[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
PLACING FEDERAL TAX DOLLARS AT RISK:
HOW THE SMALL BUSINESS ADMINISTRATION MISMANAGES THE
MODERNIZATION OF ITS INFORMATION TECHNOLOGY
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 8, 2012
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-052
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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OPENING STATEMENTS
Page
Hon. Sam Graves................................................. 1
Hon. Nydia Velazquez............................................ 2
WITNESSES
The Honorable Marie Johns, Deputy Administrator, United States
Small Business Administration, Washington, DC.................. 3
Mr. David Powner, Director, Information Technology Management
Issues, United States Government Accountability Office,
Washington, DC................................................. 5
APPENDIX
Prepared Statements:
The Honorable Marie Johns, Deputy Administrator, United
States Small Business Administration, Washington, DC....... 16
Mr. David Powner, Director, Information Technology Management
Issues, United States Government Accountability Office,
Washington, DC............................................. 19
Questions for the Record:
Rep. Owens Questions for Marie Johns......................... 29
Answers for the Record:
Marie Johns QFR Response to Rep. Owens....................... 30
PLACING FEDERAL TAX DOLLARS AT RISK: HOW THE SMALL BUSINESS
ADMINISTRATION MISMANAGES THE MODERNIZATION OF ITS INFORMATION
TECHNOLOGY
----------
WEDNESDAY, FEBRUARY 8, 2012
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:10 p.m., in room
2360, Rayburn House Office Building. Hon. Sam Graves (chairman
of the Committee) presiding.
Present: Representatives Graves, West, Velazquez, Schrader,
Owens.
Chairman Graves. Good afternoon. I bring this hearing to
order.
As Administrator Mills has pointed out in testimony before
this Committee, the Small Business Administration provides
credit counseling and contracts to America's entrepreneurs.
Today's hearing focuses on the agency's ability to manage its
role as a provider or guarantor of credit to small businesses.
While the subject of today's hearing may not be riveting,
it is vitally important. The subject, the SBA's capacity to
manage modernization of its financial systems, is crucial to
ensure that the agency can oversee the lending of capital to
small businesses without placing taxpayers at an undue risk for
default.
The SBA has utilized a combination of computerized and
manual procedures for managing its capital access programs
since the 1970s. Those systems, according to outside
consultants and the Inspector General, need serious updating.
The SBA began its modernization effort in 2005. Shortly
thereafter, the SBA fell behind schedule and faced cost
overruns. Despite apparent mismanagement, the SBA was given
significant sums to continue revamping its computer systems in
the President's stimulus bill. The additional funds did not
lead to any improvement in the agency's modernization effort.
In late 2009, the SBA then spent more than half a million
dollars on management consultants in an effort to improve the
process. A further review in the summer of 2010 led to the
realization that the SBA could not perform the updates as
originally outlined, nearly five years after the SBA started
the modernization effort. This is simply unacceptable.
Today we hear from the Government Accountability Office
whether the SBA even has the capacity and procedures in place
to manage a scaled-down modernization effort. Furthermore, GAO
will explain to us the risks that still remain in the SBA loan
management accounting system.
Little doubt exists among the members of this Committee
that the SBA plays an important role in providing the capital
to small businesses. However, I also firmly believe that every
member of this Committee expects the SBA to manage its
information technology in a manner that does not waste taxpayer
dollars and ensures that it can obtain accurate information on
a loan portfolio in excess of $80 billion.
With that, I turn to Ranking Member Velazquez for her
opening statement.
Ms. Velazquez. Thank you, Mr. Chairman.
Last week the Department of Labor reported that
unemployment fell to the lowest level in three years. This is
not only an encouraging sign that the recovery is gaining
strength but also a powerful reminder of the role that small
businesses play in our economy. Accounting for more than 6 out
of every 10 new jobs, small firms are the engine that will
continue driving this recovery forward. However, for this to
happen they need access to abundant and affordable capital. The
SBA's loan and investment programs can help in this effort, but
behind every successful program must be strong internal checks
to manage an agency's use of taxpayer dollars.
Today we will examine whether the SBA's Loan Management
Systems are prepared to meet this challenge and whether reforms
that were passed more than 15 years ago have been fully
implemented by the agency.
When the SBA's Loan Management Systems were first developed
in the 1970s, they were state of the art. Although it has been
more than 40 years since then, many of these Legacy Systems are
still in service. Today they manage more than $90 billion in
credit, investments, and loan guarantees, far more than when
they were first put in place. As they have grown more obsolete,
the SBA has found it increasingly more difficult to maintain
data integrity, keep information secure, and accurately account
for loans. Although the SBA has pursued various efforts to
upgrade and modernize the Legacy System, these efforts have met
with minimal success. Those of us who have been on this
Committee for some time are well acquainted with the agency's
struggles to modernize this Loan Management System.
