[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]


 
                      FINANCIAL SERVICES AND GENERAL 
                    GOVERNMENT APPROPRIATIONS FOR 2014 
=======================================================================



                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                     ONE HUNDRED THIRTEENTH CONGRESS

                              FIRST SESSION
                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS

                    ANDER CRENSHAW, Florida, Chairman
 JO BONNER, Alabama                JOSE E. SERRANO, New York
 MARIO DIAZ-BALART, Florida        MIKE QUIGLEY, Illinois
 TOM GRAVES, Georgia               MARCY KAPTUR, Ohio
 KEVIN YODER, Kansas               ED PASTOR, Arizona
 STEVE WOMACK, Arkansas
 JAIME HERRERA BEUTLER, Washington  

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.

              John Martens, Winnie Chang, Kelly Hitchcock,
                     Ariana Sarar, and Amy Cushing,
                           Subcommittee Staff

                                ________

                                 PART 6
                                                                   Page
 U.S. Securities and Exchange Commission..........................    1
 U.S. Securities and Exchange Commission..........................   45
 General Services Administration..................................  127
 Small Business Administration....................................  193



                                ________


                         U.S. GOVERNMENT PRINTING OFFICE 

82-609 PDF                     WASHINGTON : 2013 



                         COMMITTEE ON APPROPRIATIONS

                    HAROLD ROGERS, Kentucky, Chairman

 C. W. BILL YOUNG, Florida \1\        NITA M. LOWEY, New York
 FRANK R. WOLF, Virginia              MARCY KAPTUR, Ohio
 JACK KINGSTON, Georgia               PETER J. VISCLOSKY, Indiana
 RODNEY P. FRELINGHUYSEN, New Jersey  JOSE E. SERRANO, New York
 TOM LATHAM, Iowa                     ROSA L. DeLAURO, Connecticut
 ROBERT B. ADERHOLT, Alabama          JAMES P. MORAN, Virginia
 KAY GRANGER, Texas                   ED PASTOR, Arizona
 MICHAEL K. SIMPSON, Idaho            DAVID E. PRICE, North Carolina
 JOHN ABNEY CULBERSON, Texas          LUCILLE ROYBAL-ALLARD, California
 ANDER CRENSHAW, Florida              SAM FARR, California
 JOHN R. CARTER, Texas                CHAKA FATTAH, Pennsylvania
 RODNEY ALEXANDER, Louisiana          SANFORD D. BISHOP, Jr., Georgia
 KEN CALVERT, California              BARBARA LEE, California
 JO BONNER, Alabama                   ADAM B. SCHIFF, California
 TOM COLE, Oklahoma                   MICHAEL M. HONDA, California
 MARIO DIAZ-BALART, Florida           BETTY McCOLLUM, Minnesota
 CHARLES W. DENT, Pennsylvania        TIM RYAN, Ohio
 TOM GRAVES, Georgia                  DEBBIE WASSERMAN SCHULTZ, Florida
 KEVIN YODER, Kansas                  HENRY CUELLAR, Texas
 STEVE WOMACK, Arkansas               CHELLIE PINGREE, Maine
 ALAN NUNNELEE, Mississippi           MIKE QUIGLEY, Illinois
 JEFF FORTENBERRY, Nebraska           WILLIAM L. OWENS, New York
 THOMAS J. ROONEY, Florida
 CHARLES J. FLEISCHMANN, Tennessee
 JAIME HERRERA BEUTLER, Washington
 DAVID P. JOYCE, Ohio
 DAVID G. VALADAO, California
 ANDY HARRIS, Maryland
   
 ----------
 1}}Chairman Emeritus    

               William E. Smith, Clerk and Staff Director

                                  (ii)



   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2014

                              ----------                              

                                           Tuesday, March 12, 2013.

                U.S. SECURITIES AND EXCHANGE COMMISSION

                                WITNESS

CARL W. HOECKER, INSPECTOR GENERAL 
    Mr. Crenshaw. The meeting will come to order.
    Today we are going to hear from Inspector General Carl 
Hoecker. He and I have known each other from my time as Chair 
of the Leg Branch Subcommittee when he was the Inspector 
General for the U.S. Capitol Police. So I am pleased to welcome 
him back and hope that we will continue our great working 
relationship.
    Inspector Hoecker was just appointed about 1 month ago in 
this new position. So we appreciate you coming up so quickly to 
testify, having just started your new position. We are anxious 
to hear what you have planned for your office.
    This subcommittee has distinct jurisdiction over a diverse 
group of agencies, and many of those have a profound impact on 
American lives. The SEC is one of those agencies. It has the 
unique task of protecting investors, maintaining fair and 
efficient markets, and encouraging capital formation. This is a 
tall order. Having an effective Inspector General conducting 
oversight over an agency as large and as important as the SEC 
is obviously very critical.
    Since 2001, Congress has provided the SEC with additional 
regulatory tools, and we have more than doubled the 
commission's annual appropriations. And yet the agency missed 
the Madoff and the Stanford Ponzi schemes; the agency has made 
expensive mistakes with regard to their leasing authority; and 
they have made wasteful decisions with regard to their 
procurement and contracting.
    And so, Mr. Inspector General, you are our eyes and ears. 
You are the watchdog of the taxpayers. So it is my expectation 
that your office is actively looking for improvements and 
efficiencies within the SEC to make sure that our taxpayers' 
dollars are being spent efficiently. So we look forward to 
hearing your testimony, and look forward to hearing the answers 
to our questions.
    Before I ask you to proceed, I would like to call on 
Ranking Member Serrano for any opening statement he might have.
    Mr. Serrano. Thank you, Mr. Chairman.
    And I would also like to welcome Mr. Hoecker, the new 
inspector general for the Securities and Exchange Commission to 
testify before the subcommittee.
    I believe this may be your first time testifying before 
Congress in your new position. So we promise to be gentle and 
sweet and charming.
    In recent years, the SEC has received numerous new 
responsibilities and has received an increased budget from this 
subcommittee to help deal with those responsibilities. Your 
office has the important job of making sure that those new 
resources are being used effectively and efficiently. And that 
the SEC is properly performing its job of protecting investors 
and consumers. I know, in the past, the OIG's office has been 
very responsive to questions from this subcommittee on these 
sorts of issues. And as we move into the fiscal year 2014 
budget cycle, I hope we can continue this productive dialogue.
    Unfortunately, we cannot go through these hearings without 
discussing sequestration, which, according to the CBO, will 
reduce our gross domestic product by six-tenths of a percentage 
point in this year alone. Moreover, the sequester is going to 
severely impact the ability of agencies, like the SEC, to 
perform the basic functions that the American people expect of 
them. I am very concerned that as a result of sequestration, we 
are reducing resources for the SEC at the very time we are 
asking them to take on more work through the continued 
implementation of Dodd-Frank.
    Sequestration is being compounded by the proposed 
continuing resolution for fiscal year 2013, which it appears 
will not provide additional funding to the SEC. We need to make 
sure the SEC has sufficient resources to guard our financial 
markets against fraud and abuse. I am interested in learning 
more about what your office will be doing to monitor the 
effects on the SEC and how you will analyze whether your agency 
has sufficient resources to do the job we have given them.
    Sequestration issues are also likely to affect the 
operation of the OIG's office as well. Although you have only 
been in your new position for a short time, I hope you will be 
able to detail for us the impact of the sequester on your 
increasingly large mission as well. So we welcome you and we 
look forward to your testimony.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    So, Mr. Hoecker, we would now like to call on you to make 
an opening statement. If you could limit that to 5 minutes or 
less, it will give us more time to ask you questions, and we 
will accept your written statement for the record. Please 
proceed.
    Mr. Hoecker. Thank you.
    Good afternoon, Chairman Crenshaw, Ranking Member Serrano, 
members of the subcommittee. Today it is my privilege to 
introduce myself as the newly appointed inspector general for 
the Securities and Exchange Commission.
    In my testimony, I am representing the Office of Inspector 
General, and the views expressed are my own and my office's and 
do not necessarily reflect the views of the Commission or any 
Commissioner. Despite the constrained fiscal environment facing 
our Nation, we feel that the aggregate budget request for the 
operations of OIG for fiscal year 2014, which is $7.8 million, 
is justified as we continue to focus on improving agency 
programs through audits of programs and operations, emboldening 
staff and integrity, agency integrity by investigating 
allegations of misconduct.
    As the SEC strives to ensure confidence in our capital 
markets, we continue working with the Commission to assist it 
in its mission to protect investors, maintain fair, orderly, 
and efficient markets, and facilitate capital formation. I 
envision that with my experience in investigations and forensic 
accounting, I will effectively be the eyes and ears of Congress 
and be a steadfast independent advisor for the commission.
    I would like to begin my remarks by briefly discussing the 
role of the OIG and its oversight efforts for the next few 
years. The OIG is an independent office within the SEC that 
conducts audits of programs and operations and investigations 
into misconduct by agency staff, and contractors. Our office, 
in accordance with the IG Act of 1978, as amended, does not set 
policy for the SEC nor make substantive determinations 
regarding the Commission's program functions or budgetary 
process; rather, our mission is to promote integrity, 
efficiency, and effectiveness of programs and operations and to 
report our findings and recommendations to the agency and to 
Congress. Since my appointment as IG for the SEC last month, 
the OIG investigative and audit units have continued vigorous 
oversight over the SEC.
    The Office of Audits includes six auditors who report to 
the Assistant IG for Audits. During fiscal year 2012, the OIG 
issued eight audit reports involving matters critical to the 
SEC programs, including cost-benefit analyses conducted for six 
rulemakings pursuant to Dodd-Frank, the SEC's continuity of 
operations, and record management practices. The reports 
contained 102 recommendations with which the agency fully 
concurred. We also saw closures of 155 recommendations from OIG 
reports issued during and prior to fiscal year 2012. In this 
current fiscal year, our audit function has issued one audit 
report, issued five draft reports to SEC management and 
continues to work on five additional assignments.
    The SEC Office of Investigations includes six investigators 
who report to the Assistant IG for Investigations. 
Notwithstanding the small size of the investigative staff, the 
Office of Investigations has conducted numerous investigations 
and inquiries involving violations of statutes, rules, 
regulations, and other misconduct. In fiscal year 2012, OIG 
received 535 complaints, and opened 10 investigations, and 45 
preliminary inquiries based on those complaints. In the same 
time period, the OIG concluded 15 investigations and 75 
preliminary inquiries, resulting in 5 referrals to the 
Department of Justice and 11 referrals to agency management for 
consideration of administrative action. To date, in fiscal year 
2013, the OIG has received approximately 220 complaints, has 
opened 7 investigations, 8 preliminary inquiries, and has 
concluded three investigations and 20 preliminary inquiries.
    I believe that the SEC's mission of protecting investors; 
maintaining fair, orderly and efficient markets; and 
facilitating capital formations is more important as ever. As 
our Nation's securities exchanges mature into global for-profit 
competitors, there is even greater need for sound market 
regulation. At the same time, the SEC has responsibility to 
utilize government funds in an efficient and effective manner. 
And, the OIG intends to remain vigilant to ensure that scarce 
government resources are utilized wisely and cost effectively, 
and that instances of fraud, waste, and abuse are eliminated. I 
appreciate the interest of the subcommittee in the SEC and my 
office. I believe that the subcommittee's and the Congress' 
continued involvement with the SEC is helpful to strengthen the 
accountability and effectiveness of the commission. And this 
concludes my verbal statement, and I am happy to answer any 
questions you may have. Thank you.
    [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Crenshaw. Thank you, Mr. Hoecker.
    Let me start by asking you a little bit about the sequester 
and the impact that it has. I think everybody knows that we 
have been struggling here in Congress along with the executive 
branch to try to get a handle on some of our debt and some of 
the deficit. We raised taxes back at the first of this year. We 
are working on tax reform. We are working on entitlement 
reform. We have still got a ways to go. One of the good things 
I think we would all agree on this subcommittee and our full 
Appropriations Committee is, from 2010 to 2012, we actually 
reduced discretionary spending. We made some tough choices, and 
spending went down $95 billion.
    But here we are in a situation where we have a continuing 
resolution. I think we all agree on this subcommittee, that is 
not the best way to run the railroad. It kind of throws out all 
the work that we put in last year. And we still haven't 
resolved some of the issues related to the Budget Control Act, 
finding that extra $1.2 trillion. So here we are with a 
sequester.
    Once again, I think most would agree that if you have to 
cut spending, and not everybody agrees that you do, but I think 
regardless of how you feel about it, we would all say across-
the-board cuts are really not the best way to do it. They ought 
to be targeted. They ought to be smart. We ought to look at 
priorities: Things that are being wasted, we ought to cut; 
things that are being done well, we ought to increase.
    So here we are, and we still don't have a budget yet from 
the executive branch. But we appreciate you being here to talk 
about some of the issues that are before us.
    So, in that regard, I would love to know what--even though 
you are brand new, and I am sure you are working night and 
day--what would you say the impact of the sequester has been so 
far, just on your little corner of the world, as Inspector 
General? And then maybe if you can make a comment on how you 
think it has impacted the full SEC. Equally as important, I 
would love to know what you think about these cuts, as it 
relates to your part of the world, to the agency. When you have 
to go through these kind of cuts that are going to amount to 
about 5 percent, about 8 percent to the Defense Department, 
does that make you try to conduct your business even more 
efficiently? Because you have to live with that; we don't know 
how long it is going to be. Please comment on the impact it 
might have had on you already, and what do you think the impact 
will be as you move forward?
    Mr. Hoecker. Yes, sir. Well, one of the first things I 
found when I took over the job a month ago is that I needed to 
get a handle on how sequestration will affect my office. And 
good or bad, we found that for the OIG, it will not have 
furloughs this fiscal year, due to the fact that we are down--
we need to hire eight people. So we had some folks leave and 
things like that. So, from that perspective, there is 
sufficient salary lag, if you will, that it won't affect my 
office.
    The second thing I wanted to find out, at least in terms of 
if there is going to be any shut down within the SEC or 
layoffs, furloughs, was to ask the CFO. So I had a visit with 
the CFO either my second or third week, and he assured me that 
the sequestration will result in no furloughs or reductions in 
force at the SEC.
    In terms of any impact on the program and delivering the 
regulation, et cetera, sir, I don't have any body of work to 
support that, and I will have to blame that on my newness in 
terms of reduction of budget and if there is going to be any 
negative effect on the program itself, sir.
    Mr. Crenshaw. Do you think overall it motivates you and 
your agency to just try to be more efficient? I would think 
that is the case.
    Mr. Hoecker. Well, what I always try to do, sir, if 
Congress sees fit to give me a certain amount of money. And I 
need to make it work.
    Mr. Crenshaw. Got you.
    Mr. Hoecker. Need to deliver the mission.
    Mr. Crenshaw. I got you.
    One other quick question. The one concern I hear about the 
rulemaking process, and again this is more SEC, but as you look 
at how they make rules, the two big concerns, it seems to me, 
are, number one, how they use the cost-benefit analysis in 
their rulemaking. Over time I have heard that that is lacking 
in some cases. And the other concern that people have about 
rulemaking that the Commission does, is that they undertake 
rulemaking not so much that is required by, say, Dodd-Frank or 
some other statute, but they have taken up nonstatutorily 
required rulemakings. I think the prior Chairman talked about 
rules relating to money market funds, and the new Chairman is 
said to be interested in campaign contributions, things that 
aren't necessarily a priority from the standpoint of the 
statute. I just wondered if you had a chance to look at some of 
these concerns--particularly the cost-benefit analysis. Can you 
comment on that? Have you taken a look at these?
    Mr. Hoecker. Yes, sir. I have taken a look at the work that 
we have done. And about--we have issued two reports on 
rulemakings, and we are currently underway with another phase, 
two-phased approach.
    What this current two-phased approach that is ongoing in 
audit is that the former chair committed to, there is a 
guidance memo on including cost-benefit analysis with 
rulemaking. And she had committed that the agency, the 
commission would implement that.
    So we are doing an audit to the extent to find out where 
they documented that, how it looks and what kind of cost-
benefit analysis they have looked at. There are other certain 
objectives that I can share with you. But that is kind of the 
big picture that we are looking at right now.
    Mr. Crenshaw. Thank you very much.
    Mr. Hoecker. And that we have committed to issue that final 
report at the end of April. So I will go ahead on record saying 
end of April. But I will also go on record to say that I want 
to make sure I am comfortable with it before I release it. So 
if it is a week late, I will take the wrath, but I want to make 
sure I am comfortable with the product.
    Mr. Crenshaw. Great. Thank you very much.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    We know, sir, that your role as IG has certain 
responsibilities and areas that you cover. But, of course, you 
recommend to the SEC certain things.
    And in view of the fact that the SEC has not received what 
the President has asked for in the last couple of years, that 
the Senate bill introduced yesterday does not provide any 
funding above 2012, and sequestration, how confident are you 
that the SEC can tackle the many challenges that it faces? And, 
more importantly, in your case, can they fully implement your 
recommendations?
    Mr. Hoecker. Well, I would say that they are going to have 
to make it work, sir. I have only been there for 4 weeks. And I 
don't have a body of knowledge to analyze the impact of keeping 
it at the 2012 level.
    But I would just say they will make it work. The folks that 
I have met are very committed to the mission. If they requested 
a certain amount, that is what they felt they needed. I just 
can't answer the delta and what the effect of the delta would 
be, sir.
    Mr. Serrano. Now, we know it is somewhat if not very unfair 
to ask you after 4 weeks to have a full picture, and you have 
made that clear, and we understand that.
    But in those 4 weeks, are there any areas you have seen 
where the budget of the SEC would be hit hard and would impair 
them from moving forward with some things that you may know at 
this point early on? And realize it is not a full analysis, but 
just something.
    Mr. Hoecker. I haven't looked at the budget in detail, sir, 
so I don't know if I could give you an answer on that.
    Mr. Serrano. All right. And on your particular--the work 
you have to do, you say you will make it work.
    Mr. Hoecker. Yes, sir.
    Mr. Serrano. But certainly making it work and hoping it was 
different are two different things. We are here as 
appropriators, not all the time to suggest cutting the budget. 
I know that sounds strange. We also want to invest every so 
often.
    Mr. Hoecker. Yes, sir.
    Mr. Serrano. So you shouldn't shy away from telling us ``I 
would like to see this happen in my particular agency.'' And I 
just want you to keep that in mind.
    But after 4 weeks, I guess you can't tell us, other than 
you will make it work what other, how the budget will hurt you 
in your ability to make your recommendations?
    Mr. Hoecker. Well, sir, in terms of my budget, I will be 
coming back for the next budget request with a business 
analysis. Because from my particular office, I would like to 
compare the sister and brother financial OIGs, such as the 
Federal Deposit--FDIC, Treasury, to see if we are the right 
size or not. My sense is that we are not the right size, that 
we need to grow. But I am not prepared right now with a 
business case to ask for logical support for that, sir.
    Mr. Serrano. Okay. Thank you, Mr. Chairman. I know we have 
other members who want to ask questions.
    Mr. Crenshaw. Mr. Womack.
    Mr. Womack. Thank you, Mr. Chairman. And appreciate the 
witness' testimony here this afternoon.
    I want to go back to what the Chairman talked about just a 
minute ago in the case of rulemaking and particularly as it 
concerns the Jobs Act. We passed that nearly a year ago. And it 
required that rules be adopted within a year. And, of course, 
we know what calendar month we are in now, March of 2013. I 
recognize you have been on the job a short period of time. But 
in your brief time, can you elaborate on why it takes the SEC 
so long to implement rules, rulemaking responsibilities? And if 
this has come to the attention of the IG in the past, based on 
your research.
    Mr. Hoecker. The only issue, sir, that has come to our 
attention was the economic--economic cost-benefit analysis, 
which was requested by the House Government Oversight 
Committee. That was brought to our attention.
    But in terms of the agency not being able to meet the 
deadlines, I don't know where to go with that to give you a 
concrete analysis. But my sense would be that Dodd-Frank 
significantly changed the mission of the Securities and 
Exchange Commission. I don't know what that means in their 
world. But all I know is kind of studying right now with this 
job, studying for the job interviews when I was talking to the 
commissioners, and I do know that Dodd-Frank changed the 
mission somewhat in terms of adding rulemakings. And to the 
extent that these rulemakings and the level of effort that that 
is going to take, I just can't answer that, sir.
    Mr. Womack. I think mainly what I am looking for is maybe 
some speculation and opinion, qualified or unqualified, based 
on your short amount of time as to, is it a resource problem? 
Is it a, for lack of a better term, a denial problem, that we 
are in denial that this is something that we have to perform on 
a certain time scale? And I suppose I would be remiss if I 
didn't characterize my question in the same framed context I 
would about the delay on getting the President's budget. Is it 
okay for the Federal bureaucracy to ignore the desires of 
Congress and miss important deadlines or timelines that we have 
established through our--through enacted law?
    Mr. Hoecker. I think it is important that if Congress gives 
somebody a deadline, that they meet it.
    But I also realize when you change an organization, when 
you change an entity, it is not easy to change, particularly if 
you are the size of the SEC. So I would--my opinion, which I 
will qualify as new-guy opinion, sir--that it would be a 
mixture of the appropriations level combined with changing the 
agency. Because I always say, when you change an agency, it is 
like steering a battleship. So it has to happen gradually, not 
that it has to, but it happens gradually. We all want it 
sooner. But I think the nature of change within a large 
organization, that is what we see.
    Mr. Womack. Would it be your testimony that based on your 
initial observation that it would not be a resource problem 
necessarily?
    Mr. Hoecker. I don't know what it would be, sir, because I 
don't have a body of knowledge to support that. And I would not 
want to kind of walk on that plank, if you will. But my sense 
is, I guess it would be a sense, it would be a mixture of a 
change, changing an agency's mission significantly, and funding 
it appropriately.
    Mr. Womack. Finally, there has been a lot of talk about our 
potential vulnerability to cyber. And I want to just kind of 
throw you out on the table for you to comment about. Obviously, 
if our country, which is attacked every day thousands and 
thousands of times for various purposes, various reasons, are 
we pretty confident--not confident, concerned about our 
vulnerability from purely the SEC's standpoint on potential 
cyber--cyber warfare?
    Mr. Hoecker. I think we should be concerned overall, I 
mean, all government for the cyber warfare. I don't think we--I 
think the defense is just--it takes a lot of resources, it 
takes a lot of skill. So I don't think anybody's out of the 
woods in terms of not being a target threat of a cyber threat.
    Mr. Womack. Mr. Chairman, I will yield back my time.
    Mr. Crenshaw. Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    Good afternoon.
    Mr. Hoecker. Good afternoon, sir.
    Mr. Quigley. I think the SEC as an agency, like most knows, 
it can do better. But if we are talking about the size of 
agency compared to the task at hand, I think it is at least 
fair to, as you did, notice that Dodd-Frank changes and adds 
responsibilities that are pretty significant and pretty 
important. But I also think it is fair, if we are talking about 
large budgets and bureaucracies, to remember who they are 
regulating. This is a--their budgets dwarf anything--a more 
fair question is can the agency possibly keep up with those 
companies that they are asked to oversee. Particularly with 
sometimes the amnesia of why we needed Dodd-Frank, what tipped 
off the near collapse of our financial system, in your mind?
    Mr. Hoecker. Well, I do think in general, the industry is 
way ahead of government in terms of IT. And so if you take the 
IT and if you look at even high-frequency trading or things 
like that, where there are nanoseconds of difference, there is 
a catch-up for government agencies to worry about. And I think 
traditionally we have--we have lagged behind.
    Mr. Quigley. In your mind, how is the SEC doing now in 
their attempts to catch up on the technology side? I mean, 
granted, they are not going to get a big budget as they think 
they need or perhaps need. So can they catch up on the 
technology side or come closer?
    Mr. Hoecker. I think they can come closer. I think they 
have some work to do. I don't have specifics in terms of they 
need to do X, Y, and Z. But I am sure that there are some 
improvements they can make and should make. And as we factor in 
our audit planning for next year, I am sure that we can look at 
some of that stuff.
    Mr. Quigley. And in looking at the politics of cost-benefit 
analysis, I am sure as you oversee what the SEC tries to do, 
you recognize that some of these costs and the type of analysis 
are really hard to capture. And some of the benefits equally 
difficult to capture.
    I mean, how much does a rule which helps protect the 
public's trust in the investment system have a value? I mean, 
how much more does it in your mind--is it at least a difficult 
task to at least recognize that the public's trust matters? And 
I am not sure how you quantify an element like that.
    Mr. Hoecker. I am not sure how you quantify that either. 
But I know that the SEC has economics folks and continues to 
try to hire folks in that capacity. But I think the rulemaking 
is that you have to--you have to try and then you have to at 
least explain why you couldn't. And it has to be pretty clear, 
and to the extent that where that explanation appears is a 
question.
    Mr. Quigley. And I appreciate your attempts when you 
analyze those cost-benefit analysis, to take that thought into 
consideration. Thank you.
    And I yield back, Mr. Chairman.
    Mr. Crenshaw. Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    I wanted to ask a second about the process. You have 
submitted a budget request to, I guess, the House and I assume 
the Senate. Is there a timeline for which you follow to do that 
and all agencies, and what would that be?
    Mr. Hoecker. Well, the way that works with Inspector 
Generals, since the 2008 Inspector General Enhancement Act or 
Improvement Act, I believe, is we submit our budgets to the 
agencies. But I say they are kind of firewalled. Because we 
send that to--I don't know if we really send it to the House 
and Senate. But there is a way that they are not supposed to 
touch our budgets. And that goes in with the regular budget 
process itself. So we don't have a different timeline as an 
Inspector General's Office than the agencies. So we fall in 
line with the agencies.
    Mr. Graves. What is the timeline for the agencies to submit 
theirs?
    Mr. Hoecker. Well, typically, we--I believe it is in 
January, provide that to the agency. And then the agency has a 
certain timeline to submit that to OMB. And I don't know what 
the SEC has.
    Mr. Graves. But they submitted theirs on time, I assume.
    Mr. Hoecker. I have to assume, but I don't know for sure 
sir.
    Mr. Graves. When they submit it, they are submitting it to 
OMB, which, in essence, is to the administration for the 
preparation of their budget request.
    Mr. Hoecker. Yes, sir.
    Mr. Graves. So it is probably fair to say that OMB or the 
administration has all the agencies' budget requests in place 
and they have just themselves chosen not to compile that and 
deliver that to the House and Senate in a timely fashion.
    Mr. Hoecker. I am not sure how that works. But OMB 
assembles all the agencies' budgets and puts it all together. 
But I am not sure who didn't send it or who didn't compile it.
    Mr. Graves. Okay. Understand. I have just another question. 
In your written statement, you referenced ``The Misuse of 
Government Resources.'' A report that had come out recently. 
And it was in reference to about a million dollars of wasteful 
spending on computers and software without any oversight or 
planning of the use. In that, you know, certainly that is 
something we are interested in, is something such as that.
    What was the result of that? And--or maybe, first, in 
your--in the report why was there all of a sudden a surge in 
spending that was wasteful and the equipment was never used and 
there was no planning for it?
    Mr. Hoecker. I don't have those details before me right 
now. I know the case you are talking about. We did an 
investigation. I know that the SEC management took--took pretty 
quick action. I don't know what action that is because I have 
been briefed at a high level. If you want it, my staff can get 
back to you or I can get back to you on that issue.
    Mr. Graves. To your knowledge, was anybody terminated or 
held responsible for the misuse?
    Mr. Hoecker. I don't have any knowledge of that right now.
    Mr. Graves. Was that something you could find out for us?
    Mr. Hoecker. Absolutely. Absolutely.
    I have just been told that two individuals have resigned as 
a result of that.
    Mr. Graves. Two individuals resigned.
    Mr. Hoecker. But I will follow up more completely with you.
    Mr. Graves. As, you know, the inspector general, in the 
future, do you feel that that is sufficient penalty or recourse 
that two individuals resigned as a result of a million dollars 
of taxpayer dollars being misused?
    Mr. Hoecker. As inspector general, when I do an 
investigation that involves misconduct on an individual, I am a 
factfinder. And my reports either state that it appears that 
this person violated this regulation or this law, but we 
don't--we don't recommend what discipline to take. In other 
words, this means termination, this means a letter of 
reprimand, because that is outside the factfinder, and that 
would be going outside of the independence issue for an 
inspector general to do that, in my mind. But the agency has to 
take appropriate action. And as there are a number of things 
they look at when they get a report such as ours, they look at 
the Douglas factors, they look at past records, and they look 
at similar actions that they have taken.
    So that is--that is totally the agency's call.
    Mr. Graves. Okay. Thank you.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you very much, Mr. Chairman.
    How are you, sir? By the way, good staff work there on that 
issue.
    The report, which is called, ``OIG's Follow-Up Review of 
Cost-Benefit Analyses in Selected SEC Dodd-Frank Act 
Rulemakings,'' I understand it is not a catchy title, but that 
is exactly what it was.
    Mr. Hoecker. Yes, sir.
    Mr. Diaz-Balart. It states that the SEC is not providing, 
frankly, a full picture of whether the benefits of a regulatory 
action are likely to justify its cost and discovering which 
regulatory alternatives would be more effective.
    Now, we do know that many SEC rules have been challenged 
successfully, frankly, in court due to poor analysis by the SEC 
in its rulemaking process. There are a few examples of those, 
including, for example, the proxy access rule. Three quick 
questions for you, if I may. By the way, it also states in that 
report that the SEC rarely factors in internal costs to the 
agency during its rulemaking process, which obviously, it would 
seem to me, is an important factor that they are leaving out. 
Three questions.
    Since that report was published, do you know if the SEC has 
made any efforts to change their cost-benefit analysis? You 
know, what are they doing to improve their rulemaking process?
    Mr. Hoecker. Yes, sir. I believe that that report, which is 
No. 499, that was done--when the SEC first committed to do 
cost-benefit analysis, there was a shorter memo by the General 
Counsel's Office, not the current general counsel, but the 
previous. And that was, like, 2 or 3 pages.
    When the IG's office did this review, the one with the long 
title that you said, and I will just call it 499 because that 
is the report number.
    Mr. Diaz-Balart. That is actually catchier.
    Mr. Hoecker. Yes, sir. They looked at that as the standard. 
So that was the criteria that they used when they did the 
review. And as a result of that, the General Counsel's Office 
issued this March 2012 cost-benefit analysis guidance. And on 
that guidance, the March 2012 guidance, that is what we are 
doing the phase 1 and phase 2 work on currently, sir.
    Mr. Diaz-Balart. Great. Great.
    Do you expect or how effective do you expect that the SEC's 
examination process--I don't know if you are aware of this 
proposed Municipal Advisor Rule.
    Mr. Hoecker. I am sorry, the what, sir?
    Mr. Diaz-Balart. Municipal Advisor Rule. Let me just throw 
out a couple questions, and I figure that you might not be--so 
here is the issue. This rule, which I am concerned whether they 
are listening to the relevant industries that they are dealing 
with--this is in general--are they listening to the relevant--
you know, the industries that they are about to regulate, they 
are regulating, and to the public during their rulemaking 
process? That is one question. That would be my second 
question. And also, how effective is their examination process 
for--in this new process, which I guess I can speak to your 
staff as well about. But are they listening to this very large 
number of new registrants that are expected under the very 
broad scope of this proposed Municipal Advisor Rule? And I can 
get your staff more detail. But I just want to see if there 
are, in fact, if they changing their way a little bit. Are they 
speaking to folks? Are they listening to folks? And how 
effectively are they doing it? Or are they just kind of going 
through the motions?
    Mr. Hoecker. I don't have a body of knowledge to support 
any answer to that. I do know they have public hearings. I 
don't know if we have looked at the effectiveness of those. But 
what I would like to do is to see if we can somehow get back to 
you on it and have my staff provide a written answer to those 
questions, to the best we can, sir.
    [Clerk's note.--The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Diaz-Balart. That would be great. And I think my staff, 
Ryan Canfield, who is here, will probably be able to touch base 
with them and get them talking.
    Mr. Hoecker. Okay. Thank you.
    Mr. Diaz-Balart. Thank you, sir.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman.
    Welcome to the committee, sir. Glad you are here.
    Wanted to discuss the changes made in the last couple of 
years regarding Dodd-Frank. It has been mentioned a couple 
times already in the hearing. I note that the SEC had some of 
its responsibilities transferred to the Consumer Finance 
Protection Bureau. I guess I would like you to discuss that a 
little bit, what that transition has been like. Have we 
determined whether these changes were good changes on policy 
grounds, those sorts of things; have we had any sort of 
determination of whether these things have moved in the right 
direction? Has the transition worked?
    And then, I guess, secondly, as these responsibilities are 
transferred, do we show dollar-for-dollar savings, such that we 
are not leaving behind duplicative costs in the SEC? If we are 
transferring responsibilities over, that should be a reduction 
in expenditures of the SEC, and have those been fully received?
    Mr. Hoecker. Well, sir, that is a great question, and 
particularly in terms of your second part, reporting the 
savings. I don't have any knowledge to answer that question 
right now. And I would ask that maybe you allow me to get back 
to you on that.
    [The information follows:]

