[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

                               __________




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            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

                              ----------                              

                           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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