The current efforts date back to 1997 when growing concern
over the risks posed by the Legacy Systems prompted Congress to
pass legislation directing the SBA to upgrade its risk
management data. That law laid the foundation for important
reforms to the Loan Management System and should have put the
agency on the path to a fully upgraded IT system today, more
than 15 years since the law was enacted.
Unfortunately, many of the reforms mandated in the act were
never fully realized. In 2001, GAO reported that the SBA's
efforts to develop and implement upgrades for the Legacy System
were not consistent with the 1997 act. Without these basic
building blocks for program management, the agency has stumbled
from one initiative to another making only marginal changes to
keep the system operational.
The most recent initiative dubbed the Loan Management
Accounting System began seven years ago with a projected cost
of $217 million. Already, however, this program has begun to
suffer the same delays and cost overruns that have
characterized previous modernization efforts. As we will hear
today, these shortcomings are the direct result of poor
management practices and lax executive oversight, the same
problems that have repeatedly been identified by this
Committee, the Government Accountability Office, the SBA's
Inspector General, and private consultants.
Perhaps most troubling, however, is the fact that even if
successfully implemented LMAS will not result in a fully modern
Loan Management System for SBA. Instead of a complete
replacement of the Legacy System, SBA has undertaken a scaled
back effort of limited upgrades. When all is said and done, the
SBA will still rely upon a Loan Management System that is more
than four decades old. It is difficult to see how this will
position the agency for success in the 21st century and beyond.
In examining the current state of the SBA Loan Management
Systems, there can be no doubt that modernization is
desperately needed. The question is how the agency can get it
done quickly and get it done right. With millions already spent
in this effort, SBA cannot continue to throw good money after
bad. The key to this will be strong management, thorough
planning, and effective oversight at the highest levels within
the agency. I hope that these lessons will be taken away from
today's hearing.
I would like to thank Ms. Johns and Mr. Powner for being
here for this discussion. And I know we all look forward to
hearing what they have to say.
Thank you, Mr. Chairman.
Chairman Graves. Thank you.
STATEMENTS OF THE HONORABLE MARIE JOHNS, DEPUTY ADMINISTRATOR,
UNITED STATES SMALL BUSINESS ADMINISTRATION; DAVID POWNER,
DIRECTOR OF INFORMATION TECHNOLOGY, UNITED STATES GOVERNMENT
ACCOUNTABILITY OFFICE
Chairman Graves. Our first witness is The Honorable Marie
Johns, who is the deputy administrator of the United States
Small Business Administration. She is responsible for
overseeing the day-to-day management of the SBA. Thank you for
coming in, Ms. Johns.
STATEMENT OF MARIE JOHNS
Ms. Johns. Thank you very much, Chairman Graves, Ranking
Member Velazquez, members of the Committee. As always, it is an
honor to testify before you.
The Small Business Administration provides access to
capital for tens of thousands of small business and disaster
victims each year.
SBA's $90 billion loan portfolio plays an important role in
the small business economy. Our loan programs help small
businesses who have been left out of traditional credit markets
gain access to the capital that they need to grow and create
jobs. Today, over 80 percent of our flagship loan programs are
processed electronically compared with none 10 years ago. Thus,
upgrading our loan management and accounting systems, or LMAS,
while ensuring security and without disruption to our current
lending process, has been a major priority at SBA.
In 2005, out of concerns about security, cost, and
flexibility, the SBA administrator approved a project to update
this 35 year old Legacy System. In 2006, the agency requested
development funding for the complete overhaul of LMAS. Work
continued in 2007, and in 2008, a contract was awarded to an
integration firm to begin transferring SBA's processes to a
commercial off-the-shelf program.
However, after 12 months of planning and completion of a
pilot, SBA identified new concerns about cost, time, and risk
associated with the transfer to a commercial off-the-shelf
system. The planning and pilot resulted in a revised
development cost estimate of $156 million and time-to-
completion estimate of nine years. Due to these concerns, SBA
commissioned an outside study of the LMAS project which was
delivered in December 2009.
In addition to SBA's concerns, the study showed that
implementing a commercial off-the-shelf program would require
retrofitting our loan-making processes to match the software
which could potentially be disruptive to our loan-making
efforts.
Based upon all of this, the LMAS Executive Steering
Committee, that is the council charged with overseeing the
upgrade of LMAS, decided to change course in May of 2010. This
decision coincided with the June 2010 Office of Management and
Budget Memorandum M1026, which directed agencies to reduce the
cost and scope of large automation projects.
