Small Business Administration: Export Promotion Grant Program Should Better Ensure Compliance with Law and Help States Make Full Use of Funds

Congress established STEP in 2010 to increase small business exports. Through STEP, SBA has awarded about $139 million in grants to state trade offices, which in turn facilitate small business export activities, including participation in trade missions and attendance at trade shows. Congress reauthorized STEP in 2016. GAO was asked to review SBA's management of the program.

This report examines the extent to which (1) SBA's STEP grants management process provides reasonable assurance of compliance with selected requirements of applicable law, and (2) SBA has taken steps to address challenges states report in using grant funds to achieve program goals. GAO reviewed the program's authorizing legislation and federal and agency guidance on grants management, analyzed SBA program data, and interviewed SBA officials. GAO also conducted semi-structured interviews with a non-generalizable sample of 12 of the 40 states that received STEP grants in fiscal year 2015, the most recent year for which complete data were available. GAO selected these states on the basis of their low grant fund use rates.

The Small Business Administration's (SBA) management of the State Trade Expansion Program (STEP) does not provide reasonable assurance of compliance with some legal requirements. Specifically, the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) requirements for STEP include:

Proportional distribution requirement. SBA's Office of International Trade (OIT) must distribute grant funds so that the total amount awarded to the 10 states with the highest percentage of eligible small businesses does not exceed 40 percent of the program's appropriation that year.

Total match requirement. States must provide a 25 or 35 percent non-federal match to the federal grant amount.

Cash match requirement. A state's match cannot be less than 50 percent cash.

GAO found that, while OIT has a process to meet the distribution requirement, it does not have a process for documenting that states have met the total match requirement before grant closeout, and does not have a process to determine whether states are meeting the cash match requirement. Without such processes, SBA cannot be reasonably assured that states are contributing per the law's requirements.

GAO found that, while OIT has made changes to STEP in response to states' feedback, officials from states with low grant use described ongoing challenges with the program that affect their ability to fully use funds. These challenges include compressed application and award timelines, administrative burden, and poor communication. SBA has not adequately assessed risks to the program, including the risk to achieving program goals posed by some states' low grant fund use rates. Without such an assessment, OIT's ability to support U.S. exporters may be diminished. Further, SBA has not effectively facilitated sharing best practices among states. By doing this, SBA could help states make full use of funds to achieve the program's goals.

GAO is recommending that SBA develop processes to ensure compliance with legal grant matching fund requirements, take steps to assess risks to program goals from low grant fund use rates, and enhance the sharing of best practices among states receiving the grant. SBA concurred with all of the recommendations.

Given the importance of small businesses and exports in supporting U.S.  economic growth, Congress, in 2010, established a 3-year pilot grant  program called the State Trade and Export Promotion Grant Program  (STEP), within the Small Business Administration (SBA). Congress  reauthorized the program in 2016 to end the pilot phase and continue  funding for state programs that facilitate export opportunities for small  businesses. STEP is currently authorized through fiscal year 2020. In the  years since STEP was first authorized, SBA has awarded hundreds of  STEP grants, and these grants have provided about $139 million of  support to almost every U.S. state as well as several territories. According  to surveys conducted by State International Development Organizations  (SIDO), a national group that supports state trade offices, states that  have received support from the program report that their small  businesses have been able to successfully conduct export activities as a  result of this program. Many states report that STEP is important to their  export promotion operations. However, the SBA Office of Inspector  General (OIG) has raised concerns related to the management of the  program, including the reliability of financial and performance information,  the effectiveness of the program in reaching its goals, and SBA’s  processes for administering and monitoring grants.

You asked us to review SBA’s management of the STEP program. This  report examines the extent to which (1) SBA’s STEP grants management  process provides reasonable assurance of compliance with selected  requirements of applicable law, and (2) SBA has taken steps to address  challenges states report in using grant funds to achieve program goals.

To address these objectives, we analyzed data on award amounts for  fiscal years 2015-2017, matching funds required, and matching funds  provided. We reviewed the Small Business Jobs Act of 2010 and the  Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), the  statutes that established and reauthorized STEP, respectively. We also  reviewed the Office of Management and Budget’s (OMB) federal grant  guidance, Uniform Administrative Requirements, Cost Principles, and  Audit Requirements for Federal Awards (Uniform Guidance), and GAO’s  Standards for Internal Control in the Federal Government. In addition, we  analyzed SBA documentation, including sample grant files, application  forms, application scoring forms, grant reporting forms, and standard  operating procedures for managing SBA grants. We also interviewed  officials from SBA’s Office of International Trade (OIT), which is  responsible for making the awards and administering the program; the  Office of Grants Management (OGM), which is responsible for managing  grants across SBA and officials from SBA’s OIG to understand their work  on the program.

To identify the states’ challenges in fully using the grant funds, we spoke  with officials from 12 of the 40 states that received a grant in fiscal year  2015, the most recent year for which complete grant expenditure data  were available when we began this work. We selected these states  because they did not use 25 percent or more of their award in that year.  We selected this threshold after analyzing the data from that year and  determining that these states accounted for almost 70 percent of the  unused STEP grant funds in fiscal year 2015. This group of 12 states  constitutes a nongeneralizable sample, and as such, the challenges that  these states reported may not be common to all states receiving a STEP  grant. To report the challenges that states identified in fully using the  funds, we developed categories based on the responses obtained after  two GAO coders independently coded the content of the 12 semi- structured interviews. The coders had an initial agreement rate between  them of 90 percent, and differences were arbitrated and resolved by a  knowledgeable GAO reviewer. To identify steps SBA has taken to  address the challenges these states reported, we reviewed agency  documentation and interviewed OIT officials.

We conducted this performance audit from September 2017 to March  2019 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.

The purpose of STEP is to help small businesses develop their export  capacity. Congress initially established STEP in the Small Business Jobs  Act of 2010, and later reauthorized the program through fiscal year 2020  and renamed it the State Trade Expansion Program in TFTEA. According  to SBA officials, the goals of the program include increasing  the number of small businesses exporting,  the number of small businesses exploring significant new trade  opportunities, and  the value of exports for small businesses already engaged in  international trade.

