[Senate Hearing 106-758]
[From the U.S. Government Publishing Office]
S. Hrg. 106-758
GAO'S PERFORMANCE AND ACCOUNTABILITY REVIEW: IS THE SBA ON PAR?
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JULY 20, 2000
Printed for the Committee on Small Business
______
U.S. GOVERNMENT PRINTING OFFICE
68-000 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON SMALL BUSINESS
ONE HUNDRED SIXTH CONGRESS
----------
CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana JOHN F. KERRY, Massachusetts
ROBERT F. BENNETT, Utah CARL LEVIN, Michigan
OLYMPIA J. SNOWE, Maine TOM HARKIN, Iowa
MICHAEL ENZI, Wyoming JOSEPH I. LIEBERMAN, Connecticut
PETER G. FITZGERALD, Illinois PAUL D. WELLSTONE, Minnesota
MIKE CRAPO, Idaho MAX CLELAND, Georgia
GEORGE V. VOINOVICH, Ohio MARY LANDRIEU, Louisiana
SPENCER ABRAHAM, Michigan JOHN EDWARDS, North Carolina
VACANCY
Emilia DiSanto, Staff Director
Paul Cooksey, Chief Counsel
Patricia R. Forbes, Democratic Staff Director and Chief Counsel
C O N T E N T S
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Opening Statements
Page
Bond, The Honorable Christopher S., Chairman, Committee on Small
Business, and a United States Senator from Missouri............ 1
Enzi, The Honorable Michael B., a United States Senator from
Wyoming........................................................ 6
Kerry, The Honorable John F., Ranking Member, Committee on Small
Business, and a United States Senator from Massachusetts....... 255
Snowe, The Honorable Olympia, a United States Senator from Maine. 267
Witness Testimony
Walker, The Honorable David M., Comptroller General, United
States General Accounting Office, Washington, D.C.............. 7
Czerwinski, Stanley J., Associate Director, Housing and Community
Development Issues, Resources, Community, and Economic
Development Division, United States General Accounting Office,
Washington, D.C................................................ 30
Willemssen, Joel, C., Director, Civil Agencies Information
Systems, Accounting and Information Management Division, United
States General Accounting Office, Washington, D.C.............. 115
Brostek, Michael, Associate Director, Federal Management and
Workforce Issues, General Government Division, United States
General Accounting Office, Washington, D.C..................... 230
Alvarez, The Honorable Aida, Administrator, Small Business
Administration, Washington, D.C.; accompanied by Peter
McClintock, Deputy Inspector General, Small Business
Administration, Washington, D.C.; James Ballentine, Associate
Deputy Administrator for Government Contracting, Minority
Enterprise Development, Small Business Administration,
Washington, D.C.; and Kris Marcy, Chief Operating Officer,
Small Business Administration, Washington, D.C................. 279
Alphabetical Listing and Appendix Material Submitted
Alvarez, The Honorable Aida
Testimony.................................................... 279
Prepared statement and attachment............................ 283
Responses to post-hearing questions posed by Senator Bond.... 320
Responses to post-hearing questions posed by Senator Kerry... 358
Bond, The Honorable Christopher S.
Opening statement............................................ 1
Prepared statement........................................... 3
Letter from Senator Bond to Ms. Alvarez...................... 266
Post-hearing questions posed to Ms. Alvarez and subsequent
responses.................................................. 320
Brostek, Michael
Testimony.................................................... 230
Prepared statement........................................... 233
Responses to post-hearing questions posed by Senator Kerry... 354
Czerwinski, Stanley J.
Testimony.................................................... 30
Prepared statement and attachments........................... 38
Responses to post-hearing questions posed by Senator Kerry... 349
Enzi, The Honorable Michael B.
Opening statement............................................ 6
Ledger report titled ``Sorted By Function''.................. 271
Kerry, The Honorable John F.
Opening statement............................................ 255
Letter from Ms. Alvarez to Senator Kerry..................... 257
Prepared statement........................................... 262
Post-hearing questions posed to Mr. Walker and subsequent
responses.................................................. 341
Post-hearing questions posed to Mr. Czerwinski and subsequent
responses.................................................. 349
Post-hearing questions posed to Mr. Willemssen and subsequent
responses.................................................. 350
Post-hearing questions posed to Mr. Brostek and subsequent
responses.................................................. 354
Post-hearing questions posed to Ms. Alvarez and subsequent
responses.................................................. 358
Snowe, The Honorable Olympia J.
Opening statement............................................ 267
Walker, David M.
Testimony.................................................... 7
Prepared statement........................................... 15
Responses to post-hearing questions posed by Senator Kerry... 341
Willemssen, Joel C.
Testimony.................................................... 115
Prepared statement and attachments........................... 117
Responses to post-hearing questions posed by Senator Kerry... 350
GAO'S PERFORMANCE AND ACCOUNTABILITY REVIEW: IS THE SBA ON PAR?
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THURSDAY, JULY 20, 2000
United States Senate,
Committee on Small Business,
Washington, D.C.
The Committee met, pursuant to notice, at 9:30 a.m., in
room 428-A, Russell Senate Office Building, the Honorable
Christopher S. Bond (Chairman of the Committee) presiding.
Present: Senators Bond, Enzi, Snowe, and Kerry.
OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND,
CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED
STATES SENATOR FROM MISSOURI
Chairman Bond. Good morning. The Small Business Committee
will come to order. Senator Kerry will be joining us, but since
we have a full schedule of witnesses today and the possibility
of votes beginning sometime right after 9:45, I thought we
would start and get as much testimony in as we can before we
have to go off to vote.
Let me say that as we begin this hearing, it is with a
heavy heart, particularly on the Small Business Committee, that
we note the passing of a dear friend, Paul Coverdell. He was a
great champion of the small business community. He was a
dedicated leader in the Senate.
Since I became Chairman of this Committee in 1995, Paul
Coverdell has been a valued and dedicated Member of the
Committee. He worked tirelessly for small business on many
critical issues, including making the SBA a more efficient and
effective supporter of small business, tax relief and IRS
reform, ensuring a drug-free workplace, and improving
educational opportunities for America's children.
He certainly is going to be missed by all of us. We feel a
special connection with Paul as Missourians. He was a
Missourian for a while, lived near Kansas City and attended the
University of Missouri. But most of all, I think that all in
the small business community will remember him as one who
really had the interests of small business at heart and he was
undoubtedly a valued member of our leadership.
Our thoughts and prayers are with his wife, his family, his
staff, and all those who cared greatly for and appreciated the
work that Paul Coverdell did.
Today's hearing is the first in a series of hearings by the
Committee on the management challenges faced by the SBA. This
hearing also introduces a new methodology that the GAO is using
to assist Congress with its monitoring and oversight efforts.
Of course, the GAO's job is to assist Congress by providing
careful, independent, and objective reviews of agency
operations and programs. Most of the GAO's reports, however,
focus on isolated programs, processes and/or concerns, and
while they provide important information about the various
specific aspects of an agency, they do not provide Congress or
the agency administrators with a complete picture of how an
agency is operating.
Accordingly, last October, at my request, the Committee and
the GAO set out to formulate a method for the GAO to conduct an
examination of agency operations that would provide depth and
breadth to root out any systemic problems in an agency, not
just symptoms of such problems that might appear in the way a
particular operation is undertaken. The result is what GAO has
dubbed the Performance Accountability Review, or PAR.
The PAR is a way for the GAO to provide an overall
assessment of an agency's major performance and management
challenges. What the PAR entails is a comprehensive review of
agency operations that are most critical to the achievement of
an agency's mission. These include an agency's strategic and
performance planning, information systems management, financial
management, human capital, client services, and budget
formulation and execution. The PAR review also calls for a
review of mission-critical program and ties the shortcomings an
agency might have with its programs to systemic issues related
to general agency operations.
As a former State auditor, I am familiar with
accountability reviews, performance reviews, and functional
reviews. I share Mr. Walker's vision that it is of the utmost
importance that Congress actively exercise its oversight
authority to ensure that the Federal Government is operating in
the most effective, efficient, and economical manner possible.
That is the ultimate goal of PAR.
Now, after formulating the method by which the GAO could
perform this type of review, the Committee concluded it was
important that the GAO perform the Performance and
Accountability Review at the SBA. There are three primary
reasons. First, the SBA is an agency in transition. At the
request of Congress, the SBA has outsourced many of the tasks
it used to perform in-house. It is transforming itself from a
programmatic agency to a regulatory agency, and we need to
monitor how it is carrying that out.
Second, there have been concerns raised to the Committee
about how the SBA manages its core programs. The Committee has
received several reports from the SBA Inspector General and GAO
demonstrating serious problems with its core programs.
Finally, the SBA is a small agency compared to behemoths
like HUD and the IRS, and PAR is intended to be a prototype
that we expect the GAO can use in all other agencies.
We will hear more about that from the Comptroller General,
but PAR is challenging, comprehensive, and resource intensive,
not only for the GAO and the SBA but for the Committee. We
believe that there are many important aspects to this
Performance Accountability Review and before we turn to the
Comptroller General, I want to call on Senator Enzi for any
opening comments that he wishes to make.
[The prepared statement of Chairman Bond follows:]
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OPENING STATEMENT OF THE HONORABLE MICHAEL B. ENZI, A UNITED
STATES SENATOR FROM WYOMING
Senator Enzi. Thank you, Mr. Chairman. I appreciate your
holding this hearing today. I think that the Government
Performance Accountability Review and the Act that created it
are extremely important to the Government.
Before I make formal remarks, I, too, need to say a few
words about our colleague, Paul Coverdell. Senator Coverdell
was a great part of this Committee. In fact, he was a great
part of anything that he served on. He was one of the work
horses that was not up front taking the publicity but was
pumping away at all of the internal efforts that were being
done and usually wound up being a huge part of any solution.
He pursued legislation that benefited small businesses not
only in Georgia but throughout the country. He was a hard
worker. He never understood ``no.'' He never understood when we
said it cannot be done that way. He always persevered.
He was a good friend of mine as well as a mentor. I admired
him greatly. He will be truly missed in the Senate as a whole,
but more specifically as a Member of this Committee. He has
done some exciting and diligent work here that cannot be
matched.
I am looking forward today to learning more about the
progress of the GAO's Performance and Accountability Review of
the Small Business Administration. As you know, the SBA was one
of the pilot agencies for the Government Performance and Review
Act and their strategic plan has benefited from past GAO
reviews. To my knowledge, GAO was generally pleased with the
SBA's progress and cooperation during the GPRA process. I had
meetings with them on that process earlier and then I followed
that up, meeting personally with Administrator Alvarez during
the GPRA process at the SBA offices to encourage their
cooperation in getting a better understanding of the process as
well as their agency. I also have been to a number of other
agencies following up on this process, such as the Department
of Labor, OMB, and the IRS.
I think that GPRA and PAR have the potential for being one
of the great tools of government, right down to the employees,
so that the employees can finally get some credit for the work
that they are doing.
Therefore, I sincerely hope and am confident that the Small
Business Administration will work actively with the GAO to find
solutions to the concerns that the GAO has addressed in its
three initial reports associated with this new Performance and
Accountability Review. The Small Business Committee is
committed to ensuring that the Small Business Administration
stays on task in an efficient and effective manner when
assisting small businesses nationwide.
Again, I want to thank Administrator Alvarez, Comptroller
Walker, and the other witnesses for being here today. I look
forward to hearing from each of you.
Chairman Bond. Thank you very much, Senator Enzi. It is
always nice to have a real accountant on the Committee. I was
just elected to the post. Senator Enzi earned the title of CPA.
There is a real difference.
With that, let us turn now to our first witness, the
Honorable David Walker, Comptroller General, U.S. General
Accounting Office in Washington, D.C. Good morning, Mr. Walker,
and welcome.
STATEMENT OF THE HONORABLE DAVID M. WALKER, COMPTROLLER
GENERAL, U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C.