In September 2010, SBA requested authority from OMB's
Financial System Advisory Board, or FSAB, to rescope LMAS with
a series of more focused and more cost effective improvements
to the existing system, which we call LMAS Incremental
Improvement Projects or IIPs. The IIPs were approved by FSAB in
January 2011 and will address the most important issues
surrounding the upgrade of LMAS in a less costly, less risky,
and more efficient manner.
Instead of a complete overhaul, the IIPs involve upgrading
the hardware and software of our financial systems
infrastructure to support our secure web-based loan making and
financial reporting. We estimate development for this new
approach will total $39 million, which is an overall savings of
$117 million from the LMAS budget estimated in 2009.
The incremental improvement approach is better tailored to
SBA's current needs and goals. It allows us to make upgrades to
LMAS while continuing to make and process loans. Our lenders
can still continue to make loans through our web-based process
at a record pace while we upgrade the loan accounting software
and hardware in the backend.
In May 2011, SBA completed the first IIP, upgrading our
administrative accounting system to the latest software
release. During this time, SBA also implemented changes to our
loan programs brought about by the American Reinvestment and
Recovery Act and the Small Business Jobs Act. We have also
phased out or converted 275 Legacy programs to a web
environment. This year we anticipate completing additional
improvements to enhance the functionality offered to lenders,
disaster borrowers, and small businesses while moving the back
office loan accounting and financial reporting processes to a
standardized, non-proprietary hardware and software solution.
In its audit, the Government Accountability Office stated
that there is room for improvement. We at SBA agree there is
always room for improvement. One example of the improvement is
the strengthening of executive involvement in the project. The
LMAS Executive Steering Council has met 17 times from May 2010
to January 2012. Additionally, SBA has improved documentation
of the project's progress. I know these improvements because I
have chaired the LMAS Executive Steering Council since December
2010.
While we are undertaking these improvements, I wanted to
remind the members of the Committee that Fiscal Year 2011 was a
record year for the SBA. We supported over $30.5 billion in
lending to over 61,000 small businesses. We were able to
implement parts of the IIP without any impact to our lending
partners or to our borrowers. We recognize the importance of
not only continuing to meet the capital needs of small
businesses while continuing to upgrade our system, but we are
also doing it in a way that is most cost-effective and least
disruptive to our lending partners and small business owners.
Thank you for the opportunity to testify. I look forward to
your questions.
Chairman Graves. Thank you very much.
Our next witness is David Powner.
Mr. Powner. Correct.
Chairman Graves. He is the director of information
technology at the United States Government Accountability
Office. In that capacity he directs GAO's assessment of federal
agency adoption and use of computer technology. Welcome.
STATEMENT OF DAVID POWNER
Mr. Powner. Chairman Graves, Ranking Member Velazquez, and
members of the Committee, it is a pleasure to be here this
afternoon to discuss GAO's findings and recommendations on
SBA's Loan Management and Accounting System.
In order to strengthen small business, SBA relies
extensively on IT systems to support loan accounting and to
track loans. The current loan accounting systems are
antiquated, expensive to maintain, require extensive data
reconciliations, and do not provide efficient loan servicing.
In late 2005, SBA initiated the Loan Modernization Program,
a $200+ million acquisition that was to take nine years to
complete. In late 2009-2010, the federal chief information
officer, OMB's Financial Systems Advisory Board, and an
independent contractor found major issues with SBA's approach
and management, including stakeholders not being aligned with
the projects, undefined business requirements, resource gaps in
program management, weak executive governance, and a lack of a
target architecture for loan accounting and financial
management. In addition, these groups recommended that SBA
reduce the scope of the effort by focusing on migrating off the
expensive to maintain mainframe and putting in place a modern
database.
SBA, to its credit, is implementing this reduced approach
in seven planned increments that are to be completed by mid-
2013 at a cost of around $30 million. One point I would like to
make here though is that the cost that you are going to hear
today are all over the board and it is very clear that we do
not have a clear baseline when it comes to the cost for this
program. Every time we turn around there seems to be another
number that is floated around in terms of the total cost. We
just heard 39. We had 28. One time it was 43. So that is
something we need to get to the bottom of.
Specifically, the increments include migrating off the
mainframe platform, migrating the COBAL (Common Business
Oriented Language) code from the mainframe to a client server
environment, and migrating to a modern database. This
incremental, more manageable approach is consistent with
current IT and financial reform efforts. Some of the increments
are planning efforts to define additional out year projects to
address SBA's loan management and accounting weaknesses.