    Upon further review following the March 2, 2013 Appropriations 
Hearing, my staff was unable to find examples of responsibilities that 
were transferred from the SEC to the CFPB as a result of the Dodd-Frank 
Act or otherwise. Accordingly, my office could not identify any 
associated costs savings or ancillary benefits that may have been 
incurred by the SEC by a reduction in regulatory responsibility.

    Mr. Yoder. Okay. That would be great. And certainly, as we 
go forward in the hearings in the next coming weeks, be a good 
opportunity to discuss that with the SEC, and we would love to 
have your background on that first.
    I appreciate that.
    I note some conversation about the ability for the SEC to 
focus on the right priorities. And whether they are able to 
move the rules forward in an appropriate manner and a timely 
manner. And I have noted that the SEC is now considering 
proposing rules about political campaign contributions that 
were not necessarily mandated by Congress. Are we in a position 
where our mandated responsibilities are not being met but our 
responsibilities that the SEC has sort of volunteered to take 
on are being met in a higher priority? Can you explain how we 
are dealing with that and whether those responsibilities are 
being properly, I guess, moved forward on?
    Mr. Hoecker. I think the larger area on that would be if 
you have X-amount of rulemakings are you--and those are 
required under Dodd-Frank, are you working on those, or have 
you added some other rulemakings? And that, again, sir, has 
fallen into an area where I just don't have the knowledge yet. 
What I do know, and the rule that you are speaking of, I think 
they are considering it right now. I don't know what--exactly 
what progress, but I think it is more in the proposal stage 
right now. But I don't know how much effort they have spent in 
doing that.
    Mr. Graves. If you could report back on where they are and 
the political disclosure rule and the determination of the cost 
of that, how they are proceeding and maybe an analysis of the 
impetus behind that. This is not a Congressional direction; so 
what is driving that? What is thrusting that? And how it is 
affecting their ability to move forward on their mandated rules 
under Dodd-Frank, which certainly small businesses, the 
committee economy is waiting on certainty? So any of these 
things that are outside of that purpose are going to make it 
more difficult to do what everybody on this committee wants to 
do, which is get the economy going again and creating jobs. So 
we need the SEC to, obviously, be a partner in that. And these 
other items tend to take away from that. Would love to get some 
background on that as well.
    Mr. Hoecker. Okay, sir.
    [The information follows:]

    Our office does not have an independent body of work or evidence to 
suggest that the Securities and Exchange Commission (SEC or Commission) 
has prioritized discretionary rulemakings over Dodd-Frank or JOBS Acts 
required rulemakings. However, as we continue our audit of the SEC's 
application of cost-benefit analysis during the SEC's rulemakings 
continues, we will keep these concerns in mind and report any contrary 
information we find.

    Mr. Yoder. Mr. Chairman, I yield back.
    Mr. Crenshaw. Thank you. I think we will have time if other 
questions are on people's minds, we will go into a second round 
of questions.
    And I will start by asking you, the oversight that you are 
in charge of, some of your predecessors have focused on the 
investigation side; some have focused more on the audit side. 
As I understand it, you have got maybe a third way to look at 
things, and that is through a kind of evaluation, which seems 
to make sense as you conduct that oversight.
    And in that regard, I wanted to ask you about some of the 
settlements that have taken place and what your plans are. You 
read from time to time where Federal judges will throw out a 
settlement that SEC has reached with a defendant. I saw one the 
Federal judge threw out and he said the settlement was neither 
fair, nor reasonable, nor adequate, nor in the public interest.
    I think that the thrust of that theory is that when SEC 
brings a lawsuit against someone, a bank or whoever, that they 
think has violated a law, after an investigation, and a 
settlement is reached, and there is no admission of guilt. 
Judges have taken a position that, well, if they really haven't 
found any facts, there is nothing to base the settlement on; 
then maybe it is not a legitimate settlement. This is going to 
create a little bit of havoc, I think, in terms of these 
settlements. I know that SEC has been criticized from time to 
time for just entering into settlements, never really going to 
trial. I am sure they would argue if they are against some big 
corporation, they don't have the time, the energy, and the 
money to actually pursue a full trial and end up with a 
judgment, which may or may not be true.
    But I just wonder, from your standpoint what you think, 
since I think that is going to be the subject of conversation, 
even though it is really more of a question in terms of 
priorities with the new Chairman. But as the inspector general, 
is that something that you think you would look into just--I 
guess you would look into the enforcement part of the SEC, just 
to take a look and see how the settlements are made and whether 
that is good business or bad business? Is that something you 
think you might pursue?
    Mr. Hoecker. Well, sir, the evaluation, to kind of address 
the first part of it, you are right. There is a third kind of 
pillar, if you will, in the IG community, that is evaluations. 
And that is somewhere between audit and investigation. It is 
usually a shorter duration, a more limited kind of scope or 
objectives. And I would think, in terms of any kind of metric 
that enforcement might use, we could do some kind of an 
evaluation in terms of analyzing what their metric was, how 
they achieved that. And if the metric deals with settlements, 
and I am not sure what that would look like, but if there are 
some trends where settlements are as you describe, then that 
would come out in that type of an analysis.
    Mr. Crenshaw. Got you. Thank you. Let me ask you a question 
about leases which seem to be problematic for the SEC. I think 
I mentioned in my opening statement that since 2001, we have 
actually doubled the amount of appropriations the SEC has. And 
they have had some extra regulatory authority as well. What we 
all want to make sure is that the money that we appropriate is 
spent wisely. And when it comes to leasing, the SEC hasn't done 
all that well. I know they are working through all that. But if 
you spend your money wisely, you have got more money to spend, 
obviously, if you don't waste it.
    But with all this--the lease that took place and then GSA 
came in all that is getting worked out. But the bottom line is 
that SEC leased a whole lot of space that they ended up not 
needing. I think I read there are 500 work stations in that new 
facility that aren't being used. So is that something that you 
are going to look into? I don't know what the final answer to 
that is. But I imagine that it is something that your office 
would review and probably be better able to tell us if the 
space is being wasted or if they have got plans to utilize the 
space. Is that something you have had a chance to look into or 
planned on looking into?
    Mr. Hoecker. I do know that the SEC OIG had done a review 
that kind of exposed that, if you will, and that the SEC is 
consolidating some things. I believe there is a facility in 
Alexandria they are moving into headquarters, to fill that 
space and get that ratio more in to conformity with the GSA 
requirements of if you have a certain grade of an individual, 
they would get X amount of square feet as an office. I do know 
that they are working toward that. As they work toward that and 
when they feel that they have kind of done what they can, I 
think that is something that my office could do a follow-up 
audit and figure out where they are and report out on it, sir.
    Mr. Crenshaw. That would be great.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Sir, your testimony provides several examples of 
investigations that your office has conducted. And in almost 
all of these examples, the SEC has concurred with all of your 
recommendations, which is commendable, if not surprising, 
right, for any agency.
    It seems you have a very good relationship with the SEC. 
And I wonder if you could tell us about that relationship and 
tell us, in fact, if that is necessary. You know, when we think 
of an inspector general, many people see sort of a watchdog 
over an agency. So is it important to have--first of all, what 
is your relationship to them? And is it important whether or 
not you have a good one?
    Mr. Hoecker. Well, sir, that--to address that is the 
previous relationship that they concurred with all of the 
audits. But I realize your question deals with me and the value 
that I--that I have on the relationship.
    I think a positive relationship helps. When I was the IG of 
the Capitol Police, I had a very positive relationship with the 
Chief of Police and the Capitol Police Board. I think that just 
facilitates things. Because when you talk about change 
management, positive change management, the higher up the 
executives are involved, then that just helps that whole 
change.
    My expectation of the relationship is that I don't ever 
expect to be invited to anybody's Christmas party as an IG. I 
just don't, because that is not the purpose of an IG.
    Not that I wouldn't go to anybody's Christmas party and not 
that I am soliciting Christmas party invitations, but it 
doesn't break my heart that people aren't calling me. Just 
checking up on me, are agency management saying, ``Hey, how you 
doing?'' I just don't have that expectation as an inspector 
general. And part of that may be just my upbringing in law 
enforcement is the same way.
    But I intend to have a constructive relationship. I intend 
to meet the commissioners on a regular basis. I intend to meet 
the office and division directors on a regular basis, just to 
share what work I can share with them, just to resolve some 
issues, like recommendations. Because I think we probably all 
want change. So if I find something in an audit or an 
investigation, the facts are the facts. I think we pretty much 
agree on the facts. It is the fix that really is the agency's 
responsibility. And to the extent that the recommendations 
could better address a fix to a situation, then that is just--
and then that just makes it easier for the agency and more 
appropriate for the agency, because it is their responsibility. 
So not that they would change any of the outcomes of my report. 
But just in my job in meeting these--meeting the execs are to 
share with them what I found and to get buy in that this is a 
problem and it warrants sufficient attention to change. And 
that is the kind of way I practice being an IG, sir.
    Mr. Serrano. That certainly makes sense. And if you are 
short on Christmas parties, Mr. Crenshaw is--and the other guys 
would probably have a few around the time.
    We will probably still be in session so you probably can 
just come to one of our own.
    As the IG, you have a unique perspective on the agency's 
readiness for the work of Dodd-Frank. As you know better than 
most, the additional responsibilities are numerous, but the 
staff has not been significantly increased to deal with these 
responsibilities. I know again that you have been there a short 
time. But what are the consequences in your opinion of flat 
budgets in this important time of rulemaking?
    And, by the way, we want to be clear on something--at least 
I want to be clear on something. There is a big difference, as 
you know, of opinion in Congress as to what is wasting money 
and what is investing. So we don't want you to get caught up 
and having to sound like you are taking sides on that. But then 
your role is to see that they do what they are supposed to do, 
and at times, you also have an understanding of what they need 
to do. So based on that, as we ask them to come up with all of 
this work, can these flat budgets affect or--once before, you 
said they will have to make it work. But I want you to go a 
step further than that. You know, of course, they will have to 
make it work. But could their life be easier in doing what they 
have to do?
    Mr. Hoecker. When I said make it work--you are right. So 
there are only so many weekends you can work if you have X 
amount of things to do, whether that be Dodd-Frank or something 
else, another requirement.
    Requirements cost money, investments, as you say. And as 
somebody who runs an office, I will take all the investments I 
can get, so to speak. In other words, you know, if there are 
investments to be made then in my office, there are investments 
to be made in the Commission, then I think we should do it. I 
just don't think I am in a position to say that they have 
these, say, 10 items, for example, and they can only do 8 
because of the certain level of budget. I just don't have that 
knowledge, sir. And that is really not something that an IG 
would do in terms of analyzing a budget that is submitted to 
OMB.
    What we would do is we look at, so, slices of the 
appropriations, slices of the funding to make sure that if, for 
example, in the leasing, if we don't think they are spending 
money wisely in a leasing situation or if we think they wasted 
money on IT, then this is something we would look at and report 
out on it.
    Mr. Serrano. I understand that. That is clear to me. But 
the time may come when, as you look at how they are spending 
money, and you are looking to make sure there is no waste, you 
also see shortcomings. And we would hope that whether or not it 
is the role of the IG, I am sure it can be interpreted as such 
that you see what is going on later on.
    Mr. Chairman, I want to make a suggestion, which is 
probably very unpopular. But it is clear that 4 weeks on the 
job is not nearly enough time to know all that is going on that 
one needs to. Yet we know because of Dodd-Frank, because of the 
Jobs Act, because of all of the issues on both sides of the 
aisle, the SEC will be an agency under a lot of Congressional 
scrutiny. So maybe we should establish something where we keep 
in touch with this particular IG. I am not suggesting another 
hearing. But as the session goes on, and as this 2-year term 
goes on, because I think the SEC will be in the forefront of a 
lot of questions being asked by both sides.
    Mr. Crenshaw. I think you are exactly right. And I think 
when we have--hopefully, a budget or even if we don't get a 
budget from the executive branch, we will probably have a 
hearing where the new Chairman of the commission will be before 
us, and we will ask some of those questions. And really 
appreciate his being here as new on the job.
    But I think some of the things that we are talking about 
are things that you are going to be looking at. You have 
immersed yourself in it already.
    But you are exactly right. The areas where he is finding 
that there are inefficiencies, then we want to hear about. And 
the areas where he thinks the SEC is doing a great job, we 
certainly want to hear that as well. So I think there will 
probably be an opportunity, if and when we have a chance to 
talk to the new Chairman. But certainly we will stay in touch. 
And, again, we appreciate the fact that just 30 days ago, you 
were put on the job. I think you have evidenced a really good 
understanding of what the issues are, particularly as they 
relate to your role as the overseer.
    Mr. Serrano. I remember when came to Congress in a special 
election, I walked in to get my voting card. They said, ``Go 
vote.'' I said, ``What are we voting on?'' It was the military 
action on Panama. It is costing a few dollars. I said, ``Oh, 
that is all?''
    Mr. Crenshaw. That is all.
    Now I call on Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Well, I would say, I mean, if 30 days in the position, you 
have done a great job of grasping many of the issues that the 
panel has put forward today. I have another, and I hope you 
have a little insight into it. And if you don't, certainly 
would welcome a followup. But part of Dodd-Frank, and Dodd-
Frank has impacted so many areas and so many elements 
throughout the financial sector. One was addressing 
streamlining the SEC. And it provided for the fact that a study 
must be done in which to streamline. And a group was contracted 
to do that, spent 6 months going through the process, and made 
many positive recommendations. And it is my understanding that 
maybe some of the recommendations have been implemented, but, 
for the most part, many have been ignored, and commonsense 
things: combining areas of interest and consolidating various 
departments and such, things like the private sector would do 
on a regular basis in order to streamline and be more 
efficient. But the SEC seems to be rebuking the recommendations 
that the law required that there be some recommendations of 
streamlining.
    So what can you do to ensure us, looking ahead, that the IG 
will be really aggressive in pursuing the full implementation 
of positive recommendations of efficiency and streamlining 
here.
    Mr. Hoecker. Well, sir, I am aware that they did hire a 
consulting group to make those recommendations, and I believe 
there was an implementation contract, and they are working some 
of those implementations. The degree of completion I am not 
aware of, but this is something that we definitely could 
consider in terms of a project to follow up on at some point 
and figure out of all the implementation or of all the 
recommendations of that first consulting group, what have we 
done? It is something we could definitely follow up on.
    [The information follows:]

    Our office does not have an independent body of work to draw from 
in order to opine on the issues associated with full implementation of 
BCG's recommendations. However, we note that the SEC, in its the three 
status updates in response to the BCG recommendations, represents that 
a majority of the recommendations been implemented.