Mr. Walker. Thank you, Mr. Chairman, Senator Enzi. I
appreciate the invitation to testify before you here today on
the important issue of Congressional oversight. But before I
do, I, too, would like to say a few brief words about Senator
Paul Coverdell, given his recent and sudden death.
Senator Coverdell was one of my strongest supporters for
appointment as Comptroller General of the United States. I knew
him from my time as a partner and Global Managing Director with
Arthur Andersen in Atlanta. His wife, Nancy, and mine have
worked for Delta Airlines for years. My wife actually handled
his personal travel when he was Director of the Peace Corps,
and my daughter worked on one of his Senate campaigns.
Paul Coverdell was a true leader and a total gentleman. He
made a difference every day and he will be remembered for
years. We can only take comfort in the fact that he is now with
his maker and in a better place, and so our thoughts and
prayers go out to Nancy and Paul's family. We will not forget
him.
Chairman Bond. Thank you.
Mr. Walker. With that, Mr. Chairman, I would like to begin
my testimony. As you know, you have asked me to focus on the
importance of the issue of oversight and I am going to provide
an overview context. I will also provide a bridge to the next
panel of three GAO professionals who will be talking about
specific projects that we are doing at the SBA.
But before I do, let me have a few brief introductory
remarks. I think it is commendable that you are having this
oversight hearing. There is a dire need for a renewal and a
reinvigoration of the oversight process in both houses of
Congress. This is an important beginning. Our Nation is at an
important crossroads. The cold war is over and we won, and for
the first time in decades, we face surpluses projected for a
number of years in the future. These surpluses provide us with
an opportunity to look beyond the immediate, to look over the
horizon and to try to address some of the longer-term
challenges that we face in the 21st century.
I have testified before about the demographic tidal wave
that is going to hit this Nation and put tremendous budget
pressures on us in the future. It is very important that we
continue to review what government does, and how government
does business, to make sure that the taxpayers are getting an
appropriate return on their investment. While we may have
plenty of money today, we are going to come under increasing
budget pressures in the future because of known demographic
trends. Our simulations show that. It is critically important.
So we need to continue to focus on oversight, and there are
several ways in which we need to do so. This is a perfect time
for the Congress to be looking at what the Government does and
how the Government does business, and with that framework, I
would like to turn to the first board that I will use for
discussion purposes. I assume, Mr. Chairman, that my full
statement will be entered into the record.
Chairman Bond. We will make it a part of the record and we
appreciate your calling that to our attention.
Mr. Walker. Thank you, Mr. Chairman. First, I think there
are four key points as an overview theme. This is the opportune
time for the Congress to be looking at what the Federal
Government does and how it does business. Many programs were
created decades ago based upon past wants and needs. They may
or may not make sense today, and they may need to be
reengineered or otherwise modified. Elected officials
ultimately will determine what the Government should do because
that is your responsibility as an elected official. But the GAO
can play an important role in getting you the facts, helping
you understand the options, the pros and cons, to be able to
make timely and informed judgments.
Now is the time to also reexamine and redefine
beneficiaries of Federal programs. The key word here is
targeting, targeting Federal policy, whether it be spending,
loans, guarantees, tax incentives, regulatory actions, or
otherwise, to those most in need in order to get the best
return on investment. Also, targeting programs that get the
best results or the best return on investment in similar areas.
The third area, the constant need to improve the economy,
efficiency, and effectiveness of Federal Government operations.
This is an ongoing task and requires the concerted effort of
OMB, the departments and agencies, the Congress, the GAO, and
the Inspectors General. We must bring modern management
principles to government and enhance the use of technology
while protecting personal privacy.
And last but certainly not least, we should continue to be
vigorous in fighting fraud, waste, abuse, and mismanagement.
But candidly, Mr. Chairman, the U.S. Government is the largest,
most complex, most diverse entity on the face of the earth and
it probably always will be. Fraud, waste, abuse, and
mismanagement will never be zero. We should have zero tolerance
for it, but it is very important that we focus on changing the
way that government does business because that is where we are
going to get a much higher return on our investment.
[The chart follows:]
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The next chart will show there are three general areas
where we think there are opportunities for oversight. One area
deals with cross-cutting programs and efforts, whether it be
economic development, health care, food safety, or
counterterrorism.
Another area deals with cross-management functions, whether
it be strategic planning, financial management, information
technology, human capital management, acquisition management,
or client and customer service.
Another area deals with individual agency programs and
management functions, where it is important that we look at
major functions within an agency and major programs within an
agency, and that we consider both for our performance and
accountability series as well as our high-risk series, which we
update every 2 years.
You can see there is a great intersection between these
three and it is important that we work with the Congress on a
bicameral and nonpartisan basis on all three of these tracks.
In fact, I think that now is the time that both the GAO and the
Congress need to review how we go about conducting studies, how
we go about working together in order to make sure that the
major programs and functions are being addressed on a
reasonable cycle and within reasonable timeframes but yet to
try to better manage the workloads, the workloads of the
Congress, the workloads of the agencies, and, yes, the
workloads of the GAO, because we all have limited resources.
[The chart follows:]
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Mr. Walker. The next chart shows that we have an
opportunity. We have an opportunity to buildupon a management
reform agenda that the Congress enacted in the 1990s. Whether
it be financial management, information technology, or other
areas, you can see that there are a number of major reforms
that were enacted in the 1990s. The real key missing link to
maximizing the Government's performance and accountability for
the benefit of the American people is the area of people, or
human capital. Much more attention must be focused
administratively on that issue as well as ultimately
legislatively when the issue is ripe.
[The chart follows:]
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Mr. Walker. We need to build on these reforms. We need to
capitalize on the information contained herein in order to
develop an oversight plan that addresses the three key
oversight tracks and achieves a better workload balance for the
Congress, the agencies, and the GAO. We stand ready to work
with the Congress on a bicameral and nonpartisan manner to do
so.
As you know, we have been conducting work at the SBA--for
the last several years. We have issued approximately 20 reports
on the SBA in a given year and that has occurred for several
years and I am happy to answer questions with regard to that.
The SBA is in transition and we have had a number of
pending requests to do work at the SBA. As you know, Mr.
Chairman, by law, we are required to do work that is either
mandated by the Congress or requested by a Congressional
committee. I would like to note for the record that everything
that we are doing falls into one of these two categories. I do,
however, appreciate workload concerns on behalf of the Agency,
the Committee, as well as the GAO in this regard.
It is important to note that the panel that follows me will
provide examples of some of the work that we are doing right
now at the SBA. There are three areas in particular that are
going to be discussed. Stan Czerwinski, who has overall
responsibility for the SBA program work, will discuss our
findings in two reports that you have requested on the SBA's
8(a) program. They are being released today. Joel Willemssen,
who has looked across government at information technology
issues will discuss our report to you on information technology
at the SBA and a report that is also being released today. And
finally, Mike Brostek, who has been handling our human capital
work, will discuss our recent work in the SBA's human capital
area.
It is important to note that the SBA has had an opportunity
to review these reports. We think that is important. We do not
want to play ``gotcha.'' That is not what good government is
all about. We want to be professional, objective, fact-based,
nonpartisan, non-
ideological, fair, and balanced, and Mr. Chairman, I will
endeavor and our people will endeavor to do that in everything
that we do.
I cannot overstate my support for you and your colleagues
and others to try to look to renew and reinvigorate the
challenging task of serious oversight. It is important for the
country. It is important for the taxpayers.
That concludes my prepared statement. Mr. Chairman, I would
be happy to answer any questions that you or Senator Enzi might
have.
Chairman Bond. Thank you very much, Mr. Walker.
[The prepared statement of Mr. Walker follows:]
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Chairman Bond. When I ran for the post of State Auditor in
Missouri, I promised to move State auditing in Missouri from a
foot and tick operation to a performance review and I found out
very quickly as we hired a staff of CPAs and brought in people
with some management expertise that some of the agencies who we
reviewed looked at us with the same skepticism that the dental
patient looks at the dentist who promises a root canal is
ultimately going to make him feel better. There was a great
deal of skepticism, and so I am used to that. We believe that
performance reviews can be very helpful.
Administrator Alvarez will be stating in her testimony, and
she has mentioned to me in the past, that the GAO has or is
conducting 41 reviews of SBA programs or processes. Is this
correct, and what would explain the number of the GAO reviews?
Mr. Walker. We have about 20 reviews ongoing right now. We
issue about 20 reports a year on the SBA and we typically have
about 20 that are in process that typically get issued the next
year. Of the 24 reviews that we have underway, 10 of them
relate to governmentwide issues in which we are looking at an
SBA angle. Fourteen relate specifically to the SBA. All of them
are either a mandate or a Committee request. We are not doing
any self-initiated work in this area. I think, clearly, it does
place a considerable workload on the Committee, on us, and the
SBA, which is one reason I think we want to look at the review
process of how we go about oversight and balance that workload
better. But those are the facts, Mr. Chairman.
Chairman Bond. You have indicated that the GAO has shared
this information with the SBA, they have had a full opportunity
to comment on it, and you will be including their responses in
your reports. Does the GAO stand behind the reports as fair,
objective, and independent?
Mr. Walker. We do, and frankly, I think we have a
constructive relationship with the SBA. I think Administrator
Alvarez can testify to that.
Chairman Bond. Would you elaborate on that for us?
Mr. Walker. Well, she and I, for example, met within the
last several months to talk about the many projects that we
have underway and she expressed the understandable concern that
we have a lot going on at the SBA. This obviously is a workload
problem for us, as well. We had a very candid and constructive
conversation about how we go about our work, what we are doing,
and how we do it, and we have talked periodically.
My view is that while we have got a lot going on and there
are clearly workload implications, we are being true to our
core values and we have a constructive working relationship
with the SBA. I think the SBA has been responsive to us. I
think the SBA has, in most cases, agreed with our
recommendations, and I think, in most cases, they have also
moved to implement our recommendations within a reasonable
period of time. I consider that a win-win, quite frankly.
Chairman Bond. The Performance and Accountability Review
does put an extra burden on the SBA. Do you think that the
long-term benefits of that kind of review will outweigh the
short-term drain on resources?
Mr. Walker. Well, I do, but there are timing differences,
Mr. Chairman. As you know, sometimes you have to make an
investment in order to get the return, and I appreciate the
fact that we, the Committee, as well as the SBA, are making
significant investments in time and other resources now, but I
have no doubt that they will generate a return that far exceeds
the cost.
Chairman Bond. You have mentioned that the GAO is going to
provide Congress with a broad perspective on a number of
performance issues through your high-risk and performance and
accountability series and that you will provide an overall
report on the SBA as part of your series. What is your approach
to doing work at other agencies beyond the SBA for the high-
risk and performance and accountability series?
Mr. Walker. Mr. Chairman, we are currently looking at that
whole area right now and we will be publishing a proposal for
comment within the next several weeks that will lay out, for
example, what we see as the key functions that have to be
looked at across government. Obviously, there are key programs,
as well, and we will be laying out proposed criteria for what
it takes to become high risk and what it takes to get off the
high-risk list. In the past we have always had to employ our
professional judgment and we always will have to. However, I
feel it is important that the GAO have clearly defined,
consistently applied, transparent, and well-documented criteria
so that people can understand what the rules are and,
therefore, be motivated to keep off the list or to get off the
list.
We are also planning to focus on functions and programs
rather than departments or agencies per se because most
departments and agencies have strong suits and weak points.
Many departments and agencies are trying to make progress in
areas because they may have been challenged for years and it
takes time to be able to effectively address all those
challenges.
Chairman Bond. With my other role on the Appropriations
Committee, I know something about high-risk agencies and high-
risk programs, but we will save that for another day.
Senator Enzi, do you have questions for Mr. Walker?
Senator Enzi. Thank you, Mr. Chairman. Just a couple of
quick ones because those of us, of course, serving on this
Committee understand that small business is the most important
function in the whole United States. We are not prejudiced. In
spite of all the newspaper articles that show all these
multibillion-dollar mergers of organizations that obviously are
not small business, most of the businesses in this country and,
of course, all of the businesses in Wyoming, are small
business. So I appreciate the effort that the GAO is exerting
with the Small Business Administration and this oversight. But
for those who might not be on the Committee who might have an
interest, can you give us a little background on how they
became a pilot agency in the PAR process?