So to be clear, the first seven increment approaches is a
start to modernization. There are more incremental approaches
to come. Of the seven increments, one is complete, three are in
flight, and three have not begun. Of the four completed, our
review revealed that the schedules are slipping and costs are
increasing.
The success of SBA's efforts depends on the ability to
address key management weaknesses. First, SBA needs to
strengthen its program management. Several areas where
improvements need to be made include requirements. All
requirements for the increments where contracts have been let
have not been completely defined. Risk management. Not all
risks are categorized, nor are all mitigation plans in place.
In human capital, SBA needs to better address outstanding human
capital needs.
Second, SBA needs to strengthen executive level governance
that Ms. Johns mentioned. There are two governing bodies
overseeing this acquisition and we made several recommendations
in this area. Specifically, SBA should clarify the different
boards' responsibilities and ensure that the boards perform
aggressive oversight of the programs, risks, and progress.
In summary, Mr. Chairman, the good news is going smaller
and more incremental could position SBA for a successful
modernization, but several of these essential program
management and governance basics need to be solidified to
position SBA to deliver a modernized loan and financial
management system on time and on budget. I would like to stress
the importance of executive-level oversight driving these
improvements. The Deputy Administrators' Executive Steering
Committee is the group to make this happen. Driving change from
the top, being rigorous in its approach, holding contractors
accountable, and planning beyond 2013 are essential for SBA's
successful IT modernization.
Mr. Chairman, this concludes my statement. Thank you for
your leadership on this important topic and I will be pleased
to respond to questions.
Chairman Graves. Thank you very much.
I started college 30 years ago and we were learning--that
is the punch cards--the little cards. You do a whole bunch of
them and you punch them and is that how you program the
computer? That is amazing. I am sorry. I am just absolutely--it
kind of takes me back to the old days.
My question to you is, Ms. Johns, when you are going
through this evaluation process, have you figured out--and you
are trying to streamline. How many of your lending partners out
there are still using COBOL?
Ms. Johns. Actually, Chairman Graves, a number of our
lending partners use COBOL. And COBOL was around when I was in
college as well, which has been some time ago. However, COBOL,
even though it is a time-tested computer language, it is still
widely used, particularly for the kinds of operations where the
SBA needs it. That is to provide the technology platform for
some of our back office operations.
As I am saying, in addition to the SBA, many of our lenders
use COBOL. In fact, the House of Representatives system for
payroll management for members and staff uses COBOL. It is
still a very widely used language. But that is just a part of
our modernization efforts; COBOL, that is. We also use other
computer languages. JAVA. We use Oracle. And so COBOL is a part
of a very comprehensive and complicated architecture.
Chairman Graves. I guess the question that I have, the
basic question is if you have got a consultant and the
consultant suggested changes, why did you not implement--why
did you spend all these taxpayer dollars and not implement the
changes? I mean, why was the money spent then?
Ms. Johns. Well, if I may, I would like to provide a bit of
context going back to--referencing back to my testimony. If you
pick up the story in 2005, there was a path that the SBA was
going down that was looking at a comprehensive, off-the-shelf
product for basically a wholesale change out of the loan
accounting system. The agency did research; actually, undertook
a pilot. And what quickly was evidenced by that information was
that continuing to go down that path would be more costly, more
risky, and more time consuming for the agency.
And so at that point another study was done to say, all
right, what do we need to do here? And it was a result of that
second study that led us to go the incremental improvement
project route. And that was also substantiated by OMB, who in
their statements talked about concerns about major overhaul
projects and how the incremental approach was much more
effective.
The issues that we are trying to balance always, Chairman
Graves and members of the Committee, is that we do not have the
luxury of just putting the agency on hold and doing a complete
overhaul of the system. At one time leaders in the agency
thought that that might be feasible but it is not. We still
have a $90 billion loan portfolio to manage. We also have to
implement the will of this body as a result with the Recovery
Act as an example, the Small Business Jobs Act. Each of those
major pieces of legislation required changes to the system. And
we had to implement the modernization, manage the agency,
continue to make loans to small businesses, and in fact, last
year we had a record loan of over $30 billion to small
businesses at a time when the economy really needed that
capital to our small business job creators in the country.
So those are the important issues that we have to manage.
Modernization, maintaining the agency, and ensuring that we are
doing that having the very best use of the taxpayer dollar.
Chairman Graves. Going back to COBOL, my staff called the
lenders, your lending partners, and none of them use it for
their lending practices. They may use it for other reasons or
other purposes but they do not use it for their lending
practices. And if you are still using it though to do your
lending stuff then it is just not----
Ms. Johns. If I may----
Ms. Velazquez. Mr. Chairman, if you will yield----
Chairman Graves. Sure.