    Mr. Graves. Yes, that would be good to do, because it is my 
understanding that nearly $5 million was spent on a report and 
a study, and I consider that a significant sum of money, to put 
forward a report to create more efficiency within an agency, or 
a commission in this case, and just to ignore the results, what 
does that tell our constituents back home? And why would this 
body go to such effort to put forward the thoughts and the 
ideas and allocate and appropriate the money to do that if it 
is just going to be ignored?
    So I certainly would welcome your follow up, in particular 
your plans and holding them accountable in the implementation 
of the streamlining and efficiency report recommendation.
    Mr. Hoecker. Yes, sir. I know they have done some of the 
implementations, but I don't know the extent. Like you say, 
there is probably some more out there that they need to fully 
implement that they have not. We will be glad to look at them 
and report out on them, sir.
    [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Graves. Thank you.
    Mr. Crenshaw. Just a comment on that last question, the 
consulting group said, I think, for instance, that the SEC 
doesn't currently have a clearly articulated agency-wide 
strategy for its regional office presence, just as one of the 
areas that they need to work on, so I think that is something 
you all can kind of follow up with.
    Mr. Diaz-Balart.
    Mr. Diaz-Balart. No questions.
    Mr. Crenshaw. Mr. Yoder, do you have any more questions?
    Mr. Yoder. Just one quick one, Mr. Chairman. Thank you.
    Just one issue, Mr. Inspector, I wanted to raise that you 
might look at when conducting your efforts. In your testimony, 
on page three, you note that the SEC is subject to various 
statutory requirements to consider a proposed rule's, quote, 
``effects on competition and the needs of small entities.'' I 
am concerned the SEC did not consider small entities when it 
proposed the conflict minerals disclosure rule and is failing 
to consider small entities' unique compliance needs now that 
the rule is final.
    We have dealt with some small companies in my district that 
have some real challenges being able to really comply with 
those rules and a business locally that was contacted, a small 
business that makes voting machines, surgical drills, and 
fitness equipment, in my district that was contacted by one of 
their publicly traded clients who needed disclosure about their 
use of conflict minerals and they have no idea how they would 
begin to comply.
    I brought this up last year with the SEC and I don't think 
we have gotten to the point where we are adequately resolving 
what to do about small companies with the burden that is 
unmeetable. My hope was that we could have some sort of de 
minimus rule that could be created that would give these 
companies an opportunity to comply if they meet a certain 
threshold, and we believe that is within the SEC's jurisdiction 
to create such a rule.
    Mr. Hoecker. Okay. Thank you.
    Mr. Yoder. Thank you, Mr. Chairman.
    Mr. Crenshaw. I don't haven't any further questions.
    Mr. Serrano, do you?
    Mr. Serrano. I don't, and whatever questions we may have, 
we will submit for the record.
    Mr. Crenshaw. Mr. Hoecker, just let me thank you again for 
your testimony, for being here, baptism by fire. We appreciate 
that.
    Thank you, Members, and I look forward to our next hearing. 
This meeting is adjourned.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                              Tuesday, May 7, 2013.

                U.S. SECURITIES AND EXCHANGE COMMISSION

                                WITNESS

MARY JO WHITE, CHAIRMAN, U.S. SECURITIES AND EXCHANGE COMMISSION
    Mr. Crenshaw. Well, it is 2 o'clock so I will ask the 
hearing to come to order. I just want to make everyone aware 
that at about 2:10 there will be a vote called, but I think we 
will have time to get started. So I want to just begin by 
welcoming our witness, SEC Chairman Mary Jo White. Thank you 
for being here today and congratulations on your confirmation.
    The SEC has the unique and critical task of protecting 
investors, maintaining fair and efficient markets, and 
encouraging capital formation. These are things that touch the 
lives of many and have a profound and far-reaching effect on 
our domestic as well as our global economy.
    Since 2001, Congress has provided the SEC with additional 
regulatory tools and has drastically increased the Commission's 
annual appropriation, and yet the agency has missed major 
investor frauds like Madoff and Stanford, as well as several 
embarrassing management lapses such as purchasing unneeded 
space, destroying investigative documents and repeating 
material weaknesses in the SEC's own financial statements, just 
to name a few.
    So while the SEC has made some progress in addressing these 
lapses, I believe that some of these problems are symptomatic 
of the fundamental problems within the SEC's organization and 
structure, and this committee is not inclined to throw more 
money at the SEC until these fundamental problems are addressed 
in a meaningful and comprehensive way.
    The fiscal year 2014 request proposes another substantial 
increase of 27 percent the over fiscal year 2012 and a 33 
percent increase over the sequester level. Just because the SEC 
is funded by fees does not excuse the Commission from 
rigorously managing the funding it has and certainly doesn't 
discharge this subcommittee from providing serious oversight.
    So I look forward to hearing how the Commission under new 
leadership intends to provide investors with confidence in the 
markets, take strong enforcement actions against individuals 
committing fraud, help facilitate access to capital for 
American businesses, and to effectively use and manage the 
resources provided to you to run your operations.
    The SEC is facing many challenges, including finishing up 
the Dodd-Frank and JOBS Act rulemakings, modernizing the 
technology systems and being thoughtful in tackling these 
challenges. I think there are a lot of rulemakings still left 
to be completed, and I hope that you will take a measured and 
thoughtful attitude toward that.
    Chairman White, we recognize that you have a very difficult 
job. We know that you and your staff are working hard and we 
appreciate your efforts. As the newly installed chair of this 
agency, you have the opportunity to make meaningful reforms and 
significantly impact the management and efficacy of the 
Commission. We appreciate your willingness to take this 
challenging position, and your experience, both as a prosecutor 
and in the private sector, should be very useful to you as you 
work to improve the Commission and the functioning of our 
securities markets. We look forward to working with you in 
partnership with you on these challenges, and we look forward 
to your testimony.
    Now I would like to recognize Mr. Serrano, the ranking 
member, for any opening remarks he might make.
    Mr. Serrano. Thank you, Mr. Chairman. I also join you in 
welcoming the new chair of the Securities and Exchange 
Commission, Mary Jo White, before the subcommittee. I must 
admit publicly that I was pleased when President Obama 
announced his nomination of Chairman White as the new head of 
the SEC. The SEC is our cop on the beat for Wall Street, and 
its enforcement and oversight duties are of the utmost 
importance in preventing another financial meltdown. I am 
heartened that we now have a former U.S. Attorney leading the 
agency because I believe you understand the importance of these 
core missions and ensuring the safety of our financial markets, 
preventing abuse of investors and in deterring future 
misconduct.
    Unfortunately, we cannot discuss the fiscal year 2014 
budget request without talking about the elephant in the room, 
and I am not referring about my Republican colleague, Congress' 
failure to come up with a comprehensive solution to 
sequestration. For the SEC the sequester has resulted in a cut 
of $108 million in fiscal year 2013. Although the SEC has been 
able to avoid furloughs and layoffs, those cuts have come at 
the expense of your core roles, oversight of our financial 
markets, enforcement against those who engage in wrongdoing and 
implementation of the mandates that Congress has given to the 
agency.
    Based on the Ryan budget passed by the House of 
Representatives in all likelihood the agency's budget is going 
to be reduced even further in any legislation proposed by this 
subcommittee. I hope you can discuss the impact of the cuts 
that you have already endured as well as your views on further 
potential cuts to the SEC. I feel confident that we share a 
similar opinion on this subject that it is an unwise investment 
choice to reduce funding for an agency that plays a key role in 
ensuring a fair playing field in our financial markets.
    Your agency's budget request of $1.674 billion in fiscal 
year 2014 seeks to invest in efforts that will improve the 
operation of your agency. Moreover, the budget request will 
help continue the implementation of Dodd-Frank financial reform 
and will ensure that the agency has the resources needed to 
address your expanded oversight role. Your testimony does a 
pervasive job of laying out the case for the necessity of these 
increases, and I hope that my colleagues will take this request 
to heart.
    Although you have only been on the job a short time, I look 
forward to getting your thoughts on the SEC's current and 
future challenges. Once again we welcome you.
    Mr. Chairman, the elephant comment was about the GOP. There 
might be some young folks in the audience that didn't get that.
    Mr. Crenshaw. I didn't get it. Anyway, thank you, Mr. 
Serrano.
    I will now recognize Chairman White for an opening 
statement and let you know your written statement will be 
included in the record. So, please, the floor is yours.
    Ms. White. Thank you very much. Chairman Crenshaw, Ranking 
Member Serrano, and members of the subcommittee, I too look 
forward to working with all of you as we go forward and thank 
you for this opportunity to testify in support of the 
President's fiscal year 2014 budget request for the Securities 
and Exchange Commission and to discuss how the SEC would 
effectively use the $1.674 billion requested to support 
additional staff, technology and training needed to fulfill our 
mission.
    First, to acknowledge Public Service Recognition Week, I 
would like to express my appreciation to all public employees 
for the work they do every day and particularly to the staff of 
the SEC. Although I have been at the agency less than a month, 
I have been struck by their incredible commitment, talent and 
expertise. Our markets remain the envy of the world in large 
part because of their work writing effective regulations, 
ensuring comprehensive disclosure and vigorously enforcing the 
securities laws.
    In addition to enforcing those laws, the SEC currently is 
charged with overseeing 25,000 market participants and 
reviewing disclosures of over 9,000 reporting companies, a 
range of responsibilities that has increased considerably with 
the passage of the Dodd-Frank and JOBS Acts. With the resources 
provided by Congress in recent years, the SEC has bolstered its 
examination and enforcement functions, enhanced its technology 
and made important internal improvements. Much more, however, 
remains to be accomplished.
    The SEC's current funding level presents significant 
challenges as we seek to keep pace with the growing size and 
complexity of the securities markets. If enacted, our request 
would permit us to add approximately 676 new positions to 
improve core operations and implement the agency's new 
responsibilities. While our funding is fully offset by 
securities transaction fees and thus will not impact the 
deficit, we fully understand we must seek to use appropriated 
funds in the most efficient and effective way possible.
    More specifically, our budget request would allow us to 
expand oversight of investment advisers. The number of 
registered advisers has increased by more than 40 percent over 
the last decade while their assets under management have more 
than doubled to over $50 trillion. Yet during fiscal year 2012, 
the SEC was able to examine only about 8 percent of registered 
advisers and over 40 percent remain to be examined for the 
first time.
    Although we have at the agency employed more risk-based 
analytics to target advisers selected for review and those 
advisers examined in fiscal year 2012 represented 20 percent of 
the assets under management, significant additional coverage is 
essential. This request would permit us to hire 250 additional 
examiners to increase the percentage of advisers examined each 
year.
    Our request would also permit us to bolster the enforcement 
program and continue to send a strong message to would-be 
wrongdoers that misconduct will be swiftly and aggressively 
punished. We would focus our enforcement hiring on increased 
expertise in the securities industry, trial attorneys, forensic 
accountants and staff for the offices of the whistleblower and 
market intelligence.
    Our request would also permit 45 additional positions in 
the Division of Risk Strategy and Financial Innovation, a 
roughly 45 percent increase in the size of this essential 
function. These positions would be used primarily for 
additional economists to perform economic analyses in support 
of the Commission's rulemaking and other activities, including 
economists with expertise in analyzing high frequency trading 
data and market structure practices.
    The Commission's regulatory responsibilities also have 
expanded with respect to security-based swap registrants. To 
avoid bottlenecks and unintended market disruptions, we need 
additional technical staff to process requests for rule 
interpretations, registrations, and required approvals or 
exemptions. New staff will also be needed to supervise 
registered security-based swap dealers and other market 
participants.
    We are also requesting new positions for the Division of 
Corporation Finance to, among other things, review draft 
registration statements submitted by emerging growth companies 
under the JOBS Act and finalize remaining statutory rulemaking 
mandates. The additional positions also would allow enhanced 
review of regulations impacting small business capital 
formation.
    The SEC's need to invest in technology cannot be 
overstated. While the SEC is rapidly modernizing our systems, 
significant investments are needed to properly oversee the 
markets and entities we regulate. Technology initiatives that 
would be funded under this request include improvements to our 
system for receiving tips, our IT security and our IT 
infrastructure.
    In addition, we plan to use our statutorily created Reserve 
Fund to fund large, mission-critical technology projects, 
including our multiyear effort to overhaul the Edgar System and 
to construct the enterprise data warehouse which will create a 
central repository for SEC data and effect significant 
efficiencies in our ability to fulfill our mission.
    We are also working to reduce costs wherever possible, and 
have achieved substantial technology-related cost savings in 
fiscal year 2012 of approximately $12 million, including some 
initiatives that focused on more robust IT infrastructure, 
support contracts and savings in software maintenance 
contracts.
    We also seek to increase our training budget to keep pace 
with the rapidly evolving markets in areas of new 
responsibility. Effective training is essential to maximizing 
the efficiency and expertise of our staff.
    In conclusion, I appreciate your consideration of the 
President's budget request, and your support for the SEC's 
mission and its expanded responsibilities. It will allow us to 
better protect investors and facilitate capital formation, more 
effectively oversee the markets and entities we regulate and 
build upon the significant improvements the SEC has made to 
date.
    Thank you very much for inviting me to be here. I would be 
happy to answer your questions.
    [The statement of Ms. White follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Crenshaw. Well, thank you very much. They have just 
called a vote, but I think we will have time for the three 
members here to ask a question. We may take a recess. I think 
there are just two votes, maybe three. I will call on the 
members in terms of their seniority if they were here when the 
meeting started. Otherwise I will call on them when they get 
here and we will go back and forth from side to side.
    Let me just start by saying you gave us a lot of requests 
and if you go back and look, since 2001 I think the SEC's 
budget has increased like 300 percent. As I mentioned in my 
opening statement, I think this year you are asking for a 27 
percent increase, 33 if you do it over the sequester number, 
and actually in 2012 there was $100 million more than the year 
before that. So as you can imagine, most agencies don't get 
this kind of increase every year, and I know that your budget 
is funded by fees and it doesn't come out of the general fund 
of the Treasury but we have to take our oversight role pretty 
seriously, so we have got to ask the questions.
    How do you think that the average investor has benefited 
from these large funding increases and when is enough going to 
be enough? When do you expect that you can stop asking for 
these dramatically large increases every year? You touched on 
some of the things that you are doing to be more efficient. 
Please talk about that.
    Ms. White. Well, let me say first that we appreciate very 
much the funding support that we have gotten at the SEC over 
the years and seek that support again through this request. I 
guess one of the things that I have been most struck by since I 
became chair of the SEC, I should have known this well from the 
outside, but certainly you know it better from the inside once 
you are there, is just how vast and difficult and complex the 
responsibilities are of the SEC in terms of protecting 
investors, facilitating capital formation, and really 
safeguarding the integrity of our markets. Those markets are 
also changing as we speak every day, and we need to keep up 
with that complexity and that speed with the work that we do. 
So we are cognizant of these budgetary times, we are cognizant 
of our mission. We have had additional responsibilities added 
to that mission which was already a vast one.
    So, we have tried to be as targeted as we can in these 
requests that we have made so it is a responsible request and 
we can do our job. Certainly I feel extremely strongly about 
being a faithful and strong steward for those moneys on behalf 
of the taxpayers. I think the agency has also certainly prior 
to my arrival made significant improvements to become more 
efficient and effective. I think others have testified before 
about a number of the restructurings in the enforcement and 
examination functions for example, and I think those have 
really yielded very good dividends. I expect to see more of 
that. I think those are extremely important functions for the 
SEC.
    So it is our responsibility that we have to cover and 
discharge. It is also our responsibility to spend that money 
wisely and very effectively, and I am certainly committed to 
discharging that responsibility.
    Mr. Crenshaw. Thank you very much, and we look forward to 
your bringing a fresh approach as you go about your job.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    You came in the middle of an uncertain budget year between 
continuing resolution and sequestration. You have had quite a 
challenge to say the least. What impact have you seen from this 
uncertainty and from sequestration?
    Ms. White. I think what I have seen is a number of things 
not being able to be done that again I think are critical for 
the agency to do to fulfill its mission. Certainly our agency, 
and I am sure others as well, have anticipated the possibility 
of the sequestration. I think our folks have done an excellent 
job in planning for that so that we don't expect furloughs, but 
we certainly have had to defer hiring for some of our new 
functions, including oversight of OTC derivatives. We have had 
to suspend and will have to suspend certain of the critical IT 
initiatives that would help our examination and enforcement 
functions. And so it is quite an impediment to the agency. But 
I am glad to say that we are obviously trying to safeguard as 
much as we can for our core mission, but it is very much felt.
    Mr. Crenshaw. Mr. Graves has a question and then let's see 
where we are. Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Chairman White, I guess congratulations and welcome to your 
new post. I had a quick question in relation to portfolio 
margining. In your presentation you spoke a lot about 
enforcement and I think we all recognize that is a very, very 
important role that you have there, but as well in your 
statement you talk about maintaining fair, orderly and 
efficient markets. So as it relates to portfolio margining, and 
Dodd-Frank contained a provision that addressed this, and while 
there is a lot controversy with that piece of legislation, a 
lot I don't agree with, there are certain components that may 
be beneficial, and this was one of those, one of the few 
beneficial provisions, for exchanges that I guess where the 
portfolio margining would help with exchanges and with 
customers alike.
    It is my understanding progress has been made recently with 
regard to permitting the holding of swaps, security-based 
swaps, in the same account, thus allowing customers to more 
efficiently use their capital.
    Can you provide us with an update on the rulemaking 
activities with the SEC for this issue?
    Ms. White. I think I can, at least to the extent of my 
knowledge. Obviously a major objective of Dodd-Frank is to 
promote the clearing of OTC derivatives such as credit default 
swaps and others. ICE Clear Credit has agreed to clear such 
transactions, which is a very, very good thing. The SEC has 
issued an order providing relief in terms of some of the margin 
requirements looking towards permitting the portfolio margining 
that is essential and certainly beneficial to the dealers and 
the customers.
    Essentially, some of those requirements became effective 
before all of the information was provided to the SEC in order 
to be able to approve the portfolio margining methodologies. So 
the SEC, I think in March of this year, actually issued letters 
to I think seven of the broker dealers to give them stopgap 
relief. There was some resistance to what the stopgap relief 
was, I think, in terms of higher margin requirements for the 
dealers. I could go into the rationale for that. But I think 
more importantly the bottom line is that since then the SEC has 
been very productive, I think, with constructive discussions 
with the dealers and with ICE to try to work out what would be 
an acceptable solution there.
    Mr. Graves. So you all are still working on that?
    Ms. White. Yes, we are.
    Mr. Graves. Okay, thank you.
    Mr. Crenshaw. Mr. Serrano.
    Mr. Serrano. Let me just ask you as a follow-up to that 
first question I asked, what are the long-term ramifications 
from your perspective on reducing oversight because of budget 
constraints? One of the big concerns that we have in all 
agencies is that the oversight that will be carried out or not 
carried out, and the IRS is collecting taxes and going after 
people who don't pay their taxes. In your case it is the 
oversight that we all need now more than ever. What do you 
think is the long-term effect?
    Ms. White. Of the oversight of the budget process?
    Mr. Serrano. Yes.
    Ms. White. If I understood your question. Look, I think, 
and I know there was a discussion before of self-funding for 
the SEC. It is deficit neutral funding. That doesn't change the 
oversight responsibilities of this subcommittee. It doesn't 
change the responsibilities of the SEC to effectively use those 
funds. I would hope that----
    Mr. Serrano. No, I am referring to the SEC's oversight of 
people who may be----
    Ms. White. I am sorry, I misunderstood your question.
    Mr. Serrano. I apologize.
    Ms. White. Clearly we need the resources to be able to do 
that, and we have gotten a number of new responsibilities. I 
think I cited we have 25,000 entities now that we oversee and 
we have more coming under the Dodd-Frank legislation in 
particular. So it is essential that we get the funding to be 
able to do that or we simply won't be able to perform our job.
    Mr. Serrano. Very briefly, Mr. Chairman, and this is in the 
record and can be seen, when I was chairman of this committee 
one of the surprises was having people from the SEC coming and 
basically tell us we don't need any more money. We have enough 
money. We later found out that what that meant was we have no 
intention of oversight and many can say that what happened on 
Wall Street happened in part because we weren't checking. And I 
don't mean the committee was not checking, the SEC was not 
checking.
    Mr. Crenshaw. Got you. Let me ask you one quick question, 
and then I think there are 334 people that haven't voted yet so 
I think we are in good shape.
    Let me ask you, we are talking about rulemaking. The 
Inspector General has criticized the Commission in terms of the 
cost-benefit analysis, especially in those Dodd-Frank 
rulemakings. And you understand that these rules have a pretty 
big impact on the business world and that is important 
particularly when we have got a struggling economy. I notice in 
your budget request you are planning on hiring some more 
economists and I would think that is a critical group for you 
to hire. So let me ask you about that.
    Is this a pretty big priority of the Commission, to have 
some more economists? What role are they going to play in the 
rulemaking process and are they going to be more active than 
they were in the past? It seems to me this is going to be a big 
step forward.
    Ms. White. I think there is no question that economic 
analysis, including cost-benefit analysis, is essential to our 
rulemaking function, and you rightly identify our economists as 
those that are intimately involved in that. The agency in March 
of last year actually issued guidance to enhance its economic 
analysis of its rulemaking.
    We have actually gotten some positive comments about the 
progress in that area, both I think from the Chamber and also 
in a recent GAO report, more recent than the IG report that you 
cite, although the agency was quite responsive to all of the 
recommendations. I think it is essential going forward. There 
is a significant 45 percent increase adding 45 economists to 
our risk analysis section. We get them involved earlier in the 
process to judge the economic impact of a rule, whether there 
should be a rule, what the alternatives should be, and whether 
there should be one at all, as I mentioned. It is absolutely 
critical. I think the agency is totally committed to the robust 
economic analysis of its rulemaking and I think it has enhanced 
itself over time in that analysis.
    Mr. Crenshaw. That is encouraging. I want to be sure, and I 
am sure you are aware, of how important that is in terms of the 
folks that you regulate. Now, some of those suggestions by the 
Inspector General, I guess you don't agree with everything, but 
some of the criticisms they had of you trying to implement 
those----