Mr. Walker. We are always trying to develop new tools and
methodologies to try to help us better serve the Congress, and
obviously our job is to maximize performance and assure
accountability. So we were experimenting with some new tools
and approaches and methodologies. We communicate with our
clients constantly, committee chairs, ranking members, and
other leaders, and in doing that, Senator Bond and others
expressed interest in the potential application of this to the
SBA.
The SBA is an agency in transition. It has many different
programs. In some cases, it has created programs on its own. In
some cases, Congress has created the programs. In fact, one of
their challenges is they have a proliferation and some of that
is Congress' doing rather than the SBA's doing.
Chairman Bond had thought that it might make sense for us
to focus on a few areas as a beta, as a prototype. We are also
doing this at other agencies, and quite frankly, we are going
to have to do it over a period of time. You cannot do it all at
once. We do not have the resources and the agencies do not have
the resources. In addition, the Committee does not have the
resources to do it all at once.
Senator Enzi. I appreciated your comment, too, in your
first chart where you talked about what the Government does and
how the Government goes about its business. I have changed that
slightly to what the Agency does and how we can tell when they
have got it done. That is one of the things that the American
people are looking for, is some finality, some method of
measuring, some method of knowing what their agencies are
really about and that they are achieving things, and I think
that is really the potential of GPRA, too.
You mentioned that there needs to be more focus on people,
more on the human capital. Could you expand on that just a
little bit?
Mr. Walker. Ultimately, people are what make things happen.
People represent the most valuable asset of the U.S.
Government. Government is a knowledge business. The Federal
Government faces an emerging crisis in the people area. The
Federal Government has downsized significantly, but it is how
it has gone about that downsizing that in many cases has placed
agencies at risk. Broad-based RIFs, hiring freezes, cutting
back on training, cutting back on enabling technology,
contracting out without necessarily having the right kind of
people with the right skills and knowledge to manage cost,
quality, and timeliness, has occurred at a number of agencies.
I think that we face a major challenge in the Government
where a significant percentage of the Federal workforce is
going to be eligible to retire over the next 5 years, where we
have increasing competition for talent, to attract and retain
top talent, that the skills that are required to meet the
public's demands, needs, and expectations are changing.
It is a critically important area that I am speaking out on
and that we are trying to lead by example with regard to
administrative actions at the GAO. As you may know, Senator
Enzi, I had global responsibilities for human capital for one
of the top consulting firms in the world.
I might add one other point. I think government as a whole
needs to undergo a cultural transformation. From my
perspective, and I have been in both the public and the private
sectors, government in many cases, and this is a generality, I
am not talking about a specific agency, tends to be too
hierarchial, too process-
oriented, too siloed or stovepiped, and too inwardly focused.
We need to transform over a period of time to be more
partnerial, which means more empowerment and more
accountability, more results oriented, focused on outcomes, not
outputs, more integrated, teaming, crossing boundaries,
departments, agencies, Federal, State, local, international, to
address challenges, and more focused externally, including on
what the taxpayers want, need, and deserve, and a lot of that
has to do with performance and accountability. That is what we
are focused on.
That is a huge cultural transformation. It is going to take
years, but it will pay major dividends for Federal employees,
for the Federal Government, and for the taxpayers.
Senator Enzi. You have just stated the benefits of GPRA
very well. Thank you.
Chairman Bond. Thank you very much, Mr. Walker. We
appreciate your testimony. We will keep the record open and as
the hearing goes on, there may be questions that we will submit
to you in writing for your reply. We do very much appreciate
your being with us and we thank you and dismiss you, if you
wish, if you have other responsibilities, or you are welcome to
stay.
Chairman Bond. Now I would like to call the second panel,
the members of the GAO who are responsible for the actual audit
projects.
Mr. Stanley J. Czerwinski is Associate Director of Housing
and Community Development Issues, Resources, Community, and
Economic Development Division of the GAO. Mr. Joel C.
Willemssen is Director of Civil Agencies Information Systems,
Accounting and Information Management Division of the GAO. Mr.
Michael Brostek is Associate Director, Federal Management and
Workforce Issues, General Government Division of the GAO.
Welcome, gentlemen, and Mr. Czerwinski, if you would begin,
please.
STATEMENTS OF STANLEY J. CZERWINSKI, ASSOCIATE DIRECTOR,
HOUSING AND COMMUNITY DEVELOPMENT ISSUES, RESOURCES, COMMUNITY,
AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING
OFFICE, WASHINGTON, D.C.
Mr. Czerwinski. Thank you, Mr. Chairman, and thank you,
Senator Enzi. We are here to discuss two reports that you
requested and released today on the SBA's 8(a) program.
As you know, the 8(a) program is the Federal Government's
primary tool for developing small businesses owned by socially-
and economically-disadvantaged individuals. There are 6,000
8(a) firms and these firms are eligible for contracts from
Federal agencies. These agencies set aside about $6 billion a
year in contracts. The firms are also entitled to technical
assistance and management training. However, we are unable to
estimate the extent of that technical assistance and management
training because the SBA does not have that capability.
I would like to highlight two points from our reports
today. The first is that when we did our review, we found that
the SBA's efforts are not aligned with the needs of the 8(a)
firms the program is designed to serve. Second, we found that
the SBA lacks the information it needs to direct its efforts
and to tell it how well the program is working.
To elaborate on the first point, as the chart to your right
shows, many 8(a) firms have received few or no contracts. In
fact, of firms in the program for at least 2 years, about a
quarter have never gotten a contract at all and over half have
obtained no more than one or two contracts their whole time in
the program.
Perhaps even more significant is the fact that a very small
number of 8(a) firms have garnered very large percentages of
8(a) contract dollars. For example, in fiscal year 1998, about
3 percent of the 8(a) firms received about 50 percent of the
8(a) dollars, while approximately 50 percent of the firms got
nothing at all. This is not a new problem. We reported it as
early as 1992. The Inspector General has reported on it since
then as well. And the SBA itself has even listed this issue as
a material weakness in its Financial Integrity Act reports
since 1994.
SBA officials agree the concentration of contracts is a
problem. However, they added that the program regulations do
not require or guarantee that all firms get contracts. They
also noted that the SBA relies on Federal agencies to make the
contracts.
In addition, SBA officials told us that there are more ways
to measure the success of the 8(a) program than just contracts.
For example, a prominent measure that the SBA uses to gauge the
success of the program is the technical assistance and the
management training it provides. However, the SBA has never
surveyed its customers, the 8(a) firms, to determine their view
on what makes the 8(a) program successful.
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Mr. Czerwinski. We surveyed 1,200 8(a) firms to find out
their expectations and their needs. As the chart to your right
shows, over 80 percent of the firms joined the 8(a) program to
obtain Federal contracts. As you can see, firms cared little
whether the contracts were explicitly set aside by 8(a) or with
Federal agencies in general. The bottom line is, the 8(a) firms
pretty much just want Federal contracts. On the other hand,
only about 20 percent of the firms told us that they joined the
8(a) program to get technical assistance and management
training.
[The chart follows:]
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Mr. Czerwinski. Our survey shows one reason this may be
happening is that 8(a) firms, by and large, have substantial
business experience. As the chart to your right shows, almost
three-quarters of the 8(a) firms have owners with over 10 years
of business experience. For example, one survey respondent told
us that he had 20 years of business experience. He joined the
8(a) to get help finding contract opportunities, but instead,
what the SBA offered him was rudimentary training that he told
us he did not need.
[The chart follows:]
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Mr. Czerwinski. The SBA has agreed with our recommendations
to periodically survey the 8(a) firms. This will help them
better understand what their firms need and how to meet those
expectations. The SBA has also agreed that it should place a
high priority on helping increase contract opportunities.
This brings me to the second point: The SBA currently lacks
information it needs to direct its efforts to help its clients;
it also lacks the information it needs to measure program
effectiveness. In addition to lacking data on customers' needs
and expectations, there are two other areas that I want to
point out today.
First, the SBA does not have information systems in place
to track the assistance it provides to 8(a) firms or the
results of that assistance. This is not a new problem. We also
reported back in 1992 that the SBA lacked these systems and the
SBA agreed to take action. After several stops and starts, the
SBA piloted such a system last year. However, the pilot has
shown some problems that really have to be worked out before it
can go online.
The other area that lacks vital information is contracts.
The SBA does not know which firms are getting contracts and
which are not. This is because when the SBA delegated contract
authority to agencies, it no longer required those agencies to
report contract activity directly to the SBA. Because the SBA
is still working through how it would get needed contract data,
it currently lacks information essential to managing the 8(a)
program.
As you can see, a root cause of some of the issues that I
have described is that the SBA lacks needed information
systems. Joel Willemssen, the next GAO witness, directs all of
the GAO's work on information technology. He will discuss the
SBA's information systems in more detail.
However, before I turn it over to Joel, I would like to
close by saying that throughout the course of our work, we have
shared our findings with the SBA. In fact, last month, we
provided drafts of the reports being released today. The SBA
has agreed with the findings. They have also promised to act on
our recommendations. We believe that such actions should lead
to significant improvement in the 8(a) program.
That concludes my statement, Mr. Chairman. I would be glad
to respond to any questions you might have.
Chairman Bond. Thank you very much, Mr. Czerwinski.
[The prepared statement and attachments of Mr. Czerwinski
follow:]
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Chairman Bond. Mr. Willemssen.
STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, CIVIL AGENCIES
INFORMATION SYSTEMS, ACCOUNTING AND INFORMATION MANAGEMENT
DIVISION, U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C.
Mr. Willemssen. Thank you, Mr. Chairman. Senators, thank
you for inviting us to testify today. As requested, I am going
to briefly summarize our statement, which will discuss the
results of our recent review of the SBA's management of
information technology, and I am going to quickly run through a
series of slides of which you also have a hard copy in front of
you.
In looking at IT at the SBA, we focused on five areas:
investment management, systems architecture, software
development and acquisition, computer security, and IT human
capital. In doing so, we particularly focused on policies,
procedures, and practices and compared those with industry
standards, legal requirements, and other generally-accepted
guidance. Then, portraying where the SBA stood at a particular
point in time, we gave indications by using either a blank
circle to show that policies and procedures largely did not
exist and practices were ad hoc; a half-circle to indicate that
policies and procedures were predominantly current, although
not all practices were in place; or a full circle to indicate
things were being done in a comprehensive fashion.
Just quickly going through a summary of some of these key
areas: first, the investment management area for information
technology, that is, controlling projects from a cost, benefit,
and risk perspective through their life. The SBA has much
remaining to be done in this particular area. They are
committed to doing that. They have an investment review board
that has been established and is beginning to work. However,
there is more to be done in terms of getting the necessary data
out of those processes and also bringing that to bear on
decisions that are to be made on investment technology
projects. So there is more to be done, but the SBA does have a
commitment for doing so.
The second major area has to do with systems architecture--
a blueprint for an entity to follow to provide seamless, cost-
effective services to its users. The SBA has made progress on
this, due in large part to their planning efforts on their loan
monitoring system. Among the areas they still need to work on,
though, is the change management area, where system changes are
made. They need to make sure that that is still linked to the
overriding systems architecture.
Another critical area is software development and software
acquisition. If you look at major information technology
projects, software is often the underlying cause for why
projects do not come in on time or over cost or do not meet
performance goals. In this area, the SBA has a lot of work
remaining. They are committed to doing so. I have noted in
their statement, in the Administrator's statement this morning,
that she plans to pursue more of their effort on the
acquisition side rather than the development side, and we are
encouraged by that.
Another important area is computer security. The SBA has
made good progress on this in terms of making its staff aware
of the need for security and implementing necessary system
controls. They still need a bit more effort in making
assessments of the risk of threats and vulnerabilities to their
systems and to the integrity of their data.