Ms. Velazquez. You made reference to the money that was
given to you under the Recovery Act. Right?
Ms. Johns. Chairman, I made reference to the fact that the
agency was responsible for administering the Recovery Act at
the same time that we were modernizing. That was the point that
we have growing concern.
Ms. Velazquez. And you asked for $25 million from the
Recovery Act to continue to implement the modernization.
Ms. Johns. That is subject to check but--what question? I
am sorry.
Ms. Velazquez. You asked. We did not give it to you.
Ms. Johns. All right.
Ms. Velazquez. The administration asked for the money for
you. Okay.
Ms. Johns. But if I could get back to the issue in COBOL,
when you say loan practices I am not sure what you mean by
that. Most, 80 percent of our loans are managed through a web
interface. So in 10 years we have gone from zero web presence
to 80+ percent of our loans being managed through a web
interface. So the COBOL part of our system is a relatively
small part of the system and it serves more of a back office
function. And that, indeed, is similar to many of our lending
partners.
Chairman Graves. Well, as far as the guaranteed lending
goes, none of them use it for their lending practices.
Real quick, Mr. Powner, and then I am going to turn to
Ranking Member Velazquez, how many of the recommendations did
the SBA implement from their consulting firm?
Mr. Powner. There were--first of all, they consulted along
with others. They recommended that you take this incremental
approach to focus on getting off of COBOL and the mainframe. So
this is clearly where we have a start to both of those, you
know, migrating off the mainframe. And I think the desire is to
get out of the COBOL world, Mr. Chairman. So those are clearly
in the works.
Now, the recommendations on improved governance and program
management, there were clear recommendations in those two areas
and we found similar weaknesses where those two areas greatly
need to be strengthened.
Chairman Graves. Ranking Member Velazquez.
Ms. Velazquez. I do not know where to start. This is really
troubling, especially for members who have been on this
Committee for decades now. You know, I remember in 1997 we
instructed--we asked you to start the modernization of the loan
system. So here we are, 2012, after the GAO report in 2001 that
found problems with implementation of required upgrades. In
2007, the IG found deficiencies in lender monetary system. In
2009, the IG found shortcomings in the management of the LMAS
initiative. In 2009, SBA paid a private consultant $500,000. In
2010, the IG found no actions were taken to improve the quality
assurance management of the project.
We understand the challenges because you manage a big
portfolio. But because $90 billion in investment and loans is
why you need to take this seriously. And seriously means from
the top down. And I agree with the GAO conclusion that someone
has to be in charge. And I do not think that the directive is
coming from the top down. Otherwise, we will not find ourselves
almost 15 years after so much money being spent in this
predicament.
So under the scaled back approach to LMAS, SBA will make
limited upgrades and keep the COBOL self-aware program which is
now more than 50 years old. And because it is old it is
becoming more expensive also. It is not cheap to maintain. How
long does the SBA plan to keep this antiquated system?
Ms. Johns. Chairwoman, we have--we are----
Ms. Velazquez. Ranking member.
Ms. Johns. I am sorry?
Ms. Velazquez. I am the ranking member.
Ms. Johns. Ranking Member. Yes, forgive me.
The COBOL reporting, which is one of the seven LMAS IIP
projects, is actually a project to upgrade to a newer version
of COBOL, which is a non-proprietary version that is open to
ensuring that we can use all of the advances in COBOL that are
available to us. Part of the problem previously was we were
tied to one vendor and were not able to take advantage of
advances that were in the----
Ms. Velazquez. Okay. Yes, I know. I know. But look, you
just cannot come here every year, report after report, and talk
about the obstacles. You are asking for money; we give you the
resources. And we are telling you this is serious business.
Mr. Powner, what are some of the risks and costs associated
with continuing to use COBOL programs rather than moving to
more modern software?
Mr. Powner. Well, clearly the cost to maintain COBOL code,
even the newer versions, there are not many programmers out
there that understand that language. So you will see many
federal agencies trying to get off the COBOL, out of the COBOL
world. If you look at the goals of the modernization, I still
think it is to migrate off of the mainframe. Even though we
have ported COBOL code to a client server environment, I would
imagine that down the road that future increments would be to
get out of COBOL entirely, along with modernizing the loan
system. So that is what is really important to take away here.
These first seven increments, four of them have
deliverables; three of them are studies. And those studies
actually will lay the groundwork and the path for future
modernization. And that is very important. I would bet that
COBOL will come up as part of those future efforts.