SBA implements STEP and has other key roles in efforts to promote U.S.  exports, including providing training, counseling, and export financing for  small businesses. Within SBA, OIT has responsibility for managing export  promotion programs, including STEP. OGM has responsibility for  administering grants across the agency according to SBA’s standard  operating procedure for grants management. This responsibility includes  oversight of financial and compliance-related aspects of issuing awards,  and recording and tracking relevant information in SBA’s grants  management system.

According to OIT officials, each state that receives a STEP grant submits  quarterly reports to OIT that provide information on the amount of the  grant expended and progress made toward the performance targets.  Program managers within OIT then review the quarterly reports and  provide feedback to each state, including with respect to progress toward  performance targets. OIT officials and states that we interviewed told us  that if a state reports not meeting its performance targets in a particular  quarter, OIT program managers then work with the state to establish an  action plan to meet targets in future quarters. At the end of each grant  performance period, OIT program managers work with OGM to finalize  and close the state’s grant file. This procedure includes saving  information on final performance data, the total amount expended, and  the use rate, which is determined by dividing the amount expended by the  amount awarded.

Beginning in fiscal year 2011 and through fiscal year 2018, Congress has  appropriated a total of $139.4 million for STEP, and SBA has awarded  about $139.1 million, or almost 99.8 percent of the appropriated total.  Table 1 shows the amounts appropriated and awarded, and the number  of awards for each grant cycle from fiscal years 2011 to 2018.

Every state government conducts some export promotion activities. State  trade offices, which conduct these activities, can be housed in various  state entities, including governors’ offices, state departments of  commerce, universities, world trade centers, and state departments of  economic development. As we have previously reported, state trade  offices often offer export promotion services similar to those offered by  certain federal agencies; in addition to SBA, these include the  Department of Commerce and the Export-Import Bank. State trade  offices often have both domestic and international staff; domestic staff are  typically state employees. According to data from the 2017 SIDO survey,  state trade offices had a median size of six employees, with a minimum of  one and a maximum of 18.

SBA awards STEP funds annually to state governments through a  competitive application process. According to SBA, the annual STEP  cycle begins with the funding opportunity announcement that SBA posts  on www.grants.gov. This announcement, which usually occurs in the  spring, indicates that the grant application is open and provides official  information (e.g., objectives, deadlines, eligibility, and reporting  requirements) about STEP. Once the announcement is posted, eligible  states and territories may apply for a STEP grant during the application  period.

When a state trade office applies for a STEP grant, its application outlines  any intended activities and establishes performance targets within each of  the activities for the fiscal year or period of the grant. For example, the  performance targets detailed in the application can include the state’s  estimate of the number of businesses that will apply for and receive  funding to attend various international trade show exhibitions. Currently,  all 50 states, the District of Columbia, the Commonwealth of Puerto Rico,  the U.S. Virgin Islands, Guam, the Commonwealth of the Northern  Mariana Islands, and American Samoa are eligible to apply for STEP  grants. Independent technical experts and OIT program managers score  states’ applications, generally during late spring and summer. OIT then  selects grant recipients and notifies states of their award status in  September.

If a state receives a STEP grant, its trade office provides the funds to  local small businesses through an application process. The funds are  intended to support the businesses’ export activities. Figure 1 shows the  process for awarding and distributing STEP grant funds.

Once small businesses receive the STEP funding, they can use the  money for a variety of export-related purposes. These purposes are  outlined in TFTEA. Figure 2 shows the allowable uses of STEP grant  funds.

In fiscal years 2015-2017, SBA awarded a total of about $54.1 million; 40  to 44 states received a STEP grant each year. Over this time period, the  median grant amount was $373,000, with a minimum of about $115,000  and a maximum of $900,000. Figure 3 shows the total award amounts by  state for fiscal years 2015-2017.

The SIDO survey, conducted annually, also asks member states about  the STEP grant and how important it is to their export promotion activities.  In recent years, most states responding to this question have indicated  that the grant plays a key role in supporting such activities, even though  the grant does not typically constitute a majority of the budget. In the  three surveys conducted between 2015 and 2017, more than 80 percent  of responding states, on average, said that the grant was “extremely” or  “very” important each year. In these same surveys, about 60 percent of  responding states, on average, said that the grant constituted less than  half of their budget.

SBA’s STEP Grants Management Process Does Not Provide Reasonable Assurance of Compliance with Some Requirements of Applicable Law

SBA’s STEP grants management processes do not provide reasonable  assurance that STEP grant recipients meet some TFTEA requirements  before the grant is closed out. OIT does have a process in place to  comply with the “proportion of amounts” clause of STEP’s authorizing  statute, which caps at 40 percent the amount of grant funds distributed to  the 10 states with the largest numbers of eligible small businesses.  However, we found that OIT does not have processes sufficient to ensure  that states met TFTEA’s total and cash match requirements.

TFTEA contains specific requirements for STEP that SBA is responsible  for meeting. These requirements include the following:

Proportional distribution requirement. SBA must distribute grant  funds in a way that caps the amount of grant funds distributed to the  10 states with the largest numbers of eligible small businesses at 40  percent of the total amount awarded each year. This requirement  ensures that states with fewer eligible small businesses receive  funding, and is known as the “proportion of amounts” clause in the  law.

Total match requirement. States must provide a 25 percent or 35  percent non-federal total match to the federal grant amount.

Cash match requirement. A state’s match cannot be less than 50  percent cash.