    Ms. White. I am not sure precisely which ones we are 
speaking of, but I know that the agency was responsive to a 
number of recommendations by the IG with respect to enhancing 
economic analysis. I think they have been responsive to 
recommendations coming from a number of corridors doing that. 
Certainly I would be responsive to recommendations that 
obviously I agreed with, but nevertheless it is a priority that 
our economic analysis continue to be robust, and if need be, 
enhanced as we go forward.
    Mr. Crenshaw. Great. Well, I think, Mr. Graves, do you want 
to ask a question? The clock has run out, but we are pretty 
fast. So we will go over there. I know some of the other 
members probably were going to wait until after votes to come, 
so it may be 15 or 20 minutes, but with your great 
understanding, I am going to recess the committee for a short 
period of time. Thank you.
    [Recess.]
    Mr. Crenshaw. I will call the meeting back to order. Again, 
thank you for your patience. I think some members may be 
straggling in from time to time.
    Let me just finish up one of the things that you and I were 
talking about, the rulemaking process and the economic impact 
and the cost-benefit analysis. One thought I had, I don't know 
if this is something you all do, kind of a look back at the 
rules and regulations that from time to time once a rule is 
promulgated that maybe after a year or two that you kind of 
review that rule, see if it accomplished what you wanted to 
accomplish, see if it cost what you thought it might cost. Is 
that something you all have thought about or would that be a 
good idea? I know everything has changed, as you say, and you 
got to look to the future, but would it be helpful to look back 
and see, make sure there aren't any unintended consequences, 
make sure that things are working out the way you had them 
planned?
    Ms. White. With respect to that, I think that we rely on a 
very robust post-comment period as well from the parties 
affected by the rules. It is not a formal notice and comment 
after you adopt the rule. Certainly you want to remain on top 
of the markets and the impacts of your rules. But I think 
primarily we rely on the input that we get from our own 
monitoring of the rules as well as comments we get from those 
affected.
    But I think there was actually a GAO study in 2007 that 
suggested that actually prescribing a formal look back might 
not be as efficient as actually sort of receiving input from 
those affected every day. So we certainly are cognizant of 
that, but at least to my knowledge there is not a formal 
program to do that. But we certainly do monitor our rules and 
we are in constant dialogue with those we regulate.
    Mr. Crenshaw. I think that makes sense. I wasn't suggesting 
that some sort of official procedure take place, but it sounds 
to me like you are doing just that, when you promulgate the 
rules, and as you informally look back and see if they need a 
change or if they are working well. So I think that is good.
    Let me call on Mr. Serrano.
    Mr. Quigley wasn't here and he just got here. Why don't we 
do that, even though Mr. Serrano was here first.
    Mr. Quigley. Let Mr. Serrano go first.
    Mr. Crenshaw. Mr. Quigley insists that Mr. Serrano go 
first.
    Mr. Serrano. I have never been so loved. So the big issue 
that we always continue to discuss in Congress or at least 
among ourselves is, you know, can what happened in 2008 happen 
again and what role can the SEC play in making sure that it 
doesn't happen. And we come back to the point of can you do 
that without getting all the staff positions you need? We know 
that we are in a budget cutting situation and some folks think 
you cut right across the board, but all agencies, of course, 
are important, but this is the one that has to keep an eye on 
making sure that that which caused such a huge problem in our 
economy doesn't happen again. What can you tell us about that?
    Ms. White. Well, there is no question that obviously none 
of us want anything like that to happen again. I think I can 
say this as the relative newcomer as chair to the SEC, that 
there is also no question that the SEC is absolutely critical 
to seeing that it doesn't happen again, critical to our markets 
in general. And I also think we were given over 90 rulemakings 
under the Dodd-Frank Act designed to prevent that, frankly, by 
greater regulation.
    So it is critical that the SEC be able to carry out those 
rules as well as those under the JOBS Act. Without the 
resources, it makes it very, very difficult. Then even once 
adopted, those rules have to be implemented, enforced, 
monitored. And we have new regulated entities, registered 
entities coming on board all the time that are really quite 
resource intensive.
    One of the effects of sequestration is that we are not as 
able to do as much as we would like to do to build for those 
new entities that we oversee, and it is critical that we be 
able to do so.
    Mr. Serrano. Briefly how many rules are we talking about 
and how many are in place or ready to go?
    Ms. White. The SEC under Dodd-Frank has adopted, or 
proposed about 80 percent of the rules under Dodd-Frank, but 
that doesn't mean all are adopted. So there are a lot that 
remain to be done, including the Volcker rule that there has 
been a lot of discussion about. Under the JOBS Acts those 
rulemakings remain to be done. And one of my highest immediate 
priorities, as I said at my confirmation hearing, is to get 
those congressionally mandated rules done as promptly as I can 
and as well as I can.
    Mr. Serrano. Thank you.
    Mr. Crenshaw. Mr. Bonner.
    Mr. Bonner. Thank you, Mr. Chairman.
    Madam Chair, I apologize for being late, so if I go into 
two questions that have already been covered you are happy to 
refer me to the record and I will be happy to go there and not 
ask you to repeat yourself.
    The first one deals, and I know you have only been in your 
current position for a couple months, so thank you for your 
public service and your career of public service. But the first 
goes to the Stanford victims. And like many victims of Congress 
I have some in my district that I have met with and felt their 
frustration, felt their loss, felt their hopelessness that they 
were not being adequately looked after by their Federal 
Government they have paid taxes to all these years.
    The SEC, as you know, recently launched a lawsuit against 
SIPC in the Federal District Court which it had pursued on 
behalf of the Stanford victims. They allege that the SEC, or at 
least the ones I have talked with in Alabama, failed to 
properly make their argument and specifically that they 
improperly agreed to SIPC's incorrect stipulations of a 
particular set of facts. The Stanford victims that I have met 
with over the years agree to SIPC's incorrect stipulations--I 
am sorry, they argue that the SEC had agreed to SIPC's 
stipulations, contrary to the fact that for many Stanford 
victims these stipulations were simply not accurate.
    So the constituents I have, in particular Craig and Cynthia 
Nelson of Magnolia Springs, Alabama, which I would love to have 
you come down and visit, it is a beautiful little community, 
they are concerned that with the SEC agreeing to stipulations 
that they were not supposed to have agreed to on behalf of the 
victims, that it jeopardizes their ability going forward to 
recover funds. I know the SEC has appealed the District Court's 
ruling, so technically it is still up in the courts.
    But if you had an opportunity to visit with my constituents 
or others from wherever of the 50 States and territories, as 
Mr. Serrano likes to remind us, if you were sitting down with 
them, what would you say in terms of the SEC's handling of this 
to date?
    Ms. White. Well, first I would obviously express, as I am 
sure you and many others have, the deep regret that they have 
suffered the loss that they have suffered. I mean, this is 
obviously a huge Ponzi scheme with pervasive illegal conduct 
that harmed many, many people.
    I think with respect to the SIPC issues and the lawsuit, my 
understanding of that is, and I have looked into it factually, 
at least to some degree, is that I think for the first time 
actually in the SEC's history, and this was really in pursuit 
of trying to redress the harms that were done to your 
constituents and other investors, the SEC instituted an action 
to require the initiation of a SIPC liquidation. That is the 
lawsuit that the SEC lost in the District Court, as I 
understand it, on a legal theory that I think was essentially 
unrelated to the factual stipulations that you are referring 
to. Certainly, as I understand those, either unrelated to the 
legal theory or consistent with the legal theory, the SEC's 
legal theory being that even though your constituents may have 
invested in let's call it the Stanford bank rather than the 
broker-dealer, that in effect the broker-dealer that is covered 
by SIPC constructively had their moneys too, which would mean 
that they would be covered by the SIPC Act.
    So that is something that we obviously disagree with the 
District Court's decision in that. The SEC really did and has 
and will continue to pursue that very, very aggressively. But I 
think from what I know of the litigation, that is how it came 
to rest where it came to rest, and now it is on appeal and the 
SEC is obviously pursuing that vigorously.
    Mr. Bonner. Shifting gears, thank you. The organizational 
structure of the SEC has been a longstanding problem, certainly 
long before you arrived in your current position, with more 
than 20 different divisions and offices all reporting directly 
to the chair. In the 2010 report, the Boston Consulting Group 
identified a need for a significant reorganization as one of 
four priorities, and it is my understanding that the SEC has 
submitted to Congress three of four reports on implementation 
of the BCG recommendations as required, yet to date the only 
reorganization the SEC has undertaken has involved an 
administrative support of offices, as I understand it.
    So two observations and a question. One of the major issues 
identified by the Boston Consulting Group report was a lack of 
a formal structure to resolve disputes between major SEC 
offices. Can you tell us what actions you will take as the SEC 
chair to address the silo problem that exists under the current 
SEC structure? And secondly, as the new chair will you act on 
the recommendations of the Boston Consulting Group and 
undertake a comprehensive reorganization of the operating 
divisions of the SEC?
    I will say at the outset, being from Alabama as well as the 
State of Florida where the chairman is from, the distinguished 
chairman, the SEC in our part of the world is the Southeastern 
Conference. So I know the difference between the two when I ask 
the question.
    Ms. White. Actually, I asked for that job but no one would 
give it to me.
    But let me just say that I think the fourth of those, which 
is the final of those reports, I think was just submitted to 
Congress from the SEC. My understanding is that there were 
essentially 20 sets of recommendations for new initiatives, 
including some of the restructuring recommendations that were 
made by the Boston Consulting Group, and 16 of those 20 have 
actually resulted in an implementation plan and the other four 
are continuing to be worked on.
    My further understanding is that in terms of some of the 
restructuring suggestions actually before the Boston Consulting 
Group was retained, the Enforcement and Examination Divisions 
of the SEC underwent significant restructuring, I think to very 
good ends. I have been there one day less than a month, I 
guess, but it will be something I will be looking at across 
divisions. And also responsive to the recommendations, each of 
the other major divisions has a managing executive now too, 
which I think has been a real management enhancement. That grew 
out of the Boston Consulting Group review as well.
    The SEC has moved on to what I call the support operations 
of the organization. One recommendation, for example, from the 
Boston Consulting Group was to merge the executive director of 
the SEC with the COO's office. That has been done, I think to a 
very good end and very good efficiencies. I will be looking 
across the agency obviously for further enhancements and 
improvements, but I think the SEC has made significant progress 
based on those recommendations and their own initiatives.
    In terms of siloed information, that is obviously something 
that you need to deal with in any organization because you will 
not function effectively with the silos. I think my management 
style is to break down silos anyway. I think my predecessors 
achieved a lot of progress in that arena as well, and certainly 
I bring everyone together to do that and hopefully will walk 
the walk and talk the talk as well. So I look forward to doing 
it.
    Mr. Bonner. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you. Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    Madam Chairman. Last year as you know we passed a couple 
measures that required companies that file with the SEC to 
disclose information about their dealings with Iran. The first 
question is do you have the resources to make sure that there 
is compliance with that requirement, those requirements?
    Ms. White. Again, one of the divisions where we are seeking 
I think 25 additional positions is the Division of Corporation 
Finance, which actually is the division charged with the review 
of public companies' filings. The Iran requirement became 
effective, as I recall it, in February of this year in terms of 
filings made, and I think we have received now, if I have my 
number right, 242 such filings to date, and I think that is 
really up-to-date. Somebody gave me the number I think 
yesterday or today. The Division of Corporation Finance 
selectively reviews filings, including those with Iran 
disclosure.
    We also require that those making those disclosures give 
notice on EDGAR that they have made such a disclosure, which 
helps one not to lose it in the bulk of the disclosures that 
are made. We then give immediate notice to Congress, the 
President, Treasury and the State Department so that they can 
pursue that. So it is an area in which we certainly are 
carrying out our functions. It is obviously a relatively new 
set of disclosures that we are reviewing for the last few 
months, but it is very important that we do so.
    Mr. Quigley. Let me know if I am mistaken here, but I have 
had people address concerns that the Chinese energy firms, two 
of them, have failed to meet the specific requirement about 
these level of disclosures that they have with the government 
of Iran. Is that your understanding and where are we at with 
that issue?
    Ms. White. I would be happy to get back to you on the 
specific instances that you mentioned. Clearly as a process 
matter what should happen if there is deficient disclosure is 
the usual comment back and forth between Corporation Finance 
and those companies should be occurring. But I am happy to get 
back to you on the specifics of that.
    [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Quigley. I would appreciate it. And last, the SEC 
recently filed charges against my home State, the State of 
Illinois. The quote was that Illinois misled municipal bond 
investors about the State's approach to funding its pension 
obligations. Now, for those of us in Illinois, pension troubles 
are no surprise. There is nothing new. It continues to be a 
major issue.
    But can you elaborate to any extent on how Illinois was 
able to mislead investors? Obviously this is an ongoing 
situation, but would setting disclosure standards for municipal 
issuers help avoid this kind of issue in a more generic sense?
    Ms. White. The answer is it is a priority of the SEC to 
deal with the disclosures in municipal financing.
    Mr. Quigley. Illinois is not alone.
    Ms. White. Illinois is not alone. I believe this is the 
case, this is our third major action of this kind and it 
remains a priority, so they are definitely not alone. Obviously 
we are talking about enforcement actions. The SEC has also made 
recommendations in a report to Congress about, among other 
things, enhanced disclosures. We don't have powers over those 
disclosures as we sit here now except through the broker-
dealers who actually do the financings themselves. But it 
clearly remains an issue.
    Mr. Quigley. We didn't set standards I would assume you 
would think, right? I know you don't have the powers, but 
someone needs to set these.
    Ms. White. No, I think you certainly want that disclosure 
to be more robust than it has been and we certainly see those 
issues, and not just in your home State but in others with 
respect to underfunded pension plans and other issues frankly 
as well. It is a market that needs real attention.
    Mr. Quigley. I appreciate that and I appreciate your 
getting back to us as you suggested and following up on the 
issues dealing with the disclosures of ties to Iran.
    Ms. White. Happy to do that.
    Mr. Quigley. Thanks for your service.
    Mr. Crenshaw. Thank you. Mr. Womack.
    Mr. Womack. Thank you, Mr. Chairman, and congratulations, 
Madam Chairwoman, and I wish you the very best in this 
position.
    As you know, the JOBS Act was signed by the President in 
April of 2012 and it provided language in there that provided a 
year for the implementation of regulations, and it has been a 
little more than a year. Can you fill me in on where we are in 
that process? I know you are new to the job here, but where are 
we in the process?
    Ms. White. Again, what I can say is, and I said it at my 
confirmation hearing and I think I mentioned a little bit 
earlier, but my top priority, I mean I guess I identified three 
immediate top priorities, is to get the Congressionally 
mandated rulemaking done, and that is Dodd-Frank but it is also 
JOBS Act. I am spending a great deal of my personal time in 
driving those rulemakings. I can't give you a specific 
timetable. They are under active discussion with the staff and 
the Commissioners. But I am absolutely committed to getting 
them done as promptly as possible.
    Mr. Womack. Even though you can't give a specific 
timetable, can you give us a season maybe?
    Ms. White. That might not tell you anything I guess if I 
gave you a season. All I can say is that we are actively 
engaged in that process.
    Mr. Womack. This year?
    Ms. White. As we speak.
    Mr. Womack. Will it be this year?
    Ms. White. I certainly hope so.
    Mr. Womack. Okay. Among other things, the JOBS Act had some 
shareholder registration and deregulation, or deregistration 
thresholds for bank and holding companies. Unfortunately, it 
did not explicitly extend those new thresholds to the savings 
and loan holding companies, even though Congress did not intend 
to treat them differently. And by the way, there has been 
legislation filed, in fact it was in Financial Services today, 
it got a voice vote, but my understanding is that the SEC has 
the authority to extend the new thresholds to the savings and 
loan holding companies.
    Why at this point has the Commission chosen not to do that? 
Is that something that you are tracking?
    Ms. White. I am tracking that, and my understanding is that 
it is still under discussion and consideration whether we can 
do that by rulemaking. But that is something I am focused on 
and will remain focused on. I am very aware of that issue and 
indeed have been in discussions as early as this week on it.
    Mr. Womack. Well, just thinking out loud, if there was a 
positive opinion registered about do you have the authority to 
extend that threshold, would it be your intent to extend it?
    Ms. White. Again, my understanding is, and, again, I don't 
want to get ahead of the internal discussions or my legal 
advisers at the SEC, but I think----
    Mr. Womack. Hypothetically.
    Ms. White. But I think the sense is that this was an 
oversight that should be corrected.
    Mr. Womack. And we agree with that. That is all the 
question I have, Mr. Chairman. Thank you.
    Mr. Crenshaw. Thank you. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman, and welcome, Ms. 
White. I am really glad to have you here today and wish you 
well in your new duties.
    I have two questions. The first is kind of to provide some 
perspective. In order to prevent major financial calamities in 
the future, retrospectively going back to the 1980s and 1990s, 
can you unwind the market shifts in housing investment 
instruments that caused the financial crisis and why the SEC 
failed to capture their risky nature early on? Kind of looking 
back. And what do you know now that you didn't know then? What 
could you be looking for? What footprints were out there that 
for some reason was not caused by an agency that spends $1.5 
billion a year?
    Ms. White. Well, I think it goes beyond the SEC. I think we 
are trying to appreciate more what folks missed and didn't 
understand, and we are trying to regulate better to prevent 
that from repeating itself in the future.
    I think the SEC is predominantly a disclosure agency, and 
so one of the things you want to be sure of is that investments 
tied to the real estate market, securitizations and the like, 
have the full range of disclosures. That is something that 
indeed we are mandated under Dodd-Frank to attend to and we 
have attended to under Dodd-Frank so the disclosures are out 
there for people to see. I think the theory of our regulation 
at the SEC is that good full disclosure to investors can 
prevent a lot of harm that occurs otherwise.
    Ms. Kaptur. But could you for those of us who don't spend 
our time in the financial markets extending risk beyond what 
would be prudent, what really happened?
    Ms. White. I am not sure I or anyone can quite answer that. 
In terms of the housing market?
    Ms. Kaptur. Yes. I mean you had a loan, it turned into a 
bond, and then the bond into a security that was sold 
internationally in tranches. How did that, from a historical 
standpoint, who started that and how did it flower inside our 
financial system without apparently all these regulatory 
agencies understanding the full nature of how very risky that 
was? How was that possible?
    Ms. White. Well, I think, again, commissions, committees 
and others, experts have spent a lot of time gathering a lot of 
information specifically with that retrospective kind of look 
and come out with actually differing conclusions to some 
degree. So I wouldn't profess to have that degree of knowledge 
on this to respond to your question.
    But I would say that I think the downturn in the housing 
market has occurred. I think it did occur to the surprise of 
many. Why did that happen? If there had been better disclosure, 
better attention paid to that, would we have caught it earlier? 
Certainly those are among the conclusions that others have 
reached. Why were there securitizations? Again I think from the 
SEC's perspective, we are a capital markets regulator. 
Investors make their choices in different investment products. 
Our job, and it is a big job, is to make sure that the 
disclosure that they are given with respect to those 
investments are full and fair so that they can make informed 
decisions.
    Ms. Kaptur. Are you saying that the collateralized debt 
obligations, for example, had no disclosure? The problem was 
that it wasn't disclosed at some point?
    Ms. White. I think there have been many examples including 
I think in the enforcement arena where the disclosures were not 
adequate, no question about it. The SEC has brought quite a 
number of quite important cases with respect to structured 
products, the deficiencies, and the disclosure that accompanied 
them.
    Ms. Kaptur. Well, don't you think it is awfully important 
to totally understand where the system failed in order to fix 
it?
    Ms. White. I think there is no question about that.
    Ms. Kaptur. How could the government of the United States 
have missed this?
    Ms. White. Well, you know, again, that is a broad question. 
I know it is intended to be a broad question. It is something 
that I think--it is a multi-factored, very complicated picture. 
I don't think it is a simple one. And as I say, many committees 
and commissions, have spent a lot of time, a lot of 
investigative efforts doing that retrospective look. Plainly 
what we are doing going forward is designed as a government, as 
a U.S. government, to prevent that kind of crisis from 
occurring again, and to prevent the kind of systemic risk that 
could be introduced into the system. That is something that 
everybody, not just the SEC, but all the regulators are very 
much focused on.
    Ms. Kaptur. Are there not certain types of derivatives, for 
example, where disclosure will not be required? They were 
exempted under Dodd-Frank?
    Ms. White. Well, I think what Dodd-Frank has essentially 
done is, among other things, mandated rulemaking to regulate 
the over-the-counter derivatives market. It was not regulated 
before essentially.
    Ms. Kaptur. But there are some exemptions, are there not?
    Ms. White. There are.
    Ms. Kaptur. Yes, and what might those be?
    Ms. White. Well, there are different exemptions depending 
upon what arenas we are talking about. There are various 
exemptions, for example, from the Volcker Rule in terms of 
proprietary trading. I don't want to--there are certain 
exemptions with respect to hedging activities for customers, 
which is certainly needed to occur or the market making 
exemption.
    There are exemptions--what you don't want to do when you 
regulate and respond to a crisis is to over regulate beyond 
what you are intending to do so that you actually cause harm 
you are not intending to cause. So it is a massive effort. It 
is a massive effort that has been assigned to the regulators to 
sort out with statutory prescriptions, but as smartly as we 
can, exemptions included.
    Ms. Kaptur. Mr. Chairman, I know my time is up, but it 
seems to me incumbent upon all the regulatory agencies and this 
White House to understand in sheer utter detail where the train 
started going off the track in the late eighties and early 
nineties. By the mid-nineties we were already positioned for a 
major catastrophe forward and the instruments that were created 
were not detected.
    It seems to me that there needs to be a postmortem here by 
important regulators like yourself. And to the extent you could 
provide to the record, maybe talking with some of your 
colleagues now responsible for regulation, let us know looking 
back retrospectively where those instruments were created, what 
year, by which institutions, that ultimately led to very high 
risk behavior and instruments that the regulators missed and 
when that happened.
    It just wasn't spontaneous combustion. It was actual 
actions by individual institutions and very high risk behavior 
that was undetected inside our system and has resulted in the 
largest transfer of wealth in American history from Main Street 
to Wall Street and the loss of a majority of equity, for 
example, in the African American community of this country.
    It is a shift of wealth that is extraordinary, and I think 
it would be important for the SEC staff and for the Commission 
itself to understand where the train started going off the 
track back in the early nineties, late eighties--early 
nineties.
    I thank you very much for your appearance today. Thank you, 
Mr. Chairman.
    [The information follows:]