And then the last overall functional area we looked at in
the information technology area was human capital--
understanding clearly what it is you need both with in-house
staff and contractor staff, making an assessment of your
current inventory, identifying the gaps, strategizing to fill
that gap, and periodically reporting on where you are. The SBA
still has a long way to go. They have done some inventory
efforts, but work remains to be done there.
This last slide just gives you an overall summary of the
five IT functional areas and the 37 data points that we used in
conducting our review and presenting the results. We have made,
associated with this area, 18 recommendations to the SBA for
improvement. The SBA has agreed with those recommendations. And
I may also say, Mr. Chairman, the SBA has shown with its top
management a clear commitment to implement these
recommendations and to improve its management of information
technology.
That concludes the summary of my statement and I also would
be pleased to answer any questions. Thank you.
Chairman Bond. Thank you very much, Mr. Willemssen.
[The prepared statement and attachments of Mr. Willemssen
follow:]
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Chairman Bond. Mr. Brostek.
STATEMENT OF MICHAEL BROSTEK, ASSOCIATE DIRECTOR, FEDERAL
MANAGEMENT AND WORKFORCE ISSUES, GENERAL GOVERNMENT DIVISION,
U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, D.C.
Mr. Brostek. Mr. Chairman and Members of the Committee, I
am pleased to be here to present our observations on the SBA's
management of its human capital. Whether one looks at how well
programs are implemented, as Mr. Czerwinski has done, or at how
well agencies carry out important managerial support functions,
as has Mr. Willemssen, ultimately, an agency's most important
asset is its human capital. It is the people who staff an
agency whose talent, motivation, and collective effort support
organizational success.
I would like to make two points today about the SBA's
management of its human capital. First, the SBA has developed a
vision for how it would like to operate in the future. That
vision, which includes transitioning its workforce from
approving and servicing loans to primarily reaching out to new
markets and overseeing private sector partners, has
implications for the management of its workforce.
Second, the SBA has begun to take steps to better manage
its human capital, such as undertaking various workforce
planning activities. However, more remains to be done,
including completing its efforts to identify the knowledge,
skills, and abilities that its employees will need to perform
successfully in the SBA's new business environment; estimating
the number of employees with those skills that they will need;
developing a succession plan for senior leaders and reinstating
candidate development programs for those leaders; and finally,
ensuring that employees receive adequate training to perform
their jobs well.
Before I proceed further, let me explain the basic steps of
workforce planning, which will sound quite similar to what Mr.
Willemssen has just described. A workforce plan begins with a
strategy for how an organization plans to do its business,
which will often differ from the way it is presently doing
business, and that is the case with the SBA. Once a strategy
for how business will be done is complete, an organization must
determine how many workers with what knowledge, skills, and
abilities will be needed to successfully carry out that
strategy. This, then, can be compared to the organization's
current workforce to measure whether there is any gap in terms
of numbers and skills.
When the extent and nature of any staffing gap is known,
then a plan can be constructed for addressing that gap. The
plan might include hiring new staff, retraining current staff
to acquire new skills, or possibly contracting to obtain
services.
In relation to these workforce planning steps, the SBA has
developed a vision for how it would like to operate in the
future and it has communicated that in accordance with the
Government Performance and Results Act. The plan calls for
sharply increasing the amount of financial business development
and procurement assistance for new markets, that is,
minorities, women, veterans, Native Americans, small exporters,
and businesses in low- and moderate-income urban and rural
areas. In addition, the SBA intends to continue increasing the
portion of loans that are approved and issued by third parties
and to sell assets currently in its portfolio.
These changes mean that the SBA will, for example, need to
assign more employees to oversee lenders and to perform those
outreach services that it anticipates providing to new market
businesses.
The SBA has recognized that these changes will require
different skill sets than employees may now have. Accordingly,
the SBA has determined that it needs to develop competencies,
that is, definitions of the knowledge, skills, and abilities
that staff will need to perform five functions: Marketing and
outreach, leadership, business development, lender oversight,
and procurement. While the SBA has developed the competencies
for two of these functions, the marketing/outreach and the
leadership function, it has not yet done so for the other
three.
The SBA also recognizes that it must assess the skill of
its current employees in order to measure that gap between
current skills and those that will be needed in the future.
This remains to be done.
In the interim, the SBA has begun training some of its
staff in the skills that it has identified for the marketing/
outreach and leadership functions. It is relying also on
employees who already perform such functions as lender
oversight to train additional employees for those activities.
Although training has been identified by the SBA as
critical to transitioning its workforce to the skills needed to
implement its new business approaches, fewer of its employees
report that they have received the training that they believe
they need to perform their jobs than did Federal employees
governmentwide in surveys conducted in 1998 and 1999. And,
indeed, the percentage of the SBA employees who reported that
they felt they were adequately trained decrease between 1998
and 1999.
The SBA also believes that leadership is key to its ability
to successfully transform its workforce and to implement its
new business practices. Thus, leadership was one of the first
competencies that the SBA defined. However, the SBA does not
have a succession plan for developing its future leaders and it
has not had candidate development programs for senior
executives and district directors since 1995.
As I noted earlier, the SBA has undertaken numerous human
capital initiatives over the past several years. These include,
for instance, reallocating its current workforce to better
balance the resources available to provide services to clients
locally, beginning to identify the skills that staff will need,
and initiating training for those new skills. In addition, this
spring, the SBA contracted to develop a workforce transition
plan that is intended to help it begin addressing the
additional steps that we believe need to be taken.
In summary, although the SBA has taken steps to address
human capital management challenges, these efforts are
incomplete in several important areas and the efforts that have
occurred have not been guided by an overall workforce plan.
While a plan itself cannot ensure success in transitioning the
SBA's workforce, a well thought out plan increases the odds
that the Agency will be successful. Implementing that plan,
once it is developed, will take several years and will require
sustained attention by the SBA leadership.
That concludes my oral statement and I would be happy to
join the others in answering questions.
Chairman Bond. Thank you very much, Mr. Brostek.
[The prepared statement of Mr. Brostek follows:]
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Chairman Bond. We have been joined by our Ranking Member,
Senator Kerry, so let me turn to Senator Kerry for comments and
questions. Good morning.
OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, RANKING
MEMBER, COMMITTEE ON SMALL BUSINESS, AND A UNITED STATES
SENATOR FROM MASSACHUSETTS
Senator Kerry. Good morning, Mr. Chairman. Thank you very
much.
Let me begin, if I may, by expressing what I know others
have already said today, which is our sense of personal loss
for our colleague, Paul Coverdell. He was what I would describe
as a gentle soul and one of the kinds of people here who helps
to make this place work and function effectively, who reached
across the lines.
I particularly enjoyed working with him, not just on this
Committee, where he was always thoughtful and steady, but on
the area of education, where he had been charged with
responsibilities by the Leader. He and I spent a great deal of
time in the last year and a half trying to find the bridge
between our two parties and he was always thoughtful and always
extraordinarily generous as a listener, so we obviously will
miss him greatly and my condolences go out to his family, to
all of his staff, and to everybody who feels the sense of loss
that the Senate feels today.
I apologize to Mr. Walker, who I know has had to leave, and
to my colleague, the Chairman, for not being able to be here at
the beginning of this. I certainly welcome the Administrator
and I am very grateful to her and I think the Committee should
be very grateful to her for sitting through the whole hearing
and then responding at the back end.
This is an important hearing. It is always important for
the United States Senate to take the time to conduct oversight.
I have always been a strong believer in oversight. When I was
chairman of a number of subcommittees, I took the time to do
that, and I thank you, Mr. Chairman, because I do think it is
an important part of our role. In too many committees, they do
not take the time to do it and then we pay a price somewhere
down the road because of that. So I think we have passed good
legislation, and that is always important, but it is important
for us to know what is happening within the Agency that we fund
and how effectively it is implementing reforms that are needed.
I also think, at the same time, there can be a tendency in
the oversight process not to be positive enough about the good
things that entities are accomplishing when they are
accomplishing them. I do not think the record should avoid an
affirmative understanding of the degree to which the SBA has
been transformed in recent years from an agency that some
sought to literally do away with to an agency that is, I think,
extraordinarily strong, extraordinarily capable and dynamic,
and I commend Administrator Alvarez for an impressive job,
particularly under difficult circumstances with respect to the
budgeting.
Mr. Chairman, I would like to ask unanimous consent that a
letter addressed to me as Ranking Member from the Administrator
regarding the need for the budget, for the full fiscal year
2001 budget proposed in the President's budget, be made part of
the record.
Chairman Bond. Without objection.
[The letter of Senator Kerry follows:]
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Senator Kerry. Thank you. I think it is very important for
us to understand the linkage between certain kinds of resources
that provide the technical capacity to do some of the things
that the panel before us has just talked about, and I am
confident that they will affirm that to us, that there is that
linkage.
In addition, I will not take the time now to go through all
of what the Agency has accomplished. I do think it is important
to recognize that just one company that it has helped, and
there are many that it has helped to form, just one company,
Intel, for instance, pays yearly taxes to the Federal
Government that completely cover the Agency's annual budget. So
we need to measure the numbers of people who have received
help, the amount of commerce and transaction that takes place,
the numbers of jobs created, the amount of tax base returned to
the United States by virtue of the SBA, and I think that needs
to be part, also, of the oversight process.
I also want to say, Mr. Chairman, I think we need to be a
little bit cautious about the amount of current oversight
taking place. This is a good report and I am not suggesting
this is not a healthy and important process. But in the past
year, the SBA has been the subject of over 40 GAO audits or
reviews, and I think 20 to 24 are currently underway. One of
the things we might want to consider is how much administrative
time gets chewed up responding to these kinds of requests and
how it needs to be measured against the overall availability of
personnel and capacity to do it.
Now, on the 8(a) program, I know that some of the
criticisms found are similar to criticisms that have plagued
the program for many years and we are struggling with them. But
I do think that it is also important to note that the Agency
has taken numerous steps over the last years to try to
guarantee that 8(a) firms in larger numbers will receive
contracts, and I think that has been a good faith effort.
I am not going to go through all of my thoughts and
comments on the report here, but I do think that the
methodology needs also to be as fair as possible. Let me just
give an example.
One of the criticisms was that the SBA needs policies and
procedures to control key IT processes. That is sort of a
headline in the report. Well, we all agree that there is room
for more improvement, but in my judgment, it might be more
accurate to say that the SBA needs more policies and procedures
because the headline sort of suggests that there are not any.
It needs policies and procedures. Well, there are some. It just
needs more and needs to refine them.
Another example would be that the rating system set forth
is kind of all or nothing. You get this empty circle, which
represents incomplete or obsolete policies, and then you have
the half-circle, which represents policies and procedures for
key functions, but there really ought to be some kind of a mark
or circle to represent that they are drafting policies or have
hired consultants who are developing policies or procedures are
currently being put in place. There is a distinction between
ignorance and complete avoidance of responsibility and simply
developing policies or procedures, or being behind where you
would like them to be. There is a distinction between that and
simply not doing anything.
So these are the kinds of things that I think are important
to the fair-mindedness and level-playing field as we try to
approach this. But again, I think the gist of what has been
presented is very important to us as a Committee. I think it is
a good report, a good piece of work by the GAO, and it will be
helpful, ultimately, in making the SBA even stronger, and I
think the Committee is grateful for that.
Mr. Chairman, I thank you for allowing me the time to make
an opening statement.
[The prepared statement of Senator Kerry follows:]
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Chairman Bond. Thank you very much, Senator Kerry.
I will submit for the record a letter I sent to
Administrator Alvarez in response to her concerns about the
budget in which I laid out my views.
[The letter from Chairman Bond follows:]
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Chairman Bond. We have been joined by the Senator from
Maine, Senator Snowe. We call on you for comments, questions,
or other observations you wish to make.
OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, A UNITED
STATES SENATOR FROM MAINE
Senator Snowe. Thank you, Mr. Chairman. I, too, want to
express my profound sorrow over the loss of our beloved
colleague who served on this Committee and did so many things
in the United States Senate that enhanced the institution and
enhanced this country. I describe him as a legislator's
legislator because he was always developing thoughtful,
productive, constructive initiatives to move the process
forward, always trying to design solutions to the problems. We
are all going to be diminished by his loss.
Mr. Chairman, I just want to commend you for holding this
hearing. It is an appropriate function of this Committee to
conduct oversight. I congratulate the GAO, who always does an
outstanding job in evaluating programs and functions of
agencies and also welcome Administrator Alvarez, who I know is
taking steps to enhance and strengthen the SBA.
We all support what the SBA does, and as Senator Kerry
indicated, it was not too long ago it was targeted for
elimination. That is why I think it is so important to
constantly evaluate and reevaluate the responsibilities of the
SBA's role so that we can ensure that these programs are being
implemented and also fulfilling the mission to which it was
designed.
So I want to thank you, Mr. Chairman, for holding this
hearing so that we can do everything possible to ensure that we
are evaluating these programs, because I think it is exactly
what we need to do. In the private sector, they are constantly
conducting customer satisfaction surveys and it should be no
different in these programs that we are designing to help small
businesses and employees to move forward. I hope that we can
learn from what has been suggested here today and see what we
can do to ensure that these suggestions are incorporated within
the Agency's missions and procedures.
Thank you, Mr. Chairman.
Chairman Bond. Thank you very much, Senator Snowe.
Senator Kerry. Could I just ask unanimous consent that my
comments be placed in the record?
Chairman Bond. I would hope you would include them because
we look forward to reading them, and without objection. We were
disappointed that you did not have a chance to give them, but
now that they are made part of the record----
Senator Kerry. I mean, if you wanted me to, I would be
happy to----
Chairman Bond. Well, I do not want to impose on you,
Senator----
[Laughter.]
Chairman Bond [continuing]. But we will be more than happy
to include them and send them around to all the Members for
their thorough review.
Let me turn to Mr. Czerwinski. There have been comments
made and I know the Administrator in her testimony will talk
about the accomplishments of the SBA. Let me just ask, in
overview, do you agree that while the SBA has made strides
toward serving small business, that there are still some
shortfalls that need to be addressed? What is your assessment
of what the SBA is doing generally?
Mr. Czerwinski. Absolutely, the SBA has made
accomplishments, and one of the things that has impressed us is
how receptive the SBA is to the recommendations we make. So
they are on the right track.
Chairman Bond. That is very encouraging and I appreciate
hearing that.
Let me turn now to a detail. Administrator Alvarez, I
think, notes about $180,000 was spent by the SBA in providing
information to the GAO. My understanding is that the SBA
established a centralized system to manage the GAO report,
which is not customary in other non-military agencies. Is that
true, and is this a more expensive way to deal with the GAO?
Mr. Czerwinski. Yes, that is true. We try to keep our
requests for information reasonable. Whenever we are doing
work, it is going to entail an effort for the Agency. In this
case, we have a point of contact very high up in the Agency,
the Chief Operating Officer, and when we ask for information,
the SBA has let us know if there is a problem. We have not been
told about any specific requests for information that have been
considered excessive.
Chairman Bond. But this is a more resource-intensive way of
handling the operation than other agencies under audit have
utilized?
Mr. Czerwinski. Yes. We audit a number of agencies. The SBA
definitely has a process in which our work has a much higher
level of attention than within other agencies. That is the plus
side. The down side is I am sure it costs them and takes them
time to do that.
Chairman Bond. Let me turn to the customer satisfaction
now. In your report on 8(a) specifically, what did you find
that the customers or the SBA employees, for that matter,
stated with regard to the satisfaction with the manner in which
the 8(a) program is being operated?
Mr. Czerwinski. We surveyed the SBA's customers, the 8(a)
firms, and we asked them what they wanted from the 8(a)
program. They told us they want contracts. And we asked them
what they thought they were getting. A very large number of
respondents did not feel they were getting the kind of contract
assistance they needed, so there was a level of dissatisfaction
that was out there in the SBA's 8(a) customers.
Chairman Bond. How about among the employees of the Agency
itself ?
Mr. Czerwinski. We did not survey the Agency employees. We
did visit field offices and asked the business opportunity
specialists what kind of things they did, what kind of things
they would like to do. There was a disconnect because we saw a
lot of these specialists doing more in terms of checking, such
as getting reports, as opposed to the outreach that the
customers are calling for them to do.
Chairman Bond. So we have got a mismatch, some mismatch
between customer needs and the kind of service provided.
Let me ask the full panel, under the PAR review, do you
believe that the SBA's shortfalls in the management of human
capital and information technology have contributed to the
problems in the 8(a) program, specifically the ability of the
SBA to maintain a data base to understand how the program is
operating or whether its business opportunity specialists
provide useful service?
Mr. Czerwinski. If I could take the first stab at that----
Chairman Bond. Please.
Mr. Czerwinski [continuing]. Because I think it is probably
easier to start from the programmatic perspective. Your
question gets to the very heart of what we are trying to do and
that is to integrate what we are finding in the programs with
what we are finding in functions. And yes, the 8(a) program
would be much better off, for example, if its information
systems were stronger. So that kind of functional link-up with
programs is essentially what we found.
Chairman Bond. Mr. Willemssen.
Mr. Willemssen. I would concur with Mr. Czerwinski's
comments. To the extent that the SBA already has in place and
can have in place a standard way of doing business for
acquiring and operating information systems, it is much less
likely they will run into the impediments they have in certain
programs and supporting systems. It will become more routine
and easier to do business and systems will come on line that
much more quickly.
Chairman Bond. Mr. Brostek.
Mr. Brostek. I do not think the work that we have done
enables us to say that human capital problems have led to the
problems that Mr. Czerwinski talked about. I would note that to
the extent that the SBA would need to refocus the program to
provide more of the services that the customers are expecting,
that that could have some human capital implications. It might
require some retraining of employees to be able to perform
those functions more in the manner the customers would like.
Chairman Bond. Thank you. I will turn now to Senator Enzi
for his questions.
Senator Enzi. Thank you, Mr. Chairman.
Mr. Czerwinski, on your first chart, it showed that the SBA
was not meeting the expectations of the 8(a) minority program
participants. We want to get the job done. Did the SBA staff
give you any insight into what obstacles prevent them from
doing their jobs better?
Mr. Czerwinski. Yes. The major obstacle that they pointed
out to us was resources, specifically resources for travel. The
business opportunity specialists told us that one of the things
that they wanted to do was to get out there, to see the firms,
to work with them. The firms told us they also wanted the
opportunity specialist to be out there working with them to
help them get contracts. This kind of connection was not
happening anywhere near as much as both the firms and the
business opportunity specialists in the field wanted it to
happen.
Senator Enzi. If the staff is not able to travel, what are
they doing?
Mr. Czerwinski. As I mentioned, we have found that the
business opportunity specialists have a lot of
responsibilities. They are very, very busy and we received very
high marks on their courteousness, their service orientation,
et cetera. However, what they were doing primarily was checking
and verifying the reporting requirements, documentation, et
cetera, for firms' participation in the program.
Senator Enzi. That seems to show up in the comments by the
businesses that were interviewed, as well.
Mr. Czerwinski. Yes, Sir.
Senator Enzi. You mentioned that the staff did not have
sufficient travel funds. Didn't the GAO recently report about a
similar problem involving the procurement center
representatives?
Mr. Czerwinski. Yes, Sir. That is exactly the same issue
that came up in that report.
Senator Enzi. Are not the SBA's procurement representatives
supposed to be working aggressively at major Federal
procurement centers seeking contracts that can be set aside for
small businesses?
Mr. Czerwinski. Exactly. The concept is for them to be
reaching out, being a part of those operations, helping out on
the ground.
Senator Enzi. Is it reasonable to believe that they can do
that job without traveling?
Mr. Czerwinski. No. You have to be there.
Senator Enzi. Mr. Chairman, there does seem to be a growing
problem at the SBA where front-line staff who are supposed to
be helping small businesses obtain government contracts are
unable to do their jobs because they do not have sufficient
travel funds. I know that our colleague, Senator Coverdell, was
pursuing an investigation into the use of travel funds at the
SBA. If it is OK with you, I would like to pick up the work
where Paul left off.
Chairman Bond. I would appreciate that. I think that is
very important. Mr. Czerwinski has just raised a major problem
and I would ask that you work with the GAO and the SBA on this
question.
Senator Enzi. Thank you. In particular, I am concerned
about a report recently provided to the Committee by the SBA
Inspector General. The report details how the SBA maintains a
second set of budget books where appropriated funds for SBA
programs are skimmed off into a separate account to support
unrelated activities at the SBA and the report suggests that
some of these appropriated funds were used to support some
overseas travel.
Last night, we received some documents--actually, I think
it was this morning--from the SBA at the Committee's request
that gives the Agency's ledger, which details transactions from
this separate account, which I want to get more details on, and
which the SBA refers to as its reserve account. The SBA
provided the Committee with two versions of the reserve
account. One of them is marked ``confidential'' and one does
not carry the confidentiality label. I believe these documents
are important as our Committee reviews the Agency's use of this
offline account, and I would request that the version of the
ledger that is titled ``Sorted by Function'' and not marked
``confidential'' be included in the record today.
Chairman Bond. Without objection.
[The information of Senator Enzi follows:]
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Senator Enzi. Mr. Chairman, the accountant in me says that
we need to look further into the report. I am particularly
interested in how this comes about and how it shows up on the
Federal Financial System. It would seem to me that the
Inspector General at the SBA would be the appropriate office to
turn to for help. Seeing the people from the SBA, I assume that
somebody from the Inspector General's office is here.
Chairman Bond. Is there somebody from the Inspector
General's office here?
Mr. McClintock. Yes, Sir.
Chairman Bond. And your name is, Sir?
Mr. McClintock. I am Peter McClintock, Deputy Inspector
General.
Chairman Bond. Mr. McClintock, thank you.
Senator Enzi. According to the advisory memorandum, your
audit of the Administrator's reserve account covered a period
ending April 1999. I believe that is even on your website.
Would it be possible for you to audit the activities of that
reserve account since the last report and covering the
remainder of the fiscal year 1999 and 2000, bringing it up to
date, and would it be possible for that to be done by August 7
so we can be reviewing it during the recess?
Mr. McClintock. We would be glad to do whatever we can and
I could meet with the staff in order to work out the details.
Senator Enzi. I would appreciate it. Thank you.
Thank you, Mr. Chairman.
Chairman Bond. Thank you, Senator Enzi. Thank you, Mr.
McClintock.
Senator Kerry.
Senator Kerry. I am puzzled by that foreign travel thing
here. Is there something out of the ordinary about some foreign
travel?
Mr. Czerwinski. We have not looked at foreign travel in any
parts of our reviews.
Senator Kerry. I remember I was down in Buenos Aires for
the climate control meetings and while I was there I happened
to meet with the ministers of trade and others and they were
very excited about a visit from our Treasury officials and, I
think, our small business officials. They wanted to know how to
do small business the way we do it in our country and they were
particularly looking forward to sort of learning how we do our
SBIC, SBIR, where to start, what is the relationship and so
forth.
It seems to me, and I wear the hat on both the Foreign
Relations Committee and Intelligence Committees, that that is
precisely what we are trying to do in terms of encouraging
other countries to become capitalist and democratic, and the
more we can encourage them to be able to embrace our business
practices and learn from us, the stronger it is for us.
So I am puzzled by it. I will certainly wait to see what
the interest is or what the ramifications are, but do you not
have anything to share with us at this point in time about
that?
Mr. Czerwinski. No. We have never looked at that issue at
all.
Senator Kerry. Let me ask you another question. I assume
that the capacity of people to be able to get out and get
around the country and do the things they need to do is clearly
a function of the overall budget of the Agency.
Mr. Czerwinski. Absolutely.
Senator Kerry. Now, is it your judgment that the overall
budget of the Agency is adequate?