SBA’s Process Provides Reasonable Assurance of Compliance with TFTEA’s Proportional Distribution Requirement

OIT has established a process for ensuring compliance with the TFTEA  requirement outlined in the “proportion of amounts” section of the law. As  discussed above, TFTEA requires that OIT determine the 10 states with  the highest percentage of eligible small businesses using the most recent  data from the Department of Commerce. OIT officials told us they review  data from Commerce’s Census Bureau that show the number of exporting  small and medium-sized businesses in each state, and then use these  data to determine the top 10 states. According to OIT officials, they use  the most recent data available, with an approximately 2- to 3-year lag in  the data. For example, to assess the top 10 states for the fiscal year 2017  cycle, OIT used data from 2014. Based on these data, the 10 states that  SBA identified for the fiscal year 2017 cycle received about 32 percent of  the total amount appropriated—which was below the 40 percent threshold  and therefore in compliance with the proportional distribution requirement.  OIT officials told us that they planned to use available 2016 Census data  to determine the top 10 states for the fiscal year 2018 award cycle and  then, after receiving applications, determine award amounts that would  comply with this requirement.

SBA’s Review Process Did Not Document that States Met TFTEA’s Total Match Requirement before Grant Closeout

TFTEA requires that states receiving a STEP grant provide matching  funds. The total match amount is typically 25 percent of the combined  state-federal total amount; as noted above, in a limited number of cases,  the state’s total match is 35 percent of this amount. Within either a 25  percent or 35 percent match amount, at least half of the total match must  be provided in the form of cash. Matching share requirements are often  intended to ensure local interest and involvement through financial  participation, and may also serve to hold down federal costs. If SBA  determines that a state is not providing sufficient matching funds, it can  withhold future reimbursement for expenses incurred under the grant.  Figure 4 illustrates the STEP funding proportions described above.

OIT’s process for reviewing the quarterly reporting that states provide on  STEP grants does not effectively document whether each state has met  the total match requirement outlined in TFTEA. To determine whether  each state is meeting the total match requirement, OIT program  managers monitor state spending over the grant period through quarterly  reporting that they require of the state grant recipients. At the end of each  grant period, OIT officials told us they review the information collected  through the quarterly reporting to determine whether the state met the  total match requirement based on the amount of federal dollars  expended. According to OIT data and officials, most states provide a  greater match than is required; for example, according to OIT  calculations, 75 percent of fiscal year 2015 states receiving the grant  provided more matching funds than required. However, we identified four  instances where, according to OIT’s documentation, one state reported  an insufficient total match in fiscal year 2015 and three states reported an  insufficient total match in fiscal year 2016. OIT’s documentation showed  that these four states failed to meet the required total matching funds by  about $76,000 combined over these 2 years of the program. SBA told us  they nevertheless closed these grants.

OIT officials provided several explanations for their actions. First, OIT  officials told us that of these four states, two submitted additional  information after the grant had closed, indicating that the states had met  the matching requirement. OIT officials stated that they did not verify the  accuracy of the total match information before grant closure because of  OIT staff error. With respect to the other two states, OIT initially stated  that it was working with OGM to verify that the total match requirement  had not been met, and how best to recover the funds. Subsequently, OIT  reported OGM’s determination that one state had in fact met the match  requirement, but that the other had not. In the case of the state that did  not meet the requirement, OGM determined that SBA had overpaid  federal funds to that state by about $19,600. However, after contacting  the state and looking into the matter further, OGM conducted a review of  quarterly reporting documentation for this state, and determined that the  state had in fact exceeded its required match by about $3,800.

Though all four of the states initially identified were eventually determined  to have met the total match requirement, SBA did not have an adequate  process in place to ensure documentation of a full match before grant  closeout. OIT officials stated in July 2018 that, as a result of our review,  they planned to implement a new quarterly process to focus on match  information specifically, which would ensure documentation of whether a  state meets its total match requirement before the grant is closed at the  end of each fiscal year program cycle. However, officials were unsure  what this process would entail.

Standards for Internal Control in the Federal Government states that  management should design control activities. By designing and  executing appropriate control activities, management helps fulfill its  responsibilities and address identified risks in the internal control system.  This responsibility applies to the entire process or life cycle of a  transaction or event from its initiation and authorization through its final  classification in summary records. In addition, management should  design control activities so that all transactions are completely and  accurately recorded. Such control activities can be preventive for  agencies, meaning that the activities prevent an agency from failing to  achieve an objective or address a risk. Without a process for effectively  documenting that the total match requirement has been met and  reviewing this documentation before grant closeout, SBA does not have  reasonable assurance that states have complied with TFTEA’s total  match requirement, and risks overpayment of federal funds.

SBA Does Not Monitor States’ Compliance with TFTEA’s Cash Match Requirement

OIT’s processes do not provide reasonable assurance that states have  complied with the TFTEA cash match requirement. As previously noted,  TFTEA requires that states provide at least half of the total match  requirement in the form of cash. TFTEA allows for the remaining half to  be any mixture of cash, in-kind contributions, and indirect costs.

OIT collects information about the types of expended matching funds,  including the proportion provided in cash; however, OIT does not have a  process in place to use this information to address risks to the program.  As part of their reporting, states submit on a quarterly basis a detailed  expenditure worksheet that contains information on the types of  expended matching funds, including cash and other types of allowed  contributions. OIT documents show that while proposed cash match  amounts are recorded, OIT does not track or analyze states’ expended  cash matching funds during or at the close of the grant cycle. OIT officials  told us that this information is included in the states’ quarterly detailed  expenditure worksheets, and therefore can be reviewed for compliance  on a case-by-case basis. However, OIT program officials told us that they  do not regularly analyze this information to determine what proportion of  the total match the cash portion constitutes. As such, SBA cannot  consistently determine whether states are meeting the TFTEA cash  match requirement, and risk closing out grants for which states have not  met the cash match requirement.

OIT does not have a process to monitor whether states are misusing  federal funds to offset the cash match requirement. The Uniform  Guidance defines matching funds as the portion of project costs not paid  by federal funds. Matching funds must be accepted when they are not  included as contributions for any other federal award, meaning that  federal funds cannot generally be used to meet the state match  requirement. The program’s authorizing legislation does not define  “cash,” and neither does the Uniform Guidance. OIT considers the  salaries of state trade office staff who work on administering the grant to  be a form of cash and, according to OIT officials, most states use state  staff salaries as their total match, including the required cash portion.