    For information, please refer to the insert titled ``Questions for 
the Record From Congresswoman Kaptur''.

    Mr. Crenshaw. Thank you. Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman. Chairman, thank you for 
being here today and congratulations on your new appointment. 
We look forward to working with you.
    The SEC recently proposed a 650-page rule on the cross 
border application of the Dodd-Frank law to security based 
swaps. First of all I want to commend you, Chairman White, for 
issuing a proposed rule in accordance with the Administrative 
Procedures Act which governs the way in which administrative 
and independent agencies may propose and establish regulations 
and mandates cost-benefit analysis and notice and comment from 
regulated industries.
    As you may know, the CFTC has taken a different route. It 
also has regulatory responsibilities for cross border swaps. 
However, instead of engaging in a formal rulemaking process 
under the Administrative Procedures Act, CFTC Chairman Gensler 
has chosen to issue interpretive guidance without the approval 
of commissioners. That has resulted in some challenges for 
those folks that deal in those industries. And we have had 
major G-20 regulators from around the world commenting that the 
guidance from the CFTC is flawed and will cause major economic 
challenges in relations in terms of regulation between these 
countries.
    I guess first of all why did the SEC choose a rulemaking 
procedure as opposed to a guidance as the CFTC has chosen and 
what benefits does that offer?
    Ms. White. I think I would say in response to that that the 
ordinary course for the SEC is to engage in notice and comment 
rulemaking. Obviously we can give certain guidance from time to 
time and proceed differently.
    These are extraordinarily complex regulations. The market 
is uniquely global. The complexities really are quite 
extraordinary. We were pleased to put out, actually unanimously 
last week, a very robust rule we think that is out again for 
public comment. We have gotten pre-proposal comments as well. 
We have been engaged in very active dialogue with the CFTC. We 
have studied the comments they got on their interpretive 
guidance. We have been in discussions with many other 
commenters and we will be now that the rule is actually 
proposed, including our foreign regulators.
    We really need to get this right. Obviously we are trying 
to prevent the risk to the U.S. from this marketplace, but to 
do it wisely and in full consultation and as smartly as we 
possibly can. It is not easy to do. We obviously will listen to 
all views now that the rule is out, but we were quite pleased 
to put it out last week.
    Mr. Yoder. Well, I appreciate that, and I certainly 
appreciate the collaborative approach of building consensus 
that has occurred at the SEC, and I am very concerned about the 
CFTC's language, as are certainly foreign regulators. I guess 
what can the SEC do to work with the CFTC to ensure that there 
is some consistency between these things? Certainly there are 
unique areas of regulation and that is why we have both the 
CFTC and the SEC involved in their own separate processes. But 
as you can imagine the complexities that exist already in this 
area of financial regulation and to have two agencies who may 
have separate regulations, some of which at the CFTC may make 
it impossible for foreign regulators to have a role because of 
the constraints put in place, I guess how can you and the SEC 
play a role in ensuring that both procedures are done in a way 
in which, since you are regulating many of the same folks, can 
be consistent in their application?
    Ms. White. Our mandate is to coordinate and consult with 
the CFTC. I think everybody recognizes that it would be optimal 
if there was consistency. The markets are somewhat different. 
There could be some differences. I would say with respect to 
the interpretive guidance that the CFTC has put out as well as 
some of what they have said in some of their no action 
exemption measures, there are a lot of consistencies between 
the SEC and the CFTC. But it is very important to continue this 
dialogue because it is a uniquely global market with regulators 
around the world who are in this space and very focused on it.
    So we are going to continue in dialogue with the CFTC and 
with our foreign counterparts to try to do as best we can to be 
consistent and put out the best possible rules on this, carry 
out the statutory objective, but also to take cognizance of how 
global and complex this market is.
    Mr. Yoder. Thank you for that. I have a question on a 
different topic, if I might, Mr. Chairman, if I have a couple 
minutes.
    The Fourth Amendment to the Constitution speaks to the 
right of people to be secure in their persons, houses, papers 
and effects against unreasonable searches and seizures. There 
is legislation being introduced in the House and the Senate 
related to the privacy rights of individuals related to their 
email. There have been some agencies that have opined that 
individuals do not have an expectation of privacy when it comes 
to their email correspondence. I happen to strongly disagree 
and believe that Americans expect that their email is not being 
read by the Federal Government. We have instances where this is 
happening without the knowledge and without any sort of 
approval process from the Judiciary. It is essentially self-
executing powers by Federal agencies.
    There is a bill in the Senate, there are bills being 
introduced in the House related to this. And I guess first of 
all, do you think this is an appropriate power that these 
agencies hold, yours included, that allows these departments to 
read individuals' emails without any sort of oversight by the 
Judiciary? No check on that power. And if you think about any 
other situation in your home or your personal papers, the 
Fourth Amendment protects those rights, that without a warrant 
or without proper oversight that we have a reason to expect our 
own privacy.
    Do you think that is appropriate and would you support 
legislation to restrict those powers in a way that still keeps 
the investigatory tools of the SEC but respects the privacy 
rights of email for the individual?
    Ms. White. Well, there is no question that privacy 
interests are extremely important. I mean, I think we have 
actually weighed in with a letter. I believe we are talking 
about the same piece of legislation. The SEC, among other 
agencies, will in its enforcement function in particular 
subpoena emails from individuals and also subpoena them 
historically from Internet service providers.
    I think the current legislation, we have a worry from our 
enforcement perspective, sweeps too broadly there with regard 
to Internet service providers, because it can result in our not 
being able to issue those subpoenas.
    You could have a system that requires a search warrant for 
those. I think that some have advocated that. We obviously 
don't have the search warrant powers in the SEC. The Justice 
Department has that, where if you got a warrant you would have 
to go before a judge before you could do that. But I think we 
have to be very careful that we aren't really gutting the 
enforcement powers. I think we have to be very sensitive about 
the privacy interests, but I do worry about aspects of that 
legislation.
    Mr. Yoder. Do you think the current powers the SEC holds 
are appropriate given the Fourth Amendment right to protection 
and right of privacy without unnecessary searches by the 
Federal Government?
    Ms. White. I do.
    Mr. Yoder. Okay. Well, we are going to have a debate about 
that in Congress, and many of us disagree, and we think that 
Americans do expect that they have a right to privacy in their 
email, and the idea that the IRS or the SEC or any Federal 
agency would be reading their emails without due cause or 
without any sort of oversight from the Judiciary that we use 
for every other portion of our lives, whether it be our person, 
our effects, our papers, our housing, that somehow email would 
not have the same expectation of privacy is a real issue for a 
lot of Americans. I think it is something that Congress is 
going to debate.
    We would love to have a partnership in ensuring that we 
have a way to continue to have proper investigatory powers, but 
the status quo is completely unacceptable to many Americans and 
I think it is going to be something that Congress is going to 
have to address.
    Ms. White. I appreciate those comments completely and I 
will make sure we are not ships passing in the night. What I am 
really referring to is the Enforcement Division subpoenaing of 
emails, not reading them realtime. So I take your point.
    Mr. Yoder. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you. I think we will have time if 
people have another question, but I would like to ask you one 
final question and that is about money market funds. The SEC 
regulates them. I think most people know those to be among the 
safest investments. You put a dollar in and you are supposed to 
be able to get a dollar back, so it is a great short-term 
investment.
    As you know, in 2008 during the meltdown it wasn't the 
case. They called it breaking the buck. When you put a dollar 
in and there was a run on those money market funds, then there 
was a time you only got back 97 cents. As I understand there is 
nearly $3 trillion in money market funds. I know it is 
something you all are thinking about proposing some rules for, 
and any time when people start talking about rules there is 
concern that somehow they could have a negative impact, such as 
increase the borrowing costs, or change the nature of the 
instrument.
    Can you just comment very briefly on what your view of that 
is? Is that something you take into consideration as you try to 
safeguard these financial instruments? And also, are there any 
other short-term vehicles that you know of that would be 
alternatives? Because these are used, as you know, by 
individuals, by businesses, by States, and municipalities. 
Please talk a little bit about your view of reform of the money 
market funds.
    Ms. White. First, I agree that they are very important 
products, both to investors and those companies who engage in 
short-term borrowing. And you cite the incident in 2008 
obviously the cause of great concern and runs on the funds so-
to-speak. The concern is the systemic risk and also that retail 
investors may be late to the party in redeeming, and so you 
need to sort that out and deal with those phenomena. And the 
SEC in 2010 actually did engage in rulemaking which I think did 
increase the resiliency of the money market funds. We are 
engaged in further discussions about further reform, and I am 
expecting the staff to make recommendations to the Commission 
in the near future.
    But as we do that, talking about economic analysis, we have 
gotten from our economists at the end of last year an excellent 
study that was in response to three of our commissioners' 
questions that was directed to impact kinds of questions, what 
may have caused the runs on the funds, et cetera, and what the 
effect of various reforms might be. So that is a very important 
study in our analysis. And also as we engage in this discussion 
and further reform, we want to do what we can not to harm the 
product as well.
    Mr. Crenshaw. Thank you. I think that is important. As you 
know, when the government came in to insure those, nobody lost 
any money and we are through that difficult time. But I think 
that is an important short-term investment vehicle that so many 
people use and it is important to our economy. Thank you for 
that.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Chairman White, I think the SEC has been more vigorous than 
ever in pursuing wrongdoing. However, I am concerned about the 
various reports regarding the SEC's settlement policies with 
those accused of unlawful activities. In some cases the SEC has 
obtained settlements with individuals in which they do not have 
to deny or admit guilt even though these same individuals have 
pled guilty to criminal charges elsewhere.
    Do you think the SEC is doing enough to obtain admissions 
of guilt in settlement agreements and do you think the SEC can 
obtain enough deterrence value from a verdict in which an 
entity doesn't admit any wrongdoing? And part of the question 
will be if you had all of the funding that you needed, could 
you then devote to trying to get convictions, if you will, or 
admissions of guilt, or is this just a policy that says that 
this may be one of the few places where people don't ever have 
to admit they did anything wrong?
    Ms. White. I have several responses to that. I guess first, 
the no admit-no deny settlement protocol has been used not only 
by the SEC but a number of agencies. This is on the civil side. 
Obviously the SEC doesn't have criminal powers for many, many 
years, and I think to very good end in many cases, where you 
essentially get nearly all and perhaps all, sometimes more of 
the relief than you would get after you litigated and you have 
no litigation risk whatsoever. You get that money to the 
investors very quickly.
    The SEC has actually changed its policy in cases where 
there is a parallel criminal matter, where the Department of 
Justice, for example, will get admissions as part of their 
resolutions with institutions. The SEC also at least generally 
will get those admissions as well. So having said that, among 
the many things that I am reviewing as the new chair is that 
policy and protocol.
    I understand the desire for accountability not only by 
institutions but individuals, but I will also say that the 
SEC's settlements, whether they are administrative or they are 
judicial, lay out a very detailed statement of facts so there 
is no real question about what the conduct was.
    But I take your point, and among the things I am reviewing 
with the Enforcement Division is that policy.
    Mr. Serrano. Well, that is good to hear, because, you know, 
one of the comments, and again I mentioned to you some of the 
comments that we make amongst ourselves when we are on the 
House floor before a vote or doing a vote or whatever, in the 
elevator, is that 2008 was such a dramatic thing that happened 
in our country, such a fiscal tragedy, if you will, fiscal 
crime in many cases, and yet the feeling from most Americans 
are that no one paid a price for that, other than the investors 
and the economy and the American people, that no one went to 
jail for that.
    So how confident are you that we as a body and you as an 
agency can convince the American people that folks are not 
going to get away with something, at least get away with it 
again?
    Ms. White. Well, first, I think it is absolutely essential 
for not only the SEC's enforcement function but any prosecutor, 
any enforcement function, to have credibility with the American 
people, that when there is wrongdoing there will be detection, 
there will be aggressive pursuit and investigation, and there 
will be punishment and accountability.
    I would say that I think the SEC doesn't, of course, have 
the criminal power, so it doesn't have the ability to put 
anybody in jail. But I would say that I believe that the SEC's 
record in financial crisis cases is really quite impressive. 
Essentially they brought cases I think against 157 individuals 
or entities. They got either disgorgement or other penalties, 
$2.6 billion, most of which goes to investors. Sixty-six I 
think of the individuals that they charged were CEOs, CFOs or 
other senior executives. I think 70 percent, if I am recalling 
it correctly, of the financial crisis cases against individuals 
were brought as litigated cases. So that is not a situation 
where that began as a no admit-no deny situation.
    And I don't want to imply that I don't think, even after 
our review of various policies--I think there is a significant 
role for no admit-no deny settlements in every civil agency, 
because it saves resources, you do not incur the litigation 
risk, and you get lots of money to investigators a lot quicker. 
But nevertheless I will be reviewing the scope of that.
    Mr. Serrano. Well, we appreciate that.
    Mr. Chairman, I will have a couple more questions for the 
record. But let me just thank you for your service in general 
to our country and specifically now in this position. And your 
challenge, which I am sure you know, is partly due to your 
success in your other positions that you have held, so many 
people have sighed a sigh of relief knowing that someone now is 
going to be really scrutinizing the situation. And that is the 
challenge we have as a Congress and the challenge you have 
personally. But we know you are up to the job and we 
congratulate you again.
    Ms. White. Thank you very much.
    Mr. Crenshaw. Ms. Kaptur, do you have another question?
    Ms. Kaptur. Yes. I wanted to continue and ask, for most of 
my adult life people got mortgages as loans and generally the 
local bank held it or sold it off into the secondary market. 
But at what point did that loan, to your knowledge, did it 
become a mortgage backed security? The name of your regulatory 
body is the Securities and Exchange Commission, so I take it 
that your agency would be particularly knowledgeable about when 
the instrument turned from a loan to a mortgage backed 
security. Am I correct in my understanding?
    Ms. White. I am sure the agency is very knowledgeable about 
that. I believe that the securitizations such as you are 
referring to I think began, that product I think began to be 
used in the 1980s, I believe.
    Ms. Kaptur. Yes. I would be very interested for the record, 
unless you unwind why your ship crashed you are likely to do it 
again. So I am very interested in how that occurred and how it 
eluded the regulators within the SEC in terms of its riskiness. 
I am wondering what happened. And many institutions then having 
those loans put into some other place and retaining no 
ownership at all in that loan, what happened and which 
institutions.
    Would your commission have the ability to identify through 
its records which financial institutions first brought those 
deals forward?
    Ms. White. I don't know which institutions. I think there 
are public reports that talk about this. I don't think the fact 
that securitizations were occurring was unknown to the 
marketplace. Once it developed in the 1980s, I mean, the market 
was an active one and I think not an unknown market. I think 
again what I had said earlier is I think reflected certainly in 
our enforcement cases is what was the disclosure about those 
securitization products.
    Ms. Kaptur. Yes. And there are institutions, I understand 
one of them is in Illinois, that actually pivoted off of auto 
securitization into home mortgage securitization, and back 
about, oh, the early 1990s I think had the largest fine in 
American history placed on it by the Office of Comptroller of 
the Currency. I am remembering back about $450 million, it was 
the largest ever placed on an institution at that point in 
American history. So something went wrong there.
    What is of interest to me is knowing that, how was it that 
that process was allowed to move forward and not carefully 
regulated by the SEC, since they were securities? What was 
missing in the law or your regulatory authority? How did that 
instrument elude regulation? Are you able to tell me that by 
going back through your legal staff?
    Ms. White. We can certainly provide further information for 
the record in response. But, again, I think we are talking 
about, as we are speaking now anyway, about disclosures about 
these securities.
    Ms. Kaptur. Correct.
    Ms. White. But we can certainly try to elaborate on that 
for you.
    Ms. Kaptur. And I am trying to understand what was it about 
that moment that created this force inside the financial system 
that went unregulated? I mean, it is truly extraordinary. So I 
don't remember anything like it in my adult lifetime. So I am 
really interested in how you as a commission viewed that moment 
in history, the people who were in place, because I think we 
can learn something from it. And how it avoided regulation, how 
it went undetected by the SEC for all those years.
    You weren't the only place, but you do have the title 
Securities and Exchange Commission. So I am wondering was it 
the definition in the law that was flawed, was it some 
mysterious financial instrument that eluded regulation? What 
happened back then? Could you go back and ask your staff to 
take a look at that and tell us what occurred back then that 
allowed for this securitization and the various instruments 
that were used? I think one was called an RBS, it was a 
security. I don't know if collateralized debt obligations came 
under your purview or whether that was over at the CFTC. I am 
not sure.
    But something happened with these very high risk 
instruments that went undetected. What was the pattern of that 
instrument inside your commission? Was it even seen? You know, 
I am thinking back, you know, what happened there? Was it our 
fault as a Congress that something was exempted from the law?
    I am wondering if you could provide enlightenment by going 
back to that period in time and see why those types of 
securities involved in the mortgage crisis were not regulated 
by the SEC. I am looking backward now, not forward. I am trying 
to understand what happened. Do you have the ability to do 
that?
    Ms. White. I think what I should probably do is let me see 
if I can give you a further response after I go back and speak 
with the staff on this. Again, let me do that.
    [The information follows:]

    For information, please refer to the insert titled ``Questions for 
the Record from Congresswoman Kaptur''.

    Ms. Kaptur. Thank you very much. Then my second question 
and my last question for the record, looking forward, if you 
look at the cases that have come from the SEC now that have 
yielded some compensation back to individuals who have been 
harmed or regions that have been harmed, could you suggest 
which of those might have been the most effective in moving 
dollars back to individuals and communities that have been 
harmed? What were the causes of action that were the most, to 
date, the most effective in getting justice to harmed 
individuals and communities?
    Ms. White. I think the financial crisis cases that I just 
mentioned in terms of the numbers of dollars, the high volume 
of dollars, I mentioned $2.6 billion that the SEC has achieved 
through those financial crisis cases either by way of 
disgorgement or penalties, most of which goes back to 
investors, I think those cases have been very successful.
    I think by definition you want every harmed investor to get 
as much compensation as possible. Obviously we have been 
talking about scarce resources, but I think those cases 
actually delivered a lot of money back to harmed investors very 
successfully.
    Ms. Kaptur. Is your commission aware or could you provide 
for the record any communities across this country where, for 
example, a city, county government, a school district, had 
pension funds or investments that were impaired by certain 
financial companies that gave them faulty advice or fraudulent 
advice and therefore those funds lost money, impacting those 
communities. To your knowledge have there been any such 
investigations by your commission or any communities that have 
been found that experienced that type of loss and has that been 
litigated?
    Ms. White. Certainly people across this country in all 
communities can suffer losses at the hands of a securities 
fraud, and certainly the SEC has brought cases that have 
pursued those and pursued those in many cases to achieving a 
fund for investors in various communities. But I can try to 
respond further for the record.
    [The information follows:]

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    Ms. Kaptur. All right, I thank you.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Chairman White, thank you so much. You have a very 
impressive background as a prosecutor and in the private 
sector, and I am sure that that background and experience is 
going to be useful to you as you undertake this new challenge, 
and we look forward to working with you to do what we can to 
make this a better place.
    Ms. White. Thank you very much.
    Mr. Crenshaw. Thank you for being here today. This meeting 
is adjourned.

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                                           Tuesday, March 19, 2013.

                    GENERAL SERVICES ADMINISTRATION

                                WITNESS

DANIEL M. TANGHERLINI, ACTING ADMINISTRATOR, GENERAL SERVICES 
    ADMINISTRATION
    Mr. Crenshaw. Good morning, everyone. The hearing will come 
to order. Welcome to the Subcommittee members and to our 
witness, Acting Administrator Dan Tangherlini of the General 
Services Administration. Welcome to all of you and thank you 
for your public service, and that of your staff. Last year, as 
you know, GSA made headlines, but for all the wrong reasons. 
Lavish spending on conferences, food, and entertainment; 
employees accepting gifts from inappropriate sources; excessive 
spending on relocation expenses, travel for virtual employees, 
and employee award programs; and most troubling, non-compliance 
with federal procurement law. Now, GSA is supposed to be the 
federal government's procurement expert, but disregard for 
procurement laws, regulations, and policies is what got GSA 
into trouble. I am committed to preventing this kind of 
outrageous behavior from taking root again at GSA, and I know 
that you all are, too.
    So you are here today because you are committed to 
expelling waste and extravagance from the GSA, and making GSA 
more efficient and more accountable. This Committee appreciates 
your commitment, but I believe Congress needs to continue to 
closely oversee your activities to ensure that the funds 
entrusted to the GSA are spent appropriately. In order for our 
bill to move through the appropriations progress, we will need 
to convince our colleagues on both sides of the aisle that GSA 
has changed. And for years, this Subcommittee has been pushing 
GSA to make better use of its existing portfolio of buildings. 
And to that end, we included a square foot limitation on GSA's 
inventory of leased and owned space in our 2013 House bill. And 
I was heartened to learn that the administration is now working 
on how to implement that freeze through the federal 
government's real estate footprint. The next step is to reduce 
the footprint.
    Staffing levels at the federal agencies are falling, and, 
with that, so are their office space requirements. In 
combination with disposing of surplus properties, a reduction 
in GSA's real estate portfolio is within reach. We are not here 
to discuss the 2014 budget because we do not have it yet, you 
do not have it yet, and we hope to have it soon. But I am 
hopeful that initiatives like the freezing of the footprint are 
incorporated into the President's budget. And that way, we can 
begin to reduce the Federal Buildings Fund's expenses. I hope 
together with our staff that we can work closely to unlock the 
potential for hundreds of millions of dollars of savings each 
year, through improved property management and procurement. If 
we can, then we can restore the American public's trust in your 
agency.
    Once again, welcome. I appreciate your service and I look 
forward to hearing your testimony. Now I would like to turn to 
my friend and colleague, Ranking Member Serrano, for any 
remarks he might have.
    Mr. Serrano. Thank you, Mr. Chairman. I would like to join 
you in welcoming acting GSA administrator, Dan Tangherlini, 
before the Subcommittee. The General Services Administration 
plays an important role in the federal government, both as a 
landlord and as a procurement hub. I will be interested in 
hearing how the sequester and the related budget uncertainty 
are affecting you, both directly and indirectly, through your 
role as a supplier for other agencies. With this central role 
as a supplier, the GSA has an opportunity to do a lot of good 
for the federal government by improving efficiency and helping 
agencies to bring down their cost. Unfortunately, the agency's 
mission has been obscured over the past year by various 
controversies. Entering in their wake, you obviously faced a 
large challenge. I look forward to hearing how things are going 
at the agency now that you have had some time to get your feet 
under you and understand what the agency needs to improve.
    I know that on the property management side you are 
currently dealing with costs related to excess rental 
properties. Although you must deal with the impact of the 
sequester, I am interested in learning what steps you are 
taking to consolidate agencies into federally-owned space. With 
a still recovering economy, it would seem like a good time to 
invest in new buildings that would save us money in the long 
run.
    The GSA plays a major role in ensuring that our government 
is operating efficiently. That role is even more important as 
sequestration continues. I am concerned about whether, with the 
sequester, you have sufficient resources to do that job. I look 
forward to your testimony on this and other issues, and I thank 
you for appearing before us today.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you, Mr. Serrano. I would like to now 
recognize Acting Administrator Tangherlini. If you could keep 
your remarks to about five minutes or less, we will have more 
time for questions, and your written statement will be made a 
part of the record. Please.
    Mr. Tangherlini. Yes, sir. Thank you very much, and good 
morning, Chairman Crenshaw and Ranking Member Serrano, and 
members of the Committee. Thank you for allowing me to appear 
before you today. And at a time when budgets are tightening 
across the government, the work of GSA is more important than 
ever before.
    I was appointed by President Obama almost a year ago as the 
Acting Administrator of GSA, in the wake of some very well-
publicized mistakes at the agency. For my first day on the job, 
I worked with the women and men of GSA to ensure that such a 
breach of trust would never happen again. One of my first tasks 
was to start a top-to-bottom review of the entire agency that 
examined every aspect of how GSA operates and what reforms 
could be implemented to help us better accomplish our mission. 
This review gathered comprehensive feedback from employees at 
every level of GSA, as well as the businesses and federal 
agencies who work with us.
    As a result of what we have learned, I have implemented a 
number of common sense reforms to save taxpayer dollars, 
increase accountability, and make GSA a more efficient 
organization. This past fiscal year, we reduced our spending on 
travel, IT devices, and printing, to end the year 43 percent 
lower than our fiscal year 2010 baseline for those items. In 
travel alone, we saved $28 million by revising our internal 
travel and conference policies. Last year, we reduced bonuses 
throughout GSA by 64 percent.
    In addition to all this, we created more than $5 million in 
savings directly from employee suggestions through something we 
call ``The Great Ideas Hunt.'' These are significant savings. 
But if we are going to provide our partner agencies with the 
services they need, it is important that we ensure our own 
agency is operating as efficiently and effectively as possible. 
The top-to-bottom review has shown a widespread duplication of 
support services throughout the agency. In response, we are 
consolidating several of those administrative functions to 
strengthen and support GSA. Consolidating administrative 
activities enables us to align and streamline the way we 
provide services, such as IT, HR, and Finance. This will 
increase transparency and accountability throughout the agency. 
It will also improve the quality of these services for our own 
employees. If we can provide the most effective and efficient 
services possible in our own operation, then we will be able to 
fulfill our mission of delivering the best value in real 
estate, acquisition, and technology services to the government 
and the American people. I thank the Committee for their 
cooperation and suggestions in development of this 
consolidation effort.
    Our job is to get the most out of every dollar so that our 
federal partners can focus on their own missions. GSA has the 
expertise and the ability to deliver significant savings for 
our partner agencies. Through the buying power of the federal 
government, we are able to negotiate leases that, on average, 
are more than 11 percent below market rates. This has created 
an annual savings of $30 million across our lease portfolio in 
realized cost avoidance. We also work aggressively to ensure 
that the facilities we own are being used to the maximum 
extent. Nationally, GSA's vacancy rate is 3.1 percent, far 
below the private sector average of 17.4 percent. In fact, if 
our vacancy rate was as high as the average in the private 
sector, it would cost the taxpayers an additional $1 billion in 
this year alone.
    In addition to helping customer agencies save on space, 
GSA's strategic sourcing initiatives create significant savings 
by getting agencies to collectively commit to purchasing 
certain commodities at the best value. By buying once and 
buying well, strategic sourcing has saved the American public 
more than $300 million since 2010. GSA has also been able to 
negotiate prices for our office supplies that are 13 percent 
below what we have previously paid. This has already saved more 
than $127 million. At the same time, we realized these 
significant savings; we also need to ensure that we directed 
expenditure towards small businesses. Seventy-six percent of 
the dollars spent in that office supplies strategic source 
initiative went to small businesses.
    GSA is committed to the continued evaluation of our own 
processes so that we can find innovate ways to provide greater 
value to the American people. But our work is far from done and 
I am confident that, with your support, we will continue to 
find common sense reforms within GSA.
    I thank the Committee for the opportunity to testify today 
and I look forward to answering your questions.
    [The information follows]

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                             SEQUESTRATION

    Mr. Crenshaw. Well, thank you very much. Let me start the 
questions by picking up on what Mr. Serrano said in his opening 
statement, this whole issue of sequestration. You know, you are 
not really impacted, other than a few small policy offices. You 
are not really impacted in the sense that your clients pay you, 
they have experienced a cut, and if we cut you, then that would 
be a double cut. So you are in a sequester-free zone. And it 
almost makes your obligation even stronger to make sure that, 
as you work with people that are experiencing these cuts, to be 
as efficient as you can. And I just wonder, you know, we all 
agree here that we would rather be able to have targeted cuts 
and say this is something working, and we, maybe, add 
additional revenue; and here is a program that is not working 
and we might eliminate it. But we are living with a sequester.
    And I wonder, from your standpoint, as you deal with these 
agencies that are going through these cuts, what are they 
saying to you? Are they kind of clamoring to have lower rents, 
or whatever you are providing for them? And can you give us an 
idea they are being impacted as it relates to what you do? And 
then also, do you help them in ways that they might, when they 
look at these cuts, and they have to be more efficient, and 
they have to find places where they can spend less, are there 
ideas that you have in your exchanges with them? Could you 
touch on those two things?
    Mr. Tangherlini. I think that is a fantastic question, and 
I appreciate the thoughtful approach to it because, yes, GSA 
does not have much in the way of direct impact on the 
organization because so little of our resources are directly 
appropriated. Most of our funds come through rental payments to 
the Federal Buildings Fund or through industrial funding 
formula money that comes out of people making expenditures 
through the Federal Acquisition Service into the Acquisition 
Services Fund; if you think about it, since we are downstream 
from those cuts, that has a long-term impact, one that we are 
very concerned about, and looking at it, very closely, for the 
organization. More importantly though, to your point, really, 
it challenges us to recognize that our role, the whole reason 
why we were set up as an organization, was frankly to leverage 
the scale of the federal government; to drive down the costs of 
basic, common administrative services and operations.
    And so shortly after I got over to GSA, I started visiting 
my colleagues over at other agencies, meeting with deputy 
secretaries and secretaries, and saying, ``What could we do to 
help you save money?'' And I was always cordially received, but 
I have to say, I am pretty enthusiastically received right now. 
And we are trying to find specific actionable projects around 
rent consolidation, around common acquisition; the strategic 
sourcing initiative that has been led by OMB, in particular, 
has received an awful lot of interagency support.
    So I think, really, this is the time for GSA to show its 
value. This is the time for GSA to demonstrate its worth and to 
really make amends for things that happened leading up to my 
being here. I think this is really an important time for GSA to 
show what we can provide agencies in the way of savings and 
solutions.
    Mr. Crenshaw. Thank you very much. Mr. Serrano.