Ms. Velazquez. Mr. Chairman, yes, I will come back with
some other questions.
Chairman Graves. All right. Mr. West.
Mr. West. Thank you, Mr. Chairman. And also Ranking Member.
Thanks to the panelists for being here today.
Honorable Johns, you said three things that kind of hearken
back to the previous career I had. You said that you had to
balance modernization, maintaining the organization, and
steward the taxpayer dollars. And that sounds like the
organization I spent 22 years with, the United States Army, and
I saw us go from a jeep to a Humvee, armored personnel carriers
to Bradleys, M60 tanks to M1 tanks. You know, you name it.
So we are talking about new systems integration. And one of
the things that, of course, we looked at, do you have a new
systems integration implementation plan with an execution
timeline with measures of effectiveness? One thing I am
concerned about is that who is the singular bellybutton that is
responsible for this? Because that is part of unity of effort
and unity command. So can you kind of walk me through, you
know, what is the plan out there and, you know, timeline so
that you can execute this and we do not have these overruns?
And what are the measures of effectiveness as you go through? I
mean, do we have a phase plan of integration?
Ms. Johns. Yes, Congressman. Thank you for the question.
We do, indeed. Part of the GAO report addressed the issue
of governance. There are two bodies who have been involved with
the oversight for the LMAS program. We have an oversight body
called the BTIC, the Business Technology Investment Council or
Committee. And that oversight body has responsibility for
technology improvement, technology upgrades enterprise-wide. So
they look across the SBA and manage new technology. Are we
making the right investments? How is that moving? How does that
fit within the enterprise architecture? And so on.
And so when the decision to go down the road of LMAS
incremental improvement projects, the BTIC approved that
approach. But then we realized as an agency that we needed to
have an oversight body that was singularly focused because this
was a project of such magnitude and cut across the entire
operations of our agency. We wanted to make sure that we had an
entity that was focused on LMAS IIP. And that led to the
creation of the Executive Steering Council.
So that is the explanation of why there are two bodies.
There really is no confusion about that. They have distinct
responsibilities and there is significant operational overlap
because many of the individuals who serve on the BTIC are also
part of the Executive Steering Committee Council. The CIO, the
head of our office of Cap Access, for example, the CFO. Those
are examples of individuals who serve on both bodies.
Mr. West. But who is the one person in charge?
Ms. Johns. Well, I chair the ESC.
Mr. West. Okay. So everyone reports back to you?
Ms. Johns. That is correct.
Mr. West. Okay.
Ms. Johns. Now, you asked about a plan and a timeline. We
have a plan. The timeline is that we have committed to
completing these incremental improvement projects by the end of
Fiscal Year 13. We have had some slippage of due dates within
that process. That is not unusual for a project of this
magnitude. And yet we are on the--we are continuing with making
progress toward our commitment to have these seven projects
done by the end of Fiscal Year '13.
And if I may say a word about this issue of cost overruns.
As Mr. Powner indicated in his testimony, GAO audit has found
that the SBA can do a better job in terms of how it presents
information and how that information is labeled. And because we
have recognized--there has been some confusion about how data
has been used to draw certain analyses in the past. The fact of
the matter is we were on a path to spend $156 million. The path
that we are on currently is $39 million and represents a
savings of $117 million to the taxpayer.
In fact, since our IIP approach was approved we have
actually had a $4 million reduction from the baseline because
our budget was cut. So we are very cognizant of our
responsibility to report back to this body and to the public
at-large that we are using this money as effectively as
possible, maintaining the schedule for modernization, and
running an agency that gets capital in the hands of small
businesses.
Mr. West. What is your percentage measure of effectiveness
on this implementation plan? Is it around 100 percent? Where
would you say you are?
Ms. Johns. Congressman, I really--I cannot give you a
number in that regard. What I can say is that we have completed
the first project under the IIP. We have made substantial
progress on most of the other projects. We have three
additional projects that are bit more downstream where we are
still in the planning phase and have not yet awarded a
contract, but we are meeting on a regular basis and the team
assures me that we are on pace to meet the 2013 implementation.
Mr. West. Let me just say this. If I was standing before a
general and I could not tell him what the measure of
effectiveness percentage was where we were in the project, I
would be relieved of command. I would be fired. So please, I
would say if you are having these council meetings, the first
question you should ask is what is our measure of
effectiveness.
Mr. Powner, do you have anything you want to add? And then
I will yield back.