Mr. Czerwinski. I am not going to pass judgment on their
overall budget.
Senator Kerry. I mean, can they do the tasks you are
criticizing them for without resources?
Mr. Czerwinski. We are talking about targeting the
resources the SBA already has. Let us just take the 8(a)
program as an example of how to use the Agency's budget and
resources most effectively, and we think they could do things
more effectively. If the 8(a) program had a better sense of
what its customers' needs and expectations were, if the SBA had
better ways of tracking the service it provided and then
measuring the results, that would then lead to a more efficient
use of the resources and greater accomplishments in terms of
meeting customers' needs.
Senator Kerry. Have you made a specific recommendation of
how to go about that?
Mr. Czerwinski. Yes, we have. We have a series of
recommendations.
Senator Kerry. Could you share with me quickly what you
think should be done?
Mr. Czerwinski. Sure. The very first step is for the SBA to
periodically do what we did: survey its customers. What they
need to do is to find out exactly what the profile of the 8(a)
firms is and what the firm's needs are. That just gives them a
starting point. That gives the SBA essentially a mission, a
strategy for meeting the firms needs: essentially outreach,
focusing assistance in certain areas, in this case contracting.
Then what is very important is to have in place information
systems that capture the amount of assistance provided in terms
of contracts, training, technical assistance. That then feeds
back into measurements that the SBA needs to establish for
accomplishing each of those things, which then cycles back to
what the customers are needing. So it should be a customer-
driven system. That is what our recommendations essentially
state.
Senator Kerry. Just based on my experience, that sounds
like a relatively labor-intensive effort.
Mr. Czerwinski. I think especially in the information
systems, you are talking about a fair amount of work. Mr.
Willemssen can give more details.
Senator Kerry. It seems to me that what you are talking
about is a combination of labor-intensive and capital, I mean,
equipment-intensive. Information technology requires the
software, it requires the computers and so forth. Is there some
kind of conflict here between what you recommend and the
drastic cuts that have taken place to the 7(j) funds? Did you
measure that?
Mr. Czerwinski. We did not look at what impact the cuts in
7(j) funds had, but we would suggest that the SBA should take
the model that we provide, and use that model to come up with a
budget. I suspect that when all is said and done, yes, it will
take more resources, but we think the SBA could then have a
compelling case for asking for resources.
Senator Kerry. Good. Well, I will be interested to hear
their point of view on that, but that sounds like a fair
observation in the abstract, if you are acknowledging that it
may take some additional resources.
Mr. Czerwinski. Absolutely.
Senator Kerry. Thank you, Mr. Chairman.
Chairman Bond. Thank you, Senator Kerry.
I have asked Senator Enzi to go participate in the vote and
come back so that we will have minimal disruption, and then you
and Senator Enzi can carry on, but I will ask a few more
questions before I have to go to vote.
Mr. Czerwinski, I had a number of questions about the 8(a)
program. I believe you have addressed those in your testimony.
Since 1992, the GAO reported that only a small number of firms
participating in the 8(a) program received most of the 8(a)
awards. Now the SBA reports that it has reduced the
concentration of 8(a) awards among the top 10 firms by 40
percent between fiscal years 1997 and 1998. Has the
concentration of contracts among a small number of firms really
improved?
Mr. Czerwinski. Concentration was a problem and still is a
problem. There are two points that I would like to make on the
measure that the SBA uses.
For one, the SBA talked about the top 10 firms. If you will
recall, there are 6,000 firms in the program. I think the SBA
needs to have a deeper measure than 10 of 6,000 firms. That is
why, when we talked about concentration, we talked about 50
percent of the firms and what kind of coverage they have. In
addition to that, the SBA's number talks about 1997 to 1998.
Preliminary numbers for 1999 indicate that the trend has
reversed and that concentration is pretty much where it was.
Chairman Bond. So a small number of firms are really
winning. Can you give us an idea of what would be a cutoff? How
many contracts are going to a small number of firms?
Mr. Czerwinski. We found there are $6 billion contract
dollars. But the key is dollars.
Chairman Bond. Dollars, yes.
Mr. Czerwinski. That is what drives these folks. Dollars,
not numbers of contracts. There are $6 billion being made in
contracts annually. There are 6,000 firms out there competing
for those. We found that approximately 200 firms got $3
billion.
Chairman Bond. Wow.
Mr. Czerwinski. So the other 5,800 got the balance. Of
those 5,800 that got the balance, we found that 3,000 got none
at all.
Chairman Bond. So 200 shared in $3 billion.
Mr. Czerwinski. That is correct.
Chairman Bond. The SBA, I believe, would state that the
Agency could have access to better data under the 8(a) program
if Congress were to permit it to move forward quickly on
systems modernization. Let me ask about the systems. Has the
SBA made sufficient progress in its information technology
planning so that we can be assured that such funds will be used
effectively and efficiently, or do you believe it is time to
move ahead?
Mr. Willemssen. We still have 13 outstanding
recommendations related to SBA's planned loan monitoring
system. Eight of those focus particularly on the system, five
on more cross-cutting areas. The SBA is committed to
implementing the majority of those recommendations. Just within
the last week, they have again supplied us with a great deal of
information that we are currently analyzing to make judgments
as part of our ongoing review as to whether they are ready or
not.
Chairman Bond. You examined, Mr. Willemssen, several
projects on information technology. Is there a problem with a
lack of documented practices and procedures and does that have
any impact on cost increases, schedule delays, or unacceptable
performance?
Mr. Willemssen. When these generally accepted procedures
and practices are not in place, it can have an impact. We have
identified a couple of examples. For example, there was an
effort known as Smart Stream within the CFO's office where
about $2.4 million was spent on a commercial off-the-shelf
package for personnel actions, financial management, and
procurement. That encountered a lot of software problems. The
personnel component was abandoned after 18 months and the other
two components were never implemented. So that is just one
example of why it is important to have routine procedures in
place so that there is a way of doing business to avoid
situations such as that.
Chairman Bond. To give me a better understanding, what kind
of procedures would you have proscribed that would likely have
avoided essentially wasting $2.4 million?
Mr. Willemssen. Yes, Sir.
Chairman Bond. What kind of procedures were not in place
that should have dealt with that?
Mr. Willemssen. Before major information technologies are
embarked upon, there is a process where top leadership buys in
and says, ``Yes, we want this particular project. It is clearly
worth the cost. It links to the mission we want to achieve. The
risks are manageable. Let us go ahead with it.'' Once that
project is initiated, there needs to be continued monitoring of
that project. To the extent that it gets off the rails, gets
off track, there needs to be corrective action. And then once
the project is implemented, you need to do a post-mortem
assessment to see if it is indeed fulfilling the goals that
were intended.
Without that kind of process, every project can get started
without the kinds of controls that are necessary. Additionally,
software-intensive projects need those kinds of controls to
reduce the risk that they also will be over cost and not come
in on budget.
Chairman Bond. Obviously, we are at the post-mortem state
on that software package. That fell off the rails. Did the SBA
fail by not having the top level people implementing the system
buy into the process or where was it that it went wrong?
Mr. Willemssen. Yes, not looking at it from an investment
management perspective, not having software acquisition
practices in place, and then making sure that it could operate
in an integrated fashion with the other systems that the SBA
had.
Chairman Bond. Given the concerns you outlined and the
reports that you gave us that are documented on this chart, I
am concerned that some of the deficiencies could adversely
affect the SBA's ongoing development of its loan monitoring
system. Is this a reasonable concern?
Mr. Willemssen. It is a reasonable concern and it is the
primary reason why planning for the loan monitoring system has
been stretched out to some degree. The SBA, I believe, has been
very responsive to issues that we have raised. We, along with
the SBA, do not want to see a failure as it pertains to the
loan monitoring system. We want it to be done right, and
clearly, the SBA does, too. So they have taken the extra step.
They have not bitten off too much at one time. They are taking
a piecemeal approach to try to do it right. By not having those
instituted processes in place, it therefore has stretched out a
little bit longer than probably the SBA would have liked.
Chairman Bond. In response to the GAO report, the SBA
states that it has been recommended that the SBA adopt
practices not utilized by other Federal agencies, and,
therefore, comparing the SBA with other agencies, there is not
a problem with SBA current practices.
Let me ask you a three-part question. First, what are the
standards against which SBA performance is judged and are these
reasonable for a Federal agency to follow? Second, is the SBA's
claim true that the GAO conducted its study based on standards
that are ideal rather than practical? Third, should we in
Congress be satisfied if it is true that the SBA performs as
well as other Federal agencies with respect to IT?
Mr. Willemssen. Taking your first question, we used a range
of criteria in assessing the SBA. Generally speaking, what we
considered is standard industry practice, in addition to legal
and regulatory requirements. The Clinger-Cohen Act, passed in
1996, was a major piece of criteria that we used, the intent of
the Act is to try to end the cycle of failures of information
technology projects. We also used guidance from the Software
Engineering Institute associated with Carnegie-Mellon
University, specifically in the software development and
acquisition area. We also used guidance from the IEEE, also the
National Institute for Standards and Technology, and OMB
guidance.
So there is a range of guidance out there. We have used
this guidance for some time. The part of our report today that
is a little different is the display of the circles. That was a
prototyping effort as part of this project we did at the SBA.
But I think the criteria are generally accepted. It
provides the SBA with a road map for where they need to go to
better manage information technology. I think these are the
appropriate criteria to use. I would be the last person to say
that the criteria should be the standards other Federal
agencies are adhering to because having done this for the
better part of the last 20 years, I can tell you, we repeatedly
see problems across government. Therefore, I would not hold
Federal agencies out as the standard. We need to strive beyond
that and go to generally accepted practices and what the
industry sees that should be done.
Chairman Bond. One quick anecdote. When I came to the
Senate in 1987, the young people that came with me who had been
using information technology with me previously during the
campaign had to forget their skills and move backward several
generations to deal with the equipment that we had in the
Senate.
With that, let me turn the gavel over to Senator Enzi. I
will return but meanwhile, we will keep the hearing going.
Thank you very much.
Senator Enzi [presiding]. I always enjoy hearing those
words ``generally accepted.'' Of course, I like ``accounting
practices'' to be thrown in there.
I do not have any more questions for this panel. If anyone
does, everyone has the opportunity to submit some additional
post-hearing questions. So we thank you for your testimony and
your answers to the questions.
Senator Enzi. At this point, we will go to the
Administrator of the Small Business Administration, Aida
Alvarez. We appreciate her attendance this morning and her
participation.
But first, we will have a short recess.
[Recess.]
Senator Enzi. I call the hearing back to order and turn it
over to Administrator Alvarez for her testimony.
STATEMENT OF THE HONORABLE AIDA ALVAREZ, ADMINISTRATOR, SMALL
BUSINESS ADMINISTRATION, WASHINGTON, D.C.; ACCOMPANIED BY PETER
McCLINTOCK, DEPUTY INSPECTOR GENERAL, SMALL BUSINESS
ADMINISTRATION, WASHINGTON, D.C.; JAMES BALLENTINE, ASSOCIATE
DEPUTY ADMINISTRATOR FOR GOVERNMENT CONTRACTING, MINORITY
ENTERPRISE DEVELOPMENT, SMALL BUSINESS ADMINISTRATION,
WASHINGTON, D.C.; AND KRIS MARCY, CHIEF OPERATING OFFICER,
SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.
Ms. Alvarez. Thank you so much, Senator. I appreciate the
opportunity to speak on behalf of the SBA. I have lengthy
testimony which hopefully will be entered into the record.
Senator Enzi. Your entire statement will be included in the
record, without objection.
Ms. Alvarez. I would rather make more informal remarks.
First of all, I want to begin by joining with the others in
expressing my heartfelt sense of loss at the passing away of
Senator Coverdell, who was a good man and a very important
Member of the Committee. He will be missed. I want to extend
the condolences of the SBA family to the Coverdell family.
Senator Enzi. Thank you.