                          TOP-TO-BOTTOM REVIEW

    Mr. Serrano. Thank you, Mr. Chairman. Mr. Administrator, 
you have been at GSA for almost a year now and you have 
undertaken a complete examination of the agency in that time. I 
appreciate the opportunity to ask you about the top-to-bottom 
review that you instituted at GSA, and I want to start just 
generally. What has been the biggest surprise to you in getting 
to know this agency?
    Mr. Tangherlini. Well, I have to say the biggest surprise 
has been a pleasant surprise. And that is how many high-
quality, committed, dedicated public servants there are at the 
organization. What I found is that some of the folks who are 
most enraged and upset about, you know, the events of last 
Spring, the revelations of last Spring, were the people who 
worked at GSA who had committed decades of their lives; they 
committed their public service careers to making this 
organization better, every day. I also found, though, that 
there are opportunities where GSA could take a little bit of 
its own medicine; where we could cooperate and collaborate 
more; where we could share and rely on each other more; where 
we could leverage our own scale as an organization; where we 
could do things once and well within GSA, and get a better, 
more efficient GSA. That is what led us to bring before this 
Committee a description of what we are calling CXO, and that 
means CIO, CFO, Chief People Officer, consolidation activities, 
so that we could get much more efficient as an organization and 
do a better job of serving our agency partners. But we have 
just started down that road. I think that the key outcome of 
the top-to-bottom review is that any good organization never 
stops reviewing itself from top to bottom.
    Mr. Serrano. And speaking of organizations, you have had 
experience with many different agencies. What did you find at 
GSA, when you did find deficiencies? Are these unique to GSA? 
Have you seem them elsewhere? And, in asking that, how is GSA 
different than other agencies you have dealt with?
    Mr. Tangherlini. Well, I have never worked at anything 
quite like GSA. You know, the mandate that GSA has is so 
substantial, and the size of the impact the organization has on 
the government is bigger than anything I have specifically led 
before. But there are a lot of common problems across these 
organizations. Having transparency and visibility into good 
information so that you can make solid managerial decisions is 
a deficiency I have found in many of the jobs that I have 
worked on.
    What I can say is unique and special about GSA is the role 
we play in supporting every other agency's mission. And it is a 
very important role; it is easy to forget, it is kind of like 
the plumbing in a house. It is not the kind of thing you think 
about until it is broken. And no one gets excited about it when 
it is broken; no one is happy to pay to plumber's bill. So we 
have to figure out a way that we can more effectively, and 
efficiently, and reliably provide those services; provide good, 
solid information to decision makers such as yourselves; give 
good feedback within the organization to our agency partners. 
And I think, in general, just do a better job of trying to be 
more transparent and more clear about places where we can make 
continuous improvement.
    Mr. Serrano. You know, when those issues came up regarding 
travel, and conferences, and so on, it opened up the door for 
some folks, some of my colleagues, who are not crazy about GSA 
to begin with. And you cannot blame them, in a way. It was a 
pretty bad situation. So there has been so much criticism of 
GSA. Now I want to ask you a different question: What can we be 
doing to help you? Besides giving you more dollars, which is 
always a difficult thing around here these days. But what can 
we be doing to help you as you undertake not only the full 
study, but you are charged with the responsibility now of 
turning this agency around from the perception that it was 
failing in so many ways.
    Mr. Tangherlini. I really appreciate your asking that 
question, because I think we need a collaborative partnership 
focused on the same outcomes, and I frankly think a well-
running GSA is not a partisan issue. This is the basic 
operations of government. This is the basic underlying 
administrative services that support these vital missions of 
working to cure cancer, and protecting our border, and 
supporting air traffic control; those core basic things that 
the government does.
    So I think engaging in an ongoing dialogue, understanding 
what our limitations are, understanding, perhaps, some of the 
complexities that we face; working to recognize the value of 
high-quality, efficient service delivery on the facilities 
side, as well as on the acquisition services side; helping us 
make the appropriate information technology investments so that 
we can support agencies in operating more efficiently; giving 
them more transparency into their spending so that they can 
operate more efficiently; I think that is the kind of 
partnership that we could continually work on developing.
    Mr. Serrano. So, Chairman, before I yield my time, just 
something that you have been a part of and other members of the 
Committee, this Subcommittee, more than any other place in 
Congress, has been very active in reminding all federal 
agencies that besides the 50 states, we have territories. And I 
personally take a big interest in that, as you'll see me 
tonight rooting for one of the territories in the World 
Baseball Classic. But we hope that sometime down the line you 
can tell us, without, you know, bogging you down with a report, 
on what is the work the GSA does in the territories, how it 
responds, and, in general, to remember that while they may not 
be states, they are still American citizens and should be 
treated equally.
    Mr. Tangherlini. I appreciate that. As you can see from my 
bio, I was the city administrator and deputy mayor here in 
Washington, District of Columbia; not exactly a territory.
    Mr. Serrano. Close.
    Mr. Tangherlini. But in that experience, gained some 
sensitivity to the unique nature of the ``non-state'' parts of 
the United States.
    Mr. Serrano. Thank you so much. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you, Mr. Serrano. Mr. Bonner.

                          FEDERAL COURTHOUSES

    Mr. Bonner. Thank you, Mr. Chairman. I am going to admit 
upfront I am going to be parochial with my questions, and I 
told the Acting Administrator upfront of my concern. We have 
been trying to get a new federal courthouse in Mobile, Alabama 
for 18 years. And 18 years ago, I had a lot more hair than I 
have got. I was in my 30s and not my 50s. And with the pressure 
on the budgets and the pressure on all agencies to cut back, I 
told the Acting Administrator in private, if we are going to 
have a total freeze, we are not going to have any construction, 
or any renovations, or any new starts anywhere in the country 
or its territories.
    I would never ask that you put a project in my district on 
the starting block. That would be hypocritical of me. But once 
we started and got down the path on this journey, 10 years ago, 
GSA actually came up with the recommendation that we needed a 
new courthouse. We needed it because the old courthouse has a 
leaky roof; well, you can repair that. We have got mold and 
mildew, and it has got a lot of problems, as GSA has noted.
    Under the leadership of the chairman at the time, Mr. 
Serrano, we elevated the concerns to the point that when we got 
to the starting point, when we made it on the GSA list, not our 
list, but the GSA list to be eligible, we would be teed up and 
ready to go. Had this thing called a stimulus bill back in 
2009; they were looking for shovel-ready projects. This was a 
shovel-ready project. And, again, thanks to the leadership of 
the former chairman, current ranking member, we were able to 
put a downpayment on some $50 million into the funding of this. 
Fast forward, here we are in Mobile, as I understand, it is 
currently number one in line. Now, again, if we are not going 
to do any construction anywhere in the country, then I can 
certainly accept that.
    So my question to you, Mr. Tangherlini, is, is Mobile still 
in the number one spot in terms of federal courthouses that are 
on the list to be constructed?
    Mr. Tangherlini. The simple answer is that from the list 
prepared by the Administrative Office of the Courts, the Mobile 
courthouse is still the number one courthouse for a replacement 
investment.
    Mr. Bonner. Okay. With that response, recent developments 
lead me to be concerned that there may be an effort to 
reconsider this. A review was ordered. The initial feasibility 
study was, as I understand it, shelved; a new feasibility study 
has been ordered. So my question is two-pronged on that. To 
your knowledge, and if you cannot answer this today, if you 
could look into it and respond back to us, are the judges in 
Mobile being involved at every step in terms of this new 
feasibility study? And is their input being sought in terms of, 
if we are downsizing space of the building, you would think you 
would be able to get the building closer to the money we 
currently have or close to it. So are the local judges being 
involved in this new phase of this, and could you tell us where 
they are?
    Mr. Tangherlini. No, I appreciate that. It is my 
understanding that the judges are involved in every phase, that 
we do involve the local judiciary in these discussions. There 
is a broader set of standards that Administrative Office of the 
Courts have developed. They actually have developed now a five-
year plan, which is, as you know, over the last 18 years, quite 
substantial progress in the way we manage, administer, rank, 
prioritize these courthouses. At the same time, through a lot 
of pressure, financial pressure on the organization, pressure 
from this body as well, Administrative Office of the Courts 
have been looking at how you shrink the space needs. Ideas like 
courtroom sharing have come into the fore since you probably 
started this journey. So I know there are ongoing discussions 
about that, trying to figure out how to move this project 
forward, understand what the resource needs are, but do it in a 
way that reflects the needs and the interests of the local 
judiciary. It is a lot to weigh in balance there.
    Mr. Bonner. Well, courtroom sharing is one thing. Sharing 
an elevator for the judges and the people who have been accused 
of serious crimes is, from a safety standpoint, this building 
is so obsolete. So can you tell us, and Mr. Chairman, I am 
going to submit most of these questions to the record. But I 
would like to know, from your perspective, Mr. Tangherlini, how 
will OMB's ``Freeze the Footprint'' initiative impact the 
current status, the feasibility study and the status of the 
Mobile courthouse, if any?
    Mr. Tangherlini. It is a great question. I am afraid I do 
not have a clear answer for you. But I can talk a little bit 
about the Freeze the Footprint program in general. The idea is 
to look across agency assets and try to freeze, and frankly, 
also decrease the square footage across agencies; in this case, 
we would look at the entirety of the judiciary. And so at the 
same time we are asking questions about the investment; in 
Mobile, for instance, we are looking at, say, the replacement 
of the L.A. courthouse which will shrink from 800,000 square 
feet to 500,000 square feet. So net-net, we are going to try to 
arrive at a freeze, and, frankly, our own goal is to try to 
also find ways to help agencies drive it down, because every 
dollar spent on space is one dollar less spent on program or 
return to the taxpayers.
    Mr. Bonner. I would say that, as I understand it, I might 
be mistaken, but as part of the review of the need in Mobile, 
one of the factors was that the Marshal Service was going to 
need less space, the U.S. Attorney's office moved out, they 
moved to a commercial space because the current building was 
not adequate for them. I do not know whether we know with 
certainty whether they would consider moving back in the new 
building once it is constructed if that were an option for 
them. I know I am in a commercial building because, again, 
there was not space in the federal building in Mobile. So, 
again, Mr. Chairman, I apologize to take up time with the 
Committee on something that is important to me, but I guess the 
final point I want to make is, is that, in a bipartisan way, 
Chairman Serrano, Chairwoman Emerson, now Chairman Crenshaw, we 
have limited ourselves in terms of our ability to have input in 
some of the decisions that the executive branch makes. That is 
a discussion for another day. But I think when a building makes 
it up to the top of the list, and there has been previous 
expression of intent by Congress to support the list, and not 
politicize it, but to support it, I just hope that we can make 
sure that those opportunities continue to go down that path. 
Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you, Mr. Bonner. Mr. Serrano has a 
comment he would like to make.
    Mr. Serrano. Just to say for the record what the gentleman 
has said is totally correct. This has been, was, is, in my 
opinion, I hope, a top priority for this Subcommittee. And as 
ranking member, I still support the project that this Committee 
supported with great strength and with dollars at that time. 
And we do not know what has happened, but everything the 
gentleman has said is correct, and I just wanted the record to 
show that. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you, and thank you, Mr. Bonner. Now I 
will turn to Mr. Yoder.

                     FEDERAL REAL PROPERTY PROFILE

    Mr. Yoder. Thank you, Mr. Chairman. Mr. Acting Director, 
thanks for coming today, and I appreciate your testimony. One 
of the things we are endeavoring to do is we look to try to 
balance the federal budget, get our books balanced here, find 
smart ways to reduce spending, and I think that is hopefully 
the goal of every member on this Committee, is to find ways to 
run all of our agencies and federal government the most 
efficiently and effectively to save tax dollars for the hard-
working Americans that pay them.
    And so I wanted to discuss a little bit about the property 
that the federal government owns, and specifically how we 
determine what property we own, where it is located, how the 
public has access to that. And I thought you might speak about 
that a little bit, and I had a few questions for you. First of 
all, is the GSA real property profile available to the American 
people? Is there a website, for example, we can go to and look 
for property the federal government owns? Does the GSA have the 
real property profile in a geographical information system, 
GIS? Is there a map I can click on, look for government land 
and buildings? So how is that information accessible to the 
public?
    And then second of all, not only how we account for it, how 
it is accessible, but do we keep statistics on things that the 
federal government owns? Specifically, how many parking garages 
does the federal government own? How many golf courses does the 
federal government own? How many hotels does the federal 
government own? How many grocery stores does the federal 
government own? I think bringing that information to light 
would help the country have a dialogue about where we can 
reduce some of our property containment in a way that might 
save taxpayer dollars.
    Mr. Tangherlini. Now I think your points are excellent, and 
I think that is key to managing the organization better. Any 
good business is always looking at what its assets are and how 
it can maximize the best outcomes of them. I think you have to 
understand, in a way, the relationship of GSA to federal 
property. We actually only own, or control, or manage about 10 
percent of the entire federal government's federal property 
assets. We assist the OMB in developing the Federal Real 
Property Profile, but that data is entered entirely by other 
agencies, and so agencies have to maintain and update that 
data. We have made big strides in transparency in that data 
internally, just beginning the ability to share it among 
agencies and getting visibility into it within a GSA.
    But to your point, I think there is still a lot of work 
that we can do. And I commit to working with this Committee and 
with other agencies in OMB to try to find ways to give people 
more understanding and better window into what the real 
property assets of the federal government are. I think it is 
for that reason why the Administration has put forward--and we 
have seen other proposals, both in the House and the Senate--
for something along the lines of a civilian BRAC process by 
which you would really dive into the issue and ask ourselves: 
Where are those properties that are not getting the highest and 
best utilization? And how do we get them back into the economy? 
And, frankly, realize the results and the benefits.
    Mr. Yoder. Is there another agency that maintains the 
records of the real property that the federal government owns?
    Mr. Tangherlini. So, each agency has their own real 
property management system.
    Mr. Yoder. But there's not one agency that would maintain 
all of the records on behalf of taxpayers and on behalf of the 
federal government.
    Mr. Tangherlini. Not all of the records. What happens is 
each of the agencies need to upload information around a 
certain number of specific elements into something called the 
Federal Real Property Profile.
    Mr. Yoder. That occurs right now?
    Mr. Tangherlini. That occurs right now. That system is 
maintained by GSA and overseen by a project run by OMB.
    Mr. Yoder. Okay, so GSA does have the information about 
every piece of property, and every building and entity that all 
the federal agencies own, because they are all required to 
upload that to you.
    Mr. Tangherlini. We maintain the Federal Real Property 
Profile which has those elements, a certain number of elements, 
an agreed-on set of elements among the agencies, and then it is 
up to the agencies to ensure that they upload it.
    Mr. Yoder. So there is no policing to determine whether 
agencies are uploading it? Do we have an idea of how much 
compliance is being done? How much of the property that the 
federal government owns does GSA have logged into that 
database?
    Mr. Tangherlini. Well, so, we only know what is logged into 
it, so we do not know what is not logged into it. And that is 
the problem. That is the delta you are looking for. The GAO has 
recently conducted a study that commented on the quality and 
the accuracy of the data. There are issues about the way we 
describe elements that could allow for the quality, the 
accuracy of the data to be degraded. So we are working very 
closely across the agencies to try to improve the quality as a 
demonstration of trying to get to the best possible quality. 
Within GSA, we did statistical sampling of properties within 
Region 4, the properties we controlled. And we found that we 
were within 97 percent accuracy.
    Mr. Yoder. But that is your own 10 percent that GSA owns.
    Mr. Tangherlini. That is our own 10 percent.
    Mr. Yoder. So we really do not know how many properties the 
federal government owns. There is no one who can answer that 
question. GSA could not say that they had an accurate sample 
because they are dependent upon federal agencies to upload that 
information. I mean, so, I think you could say with some 
accuracy we do not actually have an understanding of the total 
amount of federal property that we own. We could not say with 
accuracy specifically how many parking garages we own, how many 
hotels we own, how many grocery stores we own. We just do not 
have that information.
    Mr. Tangherlini. Well I think, I think the question is what 
level of accuracy.
    Mr. Yoder. Do we not have that information in an accurate 
format?
    Mr. Tangherlini. Well, I think we have it in a format that 
has a level of accuracy. The question is, how accurate is it? 
And that varies agency by agency.
    Mr. Yoder. How accurate is it?
    Mr. Tangherlini. Well, that, again, it varies agency by 
agency. I know that the GSA data is reasonably accurate as 
evidenced by our work done in Region 4. We are going to keep 
working on Region 4, and, in fact, we are going to work with a 
couple of other agencies to test their data as well. Some of 
it, as we have discovered, has to do with the way the elements 
are defined. An entire military base, this is a generalization, 
may be described as one asset. And you could have a facility on 
that asset that is of very low quality. You take a picture of 
that and you say, ``Look, if the base is viewed as good, how 
can this thing with a roof caved in be considered good?'' And 
so what we have to do is get a clearer statement of what those 
data element definitions are, make sure that the agencies 
adhere to those definitions, and then go back and check and 
police the data.
    Mr. Yoder. I just think you would agree, it seems like we 
cannot say with accuracy how many properties we own and we also 
do not know the level of accuracy of what we do own. So it is 
not that we know we are not completely accurate; we do not even 
know what level of accuracy we have. That is a real problem 
when it comes to managing the assets of the federal government 
and ensuring that we are properly spending resources. If you do 
not know what you have, how do you know how to effectively 
manage your resources and to make sure that taxpayers are not 
wasting dollars. I mean, the first step is knowing what we own, 
correct?
    Mr. Tangherlini. And I think it is a concern we share. And 
that is why we have been so committed to working on these 
issues, that is why we have proposed the Freeze the Footprint. 
In order to freeze it, people have to have a better understand 
of how big the footprint is. That is why we have been committed 
to focusing on improving the quality FRPP data, as well as this 
idea of pushing forward ideas that we have seen. You know, 
proposals in both branches of Congress, both houses of 
Congress, that are based on the same theme of saying, ``Look, 
we need to move forward on getting assets off the books that we 
do not need.''
    Mr. Yoder. Certainly as we go forward in this process, 
efforts by the GSA that you are describing need to continue. I 
think we certainly need to improve those. And we need to work 
to fully understand where these assets are and to get our 
accuracy up to a level. I mean, 97 percent is GSA. We do not 
know what the accuracy is of the other agencies. And I think 
that is a real concern. And I think the American people would 
love to be able to not only know what they own, but be able to 
go onto a database, and be able to go online and find it. And I 
think it would be astonishing to a lot of taxpayers that we do 
not have the ability to do that. And, Mr. Chairman, with that, 
I yield back.
    Mr. Crenshaw. Thank you. Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman. To my colleague's 
point, I think maybe Mr. Chaffetz had been speaking to him 
because Mr. Chaffetz and I have introduced legislation that 
would require the GSA to maintain a public database listing all 
federal properties, excluding certain properties in the 
Department of Defense for security reasons. But it raises an 
excellent point on all this. The bill also empowers the GSA to 
provide agencies with technical expertise to help them dispose 
of unneeded property, and creates a pilot program where GSA and 
OMB will identify and dispose of 15 high-value properties. So 
we are working along those lines, but certainly appreciate your 
support.
    Mr. Tangherlini. In preparation for the hearing, I read 
your bill.
    Mr. Quigley. Now there is three that have.
    Mr. Tangherlini. Yes, okay. I think there are a lot of 
elements in it that have consistency with the Administration's 
proposal, and, obviously, we would like to work closely with 
you and the Committee to find ways to address the concerns that 
have been raised, frankly by both sides of the aisle.

                            GREEN BUILDINGS

    Mr. Quigley. Sure. In terms of LEED-certified buildings, by 
retrofit or by new construction, certainly, is that not a new 
idea that has been lauded by for-profits, not-for-profits, 
people in government and outside. Most recently, National 
Academy of Sciences reaffirmed the value of the Department of 
Defense using LEED to certify green buildings for taxpayer 
savings. I learned a long time ago that I was not going to 
convince a lot of folks to do things like this just for the 
environmental aspects of it. But given our nation's water 
shortage, given our nation's desire to reduce pollution, but 
also to reduce dependence on foreign oil, energy conservation 
makes a lot of sense. And, of course, there is the financial 
savings from being efficient. Your views on where GSA is and 
where it needs to go on LEED certified.
    Mr. Tangherlini. I think having third-party certification 
of the work that agencies are doing to improve efficiency is a 
great way of making sure that you are actually getting the 
results that you are paying for. And so we have used LEED 
certification as a way of providing that third-party 
certification of the work we are doing. We have a notice of 
proposed rulemakings out right now for comment that is asking 
the community to consider the possibility of two other 
certification programs. And our testable hypothesis, if you 
will, is that an agency should focus around one set of 
certification so that they can compare their buildings from an 
apples-to-apples perspective. But, you know, underlying that is 
an affirmation of what you were saying, that having good, 
strong certification, making sure you can test those outcomes, 
that they are repeatable, that you have clear standards, is 
helpful in making sure that you are getting the kind of 
outcomes from the investment that you are guaranteeing the 
return on that investment.
    Mr. Quigley. But the public's benefit, where are you at? As 
we build new buildings, are they LEED certified?
    Mr. Tangherlini. Yes, they are.
    Mr. Quigley. And as we retrofit, even the buildings we are 
sitting in?
    Mr. Tangherlini. Depending on the level of retrofit, we are 
either moving towards some form of LEED-certification, and GSA 
has used out LEED as our certifying entity. But more 
importantly, we are running efforts like a program we call 
Shave Energy, in which we are constantly going through 
buildings and asking on a continuous basis, are there ways we 
can reduce the energy costs? So while we have seen an increase 
in energy costs over the last 10 years or so of about 32 
percent, our costs for providing energy, heating, cooling, 
lighting of our buildings have only gone up 18 percent. That 
gap is a direct result of those energy efficiency savings and 
investments.
    Mr. Quigley. And I was going to ask you, to what extent do 
you document the cost savings and energy savings as you do 
this?
    Mr. Tangherlini. Again, it depends on the nature of 
investment. We document all the savings by collecting all the 
electric bills and comparing them from year to year. So we have 
a bottom-line documentation. But in the case of large-scale 
investments, we have a program we call ``The Green Proving 
Ground,'' which actually provides scientific analysis, using 
clear scientific method to evaluate the relative performance of 
one investment over the other. And then use that to make going-
forward decisions on the type of equipment, approaches, designs 
that we'll use going forward.
    Mr. Quigley. Very good. Thank you Mr. Chairman. I yield 
back.
    Mr. Crenshaw. Thank you. Mr. Graves.