OIT does not have a process for ensuring that states reporting staff  salaries as their required cash match are not also using grant funds from  STEP to pay for portions of these same salaries. In our discussions with  officials from 12 states that received STEP grants in fiscal year 2015, 2  states reported using the grant to pay for portions of state staff salaries.  Both of these states told us that they also reported staff salaries to OIT as  their cash matching funds. Using part of the grant to pay for staff salaries  in this way could have the effect of reducing the match below the  thresholds mandated by TFTEA. When we asked OIT officials what  process they had in place to determine whether states were using staff  salaries paid for with STEP funds as part of their match amount, OIT  officials told us that they were not aware that STEP grantees had  engaged in this practice, and therefore did not monitor for it. In order to  determine whether this was happening, officials stated that they would  need to inspect each state’s grant files on a case-by-case basis. In  previous years, OIT has hired a contractor to select samples of and  examine individual state grant files, and this contractor worked with states  as needed to improve reporting. OIT officials told us that the last grant  year reviewed in this way was fiscal year 2015, and they expect to be  able to conduct some examinations for the closed fiscal year 2016 grants.

SBA’s grants management standard operating procedure states that the  agency should monitor grantees for compliance with the terms and  conditions of the awards, which includes compliance with applicable  federal law. Further, according to Standards for Internal Control in the  Federal Government, management should design and execute control  activities, and use quality information to achieve the entity’s objectives.  Management should process reliable data into quality information to make  informed decisions and evaluate the entity’s performance in achieving key  objectives and addressing risks. Without processes to review whether  states are meeting the cash match requirement, OIT is not implementing  its responsibilities under SBA’s standard operating procedure because it  cannot consistently determine whether states are meeting this  requirement. Without making such a determination, SBA does not have  reasonable assurance that states are contributing to the program as  required by STEP’s authorizing statute.

SBA Made Changes to Enhance STEP in Response to States’ Feedback, but Some States Reported Ongoing Challenges to Using Grant Funds

According to agency officials, OIT made some changes to the program in  response to feedback from states, including addressing some types of  challenges that states say affect their ability to use all their grant funds.  However, officials of some states said that continuing challenges with the  program impeded their ability to use all awarded grant funds within the  permitted time period. While the challenges they described cover a  variety of topics, most relate to compressed program timelines,  administrative burden, or poor communication with and within OIT.

SBA Made Changes in Response to States’ Feedback

OIT officials told us that they made some changes to STEP for the fiscal  year 2017 program cycle in response to informal feedback from states,  including changes to address concerns about use of funds and the  administrative burden of the application. Of the 12 states that we  interviewed, officials from 11 agreed that SBA’s changes would improve  the program. Changes included:

Extending funds usage period to 2 years. OIT officials told us that,  beginning with the fiscal year 2017 cycle, they converted the program  from a 1-year award to a 2-year award. This change allows an  additional 4 quarters to conduct program activities, which, in turn, may  help enable states to use the full amount of their grant funding and  achieve performance targets. Some state officials that we interviewed  said that this change improves the program.

Eliminating travel preauthorization requirement. OIT officials also  told us that, during the fiscal year 2017 cycle, they eliminated a  requirement that any travel funded by STEP grants be approved at  least 30 days in advance of each trip. Instead, states now report all  travel to OIT as part of STEP’s quarterly reporting. According to some  officials from the states that we interviewed, this change reduced the  administrative burden on state trade office staff and allows greater  flexibility to use grant funds when opportunities that require travel  arise with limited notice.

Reducing page length of technical proposal. For the fiscal year  2017 cycle, OIT reduced the length of the application’s required  technical proposal by nearly half, from 18 pages to 10 pages.  According to some state officials that we interviewed, this change  helped to streamline the program’s application paperwork.

Some States Were Unable to Use All STEP Award Funds, Citing Challenges with the Program

State officials that we interviewed described a variety of ongoing  concerns with STEP, including some challenges that reduced their ability  to use all of their grant funds. We developed a nongeneralizable sample  of the 12 states that did not use 25 percent or more of their grant funds in  fiscal year 2015, and interviewed officials from those states in order to  gain insight into their experiences with the program, including the  challenges that they faced using the full award amount. These 12 low- use states represent almost 70 percent of funds that remained unused  during that cycle. As shown in figure 5, we grouped the most commonly  reported challenges into the following categories: (1) timing of the  application and award processes, (2) administrative burden, and (3)  communication.

OIT’s recent changes to STEP could help increase future use rates;  however, the effect is yet unknown because the changes were introduced  for the fiscal year 2017 cycle. Further, nearly all of the concerns  expressed by the 12 low-use states relate to aspects of the program  outside the changes made by OIT. Our analysis of data from the  program’s fiscal year 2015 and 2016 cycles found nearly 20 percent of  grant funds unused each year, despite OIT officials stating that they seek  100 percent use of grant funds, as described below:

2015. Across all 40 recipient states, combined grant use was 81  percent, leaving 19 percent, or nearly $3.4 million, unused. This  included one state that left 77 percent, or over $432,000, of its funds  unused that year.

2016. Across 41 of the 43 recipient states, combined grant use was  82 percent, leaving 18 percent, or nearly $3.2 million, unused. This  included one state that left nearly 95 percent, or nearly $184,000, of  its funds unused that year.

In addition, although officials from several states told us that they have  made changes to their STEP grant applications or activities to increase  their ability to use grant funds, use problems have persisted. Our  interviews, conducted in March and April 2018, indicated that states  continue to face obstacles using the full award amount.

Some States Said Challenges Related to Compressed Program Application and Award Time Frames Hinder Fund Use

Officials we interviewed from each of the 12 low-use states cited  challenges related to the timeline of the application and award processes.  These challenges were a variable application period, a short application  window, a short application rewrite period, and award announcements  occurring close to the start of the grant period.