Mr. Powner. Well, no, I think that is clear. I want to make
it clear also, too, that these first seven increments--and we
talk about the $39 million and comparing that to the 156. There
is a difference in scope because the 156 included modernizing
some of the loan programs. This is really focused on
infrastructure changes; putting in place a database, migrating
off the mainframe, importing COBOL code. We still have to
modify applications to modernize our financial systems and the
loan systems. So it is important that we are talking apples to
apples and we talk 156 to 39.
Ms. Velazquez. Will the gentleman yield?
Mr. West. You are in charge. Yes.
Ms. Velazquez. I am glad to hear that.
Mr. Powner, going back to the $39 million, right, in cost
savings by terminating existing LMAS projects, should the
agency really be claiming this savings when the final costs and
completion date are under considerable risk of overruns?
Mr. Powner. I think the total cost is a big TBD. So when
you look at the seven increments, three of the increments, one
is prioritizing additional projects. Next is implementing those
additional projects. The third is documenting processes so that
the business keeps up with the technology. Those additional
projects will comprise modernizing SBA's loan accounting
system. Okay? So the total cost is still TBD when you look at
modernization overall.
Ms. Velazquez. Thank you. Thank you, gentleman, for
yielding.
Mr. Schrader. Thank you, Mr. Chairman.
Well, let us get back to the number and what constitutes--
what are the elements of the number? I mean, we have got
information here that $100 million has already been spent. We
have only completed one piece of the IT program. Am I to
understand, Mr. Powner, that you are saying that $100 million
was used for other improvements that we are not talking about?
Mr. Powner. No, I do not think it was used for other
projects. I think we have just a fairly significant de-scoping
of the project.
Mr. Schrader. But we already spent $100 million.
Mr. Powner. You mean historically? Historically. Oh, the
answer is yes. Well, on the predecessor.
Mr. Schrader. So my concern is the original, to change the
whole bloody system out was supposed to be $217 million. We
spent $100 million. We actually spent more than that because we
already spent a little bit of the 39 or whatever the magic
number is. So we have already spent half of the total turnout
for one project out of seven. And I am very concerned that if
we have more studies going on, I mean, we could study this. We
will be on COBOL 15, which is, I think, totally unacceptable by
every member of this Committee. If I was to poll this Committee
I do not think there is a single person here that thinks a new
version of COBOL is appropriate for the Small Business
Administration going forward.
You are a relatively small agency. You have the unique
opportunity to be more nimble than many, many others. And I
think while the incremental approach is understood, there is a
limited number of dollars out there. I get that. But to base it
on going to COBOL 54 or whatever your new number is, I think
that is not good. What I would like is a report back to the
Committee about what the different elements are and what you
think they will cost, beyond just the IT piece also. I want to
know is the number 28? The number, the sheet we have in our
packet here, Table 2, the numbers do not add up to 39. They add
up to like 28, maybe 30. So I am as confused as everyone else
about what the IT piece is.
And if I read this correctly and listen to the testimony
correctly, you have talked about studies. What costs are we
going to incur as a result of what the studies recommend the
Small Business Administration do? I think it is really
important this Committee have a full understanding of the scope
of what is in front of it so we do not, frankly, assume you are
gaming us down the line. If you give us honest information up
front about the total scope, we can have that discussion now
and not be loggerheads, I think, in the future.
Mr. Powner. Congressman, to your point, one of the
increments is titled ``root cause analysis.'' And what it is is
it is a prioritization of those additional projects you would
like to see. There is a June 2012 delivery date that our report
points out. I think that is very important that we get that
game plan going forward to your point on what those additional
projects are and what the associated costs are.
Mr. Schrader. And why are we not going to a web-based
technology? I mean, why go through all this? This is pretty
simple stuff. I mean, you know, you can get this stuff off the
shelf. Any business gets this sort of information. Has loan
portfolios. Banks do this. I mean, I do not think too many
banks, I assume, are not on COBOL. You could correct me but
there has got to be a smarter way to go about this.
Anticipating the cloud. Why are we not thinking like that?
Ms. Johns. Well, Congressman, actually, we are. As I said
in my testimony, 80 percent of our interface with our lenders
is web-based. So there is a lot of discussion about COBOL that
is taking up a lot of the attention of the Committee, and
certainly you have the right to investigate whatever you
choose. But COBOL is a very small piece of this overall
project, set of projects. As I said earlier, it is a part of
the back office operation. We are doing that in concert with
other--many of our lender partners who also use COBOL in the
same manner. COBOL is used, as I mentioned, by this House of
Representatives for certain financial systems.
Mr. Schrader. Yes, but the House of Representatives, we are
antiquated. We are so back in the Dark Ages. You are comparing
us with dinosaurs. I would like to be compared with the
Maseratis, you know, the Morgans, some fancy car that is moving
into the 21st century.
