.
Rebecca Shea Yes. Therefore, data analysis was one of the four key pieces of work we did to examine the risks of fraud, waste, and abuse in this program. We then looked at six years of award data. Therefore, there will always be some delay in data collection or reporting from 2016 to 2021. That’s why it was the previous year. And then we looked at compliance risks, the five compliance risks. These are what the program requires. And they should be fulfilled. And I found a flag that suggests it’s probably the case. And many other risk indicators, not necessarily compliant, but things that agencies should be aware of. And I want to take a closer look, probably because of the flag. So, for example, on the compliance side, we looked at the size of the business. This is a small business program, so your company must have an average of 500 employees or fewer. And we found some anecdotal evidence that companies with more than 500 employees appear to be receiving these awards. These awards total approximately $445 million. Other areas include hiring PIs. So we want to make sure that the principal investigators on these awards are working full time. We want them to focus on the project and ensure they bring value to the government and the project. And when we looked at the wage data, we found that a significant number of PIs were making multiple paychecks to different organizations and different entities over the period. We also considered foreign ownership. In other words, research and development projects for U.S. businesses must be conducted by U.S. companies. We considered equivalent work. We don’t want the federal government to pay for the same work across different agencies. Next, we also looked up the address of the facility. This address must be a valid address. It must be compatible with U.S. objectives. And we found risks in all of these areas, especially in some areas.
Tom Temin Well, I think there’s a lot of factors that add up that lead to real money and it becomes clear. I’m talking with Rebecca Shea. She is the Director of Forensic Audit at the Government Accountability Office. And just a detailed question. Have you come across cases where a particular organization has received multiple awards, agreements or contracts from different agencies for the same work they are trying to do on the streets?
Rebecca Sher Actually, it was. And that’s one of the things I want to emphasize about these awards. There are 11 participating institutions and companies can receive awards from multiple institutions. Therefore, risks do not only exist within a single institution. May exist across institutions. The same applies to duplicate awards. We discovered approximately $445 million worth of awards related to potentially duplicate work that were funded across 10 different agencies.
Tom Temin Yes. Once again, real money. Now, to get around this, is this an issue with the SBA? Is it an issue with the agency that administers it, or is there an issue with both? Who did your recommendation go to?
Rebecca Shea Yes, both. Managing fraud, waste, and abuse is everyone’s problem. The SBA has a number of initiatives to help agents manage fraud risk. And we’ve made recommendations that align with some of the existing processes that are already in place. For example, they issued this policy directive that includes 10 minimum standards for agencies to do certain things to manage the threat of abuse, such as fraud, waste, and training practices. It was discovered that two institutions were not providing the necessary training to applicants and award recipients. So we encouraged them to do that training. However, the SBA also holds monthly program manager meetings to discuss fraud risks and other issues, as well as successful management strategies. They list fraud cases on their website not only as a deterrent, but also to help government agencies identify these risks. And there were things we recommended they could do to strengthen their efforts in that area. For example, we looked at 37 different fraud schemes and found that some of the schemes identified by the SBA were not identified or posted on the website. So we looked at several different sources and recommended ways to better identify and post scams. This is because it has a deterrent effect. We recommended providing guidance to government agencies on conducting fraud risk assessments to support fraud and risk management. Additionally, we recommended two recommendations to improve data quality. So the agency uses the company’s registration data and award data to perform some of the compliance checks I mentioned, such as duplicate work. We found many award abstracts that were incomplete or blank. And if you don’t have an abstract, how can you tell if you’re awarding duplicate work? Therefore, we need to ensure that our data is more complete and reliable so that government agencies can carry out those checks.
Tom Temin Sometimes the amount of work to make sure all the I’s are dotted and the T’s are crossed seems to exceed the capabilities of the people doing it.
Rebecca Shea Yeah, that’s a good point. And that’s one of the reasons why we tend to try to do data analysis tests that are proofs of concept. We did not use hard-to-find or difficult-to-use data or Postal Service data systems for our prize management data. A basic check of registry data available to all institutions. These are how agencies identify fraud risks, prioritize resources, and prioritize who to check out. Because you can’t see everyone. This group, which we focused on, will be giving away 10,000 awards. However, if you can identify where these flags or multiple flags are present, you can prioritize resources there for further review and investigation.
Tom Temin: By the way, did you also audit the appropriateness of the awards? So were they really for basic research that could be used by the government, or were they for prototyping, which would be another trading authority, a completely different structure?
Rebecca Shea Yes. Therefore, we did not consider the validity of the award. We were actually looking at some of the award-winning companies, and what are their fraud and compliance metrics?
Tom Temin and did the SBA and also made recommendations to the Department of Agriculture and the Department of Defense. Did they all say, “Yes, that’s right, we want to follow suit”?
Rebecca Shea They were. All have reported that they generally agree with our recommendations and have already begun taking action to address them.
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