The exact timing of the STEP application period varies from year to year,  which officials from some states that we spoke with cited as a challenge  to applying for the grant. In fiscal years 2015, 2016, and 2017, SBA  opened the STEP application process at different points between  February and May. Officials from five low-use states reported that they  had difficulty planning staff resources for completing the application  because of the variable time frames. For example, one state official told us that not knowing when the application period would open was one of  his office’s biggest planning challenges because spring is a busy time for  trade activities and coincides with when his state hosts its largest annual  trade event. At some point during this busy season, the application period  typically opens. The state official said that, as a result of competing  priorities for his office during this season, he might have only 2 weeks to  complete the STEP application within the allotted time. He said that if the  grant application periods were opened at the same time each year, he  would be better able to plan for it.

Officials from five low-use states told us that the window for completing  the initial STEP application was insufficient because, for instance, of the  amount of work the application requires and competing demands on their  staff. For fiscal years 2015, 2016, and 2017, SBA announced application  windows of between 30 and 42 days. For fiscal year 2016, SBA later  extended the window to 50 days. Some state officials said that the  variable and short application window creates challenges to writing quality  applications. Without quality applications, it may be more difficult for  states to develop good plans for using grant funds, which can facilitate  the full use of funds.

We discussed states’ concerns about when the grant applications  opened, and how long they remained open, with SBA officials. These  officials said that they were unable to open the application at the same  time and for the same length of time each year because of factors beyond  their control, such as the federal budgeting process and the involvement  of other offices within SBA. In response to states’ concerns regarding the  length of time that the STEP application is open, we observed that under  OMB’s Uniform Guidance the federal awarding agency must generally  make all funding opportunities available for application for at least 60  calendar days; however, the guidance does allow agency officials to  make a determination to allow for as few as 30 days.

Officials from three of the 12 low-use states told us that the window for  rewriting applications is insufficient to adequately consider and implement  the changes needed, given that states must rewrite their technical  proposals, including updating all supporting financial information as well  as proposed performance targets within that time. Once states’  applications have been scored and recipients selected, OIT may require  certain states to rewrite their applications to request smaller amounts of  federal funds. SBA officials told us that in the fiscal year 2015, 2016, and  2017 cycles, states were given 21 days to rewrite their proposals, but that  the rewrite period has been as short as 48 hours. OIT officials told us that  they reduce states’ grant requests each year because SBA receives  applications for more grant funds than are available. Such rewrites  require reducing or removing intended activities and establishing new  performance targets within each of the remaining activities. State officials  told us that the window for rewriting the grant impacts their ability to write  their program proposals, which serve as the basis for states’ performance  metrics and measurement of outcomes.

Award Announcements Close to Start of Grant Period

SBA announces final STEP award amounts in September, just prior to the  beginning of the fiscal year. Officials from nine of the 12 low-use states  told us that because the award notifications occur so close to the  beginning of the fiscal year, using funds during the first quarter is difficult.  For instance, most of these officials said that they cannot plan activities  until they know whether they will receive an award and, if so, the amount.  Furthermore, officials from four states attributed their low grant use to this  issue. For example, officials from one state told us that September award  announcements do not allow them enough time to recruit companies to  participate and use funds in the first quarter of the federal fiscal year,  forcing them to compress their activities into the remaining quarters of the  program cycle. One state official referred to the first quarter as a “lost”  quarter. Officials from two states reported reducing or eliminating  programmatic activities in the first quarter to avoid pressure caused by  OIT’s award timeline. OIT officials told us that they notify states of their  awards before the start of each fiscal year and in compliance with federal  government policy. Figure 6 compares the timelines for the application  process, notification of awards, recipients’ grant use period, and closeout  activities for the fiscal year 2015, 2016, and 2017 program cycles, as well  as associated challenges to grant use that states reported.

Some States Said Challenges Related to Burdensome Administrative Requirements Hinder Fund Use

Challenges related to administrative burden were cited by officials from all  12 of the states that we interviewed. These included challenges related to  completing the application, the process for moving funds from one use to  another (known as “repurposing”), and the required reporting on the  grant.

Officials from eight low-use states told us that the STEP application  requirements are unrealistic or burdensome because, for instance, the  level of detail required about performance targets conflicts with the reality  of promoting exports in a fluid international business environment. As  discussed above, OIT requires states’ STEP applications to detail their  projected use of grant funds. For example, when submitting their  applications, states project which trade shows they will attend and the  number of small businesses they will take to these trade shows. Further  required details include projecting the costs and number of companies  that will attend events in particular foreign locations, for example. In the  past, the application required performance targets that were based on  estimates of business interest and export opportunities up to 18 months in  advance. Today, with the aforementioned transition to 2-year awards,  STEP applications must project such activities and performance targets  up to 30 months in advance of their execution. In the event of differences  between planned and actual performance during the course of the  program cycle, OIT requires states to explain the differences and their  plans for aligning their future performance with the targets established in  their applications.

Officials from eight low-use states said they attributed their low use of  grant funds to challenges with program rules or regulations. Difficulty in  repurposing funds was the most common example that they cited. Some  officials said that OIT’s difficult repurposing process limits states’ ability to  move funds from one purpose to another when participating small  businesses’ plans change or don’t align with the original program  proposal, leaving funds unused. Several state officials described difficulty  adapting to changing business plans or opportunities. For instance, one  official said that when unanticipated opportunities appear, such as follow- up trade missions, OIT’s restrictive repurposing process limits states’  ability to move funds from one purpose to another. Officials from two  states reported applying for smaller grant amounts than in previous years  in order to have a more manageable amount to spend, thereby avoiding  the need to repurpose funds.

In order for states to use STEP funds in ways that differ from the plans in  their approved program applications, SBA requires that states request  agency permission to repurpose the funds. According to the Uniform  Guidance, the federal awarding agency may restrict grant recipients’  repurposing of funds in excess of 10 percent of the total grant amount,  and determine the level of detail required for requests to repurpose  funds. OIT officials told us that in cases of repurposing more than 10  percent of total funds, the documentation required is determined on a  case-by-case basis depending on the amount of funds involved and the degree of difference between the original approved use and the proposed  new use. These OIT officials said that in some cases, states may only  need to submit a written request via email; in other cases, states may be  required to revise and resubmit their STEP applications.