Ms. Johns. All right. The Air Force, Defense Logistics
Agency. The point is we did not set out to look for the low
standard. We set out to figure out how to make sure that we
were modernizing our systems, running a good agency, getting
capital out there, and doing all that in the most cost-
effective and the most risk-averse way. And that is what led us
to the incremental improvement projects, which is in concert
with what OMB/GAO are saying is the route we should be taking.
And COBOL is a small piece of that overall very comprehensive
plan.
Mr. Schrader. Well, in my business, perception is reality.
I would get rid of COBOL. Man, you would look a lot better
right off the bat. You are talking about going forward. Just
the real world. And I think your own office, you would be
better off.
Ms. Johns. I appreciate that. I appreciate that,
Congressman. Our view is that we do not want--we would rather
make the case for why we are going a route that we think is
prudent and is getting the best bang for the buck.
Mr. Schrader. All right. I appreciate that.
I will yield back. Thank you.
Chairman Graves. I am trying to figure out the time.
Go ahead. Shoot.
Mr. Owens. In terms of the Committees you have set up to
administer or to monitor this program, do you have anybody
sitting on those committees who has a prior institutional
experience of an entity of this size of doing the type of
conversion that you are now going through?
Ms. Johns. Yes, Congressman. We have our CIO is on the
Executive Steering Council. Our CFO. The head of our Office of
Capital Access, as well as other senior leadership from the
Office of Capital Access.
Mr. Owens. Now, they have had prior experience in another
institution making a computer conversion of this magnitude?
Ms. Johns. These are all people who bring exceptional
experience to this project. I cannot give you details about
their experience in other organizations but they are very
experienced in terms of SBA, the history of this project, and
have been excellent thought partners in how we need to move
forward in terms of balancing all the critical objectives that
I have spoken to earlier. Risk, cost, and timeliness.
Mr. Owens. I understand you folks may have excellent
skills, but because of the magnitude, the size of the agency,
the dollars involved, the complexity, it would seem to me that
having someone who had prior institutional experience in this
type of conversion would be very appropriate to be leading it.
Ms. Johns. Well, in addition to the individual that I
mentioned, Congressman, we also have outside consultants who
are subject matter experts and bring state-of-the-art expertise
bear as well.
Mr. Owens. Who might those be?
Ms. Johns. I can provide the names of the companies if you
would like me to do that.
Mr. Owens. That would be very helpful.
Ms. Johns. Certainly.
Mr. Owens. Well, thank you. I yield back.
Ms. Velazquez. May I ask----
Chairman Graves. Yes. Absolutely. Go ahead.
Ms. Velazquez. Ms. Johns.
Ms. Johns. Yes.
Ms. Velazquez. Is the CIO on that? Who is responsible? Who
is in charge?
Ms. Johns. Yes. Yes, Ranking Member. The chief information
officer is a member. He chairs the BTIC and he is a member of
the Executive Steering Council.
Ms. Velazquez. Is that position being vacated or not?
Ms. Johns. No.
Ms. Velazquez. Okay. So let me ask you, OMB had a role in
scaling back the LMAS project and approving the current set of
projects. To what extent is OMB involved in the planning for
future improvements?
Ms. Johns. Well, we report regularly to OMB about our
progress. And even the inspector general. We have--we regularly
keep the inspector general apprised of how we are proceeding.
And have not even invited a member from the Office of Inspector
General to join our Executive Steering Council meetings. We
hope that that will happen, but that invitation remains open to
them.
And in fact, I am hoping--looking forward to Mr. Powner
joining us as well at a meeting because we are--clearly it is
my intent that we draw from all the expertise that we can
across the government and outside of the government because
certainly not on my watch would I want to endanger our ability
to serve our small businesses and make sure that our loan
management accounting system is functioning as effectively as
possible.
Ms. Velazquez. It may not be under your watch but it has
taken 15 years basically, 1997. So maybe 15 years later under
somebody's watch.
Ms. Johns. Well, I am working very hard to lay a very
strong foundation.
Ms. Velazquez. I yield back, Mr. Chairman.
Chairman Graves. I want to thank both of you for coming. In
light of the time constraint with votes, we will go ahead and
close the hearing. But I expect the Committee is going to
continue to examine the SBA as it continues to update its
financial systems because we want to protect the taxpayer. That
is the biggest thing.
I would ask unanimous consent that all members have five
legislative days for advising the extent of their marks.
Without objection, so ordered.
This hearing is adjourned.
[Whereupon, at 1:50 p.m., the Committee hearing was
adjourned.]
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