Overview
We reviewed all STEP financial assistance awards made by MOITI to small businesses since STEP’s inception and found that MOITI had not implemented requirements for graduating small businesses from STEP. As a result, small businesses can receive financial assistance awards every year, which could make them reliant on STEP funding. Further, implementing graduation requirements would create opportunities for new small businesses to receive financial assistance awards.
Our analysis identified 169 small businesses that have received financial assistance awards from MOITI since STEP’s inception. Of these 169 small businesses, 41 (24%) had received awards for three or more years. Eight of these small businesses received awards in all six of the years we reviewed; 5 received awards in five of the years; 6 received awards in four of the years; and 22 received awards in three of the years. MOITI has issued a total of $1,602,816 in financial assistance awards to these 41 small businesses. The total amount of funding given to each small business ranged from $18,473 to $62,500. The average amount of funding each small business received was $39,093.
Authoritative Guidance
According to SBA’s STEP Funding Opportunity Announcement OIT-STEP-2018-01, one of the objectives of STEP is to increase the number of small businesses in a state that export. To accomplish this objective, Section 5.2 of the announcement strongly encourages organizations that receive STEP grants (such as MOITI) to develop requirements for small businesses to graduate from STEP after a reasonable duration and amount of funding. Although this announcement covers the performance period beginning September 30, 2018, SBA officials told us that organizations that receive STEP funding have been encouraged since STEP’s inception to graduate small businesses from the program to recruit new small businesses into STEP.
Reasons for Issue
MOITI officials told us that adjusting application scoring for repeat STEP businesses (deducting points for businesses that have already received three or more STEP financial assistance awards) was their attempt to meet SBA’s guidelines in this area.
Recommendation
MOITI should implement requirements for graduating small businesses from STEP.
Auditee’s Response
MOITI concurs with the Audit Finding that the SBA’s intention is for MOITI to transition small businesses from STEP once they have sufficient export experience. However, MOITI has had sufficient STEP funding for all qualified applicants and has not denied an applicant funding due to the SBA’s unspecified “graduate requirement.” In addition, experienced STEP clients, on average, have a higher Return on Investment (ROI), which is a key matrix the SBA uses for repeat STEP awards.
MOITI will implement a STEP Transition Plan, per the audit recommendation starting with FY 2023 STEP 11 (the FY 2022 STEP 10 proposal has already been submitted to the SBA). Draft plans will limit a company to four (4) STEP awards. However, if funding is available, a company may exceed four awards, determined on a case-by-case basis.
Auditor’s Reply
Based on its response, MOITI is taking measures to address our concerns on this matter.
| Date published: | June 30, 2022 |
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