To compensate for the difficulty in repurposing funds, officials from two  states told us that in subsequent years they had proposed more general  programs that allowed for greater flexibility, such as by increasing the use  of stipends, which provide small businesses with a predetermined amount  of funds for a range of allowed activities. When a state applies for a STEP  grant using this approach, the state is typically less specific in its  performance targets, such as which trade shows will be attended and by  how many small businesses. One state official said that this approach can  increase use rates by providing states with more flexibility in distributing  the funds. OIT officials agreed that where a state is less prescriptive in its  application performance targets it is easier for the state to repurpose  funds, such as when federal trade missions are cancelled or small  businesses express interest in activities that were not originally proposed.  However, the OIT officials noted that the lack of specificity may result in  lower grant application scores.

Burdensome and Changing Reporting Requirements

Officials from 11 of the 12 low-use states described challenges related to  burdensome or changing reporting requirements, such as the number of  forms required for quarterly reporting, or the level of detail required on  certain forms, as well as challenges related to changes that SBA makes  to reporting requirements during the grant period. Two state officials told  us that, because they often have few people working on the grant,  complying with these reporting requirements takes undue amounts of  time, and thus have the effect of reducing use. For example, one state  official described having to divide the cost of shared taxis and hotel rooms  for a trade show, reporting the per-person cost for each company that  was part of the state’s delegation. Officials from two states also pointed  out that the reporting requirements for STEP were much more detailed  and burdensome than grants they administered from other federal  agencies, such as the Department of Commerce. In addition, officials  from six states expressed concern that OIT occasionally makes changes  to program requirements, such as reporting requirements, after the grants  have been awarded and the grant cycle has begun. Some state officials  said that these mid-year changes increase the administrative burden on  their limited staff.

During our discussion of states’ concerns with OIT, officials said that they  are limited in their ability to address certain concerns described by the  states. For example, OIT officials told us that the quantity and type of  forms and level of detail required in states’ reporting are imposed by  federal guidelines, determined by OGM, or based on agency leadership’s  expectations. In addition, OIT officials said that sometimes requirements  are changed outside of their office and are beyond their control. The  officials stated that, for some changes, they are not in a position to wait  until the following program cycle for implementation. They said that they  do, however, postpone less urgent changes until the following program  cycle rather than making them mid-cycle.

Some States Said Challenges Related to Poor Communication Hinder Fund Use

Communication between OIT and states was a frequently cited area of  concern in our interviews with officials from the 12 low-use states.  Officials from nine states raised concerns related to the quality of  communication with OIT. For instance, some state officials described  issues such as sometimes waiting weeks or months for responses to  emails that they had sent to OIT, resulting in administrative delays or  preventing states from executing some activities as planned. In one  example, state officials said that SBA recently waited months to notify the  state of a problem opening its emailed quarterly report file, causing the  state to wait months to receive its STEP grant funds. The officials said  that such delays bring their program to a halt. Communication within OIT  was also cited as an issue that hindered states’ fund use. Officials from  10 states noted that program rules, regulations, or requirements are  inconsistently communicated. Further, several state officials described  witnessing OIT program managers disagree regarding the interpretation  of program rules during discussions with state representatives at a SIDO  conference.

When we discussed states’ concerns with OIT officials, they told us that  they maintain open lines of communication with the states and that STEP  program managers are required to retain logs of their communication with  the states. The officials described making an effort to listen to states’  concerns, adding that they had modified the program in certain ways as a  result of state input, as noted above. States can provide feedback about  STEP to their respective OIT program managers, who then discuss  states’ comments during weekly meetings with OIT management and  other program managers. In addition, OIT officials said that they make  themselves available for informal conversations with states at SIDO’s  annual conference. According to OIT officials, communication with the  states is usually channeled through each program manager, even when  the content is pertinent to all grant recipients and could be communicated  from one source.

SBA Has Not Adequately Assessed Risk to Achieving Program Goals from Some States’ Low Grant Fund Use

At the time of our review, OIT had not assessed and fully addressed the  risk posed by some states’ low use of funds. OIT officials told us that  while they informally collect feedback from states, there is no systematic  process to collect states’ perspectives on challenges with the program,  including obstacles to their ability to use funds. In addition to the goals of  the program outlined earlier, OIT officials told us that one program  performance metric is the use rate for STEP funds. Officials said that they  seek 100 percent use for each state that receives an award, as well as for  the program as a whole. Standards for Internal Control in the Federal  Government specify that agency leadership should define program  objectives clearly to enable the identification of risks and define risk  tolerances in order to meet the goals of the program’s authorizing  legislation. These standards for internal control include assessing the  risks facing the agency as it seeks to achieve its objectives, with the  assessment providing the basis for developing appropriate responses to  risks from external and internal sources. Therefore, agency management  should set its risk tolerance with regard to STEP at a level that  appropriately mitigates risk while enabling the achievement of program  objectives. Without assessing and addressing this risk to the program,  OIT may continue to fall short of 100 percent grant fund use. Low grant  fund use could negatively affect OIT’s ability to achieve program goals in  supporting state export promotion activities.

SBA Has Not Effectively Shared Best Practices

In addition, OIT has no systematic process to share best practices with  sufficient detail that states struggling to use their STEP funds might apply  those practices to improve their own programs. TFTEA requires SBA to  publish an annual report regarding STEP, including the best practices of  those states that achieve the highest returns on investment and  significant progress in helping eligible small businesses. While 12 states  did not use 25 percent or more of their grant funds in the fiscal year 2015  cycle, 19 states used all or almost all of their funds, as shown in appendix  I. SBA publishes high-level information on what it deems to be notable  state activities in its annual report to Congress. OIT officials told us that,  when possible, they share best practices with states that may have  difficulty accessing external markets. However, OIT officials told us that  they do not formally facilitate the sharing of best practices among the  states, saying that best practices for promoting exports in one state might  not be transferable to another state because each state is unique in terms  of the characteristics of its economy.