Ms. Alvarez. I also, Senator, want to thank you for the
time that you have taken on GPRA and the really very good
meeting that we had at the SBA. I appreciated your coming to
the SBA and just taking the time. I know how busy you are, but
I think it really is just a mark of the priority that you give
to this sort of thoughtful process, and I look forward to
working with you and moving forward. We do take GPRA and these
planning processes very seriously.
I also want to comment that I shared David Walker's feeling
that the relationship between the SBA and the GAO has been a
very constructive one. I would say it has been a win-win
relationship. We take their expertise and their dedication very
seriously and I believe that they have felt that we are eager
to be responsive. So it has been a win-win situation for us.
Many of the findings in the audits were the outcome of a
joint effort between the SBA and the GAO. They obviously
arrived at those conclusions as a result of the collaboration,
so there really were no surprises, and I would say in most
cases, we shared their conclusions and are looking to implement
their recommendations. In some cases, we have been implementing
them all along. So that is where we are with respect to this
process.
I thought that it was significant in appreciating the
importance of these audits to put them in the context of the
bigger picture, because in the end, as has been said here
before and as Mr. Walker said, we are here to serve the public.
Ultimately, it is about outcomes and how effectively we serve
the public and so for all the imperfections of trying to run an
agency with many employees and particularly in a time of
transformation, I think that this hearing offers us the
opportunity to reflect on some very significant accomplishments
that have occurred on behalf of small business.
I think the best way to gauge performance is by looking at
the results, and so I also brought some charts so that we could
look at the results of the SBA's activities over the past
decade.
To begin, I think it is important to note the kind of loan
activity that has occurred over this decade. This first chart
shows the dramatic increase in SBA loan activity over the
decade. Since 1993, the SBA has helped about 375,000 small
businesses get more than $80 billion in loans. Important to
note, that is more dollars than in the previous 39 years
combined, and so many of those loans are going to those in
greatest need.
I want to thank Senator Kerry for his sponsorship of the
New Markets legislation. I am very pleased that there is action
planned in the Senate on New Markets legislation and that the
Chairman has scheduled a Senate Small Business Committee markup
on the New Markets venture capital and BusinessLinc legislation
for next Wednesday. I really am hopeful that the Congress will
enact this bipartisan proposal this session. It is very
important to Americans around the country.
The second chart points out the ways in which we have
helped those borrowers who in the past were underserved. Loans
to women, for example, between 1973 and 1989, we made 57,000
loans worth $5.7 billion. In just the past 7 years, more than
80,000 loans to women worth over $12.2 billion. That is more
than double the previous 19 years combined. I think that again
is a mark of effectiveness and success.
Loans to minorities, this chart shows that in just the past
7 years, we have made nearly 80,000 loans to minorities, more
than $18 billion, again, more than doubling the previous 39
years.
In the area of venture capital, the next chart shows the
outstanding growth of our Small Business Investment Company
program. Since its beginning in 1958, the SBIC program has put
almost $30 billion in venture capital financing in the hands of
small business owners. About two-thirds of the $30 billion has
been invested since 1993.
The following chart shows that this program, the SBIC
program, is remarkable in many ways. For example, since 1995,
it has returned $224 million in profits to the taxpayers
through the participating securities program. These are dollars
that have gone back into the Treasury. And if you think of the
cost of this program, $224 million actually would cover 9
years' worth of costs of the SBIC program. So this is a program
that more than pays for itself.
In the area of 8(a) contract awards, and I know we will be
talking more about that, we can judge performance by results.
The 8(a) program has delivered. As you can see, during this
time the total Federal contracting picture has remained stable,
there really has been very little growth in Federal
contracting, there has been governmentwide downsizing of
contracting personnel. There has been acquisition reform. There
has been contract bundling. All of that notwithstanding, the
8(a) contract awards increased 81.5 percent, from $3.4 billion
to $6.2 billion.
Doing more with less, I think that is a good way to
describe what the SBA is doing. The next chart demonstrates
that over the past decade we have reduced our staff level by
approximately 24 percent, from just over 4,100 employees to
around 3,100 employees in 1999. Again, bear in mind that at the
same time, the SBA loan portfolio has doubled from $25 billion
in 1993 to nearly $50 billion in the year 2000.
Providing more loans at less cost to the taxpayer. I think
this chart is really illustrative of the terrific bargain that
the SBA represents to the public. Not only are we doing so much
more, doubling our portfolio, but since Federal credit reform
was enacted, the cost to taxpayers of SBA loans has gone down
from almost $5 per $100 loaned in 1992 to a little over $1
today. Today, a $1.16 is the cost of lending $100 in the SBA
program.
Everybody likes report cards and everybody likes to see
``A''s on their report cards and we have been talking about the
use of technology as a very important part of the future of all
businesses and government. The SBA has a terrific report card
on our website. You can see that ours is an outstanding award-
winning website. Forbes rated it as one of the best of the web
in the year 2000. Lycos listed it in its top 5 percent. The
comments are outstanding, and so it should be no surprise that
the SBA website has crossed a new threshold and we are now
receiving an amazing 9.5 million hits per week on our website.
Of course, we are very proud of our four clean, or
unqualified financial audit opinions, because throughout this
period of growth, when things can sometimes get very demanding
and slip through the cracks, we have maintained a strong
commitment to the safety and soundness of our portfolio.
Additionally the SBA was the first Federal Credit agency to
receive an unqualified opinion on its financial statements and
it is the only Federal credit agency to receive unqualified
opinions 4 years in a row.
So I think you can see that we have been taking care of
business. We have been keeping our eye on the important mission
of the SBA, helping small businesses succeed. There is
certainly room for improvement and that is why we welcome this
hearing, we welcome the insights of the GAO, and we are looking
forward to getting better all the time.
Thank you, Mr. Chairman. Thank you.
Chairman Bond [presiding]. Thank you very much, Madam
Administrator, and thank you very much for joining us today and
for staying with us as we went through the recommendations. I
congratulate you on the ``A'' report on the website and the
clean audits and I think that you should be gratified, as I
was, to hear from the General Accounting Office. They felt that
there was a constructive working relationship, and while there
are problems, they indicated that the SBA is working with them
and we hope that after the root canal is completed that this
will enable you to improve the performance of the Agency.
I apologize to my colleagues. We did not get the testimony
until last night, so we will make your full testimony a part of
the record and we will keep the record open for any questions
that other Committee Members may have.
[The prepared statement of Ms. Alvarez follows:]
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Chairman Bond. Let me turn to the question of
appropriations. Looking at the chart, you mentioned that
additional funds are needed in a number of areas. As I look at
a chart of the SBA's budget requests and the actual
appropriation for 1997, 1998, and 1999, the appropriation was
significantly larger in all 3 of those years. For the current
year, there was a $250 million, or a 33 percent increase, in
the request. The actual appropriation was about $100 million
more than the previous year.
What we are concerned about is the SBA's priorities for
spending the money. Why has the SBA not made effective program
operation a priority? Part of the question the GAO raised was
the allocation of resources. Are you allocating the resources
that you get to these priority areas?
Ms. Alvarez. Absolutely. I think our budget and the budget
request fully reflect the priorities of the Agency. We
carefully monitor our fiscal resources to ensure that these
funds are going to those priorities.
There are some key areas that have been looked at by the
GAO where we have made budget requests. We are fearful that,
based on history, when funding was not forthcoming, that going
forward, the funding will not be forthcoming as well. For
example, we requested money for, it is a technical term, seat
management in the information technology area. We have outdated
computers and we have requested $7 million to purchase
replacement computers and the necessary infrastructure. We
cannot go forward and implement plans without the appropriate
computers, but so far, we have zero coming from the
deliberations about our budget.
In the area of workforce transformation, last year, we
requested $5 million to allow us to support transformation
requiring training. It is expensive, and we requested $5
million. We got zero. This year, we requested $4 million. It
looks like we will receive zero.
In the 7(j) program, which is very important to the
development of 8(a) companies, we have consistently asked for
funding and have gotten a fraction of what we requested. We are
hopeful, since I see that we requested $5 million and it looks
like the Senate is being responsive and we really appreciate
it. We need the money if we are going to provide the kind of
technical assistance and training that these 8(a) companies
need. We cannot do what we need to do in 7(j) without the
funding.
In the area of asset sales, I see that we have a funding
request. We are very proud of our asset sales. There is going
to be a $1 billion asset sale taking place next week and this
will be our second sale. Then there will be a third sale for
approximately $1 billion. We need money to make these things
happen. We requested $1.5 million. So far, zero is forthcoming.
So there are some key strategic areas that are tied to
these GAO recommendations that require funding.
Chairman Bond. Let me just focus on one. The GAO talked
about the concern by 8(a) firms on getting access to contracts.
In light of the SBA argument that it quit tracking business
development activities because of funding cuts, why does the
SBA use the available 7(j) funds for executive training
programs, which apparently are a much lower priority and
benefit only a few select firms? Why doesn't the SBA use the
funds for wider-ranging business development tools that would
help more 8(a) firms, especially those with limited management
experience, in getting the contracts? It seems to me that this
is one area where the GAO says, change the allocation of the
funds you have.
Ms. Alvarez. Senator, there are lots of issues implicit in
that question. First of all, the statute specifies that getting
8(a) certification does not guarantee contracts, and that is an
up-front advisory.
Chairman Bond. No question about that.
Ms. Alvarez. We are aware that there is concentration in
terms of 8(a) contracts for a variety of reasons. By the way,
we delegated the decisionmaking on awarding of contracts to
agencies. We do not make those awards. We did it because we
wanted to speed up the process and get out of the way. So that
decisionmaking rests with the individual agencies. We also
issued regulations a few years ago that limited both the size
and the number of contracts that could be awarded sole source,
trying to address the concentration issue.
With respect to 7(j) funding, unfortunately, or
fortunately, before we even start out, with the funding we do
get, quite a bit of it already has been targeted for specific
programs that various Members of Congress feel are important
for their constituents. So we actually end up having about, I
think it is, James, is it $800,000? James, you may want to join
me if we are going to talk about 8(a). About $800,000 to serve
the entire nation. The rest of it has been designated for
programs in different parts of the country. So we really are
very underfunded in that area.
Chairman Bond. Thank you, Ms. Alvarez.
Senator Kerry.
Senator Kerry. I think it is important to note that when we
measure the budget and we talk about the request, the request
is what the administration sends up.
Ms. Alvarez. Right.
Senator Kerry. But that is a request that has been pared
and vetted and fundamentally decided upon by OMB in
conjunction, obviously, with the White House. It almost never
reflects what you have asked for from them, correct?
Ms. Alvarez. Yes, Sir.
Senator Kerry. So as you sit there and say, here is what I
need to do my job, we are really living in this artificial
world in Washington now. I mean, to a degree it is artificial.
It is real because the numbers are real, the budget law is
real, but Mr. Chairman, you and I were talking about this just
coming back from the vote. You have got a budget allocation for
VA-HUD that is literally impossible to live with and you are
not going to report out a bill until you get more money.
She does not have that luxury. She is told by OMB, here is
your budget. Operate. And that is the request that comes up
here. Regrettably, it rarely reflects what is needed to do the
job. Then we sit up here and we start beating away and saying,
``Well, why can you not do this? Why do you not have that
money?''
There is a total disconnect, frankly, and it is not just
true of this. I find this in the Commerce Committee with the
Transportation Department, with budgets for the Coast Guard.
And the admirals all come up here and they are given marching
orders over at the Pentagon and they all have to look nice and
feel nice and tell us wonderful things about the budget when
they know damn well they cannot do the job with the budget.
That is how it is working here in this city nowadays.
So it is terrific for the politicians who want to sit up
here and say, ``Well, you know, you are not living up to what
the budget requires, but the fact is that we are all the
victims of this system that nobody wants to break out of or
challenge.''
I have a simple question. It seems to me that there are
some legitimate complaints, if you want to call them
complaints, or legitimate observations by the GAO, but the
question is, what does it take to respond to them? Do you have
adequate capacity for information technology? Do you have
enough people? I mean, you have just told me. It has gone down
from what to what?