                              CONFERENCES

    Mr. Graves. Thank you, Mr. Chairman. I would venture to 
say, Mr. Administrator, that a few years ago many people 
probably did not know much about GSA. And it reached the 
headlines, though, of newspapers all across the country, and, 
really, the lips of so many folks. Just asking the question: 
How could there be so much abuse within the federal government, 
within an agency that is actually there to promote responsible 
management of assets? And, as you know, I am speaking of the 
conference that took place in 2010 that was not revealed until 
last year, I suppose. A lot of talk, a lot of promises of 
reforms and review, and, in fact, even you referenced it, I 
know, in your statement. You used the phrase here that, ``There 
would have been dozens of meetings with employees and senior 
agency officials to examine the underlying root causes that led 
to that conference.'' I mean, what can you do to reassure us 
that something like that will not happen again? What has taken 
place? What process in place? What accountability measures, not 
only have you, as an agency, done, but would recommend to 
others as well?
    Mr. Tangherlini. Well, I think there have been a lot of 
changes across the federal government as a result of the 
revelations at the Western Regions Conference. So it makes me a 
little less popular when I go see other agencies because a 
number of clear steps have been taken, such as the review of 
any conferences over $500,000 have to be approved by the agency 
head. Deputy secretaries are now approving any kind of 
conference, certain levels of travel. It depends on the agency. 
So we have taken those steps within GSA. But we also recognize 
that we have kind of a higher bar and a higher order of tasks 
in order to win back people's trust. So we have taken some 
additional steps, some of those in coordination with this 
Committee.
    One of things I think that led to the ability for those 
abuses to happen was a lack of transparency of spending down to 
the local level. So money was able to be spent and no one was 
able to monitor it at the headquarters level. We had a chief 
financial officer in name only. They were not actually in 
charge of all the finances for the agency. That was one of the 
steps we took immediately, was consolidating all the CFO 
activities under a single chief financial officer, so that 
person would be accountable; so they would have clear 
interests, desire, and enthusiasm for going and finding out how 
resources were being spent, and making sure that we had a good 
solid CFO, the type you would have in any business, whose job 
it is to ask, ``Is that the best way to spend a dollar? Are we 
going to get the marginal benefit out of that marginal 
expenditure?''
    At the same time, we also looked, as a result of that, 
asking ourselves where else do we see redundancy within the 
organization, lack of transparency, and lack of accountability? 
It is my view that we found that within the chief information 
officer's office. We had a CIO also in name only. She was not 
in charge of the over $700 million we spend every year on 
investing in IT. We had a chief people officer, or human 
capital person, who was in charge of only one level of 
approval, and, as a result, two or three other levels had built 
underneath him. So one of the lessons we learned was we need to 
have clearer accountability, we need to have clearer sets of 
permissions. We need to have stronger transparency and 
visibility into the way resources were spent. And we need to 
have stronger accountability. Those are things that we, in some 
cases, took immediate steps to implement; other cases, we are 
working towards implementation. Some of those processes are 
hard. That play is underway right now.
    But I look forward to coming back to the Committee and 
talking about the progress, maybe problems we have identified, 
and maybe using that as a way to demonstrate to other agencies 
how they, too, can benefit from our experience.
    Mr. Graves. Is there a conference planned for this year?
    Mr. Tangherlini. There are not many conferences planned at 
all. In fact, just yesterday, we cancelled two additional 
conferences. Conferences, frankly, have value; we ran those 
conferences last year. Look, we cancelled 39 conferences over 
the course of last year. We reduced spending in travel around 
conferences by over $10 million. There were a number of 
conferences, though: The Expo Conference, the Fed Forum, and 
the Smart Pay Conference, which were entirely about training. 
Now, I was doubtful. I went down to Expo myself and I said, I 
have got to take a look at this. I want to see a lot of busy 
people. If there is a camera crew here, I want have them see 
people who working hard, who are learning, who are interacting.
    You know, we had hundreds of businesses come. Those 
businesses invested about $6,000 or $7,000 each to come. So 
they clearly made a business judgment that there was value 
there. So I was very careful about not getting in the way of 
that. And I came away impressed. I came away impressed by the 
fact there were hours and hours of procurement training, 
procurement law training; making sure that the people who are 
committing federal dollars are doing it with the latest 
knowledge, the latest rules, and the latest techniques. That 
training was provided to the vendors, too, so that they knew 
how to relate with the federal government.
    But this year, you know, simply because of pressure on 
budgets through sequestration, concern about travel, we just 
were not having people sign up for the conferences. It started 
with Expo, which was just before sequestration. And it was 
clear that we were not going to get enough people down there to 
make it worthwhile for us to go and have it, and spend the 
money to do it, or for vendors, frankly, to come. And it then 
followed up with Fed Forum, which is primarily about fleet 
management and other asset management. And now Smart Pay, which 
is really about training on how to better manage the federal 
credit card programs. I am worried though, that we are going to 
lose a year of training. So we are working very hard to make 
sure that training is available via the Web or other means, so 
that people still get the benefit of it.
    Mr. Graves. The reports say that as a result of that 
conference, I mean, reports of scandal, reports of abuse, that 
46 individuals were suspended, warned, or reprimanded; 11 
terminated. And the 300 who attended received a letter from GSA 
saying that was not a smart idea. Is that sufficient? Do you 
think that all those responsible were taken into account in the 
proper manner, or is there still more that we can expect?
    Mr. Tangherlini. I think the folks that were directly 
related to that activity, or we thought had responsibility for 
that activity that happened, you know, we did take aggressive 
action against them. Is it possible that there were folks we 
missed, or there are other people? That is possible. But I tell 
you, I do consistently meet with the Inspector General. I work 
very hard to build a strong relationship and partnership with 
the Inspector General; not one of separation, and now 
maintaining his independence, but we want to know. If they feel 
that there is more that we can do managerially, we are going to 
do everything we can to respond to that.
    At the same time, we also want to make clear that our 
expectations about the way our organization will behave, the 
expectation of our employees, about what they will do on 
government time, has completely changed. Now, I will tell you 
that most of the GSA associates I meet with are very happy with 
those changes.
    Mr. Graves. Well, Mr. Chairman, I know my time is out. I 
want to thank you for taking an aggressive approach to this. It 
is something that is very important to us as a Committee, and I 
know that your agency was embarrassed by it, and it was an 
abuse of taxpayer dollars, so we thank you for your aggressive 
and serious approach to it.
    Mr. Tangherlini. I appreciate it.
    Mr. Crenshaw. I just saw on the news that the Post Office 
had a conference. According to the news account, it spent $2.2 
million having their conference. And if you are losing $16 
billion a year, it all adds up somewhere, so maybe they learned 
a lesson, or maybe they did not. But we do appreciate what you 
have been doing. Ms. Herrera Beutler.

                            GREEN BUILDINGS

    Ms. Herrera Beutler. Thank you, Mr. Chairman. And I 
actually wanted to follow up a little bit on the LEED 
certification. I am from the West. In the West, we have lots of 
trees. I was looking at your bio. You spent time in 
Pennsylvania. But mostly, it seems that the life cycle of a 
tree is something that is very foreign to people here in D.C. 
It is a very green process, and can be harnessed and utilized. 
And some of my concern is that with the adoption of some of the 
LEED standards, we actually are disadvantaging or choosing not 
to utilize the carbon sequestration that takes place when we 
use our forest products. And specifically, I had a couple 
questions. GSA released an addendum that expanded the original 
study on green buildings on the rating system. That was 
released last year to include several other systems that had 
not previously been included in the analysis. Why were those 
systems that incorporate energy savings and science-based life-
cycle assessments, such as the International Green Construction 
Code, left out of the addendum?
    Mr. Tangherlini. I am not sure about the specifics, but I 
think the important point is that we recognize that there is 
more than one standard now. And what we are doing is working 
very closely with other agencies, working very closely with the 
National Science Foundation to try to come up with a set of 
standards, then, that we would offer agencies to use so that we 
would begin to give people choice. Now, we are out with a 
notice of proposed rulemaking, so if people think we have 
missed something, people think that there is a better approach 
to this, we actually not only welcome the comments, we are 
requesting people provide us comments so that we can get this 
right.
    Ms. Herrera Beutler. Well, I am going to guess that some of 
the folks who contacted me probably have put in comment, and if 
my office has not, we will as well. One of the systems the GSA 
is claiming as a consensus standard, which is required under 
the Energy Independence Act of 2007, your agency acknowledges 
is not a consensus standard. Even though you put it out for 
comment, how can you justify this to make sure that the process 
that you are following respects the spirit and the letter of 
the law?
    Mr. Tangherlini. Well, you know, any action we would take 
would have to reflect both the spirit and the letter of the 
law. So I think we would want to make sure, again, I do not 
know the specific issue related to that one standard, but I 
will follow up with you, I will learn more about it, and try to 
get back to you with an explanation on how we have a 
disagreement about why that would qualify and, in some view, 
maybe should not.
    [The information follows:]

    OMB Circular A-119 (1998) establishes policies on Federal use of 
voluntary consensus standards, based on the National Technology 
Transfer and Advancement Act. These policies define ``voluntary 
consensus standards bodies'' as ``domestic or international 
organizations which plan, develop, establish, or coordinate voluntary 
consensus standards using agreed-upon procedures. . .'' They also are 
defined by the attributes of openness, balance of interest, due 
process, an appeals process and consensus. The NTTAA directs that 
federal agencies use voluntary consensus standards to carry out their 
missions; however, the use of other technical standards to meet 
government needs is not prohibited.
    The Green Building Certification System Review completed for GSA in 
March 2012 concluded that the U.S. Green Building Council's Leadership 
in Energy and Environmental Design (USGBC LEED) system was developed as 
a voluntary consensus standard, based on criteria developed to address 
the attributes outlined above.
    ANSI publishes the Essential Requirements: Due process requirements 
for American National Standards. This document sets forth the 
requirements for developing standards which carry the designation of 
American National Standards. The process for standards developing 
organizations to demonstrate conformity of individual standards with 
ANSI's requirements has two parts. The first is demonstrating that the 
processes used by standards developers meet ANSI's requirements. The 
second is demonstrating that individual standards have been developed 
in accordance with these processes. Only standards that have gone 
through the second step can be designated as American National 
Standards.
    Although, USGBC has demonstrated that its processes meet ANSI's 
requirements, at the present time, individual USGBC standards have not 
been designated as American National Standards.

    Ms. Herrera Beutler. Well, we can follow up with the 
specific standard that I am thinking of, but I think, overall, 
some of our concern, you know, I even heard when you were 
talking about the third-party system. Another aspect of that is 
making sure there is not the capture of the third-party system.
    Mr. Tangherlini. I completely agree.
    Ms. Herrera Beutler. And I think that is where some of us 
in the West, and some of our producers and our small forest 
landowners are feeling like there is a group here that maybe 
needs to come out and tour some of the forests that we have and 
understand the morbidity of trees and what a benefit they can 
be in this process. And I would like to follow up with your 
staff and get some specifics on this because this is a huge 
issue for the Northwest region.
    Mr. Tangherlini. And I think we are closer than farther 
apart in the sense that what we are trying to do is create some 
options within the standard-setting process, recognizing that 
there is value to standards.
    Ms. Herrera Beutler. Well, and in that I would say in the 
Northwest, we pride ourselves on being very eco-friendly.
    Mr. Tangherlini. Right.
    Ms. Herrera Beutler. So we manage some of these standards 
in Washington State, so it seems to me that they should be 
manageable and there should be some cooperation with the 
federal standards.
    Mr. Tangherlini. Okay.
    Ms. Herrera Beutler. Thank you. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you. Turn to Mr. Womack.

                            GREEN BUILDINGS

    Mr. Womack. I thank the Chairman. I thank the Acting 
Administrator for his testimony. I want to pick up on where 
Jamie was on the standard issue because as I understand the 
voluntary consensus mandate, it basically says that exceptions 
to voluntary consensus should be made only when there is a 
clear violation of applicable law, or whether the standard is 
impractical to apply. Now, that is kind of the spirit behind 
the issue. So my understanding is that Green Globes is the only 
commercial green standard that has been approved by the 
American National Standards Institute. But yet almost 
everything is exclusively LEED. So help me through this 
process. That is not a violation of applicable law; it is not 
impractical. And we know that Green Globes is a much more 
affordable standard with which to judge. So help me with this. 
I am struggling with the mentality that GSA is using in this 
process.
    Mr. Tangherlini. Well, no, I think actually we are trying 
to create the kind of environment that you are discussing in 
which people can make choices about the standards that apply 
and diversify the choices from ones we have right now. And that 
is the whole point of the rulemaking, to say, ``Look, we want 
to diversify the options that agencies have.'' We think that 
there is value in having these standards and judging your 
investments against those standards so that we have some way of 
calibrating whether the investment returns what we hope it will 
return. And, as an appropriator, I know you are very interested 
in that. And we are also saying that it is important that 
agencies, when they adopt a standard, they maintain some 
consistency so you can compare it from year to year.
    But right now what we do not have is that kind of broader 
set of standards that people can choose from. Now, it is the 
specifics of Green Globes versus LEED versus others; that is 
part of what we are trying to get out through the comment 
period, trying to understand whether we have picked the right 
ones, is this the right approach, how do we move forward? The 
fact is, we are having a conversation at least around the right 
stuff. And that is, how do we get better data into evaluating 
the investments that the government makes? Now there are 
questions about whether you are using the right tools or not. 
But I tell you, that is progress over the way much of our 
investment happens. And so I think that if we can find some 
accommodation, if we can get some benefit from these comments, 
hopefully we will come up with a system that takes us a little 
closer to a better outcome.
    Mr. Womack. But you have been on the job for several 
months, and I am not asking whether there is universal 
agreement on the other standards. I am asking for your opinion. 
Have we gone, have we, I hate to say the word wasted taxpayers' 
money, but in your opinion, as the Acting Administrator, have 
we violated some of the spirit of the voluntary consensus by 
being specific with LEED, in your opinion?
    Mr. Tangherlini. Well, no. I think that is why we have 
proposed saying, ``Let's provide the possibility for agencies 
to consider alternatives.''
    Mr. Womack. Reclaiming my time. I am just specifically 
asking you, as the Acting Administrator, something is driving 
the rulemaking process, and I understand that, but can you 
defend the LEED certification process versus, say, Green 
Globes, which is arguably more affordable. We are talking about 
the expense of taxpayers' dollars here.
    Mr. Tangherlini. Sure.
    Mr. Womack. And it is just like the discussion that 
transpired about conferences: Some conferences are better than 
other conferences. But I am just asking in this particular 
case, we have been specific with LEED, have we missed some 
opportunities to save the taxpayers money? I realize we are 
looking at it in the future, but in the past, have we?
    Mr. Tangherlini. Well, that is the point, it was not 
available in the past, and so I think we have realized 
tremendous value through using some certification process. I 
mean, clearly, maybe there is benefit to using one versus 
another; that is a possibility. But if you are using one versus 
none, that also could have wasted taxpayer money. So I know in 
the one instance where I worked with the certification process, 
using the LEED certification process, to help us get the main 
Treasury building LEED gold-certified, that we saved money for 
the Treasury Department. Now the relative cost of LEED versus 
something else, since it was not an option, I cannot really 
answer the question. I do know, though, by taking the steps to 
get that certification and understand how we spent money on 
energy, what kind of investments we needed to make to reduce 
our energy intensity, approach different ways to cleaning the 
building and operating the building, we saved the taxpayers 
money. So it really depends on what you are looking at and what 
was available to the people when they were making those 
decisions. That is why we are trying to provide more 
competition, more opportunity, but we want to make sure we do 
it within both the spirit and the letter of the law.

                              CLOUD BROKER

    Mr. Womack. I look forward to the conversation in the 
future on this subject. I have got one more question, and that 
is, I am holding a letter that I sent to your agency on 
February 12 to you, and asked for a 30-day response on cloud 
broker activities. And so, specifically, am I going to get a 
response to this letter, and can you update this Subcommittee 
on the request for information, and are you moving forward of 
the concept on cloud brokerage?
    Mr. Tangherlini. No, I appreciate that, and I apologize 
that we have not yet responded to your letter. You will get a 
response; I will ensure that. The whole point behind issuing a 
request for information was to get at the very questions that 
you were asking in your letter: Is there value here? Do we 
believe that having people help agencies make the transition to 
the cloud can save agencies money? There is concern about does 
that limit competition, does it create another level of expense 
within agency contracting? To answer that set of critical 
questions that you have, the best answer is, ``Look, the 
agencies will get to choose what the right path is to 
conversion to the cloud.'' Some agencies might be a little more 
mature, they might have better skill sets, they might have 
better understanding of their systems, and so going straight to 
a cloud solution works for them. In other cases, having a cloud 
broker solution, someone who could walk them through that 
process, might have value as well.
    But we are still in the RFI phase, which means we are 
asking for information. We have not done a request for 
proposals. There is no contract vehicle yet. So I think we are 
still at the preliminary phase so we can ask and answer the 
tough questions like the ones you have posed to us.
    Mr. Womack. Well, as you know, this Committee and the full 
Committee is always concerned about cost and the layers of 
bureaucracy that add to the cost. And I know the estimate was a 
$20 billion cost of transition to cloud services. And I suppose 
one of my concerns would be just that layer of bureaucracy and 
the extreme cost, and maybe the limited interaction that 
agencies would have with cloud services. And so that is what 
drives my letter, and it is what drives my concerns on the 
issue.
    Mr. Tangherlini. Thank you.
    Mr. Womack. I appreciate your time. I yield back.
    Mr. Crenshaw. Thank you. And on that issue of timeliness, 
you know, everybody is pretty busy. And sometimes we get 
frustrated when responses to our questions are, you know, 30 
days or 60 days old. And so we do not expect you to drop 
everything every time you get asked a question, but I think we 
would really appreciate it if we could have timely responses, 
perhaps no more than two or three weeks. Could we agree to work 
together on that? Because I will have some questions, I know 
other members will have questions that they will submit for the 
record.
    Mr. Tangherlini. And I think if we can have a mutual 
agreement that we will answer the ones we can when we can. 
Sometimes the questions are very hard to answer. And in some 
cases, we do not have the data, we have to find it. So if we 
could have a continuous dialogue around that, and agree, you 
know, to get the answers when we get the answers.
    Mr. Crenshaw. Well, I mean, you could just let us know if 
it is going to be a while, or if you want to give a briefing, 
then we can have a meeting. We are ready to do all that.
    Mr. Tangherlini. No, I appreciate it.

                           BUILDING EXCHANGES

    Mr. Crenshaw. We have time for another round of questions. 
I have one big question that I wanted to ask you about. I have 
been reading about some of the high-profile property exchanges 
that you are talking about. I think that there is one out in 
California, two here in the District. And the one that I have 
kind of looked at is the FBI building. And so I would applaud 
you all for trying to utilize the assets we have rather than 
just asking for more money. But if you are talking about 
exchange in a big building like the FBI, in downtown 
Washington, D.C., that is a pretty big deal. Probably multi-
year, multi-billion-dollar, multi-party, pretty complicated 
transaction.
    So a couple of questions about that. One, is that something 
that you all have the in-house capability to assess and deal 
with? I do not know if you have accomplished any big, high-
profile exchanges in the past five or 10 years. Two, is there a 
need to have any kind of House or Senate approval or prospectus 
that we would see? And three, how do you assess the value of 
something like that? Do you do that in-house, or do you have 
outside consultants? Talk about that because that, I think, if 
you are moving forward on that, that is a pretty interesting 
deal, and it is a big deal, and I think it will be high 
visibility. So I would like to hear how you plan on handling 
that.
    Mr. Tangherlini. No, I think those are all reasonable 
concerns, and we were pretty sure you would have them. But we 
want to also recognize the interest we have seen from this 
body, from this Committee, in making sure that we are 
leveraging our assets and getting the full value of them. We 
recognize the constraint that the entire United States 
government is under, this Committee being like my agency, a 
part of that broader issue of constraint. At the same time, we 
have exigent, important, and pressing needs to deliver critical 
services to the American people such as the protection that the 
Federal Bureau of Investigation affords us. And they are 
operating in a building in which we are literally throwing good 
money after bad at this point.
    We have reached the end of the useful lifecycle of the 
building. The building was designed for an agency that served a 
different purpose in a vastly different time. We have talked to 
consultants about the quality of the building, how you would 
renovate the building. We have engaged experts in looking at 
the structure of the building, the renovation, the ability to 
renovate the building. GAO has kind of come behind our tracks 
to make sure that we have used the right assumptions. The FBI 
has also engaged engineering folks to look at the facility and 
understand their needs. For the valuation of the building; we 
have used appraisers, we have used third-party commercial 
appraisers. It is kind of hard to appraise the value of 
something like the FBI building. There are not a lot of 
``comps'', as they say in that business. So we have tried to 
get a sense of what the commercial value is through, for 
example, the square-foot value of sales in the area.
    I tell you, we had some very skilled people within the 
organization who are focusing on it. We are trying to get the 
right group of people together who we will not be shy in making 
sure we retain the best expertise to get the best possible 
value, because I fully expect to be before this body at some 
point, and in several points, I would imagine, in this process, 
explaining how we are maximizing the return of the investment 
that you made in building that facility to begin with.
    We think that there are a couple of steps on the 
authorizing side. We have a Senate authorization; the House is 
looking at one as well as a possibility. Whether that is 
necessary or not, I frankly do not think that is particularly 
relevant. It is very useful to have a sense of what the 
Transportation and Infrastructure Committee's interests are in 
the same way we got a sense from Environment and Public Works. 
And then the question will be whether we generate enough 
resources out of the transfer of the building, if that is the 
approach we take. We have not even settled if that is 
necessarily the best way to do it. Do we get enough out of it 
to move the project down? Do we have to come and seek 
additional resources for you? So those all have question marks 
next to them. We have not answered them yet.
    But I think our imperative was to get off the dime, 
frankly, and move forward and query the marketplace, see what 
was out there, see what interest there was. I am happy to 
report there is an awful lot of interest, 35 different 
responses to our request for information. We have learned a 
lot. But then we have to go through a process of trying to 
distill that and come up with what we think the right approach 
is, and then work with this Committee, among others, to make 
you aware, and get your input and suggestions as well.
    Mr. Crenshaw. Well, thank you. I do not quarrel at all 
with, you know, this kind of concept because we talked about 
all the property that we know that we own or we do not own. And 
I know there is an effort to sell some of the surplus property. 
But I think if you can exchange a valuable piece of property 
like that and have a new facility out somewhere that is more 
secure, and you know, just a better place for people to go to 
work, and it does not cost any money, shoot, that is what we 
ought to be doing more often. And so I just want to be sure 
that as you undertake that, that we do that in an appropriate 
way because it is, it is a pretty complex transaction. Just 
selling a piece of property is tough enough, but to actually do 
exchange, it could be very beneficial to the taxpayers if it is 
done right. So I appreciate the work that you are doing as you 
get started, and please keep us abreast of that, if there are 
things we can do to help. Much rather have you go exchange a 
piece of property and have a brand new building somewhere than 
come ask us for some more money to build a building somewhere. 
So thank you for that. Mr. Serrano.

                         BUILDING CONSTRUCTION

    Mr. Serrano. Thank you, Mr. Chairman. Mr. Administrator, 
let me talk to you about the impact of the continuing 
resolutions, the CR, on your agencies. As you well know, it 
looks like GSA is going to be held at 2012 levels. What is the 
impact of those decisions, particularly on federal buildings, 
current projects, and construction jobs? And, in addition, I 
want to ask you very briefly also, something you dealt with in 
the past and that is the St. Elizabeth's project. How is that 
going and how does this impact it?
    Mr. Tangherlini. Well, no, I think that is a great set of 
questions and it is one that we are very concerned about 
because if you think about it, the 2013 levels really built off 
the 2012 levels, which are, frankly, a CR off the 2011 levels. 
I think the last time we had an appropriation was 2010, and so 
we have to guess, we have to work off of those assumptions that 
were baked in several years ago about agencies rent 
expectations, about need for maintenance, and, frankly, the 
last several levels of funding for the organization have really 
been low in terms of making reinvestments back in the 
properties that we own, so we just have not had as strong a 
repair and alteration program.
    [The information follows:]

    In Fiscal Year 2012, GSA received its appropriations through the 
Consolidated Appropriations Act of 2012, as opposed to being funded 
from a continuing resolution based on FY 2011 funding.