According to the Uniform Guidance, grant recipients’ performance should  be measured in a way that helps the federal awarding agency and other  non-federal entities to improve program outcomes, share lessons learned,  and spread the adoption of promising practices. Further, under federal  standards for internal control, management should externally  communicate the necessary quality information so that external parties,  such as grant recipients, can help to achieve the entity’s objectives. We  have also previously reported on the importance of collecting and sharing  best practices, as well as the processes for doing so. By sharing  detailed information with all participating states about the approaches that  some grant recipients are using to successfully achieve STEP’s goals,  SBA could encourage all grant recipients to improve the effectiveness of  their state STEP programs, including increasing fund use rates in pursuit  of OIT’s stated aim of 100 percent grant fund use.

The STEP program has provided about $139 million of federal support to  assist small businesses in finding export opportunities, and Congress has  authorized STEP through 2020. SBA has a process in place to ensure  compliance with the program’s legal requirement to cap the total grant  amount to the 10 states with the largest number of eligible small  businesses at 40 percent—thereby ensuring that states with fewer small  businesses benefit from the program. However, SBA has not taken some  necessary steps to manage the program’s total and cash matching  requirements according to applicable law or federal internal control  standards. SBA does not document that states are meeting the total  match requirement, and has not developed a process to determine  whether states are meeting the cash match requirement. As a result, SBA  does not have reasonable assurance that the states are meeting these  requirements. Matching requirements directly engage states, augment  federal funds, and ensure further support to small businesses that export.  As such, meeting the matching requirements is a key aspect of the  program’s success. Although not every state has problems using the full  federal award amount, about a quarter of the states do, which may hinder  the program’s ability to fully achieve its goals of increasing the number of  small businesses exporting, increasing the number of small businesses  exploring significant new trade opportunities, and increasing the value of  exports for small businesses already engaged in international trade.  While SBA has taken some steps to improve the program based on  feedback from states, it could do more in this regard, including finding  ways to assess and address the specific concerns raised by states that  have experienced difficulty using grant funds. SBA could also take further  steps to collect and disseminate best practices among states to  strengthen their ability to fully use grant funds. Higher grant fund use  could enhance SBA’s ability to assist as many exporting small businesses  as possible, leading to a fuller realization of the program’s goals.

We are making the following four recommendations to SBA:  The SBA Administrator should establish a process that ensures  documentation of states’ compliance with the total match requirement  before grant closeout. (Recommendation 1)

The SBA Administrator should develop a process to determine states’  compliance with the cash match requirement. (Recommendation 2)

The SBA Administrator should assess the risk to achieving program goals  posed by some states’ low grant fund use rates. Assessing this risk could  include examining the challenges that states reported related to the  program’s application and award processes, administrative burden, and  communication. (Recommendation 3)

The SBA Administrator should enhance collection and sharing of best  practices among states that receive STEP grant funds. (Recommendation  4)

We provided a draft of this report to SBA for review and comment. In  written comments (reproduced in appendix II), SBA generally agreed with  our findings and concurred with our recommendations. SBA observed  that the states we did not interview may have had different experiences  with the program than the states in our sample. As we note in the report,  our sample is nongeneralizable, and so the experiences these states  reported to us may not be common to all states receiving the grant. As we  stated in our report, we selected the 12 states that had the lowest grant  use rates in fiscal year 2015 in order to understand the challenges they  faced.

We are sending copies of this report to the Administrator of SBA and  other interested parties. In addition, the report will be 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) 512-8612 or gianopoulosk@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 are listed in  appendix III.

Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to examine the extent to which (1) the  Small Business Administration’s (SBA) State Trade Expansion Program  (STEP) grants management process provides reasonable assurance of  compliance with selected requirements of applicable law, and (2) SBA  has taken steps to address challenges states report in using grant funds  to achieve program goals. To address these objectives, we did the  following:  Legal and regulatory review. We reviewed the Small Business Jobs Act  of 2010 and the Trade Facilitation and Trade Enforcement Act of 2015  (TFTEA), the statutes that established and reauthorized STEP,  respectively. We focused on SBA’s compliance with the proportional  distribution, total match, and cash match requirements because these  requirements are consistent across both of the program’s laws, and to  avoid duplication with ongoing Office of Inspector General (OIG) work on  the program. In addition, we reviewed the Office of Management and  Budget’s (OMB) federal grant guidance, Uniform Administrative  Requirements, Cost Principles, and Audit Requirements for Federal  Awards (Uniform Guidance), and Standards for Internal Control in the  Federal Government to identify relevant guidance and practices in  managing grants to non-federal entities and in designing and executing  effective control processes. We also reviewed these documents and  previous GAO work for information about the collecting and sharing of  best practices.

Program data review. We analyzed data on award amounts, matching  funds required, and matching funds provided for the fiscal years 2015 and  2016 program cycles, as well as information about the sources of  matching funds in selected cases for the fiscal year 2015 program cycle.  We focused on these program cycles because these were the most  recent years for which the most complete information was available. We  also reviewed the data the Office of International Trade (OIT) used to  comply with the legal requirement for proportional distribution for the fiscal  year 2017 cycle. We assessed the reliability of these data by interviewing  OIT officials about the sources of the data, how the data are stored and  maintained, and by tracing data from relevant sample documents back to  their sources. We found these data sufficiently reliable for the purpose of  understanding OIT’s processes for complying with the proportional  distribution and matching requirements.

Program management review. We reviewed SBA’s standard operating  procedure for managing grants and cooperative agreements in order to  understand the agency’s requirements for this. We reviewed relevant  documentation, including sample grant files, application forms, application  scoring forms, grant reporting forms. To examine the relationship that  states’ past use rates have on the award process, we reviewed OIT’s  forms for scoring the grant applications in fiscal years 2017 and 2018. We  interviewed officials from OIT and OGM to understand how SBA monitors  STEP grants, including the steps they take to comply with the proportional  distribution, total match, and cash match requirements. We examined  SBA’s calculations of the total match amounts required for states, and we  identified 4 instances in which SBA’s documentation showed an  insufficient match in fiscal years 2015 and 2016. We spoke to OIT officials  to gain insight into why the scoring procedures for the grants changed for  the fiscal year 2018 program cycle. In addition, we reviewed TFTEA,  previous GAO work, and the most recent STEP best practices reports for  information relating to SBA’s communication to states about best  practices in applying for and managing STEP grants. We interviewed  officials from OIT to learn about steps they had taken to address  concerns raised by states that participate in the program and to facilitate  the sharing of best practices among states receiving the grant.

