NASA OIG Finds Serious Problems With SBIR Program

The NASA Office of Inspector General’s audit of NASA’s Small Business Innovation Research program has turned up a number of problems, including millions of dollars of unallowed expenses by contractors and weak fraud detection and prevention controls.

Results

Our review found that while NASA’s initial choice of SBIR award recipients appeared objective and merit-based, its oversight and monitoring of awards was deficient. Specifically, SBIR awards in 2008 contained an estimated $2.7 million in unallowable and unsupportable costs, including travel and equipment expenses. In addition, we found that NASA officials lacked adequate procedures to ensure SBIR applicants’ past performance had been considered when selecting recipients of approximately $85.7 million in “Phase 2” SBIR funds. Federal acquisition rules require consideration of past performance. Finally, NASA has not implemented appropriate internal controls to prevent fraud and abuse in contract awards. Consequently, some SBIR award recipients may have received multiple SBIR awards from different Federal agencies for the same research or NASA may have received highly questionable research products for its contract money.

Technical Proposals Were Appropriately Evaluated. SBIR Program officials established effective internal controls to ensure that evaluations of SBIR technical proposals were merit-based and objective. Program officials established a clear scoring methodology for evaluating technical proposals and procedures for ensuring evaluations were objective. In addition, Program officials engaged Mission Directorate and Center personnel in SBIR activities to ensure the infusion of SBIR research into NASA projects.

NASA Needs Better Controls to Prevent Unallowable and Unsupported Costs. A significant percentage of SBIR contracts awarded by NASA in 2008 contained unallowable and unsupported costs. We reviewed a randomly selected sample of 67 SBIR contracts and found that 17 (25 percent) included unallowable or unsupported costs. Specifically, we found unallowable travel and equipment costs, unallocable costs, and unsupported costs in the sample of SBIR contracts we examined to include:

  • Unallowable travel costs. NASA awarded contracts with unallowable travel costs totaling $9,255 on 4 of the 36 (11.1 percent) Phase 1 SBIR awards we reviewed.
  • Unallowable equipment costs. NASA awarded contracts with unallowable equipment costs totaling $234,354 on 6 of the 67 (8.9 percent) awards we reviewed.
  • Unallocable costs.3 NASA awarded $167,014 in unallocable direct costs on 7 of the 67 (10.4 percent) awards we reviewed.
  • Unsupported costs. NASA awarded contracts containing $117,932 in unsupported costs in 2 of the 67 (3 percent) awards we reviewed.

Based on our statistical projections, we estimate that NASA awarded contracts with $2.7 million in unallowable and unsupported costs during program year 2008 alone.

We determined that NASA awarded these SBIR contracts with unallowable and unsupported costs primarily because contracting officers and technical evaluators did not perform adequate due diligence in reviewing applicants’ proposed costs. If NASA took the corrective actions outlined in this report to address these unallowable and unsupported costs, we estimated that the Agency could put $13.3 million in SBIR funds to better use during program years 2010 through 2014.

NASA Needs to Consider Past Performance When Considering SBIR Proposals. Our analysis of randomly selected contracts also found that SBIR Program managers did not appropriately consider past performance information in evaluating and selecting the Phase 2 awards. The Office of Federal Procurement Policy states that “the use of past performance as a major evaluation factor in the contract award process is instrumental in making best value selections.” In addition, Federal Acquisition Regulations require agencies to use past performance information in awards of more than $100,000 to ensure the selected proposal represents the best value (Phase 2 SBIR awards have a maximum value of $750,000). However, NASA policies and procedures do not require consideration of past performance information in proposal evaluations and award selections. Evaluating this factor in future SBIR award selections will enable the Agency to better predict the quality of future work and help achieve Program goals.

NASA Needs to Improve Its Ability to Prevent and Detect Fraud in the SBIR Program. In analyzing investigations conducted by NASA OIG and others, we found that SBIR award recipients received multiple SBIR contracts for essentially the same research and provided duplicate deliverables or questionable research products. Some recipients also violated Small Business Administration (SBA) rules, such as when actual effort and costs differed materially from proposed effort and costs, contractors used SBIR funds for noncontract purposes, and technical personnel violated conflict of interest policies.

During our review, we identified 24 internal controls that, if implemented correctly, would help prevent and detect SBIR fraud and abuse. Under the Federal Managers Financial Integrity Act and Office of Management and Budget requirements, agency managers are required to establish effective internal controls. When we examined NASA’s SBIR Program, we found Agency managers had not established 14 of the 24 controls (58 percent). In particular, we found that NASA had not implemented 9 of 19 controls we identified as critical in preventing and detecting fraud. Consequently, the SBIR Program remains vulnerable to fraud and abuse. For example, we performed two data mining tests to identify firms that might have received duplicate awards or might have submitted duplicate deliverables and we identified potential instances of duplicate awards and duplicate deliverables that have a combined value of approximately $28.6 million.

Footnotes

3 FAR 31.201-4, “Determining allocability,” states that a “cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship” – i.e., a cost is allocable to a Government contract if it (a) is incurred specifically for the contract; (b) benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or (c) is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.