Ms. Alvarez. From 4,100 to 3,100.
Senator Kerry. From 4,100 to 3,100, so one-fourth
reduction. So you have had a 25-percent reduction, and what is
the increase in the amount of lending?
Ms. Alvarez. It is double the loan portfolio.
Senator Kerry. And what is the increase in the 8(a)
program?
Ms. Alvarez. Eighty-one percent increase in the 8(a)
program.
Senator Kerry. And yet we are supposed to go out and do all
this measuring of all these people and take a survey. Can you
take a survey today? Can you do that kind of work?
Mr. Ballentine. Yes, Sir.
Senator Kerry. You could do that? So you have enough people
there to be able to do the kinds of analyses that have been
recommended?
Mr. Ballentine. I will identify myself, Sir. My name is
James Ballentine. I am Associate Deputy Administrator for
Government Contracting, Minority Enterprise Development. We
would be able to do a survey. It would be another
responsibility of our business opportunity specialists, which
GAO pointed out are already very much overworked. They would
have to take a great deal of the work to carry out such a
survey, but we could do it.
Senator Kerry. What suffers as a result, anything?
Mr. Ballentine. Well, obviously, they are very much
overworked now. They do not have the resources to travel as we
would like for them to. They obviously would not be able to do
that. If they were provided those resources, they obviously
could do it. But they also have regular annual reviews that
they must do on their portfolio within a given area. For
example, in the Washington, D.C. area, the portfolio is very
large. If they were charged with another task, those annual
reviews may suffer as a result.
Senator Kerry. So what you are saying is, physically,
conceptually, you can do it, but it is going to be a hardship
and something else is going to suffer as a result.
Mr. Ballentine. Exactly. Priorities must be put in place.
Senator Kerry. Given the current personnel levels.
Mr. Ballentine. That is correct.
Senator Kerry. Have you tried to do it? I mean, what steps
have you taken? Would you perhaps state for the record what
steps you have taken to strengthen the 8(a) program at this
point?
Mr. Ballentine. We were actually in the process of doing a
survey when the GAO came to the Agency, and we actually
assisted the GAO in putting together their survey because we
had begun the process to do one on our own. We have also, and
the Administrator asked us to do this some months ago, to begin
to look at really anything we could do to improve the 8(a)
program. You must keep in mind that this program is 31 years
old, and as Senator Bond has mentioned and as the GAO
mentioned, as SBA is in transition, this program is in
transition, as well.
Senator Kerry. It is my understanding that in 1995, you
issued regulations to eliminate a loophole that allowed firms
to circumvent the competitive threshold, right?
Mr. Ballentine. That is correct.
Senator Kerry. And in 1998, you delegated contracting
authority to acquisition agencies to streamline the program.
Mr. Ballentine. That is correct.
Senator Kerry. And you revised the regulations to allow for
better enforcement of companies' competitive business mix.
Mr. Ballentine. That is correct.
Senator Kerry. And you provided means for 8(a) firms to
joint venture more easily.
Mr. Ballentine. Yes, Sir.
Senator Kerry. So you have actually been undertaking a
series of steps.
Mr. Ballentine. We have been attempting to, and they have
been very effective.
Senator Kerry. Are there more that you want to do?
Mr. Ballentine. We would love to do more, and we currently
have a working group in-house and we are also working with
several agencies to see how we can make the program work even
better.
Senator Kerry. What is the restraint on your achieving--and
I will make this the last question, the light is on--what is
the restraint on achieving the legitimate observation of the
GAO regarding the more contracting that they would like to do
versus the management component? How do you respond to that?
Mr. Ballentine. The restraint is resources. It would also
be a culture change, so to speak, for our business opportunity
specialists. They currently provide annual reviews, as I said.
They would need to be trained a little more on providing the
type of procurement assistance that is needed.
Senator Kerry. Is there any reason not to do that?
Mr. Ballentine. No. I think it is a very good idea and we
have agreed with GAO that this would be a better way to focus
the 8(a) program. So we are in agreement on that, but we would
need some training dollars for our business opportunity
specialists who work hand-in-hand with the 8(a) companies.
Senator Kerry. Thank you, Mr. Chairman.
Chairman Bond. Thank you, Senator Kerry.
I believe that we heard from the GAO that there needs to be
more emphasis put on business development for 8(a) and there
ought to be travel funds, and that an allocation can be made
within the budget for these areas.
We are going to be shutting down because there has been an
objection to conducting hearings 2 hours after the Senate has
come into session, so I am going to turn to Senator Enzi for
the last series of questions.
Senator Enzi. We usually do not have enough time anyway,
but I thank you for the opportunity to ask some questions. With
the limited amount of time, I cannot dwell on the positive
things, and I appreciate you having all of those in the report.
I have to say that your charts that you presented are very
impressive.
One of the things that GPRA concentrated on was outcomes
instead of outputs, and I notice that most of the charts deal
with outputs. Is there additional data that would show more
closely how the outcomes fit with the PAR?
Ms. Alvarez. I am asking Kris Marcy, who is my Chief
Operating Officer, to join me.
Senator Enzi. Sure.
Ms. Marcy. Actually, I think the charts do reflect some of
the outcomes and really get at the heart of the Agency's
mission. We are creating new businesses and supporting those
new businesses, providing capital to those new businesses. We
are providing technical assistance that allows those businesses
to be created and developed and sustained. The Administrator
spoke about the return to the taxpayer in terms of the SBIC
program. So we have struggled very hard to show what we have
been able to accomplish in GPRA terminology.
Ms. Alvarez. If I might be so bold, there have been studies
that have shown we have 22-million new jobs in this country and
there are studies that have shown that the majority of new jobs
have been created by small business. I think that is a
significant outcome that is the result of all of those, call
them outputs if you will, but all of that in the aggregate is a
reflection of the success that we are experiencing in this
country. It contributes to the success that has led to a
booming economy.
Senator Enzi. I would have to agree that those results are
the outcomes, but the charts reflect the outputs, the number of
loans, which does not translate directly on the charts to the
number of jobs that are done.
Ms. Alvarez. Yes. I agree. We need another set of charts,
but it would cut into our hearing time.
Senator Enzi. That is the part that I would really be
interested in----
Ms. Alvarez. I agree.
Senator Enzi [continuing]. You know, the results that are
out there, because we heard earlier today that these people
expect to have more contract consultation, more help with
getting that.
Ms. Alvarez. Yes.
Senator Enzi. The number of reports that are filed by those
businesses do not demonstrate that----
Ms. Alvarez. I totally agree with you, Sir.
Senator Enzi [continuing]. And so it is probably selling
your employees short, and that is why I wanted to make a point
out of that.
Ms. Alvarez. I agree.
Senator Enzi. On your website, you are to be congratulated
for that.
Ms. Alvarez. Thank you.
Senator Enzi. There have been a lot of plaudits for it. I
did not notice anything on there about security, though, and as
one of the computer buffs around here----
Ms. Alvarez. Oh, yes. That is a key issue----
Senator Enzi [continuing]. I noted that you had been hacked
and wondered if there was something being done on that.
Ms. Alvarez. Yes, absolutely, and I would be happy to
address that, if you are interested. Larry Barrett, who is our
Chief Information Officer, could add to my comments.
Information security is a top priority for us. We have actually
not only hired about 11 people--Larry, would you like to come
up here? I am sorry, six people, as well as invested $800,000
in a contract with top specialists who are looking at five key
systems, and we are close to completion of the review of those
systems. Larry, would you want to comment?
Senator Enzi. I do not have much time here. I did notice
that you are given some credit in those charts, and I have to
agree with you that the pie chart could have some additional
things done with it that would be more definitive on what has
been done. But it was the management side that I looked at in
the information technology and noticed that all the circles
were blank.
Ms. Alvarez. We hope to have them all filled in soon.
Senator Enzi. We appreciate that. I would appreciate more
information on----
Ms. Alvarez. There is a lot in progress there.
Senator Enzi [continuing]. On how that will be done.
Ms. Alvarez. Yes.
Senator Enzi. Just a final comment. Something else that I
have been interested in that did not show up in any of these
reports, of course, is the SBIR rural outreach program. I
noticed that it was not funded in the 2001 budget and this is
something that is very important to the rural places,
particularly where I am from----
Ms. Alvarez. Absolutely.
Senator Enzi [continuing]. And I am hoping that something
can be done to reinstate that so that the good work that was
started that has a lot of outcomes can continue to happen.
Ms. Alvarez. I would be pleased to have Art Collins brief
your staff, and I would be pleased to do it myself, to tell you
what we have been doing in the area of rural initiatives,
because we have spent a lot of time in this area. We are very
acutely aware of the needs. And we consider the Rural
Initiatives part of the New Markets initiative.
Senator Enzi. I would appreciate the briefing of my staff
and myself.
Ms. Alvarez. We would be happy to do that. We would like to
do that.
Senator Enzi. We want to be sure that rural is rural, and
we have a little different sense of rural in Wyoming than most
places have.
Ms. Alvarez. Exactly.
Senator Enzi. I thank you for being here today and taking
our questions.
Ms. Alvarez. Thank you, Sir.
Senator Enzi. Thank you, Mr. Chairman.
Chairman Bond. Thank you very much, Mr. Enzi. When it comes
to rural, Missouri probably qualifies as rural in SBIR program,
as well, and certainly supporting and sustaining the SBIR
program is not something that depends upon additional
legislation. We expect that the SBA will put the emphasis on it
and we are working on a good SBIR reauthorization bill that we
think will provide additional tools, but there is no reason to
wait for that legislation to get the job done and we look
forward to working with you to do that.
Ms. Alvarez. Yes, Sir.
Chairman Bond. My thanks, Madam Administrator, to you and
your people for being with us today. This has been a long
process, but I trust it has been a productive process. We have
heard encouraging words from GAO and certainly from the SBA on
your accomplishments. I want to thank General Walker for his
leadership, Stan Czerwinski, Michael Brostek, Joel Willemssen,
and Susan Campbell for their good work from the GAO.
There are problems, no question about it. I am glad to say
that the GAO reports that SBA is working with them to utilize
the information available. This information is helpful to us in
the oversight sense, but we are not driving the bus. You are
driving the bus and this information should be very helpful to
you.
We had many of these same discussions at our hearing on the
SBA budget proposal last February. We stressed then the
importance of SBA placing priority on ensuring that core
programs are running efficiently and effectively, and again, we
heard from the GAO that it is a question of assigning
priorities and making sure that instead of creating new
programs or embellishing in low-
priority areas, that the Agency focus the resources it has,
whether bountiful or scarce, on the programs that are
important.
We trust that with the benefit of the PAR review, SBA can
move toward the goal of being a model executive agency, and I
think if you are able to implement the recommendations, it will
be an important step toward the goal. We are going to be
following with you the progress that you make carrying out the
PAR and working with GAO, and as Senator Enzi has asked, we
will look for the Inspector General to answer the questions
regarding the reserve account by the week of August 7.
We thank all of you.
Ms. Alvarez. Mr. Chairman, if I may----
Chairman Bond. Yes, Ma'am.
Ms. Alvarez. I just want to thank you and your colleagues
for your help in improving the SBA, both through legislative
changes and oversight. I do believe that when I tout the record
of the SBA over the past decade, that it is a record of shared
success and I think that the work that has been done under your
leadership has meant a great deal to our continuing to improve
what we have to offer the American people. So I just want to
thank you.
Chairman Bond. We appreciate your testimony. We are always
delighted to hear the head of an agency be able to tout the
successes. I will have to say that your predecessors were some
of the greatest touters I have ever seen.
[Laughter.]
Ms. Alvarez. I will tell them you said that.
Chairman Bond. You tell the Ambassador I said that.
Ms. Alvarez. I will tell the Ambassador.
[Laughter.]
Chairman Bond. I am from Missouri and I need to be shown.
So with that, the hearing is adjourned.
Ms. Alvarez. Thank you.
Chairman Bond. Thank you very much.
[Whereupon, at 11:43 a.m., the Committee was adjourned.]
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