Review of grant use rates. We analyzed SBA data on award amounts  and amounts used for the fiscal years 2015 and 2016 cycles. We  assessed these data by interviewing OIT officials about the sources of the  data and how the data are stored and maintained. In discussing the fiscal  year 2016 cycle with OIT officials, we learned that South Dakota and  Texas had been granted extensions and therefore had not yet completed  reporting on their use of these grants. As a result, we dropped these  states from our calculation of the fiscal year 2016 cycle use rate. With the  exclusions of South Dakota and Texas, we found these data sufficiently  reliable for the purpose of calculating use rates for STEP for the fiscal  years 2015 and 2016 cycles. In comparing the available grant use data  from these years, we found the following: (1) some states that were in the  low-use (less than 75 percent utilization) category in fiscal year 2015  were also in this category in fiscal year 2016, (2) some states that were in  the low-use category in fiscal year 2015 were not in this category in fiscal  year 2016, and (3) some states that were not in the low-use category or  did not participate in STEP in fiscal year 2015 were in this category in  fiscal year 2016. In our interviews, we asked officials from states in the  low-use category in the fiscal year 2015 cycle about their experiences in  subsequent years, including whether they intended to apply for the grant  in the fiscal year 2018 cycle.

Tables 2 and 3 below display data on fund use across participating states  in fiscal years 2015-2016, including the percentage of federal award  funds unused, amount of federal award funds unused, and percentage of  total federal funds unused for each year. We used the data in table 2 to  identify our population of low-use states. The 12 states that we  interviewed used less than 75 percent of their award funds in the fiscal  year 2015 cycle. They represent almost 70 percent of funds that  remained unused during that cycle, representing a large proportion of the  total unused funds that year. In table 2, the first three rows show data on  the 12 states included in our sample. We used the data in table 3 to  determine whether our population of low-use states achieved different  use rates the following year.

Interviews with low-use states. We conducted semi-structured  interviews with officials from the 12 states that did not use at least 25  percent of their federal award in the fiscal year 2015 grant cycle. In these  interviews, we discussed the states’ practices and reporting with respect  to the total and cash match requirements, and inquired about the practice  of using the federal award to offset state staff salaries while reporting  these salaries as a cash match. These 12 interviews do not constitute a  generalizable sample of STEP grantees, because we selected these  states on the basis of their low use of grant funds in order to understand  challenges faced by those states. As such, the practices reported by  states we interviewed may not be common to all states receiving STEP  grants.

State challenges. In our semi-structured interviews with officials from the  12 states that did not use 25 percent or more of their award in fiscal year  2015, we gathered information about continuing challenges in fully using  the grant funds. These states were:

Maine  We conducted these interviews in March and April 2018. However, our 12  interviews represent a nongeneralizable sample of the population of  states that have received the 301 awards made through the STEP grant  cycles since fiscal year 2011. As such, challenges reported by these  states may not be common to all states receiving this grant. We asked  officials from these 12 states questions about their experiences  participating in the program, about challenges they had experienced, and  about their views on how the program could be improved. To describe the  themes that emerged from these 12 interviews with respect to challenges  in fully using the funds, we identified categories based on an analysis of  the responses that we received. Two GAO analysts independently coded  the content of these interviews according to these categories. We  conducted further analysis of the results of our coding to identify the three  major groupings of challenges that we present in this report: (1) the timing  of the application and award periods; (2) administrative burden; and (3)  communication. The coders had an initial agreement rate of about 90  percent. Disagreements were resolved through discussion between the  coders and, occasionally, through arbitration by a knowledgeable third  party.

SIDO survey data review. We analyzed 2015, 2016, and 2017 survey  data provided by State International Development Organizations (SIDO),  a national group that supports state trade offices. We reviewed data from  their annual member survey conducted in those years. This survey asks  SIDO member states about, among other things, top advocacy priorities,  the number of staff in each state’s international trade office, and the  location of these trade offices within the state government. The survey  also asks states to describe the importance of STEP to each state, and  provide the estimated proportion of each state’s export promotion budget  that the grant constitutes. To assess these data, we interviewed a SIDO  official about the organization’s methods for developing the survey each  year, as well as their processes for collecting and storing the data, and  reviewed the response rates in each year. We reviewed the survey  instrument and data, and conducted testing for missing data, obvious  errors, and outliers, and determined that these data were sufficiently  reliable for the descriptive purposes for which they are used in this report.  However, we noted that the number of respondents by year varied.  According to SIDO 36, 38, and 41 states fully or substantially completed  the survey in 2015, 2016, and 2017, respectively. We are presenting the  results as general proportions or rounded percentages. We did not  independently audit the survey results.

Appendix II: Comments from the Small Business Administration

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Adam Cowles (Assistant  Director), Cristina Ruggiero (Analyst in Charge), Jesse Elrod, and Peter  Kramer made key contributions to this report. The team also benefitted  from contributions made by Martin de Alteriis, Mark Dowling, John  Hussey, Jeff Isaacs, Christopher Keblitis, and Kimberly McGatlin.

The State Trade Expansion Program seeks to help U.S. small businesses export their products to other countries. The Small Business Administration awards the program's funds to state trade offices, which assist with activities like trade show attendance. It has given about $139 million in grants since FY 2011.

The program requires states to provide matching funds—including a portion in cash—and SBA must follow rules designed to spread funding among states.

We made 4 recommendations, including that SBA:

Develop a process to ensure compliance with matching fund requirements

Evaluate the challenges some states face in using all their grant funds