    We have really had no construction program, other than the 
Recovery Act program which came in in 2009, and so I think that 
is a concern that we have. We look to what the business 
benchmarks are, and the business benchmarks in real estate say 
you should invest between 2 and 4 percent in your facilities of 
the fair market replacement value of those buildings, and we 
have not been, for the last several years, we have not been 
investing that amount of money. We do know, also, from business 
benchmarks that $1 of maintenance and repair obviates the need 
of $4 to $5 of capital replacement. And so while we are 
figuring out ways to keep, you know, the buildings at some 
level of operational quality right now, what is going to happen 
three, four, five years down the road is that that lack of 
investment is going to come back in the form of really dramatic 
concerns and maybe emergent or exigent concerns: boilers that 
stop working, roofs that fail. And so this is much like, on a 
very grand scale, what it is like to be a homeowner, and the 
fact that you need to continually make investments in your 
home, recognizing that if you do not, you are going to have 
very expensive, episodic, you know, step-function costs that 
you are going to have to come up with ways to pay for it.
    On the St. E's project, we have enough resources to get us 
through opening up the Coast Guard component, but then we fall 
short on the subsequent phases of that project, and as a 
result, we are not able to consolidate the dozens of leases 
that the Department of Homeland Security has around the 
National Capitol region. We have the Homeland Security 
suboptimally spread out across the National Capital region. It 
is costing them money in terms of lease costs, but it is also 
costing them money in terms of efficiency, the ability to 
collaborate, and maybe the ability, at some level, to be as 
effective an agency because they have not been able to fully 
come together in one headquarters location.
    Mr. Serrano. I mean, that project has been around so long, 
and do you see something happening?
    Mr. Tangherlini. Well, I have to say that the fiscal year 
13 CR level does not really give us much in the way of 
resources to move the ball forward. We are trying ideas, such 
as the Federal Triangle South idea, which is an exchange of 
several buildings down south of Independence Avenue. One of the 
buildings involves Department of Homeland Security. Perhaps if 
we could gain some value out of that exchange, there would be 
something else we could do to help the Department of Homeland 
Security, but right now, I just do not see a financing solution 
for the completion of St. E's.

                            CLOUD COMPUTING

    Mr. Serrano. Let me ask you a question very briefly about 
an IT issue. I remember a hearing here where then Chairwoman 
Emerson and I spent a long time talking about the cloud, so we 
will bring the cloud back for a second. And your agency is a 
major participant in cloud computing and setting the example 
for other agencies. We have talked a lot about the cloud with 
our other agencies, and there are varying levels of comfort 
with the security of the information sent to the cloud. How has 
your experience been and how comfortable are you that the 
information you have shared is absolutely protected?
    Mr. Tangherlini. Well, I think from a cloud computing 
standpoint, we, too, are very concerned about information 
security. I will tell you that they found the fact that we had 
access to our data through the cloud incredibly valuable during 
the events of Hurricane Sandy. We had employees who could not 
get to their federal offices but were able to log into their 
email, were able to log into our systems because those systems 
were resident in the cloud. They were not locked into a 
proprietary kind of network, or system, or structure. Because 
we are also very interested in helping agencies make that 
shift, and protecting the security and safety of data, we have 
a program that we have launched in coordination with the White 
House called FedRAMP, which allows us to get certification of 
systems upfront so agencies do not have to go through the 
arduous process of certifying each individual cloud investment 
or system that they use.
    Mr. Serrano. Right. One last question on that. We 
understand that you are responsible for certifying cloud 
computing software to ease use by other agencies, but that you 
have had to delay the approval process. What problems are you 
encountering and how will this affect the federal government's 
ability to transition to the cloud?
    Mr. Tangherlini. Well, you are actually speaking about the 
FedRAMP program. Some of it is that we have just had a huge 
amount of response of interest of people being certifiers, so 
getting through that process of certifying the certifiers has 
been a little more arduous than we assumed.
    Mr. Serrano. So it was not a problem, as such.
    Mr. Tangherlini. Well, it is a high-class problem at some 
level but that having been said, we also want to make sure that 
once certified, we have people that actually are up to the 
task, can do the work. So I think that, you know, we have got 
to be thoughtful and we have got to be careful. When we are 
dealing with something like IT security, you want to make sure 
you try to hit your deadlines, but you do not want to make the 
deadlines controlling. You want to make sure that the real 
controlling outcome that you are going for is IT security.
    Mr. Serrano. All right. Thank you, Mr. Chairman.
    Mr. Crenshaw. Mr. Quigley, do you have any other questions?
    Mr. Quigley. No, Mr. Chairman, thank you.
    Mr. Crenshaw. Mr. Serrano, any more questions? Oh, I did 
not even see you sitting there. All of your friends left.
    Ms. Herrera Beutler. All the boys left, Mr. Chairman.
    Mr. Crenshaw. All the boys left. Well, thank you, and I 
would certainly like you to have a chance to ask any questions 
you might have.

                         REAL PROPERTY DISPOSAL

    Ms. Herrera Beutler. I just wanted to kind of comment and 
follow-up on what you were saying, and I was kind of trying to 
assess just where your perspective is at, and I was encouraged 
when you were talking about the FBI building. The bill that you 
referenced from the T and I Committee, I was on T and I last 
year, was basically creating the Citizen Commission that said 
any time you are going to buy a property, that you sell a 
property, or that you consolidate. You know, it is a kind of a 
commonsense measure. You know, I am curious as to how much 
property is the last, you know, three, four years, since the 
recession have you downsized in terms of co-location, 
consolidation, selling? How much are you actually selling?
    I know times are tough; you know, you were responding to 
Mr. Serrano's question about the CR, the levels that we have 
been at the last couple of years. I would submit for your 
consideration, I do not know of a corporation, or a small 
business, or a family in the last four, five, six years who has 
not made the same kind of tough decisions. You talked about 
being a homeowner. People sell things. They get rid of cable. 
They moved the CEO from a back headquarters into a room with 
everybody else. I mean, these are real-world examples, and so, 
yes, you are having to do more with less, but I guess I would 
argue that now is the time to be innovative and creative with 
these. And I guess I would like to hear you speak to that a 
little bit.
    Mr. Tangherlini. No, I really appreciate that opportunity, 
and I think that was what I was trying to get at with the 
opening statement that I frankly think that GSA has, frankly, 
never been more valuable in our history than right now. Why? 
Because GSA is really about leveraging the scale and the scope 
of the federal government to trying buy things once and well, 
to drive down costs, and to find those places where we have 
common administrative expenses and try to get some benefit of 
the scale of them. I can tell you in some very clear, high-
profile examples, I think it was just two weeks ago, for $19.5 
million, we sold what we call the Georgetown Heating Plant--a 
big empty building that was redundant to another steam facility 
we had--that had been sitting empty for 20 years. We got that 
out into the marketplace. We had an auction. It was exciting, 
the bidding; it was eBay on a grand scale. And we had it sold 
for $19.5 million.
    And the important thing about that is now that is a 
building that is going to be returned to the economy. There are 
going to be jobs created rebuilding that building; there are 
going to be jobs created working for whatever happens in that 
building. And then there is going to be taxes paid on a 
building, a building that did not pay taxes before. Look, we 
are really interested in finding those opportunities; we are 
committed to pushing forward on them. We have proposed an 
exchange for services on the 312 Spring Street Courthouse in 
Los Angeles, California, the idea being to ask someone if they 
could take this beautiful, historic building that needs pretty 
substantial seismic retrofit and trade it for a smaller, 
efficient office space that we could use to reduce rent cost 
for federal employees. We have asked the marketplace if anyone 
would help us with the Dyer Courthouse in Miami, Florida.
    We have put out a request for information for something we 
are calling Federal Triangle South. It is six properties 
including the Cotton Annex Building, the abandoned Cotton Annex 
Building; it has been empty since 1986. And asking our private 
sector partners, is there some more efficient way we can house 
federal employees in the Department of Energy building, which 
is one of the least effective buildings of federal office 
buildings we have, which is an ironic thing. I am not going to 
comment further other than to say we want to help them get a 
more energy-efficient headquarters building that allows their 
people to work in a more efficient, high-quality workspace that 
reflects the work that they do today rather than the work the 
building was built for in 1970. And then free up, I think it 
is, three times the usable, developable space that is available 
there that is unrealized. We are working very closely with the 
National Capital Planning Commission in the city to try to find 
ways to do that.
    We are looking across the country to find opportunities 
like that. GSA headquarters itself is going to consolidate two 
leases into the GSA headquarters. We added a little extra space 
to headquarters, but what we have really done is reduce 
dramatically the amount of space that employees have. I am sure 
you saw that article recently in the paper about the CEO of the 
Energy Concern who was moved out of a big corner office into 
his own cubicle. I am glad to say that I am a cubicle companion 
with that CEO. I looked; his was a little bigger than mine, 
actually. But the point is to do our work efficiently and 
effectively, we need to demonstrate efficiency. And GSA is 
going to lead, and we are going to do whatever we can to help 
our agency partners who are also committed to those outcomes, 
get those results as well. I look forward to a partnership with 
this Committee to help us find, maybe in some cases, those 
resources we need to make investments. In our 2013 request, we 
had a request for consolidation money that would allow agencies 
to make the necessary investments. Sometimes, you know, you 
have to take down walls or buy new furniture to go from the 
office to the cubicle.
    Ms. Herrera Beutler. On that front, would you be the folks 
that we would talk to about maybe encouraging the EPA and the 
IRS to use one television, in-house televisions, and 24-hour 
satellite studio versus that each having one across the street 
from each other?
    Mr. Tangherlini. Well, I think GSA could maybe play a 
stronger role in helping agencies build that kind of 
collaboration and cooperation. And I think, at a fundamental 
level, when I go and I talk to those agency leaders, they are 
dying for solutions like that. They are looking for answers 
like that. And so we have got to challenge ourselves to be a 
bit more aggressive and a bit more effective in identifying 
those solutions, and bringing them back to the agencies, and 
trying to find ways that they can realize those outcomes, too. 
Because as I said earlier, every dollar spent on space you do 
not need is a dollar that could have been put back into program 
or returned to the taxpayer. And agencies are feeling that 
right now.
    Ms. Herrera Beutler. Thank you. Yield back.

                         REAL PROPERTY DISPOSAL

    Mr. Crenshaw. Well, thank you. And just on that note, I 
know that there is a plan, I think, to sell property every 
year, I think maybe up to 100 properties, and most of them are 
smaller. But the one that she talked about or you just 
mentioned, the big one, $19 million, that kind of high profile, 
I guess the kind of question is, is why was that sitting there 
for, I do not know, 15 or 20 years? And are there other 
properties sitting around? Is that something that you all 
decided to do just recently, or is that something you have 
always thought about doing, just never gotten around to do it? 
Because there has got to be a lot, I think something like 9,600 
properties, that there is a plan to dispose of those from time 
to time. I know, I think our bill had a $100 billion from 
consolidation that we never got around to passing. So talk 
about that, about what are your plans? If you had the $100 
million that we had put in our spending bill, how would you use 
that? A lot of little deals, one great big deal, and how is 
disposal work coming?
    Mr. Tangherlini. I think we would go with the little deals 
over the big deals. But what we would like to do is find those 
with the highest return on investment. Now, there was some 
language differences we had about the bill, about whether GAO 
should evaluate the, you know, return on investment analysis, 
but that is the kind of thing we can discuss and work on. I 
will say that, at one level, one concern we have about fixing a 
maximum amount of square footage under the management of GSA 
costs us the opportunity, maybe, to bring some of the other 
agency space under GSA so that we can use some of our 
authorities to better utilize it. So that is something else we 
can talk about.
    But I will tell you this idea of pushing properties out 
more aggressively, for example the case of the Georgetown 
Heating Plant. It is a good example that we have to recognize 
that it is not always that easy to just do it. It seems as 
simple as putting a house on the market, but any effort that 
the government undertakes has a huge environmental impact 
process we have to go through. We have to do a screening to 
make sure that no other agency wants, or needs, or uses that 
facility. In the case of the heating plant, we had to make 
very, very clear that by taking that heating plant capacity 
offline, we were not jeopardizing the ability to actually heat 
and cool the federal office buildings. In some cases, there 
were investments necessary to sever that plant from 
connections. So we have to recognize that there is a whole 
spectrum of complexity in moving some of these properties to 
disposal.
    And so working closely with this Committee, I think that we 
can explore ways that we can make that easier. I think that was 
the nature of the Administration's proposal around a civilian 
BRAC, was trying to find ways to streamline that process a bit. 
But I also think that, you know, looking at agency space, their 
needs, lease expirations, and asking ourselves, are there 
targeted investments we can make now to help agencies 
consolidate space, is the kind of conversation that I think 
would bear a lot of fruit between GSA, this Committee, and 
other agencies.
    Mr. Crenshaw. Yeah, I think in these difficult times 
everybody is part of the belt-tightening, and we appreciate 
your willingness to be part of that.
    Mr. Serrano, you have any final thoughts?
    Mr. Serrano. I really want to thank you for your service, 
for your work, for the study you've undertaken. At the expense 
of a bad pun, as we want you to move into the cloud, we want 
you to remove the other cloud that was hovering over the 
agency. And it has been a difficult time, and it opened the 
doors for a lot of attacks. And we have to be honest that so 
many of the attacks had a base for people to be able to make 
them. And your mission is a difficult one, but you have the 
support of this Committee, and I know you have the support of 
the Chairman. I do not speak for him, but we understand, we 
both understand the need for your agency to do its job well 
because then it affects all of us. And so good luck, 
congratulations, and just whatever you need from us, just let 
us know. Except for dollars; he is very tight on dollars.
    Mr. Crenshaw. Well, I think we are all working, you know, 
under some difficult economic times. But I think there is a 
positive side of that, that makes us all look at ways to do 
things more effectively, more efficiently. Government always 
needs money. But right now we need something more, I mean, in 
terms of discipline and all those kinds of things. So we thank 
you for what you are doing to try to help restore the 
reputation that GSA, it got muddied a little bit. I think 
credibility is important, and I appreciate what you are trying 
to do. And anything we can do to help you do your job in a more 
efficient way, we are ready to help. So with that, the hearing 
will be adjourned.

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                                         Wednesday, April 10, 2013.

                     SMALL BUSINESS ADMINISTRATION

                                WITNESS

PEGGY GUSTAFSON, INSPECTOR GENERAL, SMALL BUSINESS ADMINISTRATION
    Mr. Crenshaw. Well, welcome, Mr. Serrano, and welcome you 
all. Good morning. We will call this meeting to order. Today it 
is April 10th, Wednesday. And today we finally received the 
president's 2014 budget request. It was due on February the 
4th, but it is better late than never. Those of us on this 
committee are ready to move forward and keep doing our work.
    Mr. Serrano. It is a work in progress.
    Mr. Crenshaw. That is right. So today we have with us Peggy 
Gustafson. She is the Inspector General for the Small Business 
Administration. She has been there since 2009; has a budget of 
$16.3 million in fiscal year 2012. The SBA Office of Inspector 
General has a significant job in conducting oversight of the 
SBA's diverse portfolio of programs, ensuring that the 
taxpayers in the small business interest are protected and 
served well.
    The SBA plays a critical role in maintaining and 
strengthening our nation's economy, assisting small businesses, 
providing small businesses with access to capital, 
opportunities to compete for government contracts, and other 
technical assistance. Additionally, the SBA helps businesses 
and homeowners affected by disasters get back on their feet 
through the Disaster Loan Program. And this year, SBA was 
appropriated $800 million to provide relief and recovery to 
small businesses, homeowners, and renters affected by Hurricane 
Sandy. This is a massive effort that needs strong oversight.
    And while the SBA's programs are vital to getting our 
economy back on track, the agency has to confront significant 
challenges in executing its mission. Fraud continues to be a 
problem, affecting all of SBA programs. Default rates within 
the business loan program remain high, costing the government 
and taxpayers millions of dollars. Excessive improper payments, 
weaknesses in procurement procedures, and poor lender oversight 
are all issues that the SBA must address.
    The Office of Inspector General was created to promote 
economy, efficiency and effectiveness in SBA programs and 
operations and to deter and detect waste and abuse. So your job 
is an important one. We look forward to hearing your testimony 
and like now to recognize the ranking member of the 
Subcommittee for any opening statement he might make.
    Mr. Serrano. Thank you, Mr. Chairman. I would also like to 
join you in welcoming the Inspector General of Small Business 
Administration to the hearing today. The SBA, as the chairman 
said, plays a vital role in all of our districts, helping 
businesses to get started, to expand, and to serve and employ 
our constituents. And your office plays an important role in 
making sure that the assistance is provided as effectively with 
as little waste as possible.
    I will be interested in hearing whether you are starting to 
see an increased level of fraud and what challenges you are 
facing, trying to address these problems while coping with 
funding at last year's level. In addition, I look forward to 
hearing about both how the sequester will affect your ability 
to fulfill your responsibilities and how the impact of the 
sequester on the agency as a whole will affect your work.
    Lastly, I am interested in hearing your observations about 
the SBA's role in helping New Yorkers recover from Hurricane 
Sandy. Now I cannot emphasize enough that that has been, as you 
well know, something that we New Yorkers thought would never 
happen in our part of the world, and the devastation has been 
massive. And you play a vital role, the SBA does. And we would 
like to know what you know, what you see, and what adjustments 
have to be made, if any. Thank you so much. Thank you, Mr. 
Chairman.
    Mr. Crenshaw. Thank you. And now Ms. Gustafson, we will 
turn to you. And if you will make some opening remarks in the 
five-minute range, and we will submit your written testimony 
for the record. So please proceed.
    Ms. Gustafson. Thank you very much. And thank you, Chairman 
Crenshaw and Ranking Member Serrano, for asking me to come 
testify before your Subcommittee today. I am extremely proud to 
be here and represent the dedicated men and women of the Office 
of Inspector General in the SBA. As you know, my office is an 
independent office within the agency. We conduct and supervise 
audits, inspections, and investigations related to SBA programs 
and supporting operations. Our job is to detect and prevent 
waste, fraud, and abuse and promote economy efficiency and 
effectiveness in the administration management of all the 
programs of the Small Business Administration.
    I believe that our investigations and report 
recommendations are having a very positive impact on the 
integrity of SBA programs, and that the results are very 
measurable. During fiscal year 2012, my office issued 22 
reports containing 126 recommendations for improving SBA 
operations, reducing fraud and unnecessary losses, and 
recovering funds. In addition, The Office of Inspector General 
criminal investigations led to 59 indictments and 59 
convictions of subjects who had defrauded the government. In 
all, the efforts of my office resulted in more than $90 million 
in office-wide dollar accomplishments during fiscal year 2012. 
Our fiscal year 2012 operating budget was $17.3 million, which 
included a $1 million transfer from the Disaster Fund, 
specifically for our work in the disaster area, so that the 
total office-wide dollar accomplishments represented more than 
fivefold return on investment to the taxpayers through the 
Office of Inspector General.
    Now, though, these figures confirm that our work is focused 
on the areas of high risk, I am concerned about the continued 
financial and operational risks that exist within the agency. 
For example, in the loan programs, the 7A and 504 loan 
programs, the maximum allowable guarantee for loan has grown 
from $2 million per loan to $5 million; for manufacturers in 
the 504 loan program it is $5.5 million, which, of course, has 
the effect of expanding the potential exposure of the taxpayer, 
should these loans eventually default. So this exposure, 
combined with a swollen portfolio and the limited agency 
oversight, does increase the possibility of future losses. 
SBA's payments of guarantees on defaulted loans had evidenced 
an increase from the baseline of 2007, when $1 billion was paid 
in guarantees on defaulted loans to $5 billion in 2010, $3.4 
billion in 2011, and $2.6 billion in 2012. Now, it is 
noticeable and noted that these figures are going the right 
direction. But, again, we are concerned, especially given the 
larger loan amounts that are now allowable under the programs.
    The SBA contracting programs continue to be subject to 
fraud and weak federal oversight, and the shortcomings in the 
agency's IT systems might hinder SBA's ability to effectively 
manage the programs. I do appreciate the opportunity to discuss 
how we have proposed to address the noted and persistent risk 
this fiscal year, though the budget is not out quite yet. So in 
the president's fiscal 2013 budget, the president had requested 
a $3.1 million increase in our budget, and we had received a 
mark in the House of $18.267 million, including the disaster 
transfer. And in the Senate, the mark was matched at the 
president's request of $20.4 million. And, of course, we ended 
up operating under a CR, which we will do for the remainder of 
the year.
    But I am poised to use additional resources, should I ever 
get them, to effectively target early defaulted loans, fraud, 
and lender negligence, and to increase the capacity of our 
existing investigative personnel. I will speed it up.
    Mr. Crenshaw. No, no, take your time.
    Ms. Gustafson. Thank you. I do talk fast. The additional 
resources that we have requested in the budget justifications, 
including the budget justifications in the past, included 
resources to establish a dedicated early defaulted loan review 
group to identify problem loans, to enhance my investigative 
capacity, and to enhance the operations of the Office of 
Inspector General hotline. When lender negligence is found, the 
early defaulted loan review group would recommend non-payment 
of the guarantee or recovery if the guarantee is already paid; 
would help target the most offending lenders to obtain 
corrective actions; and I think, perhaps most importantly, 
identify trends for operational improvement by SBA if there are 
weaknesses in the actual process. This group would help 
identify those trends and fix it before the loans go out. When 
suspected fraud is identified, the loans will be investigated.
    Over the past decade, we have obtained convictions and 
guilty pleas on numerous cases involving loan agent fraud and 
SBA-guaranteed loans, totaling excesses $358 million. The 
Office of Inspector General handles an average of 250 criminal 
and civil fraud investigations per year, and annually obtains 
multiple indictments and convictions of recoveries in the area 
of tens of millions of dollars. However, resource constraints 
do sometime preclude us from initiating or continuing a number 
of investigations. For example, over the last three years, the 
OIG has administratively closed 171 allegations with potential 
losses estimated at over $136 million, which may have met 
prosecutorial thresholds but could not be further investigated 
due to a lack of resources. Also, over the last three years, 
the office has proactively identified over 574 suspect loans 
with values estimated at over $503 million that contained 
characteristics typical of problem loans. But, again, due to 
the limited resources, these loans could not be further 
reviewed to identify lender deficiencies or indications of 
fraud.
    Additional investigative support personnel would enhance 
the existing investigative capacity and allow more effective 
utilization of existing investigative resources in a cost-
effective manner. For example, we estimate payroll costs for an 
investigative analyst to be only 67.5 percent to that of a 
criminal investigator, an actual 1811 investigator. With the 
support of the Subcommittee, we could increase both the 
effectiveness and the efficiency of these investigations.
    Regarding our hotline operation, during fiscal year 2012, 
the hotline received 535 complaints, which were processed by 
one professional staff member. Additional staff resources are 
required to adequately analyze incoming complaints for possible 
referral for investigation or other resolution. This is 
especially crucial because this is often the only time the 
public has contact with my office. If you think you know of 
waste, fraud, or abuse, what you do is you call the hotline. Or 
if you think you are a whistleblower that is being retaliated 
against, that is the hotline. And so it is very difficult to 
have an effective hotline with one person. Now, I have two; I 
have actually dedicated resources within my constraints to have 
two, but it is difficult. And given the fact that we work for 
the public, that becomes problematic, or at least it could be a 
lot better.
    In short, much work has been done, but much work remains to 
be done. Additional resources would undoubtedly net a 
significant return on investment to the taxpayer and a better 
SBA. So I thank you very much for the opportunity to speak with 
you, and I look forward to your questions.
    [The information follows:]

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    Mr. Crenshaw. Well, thank you very much. Sounds to me like 
you stay pretty busy. And I guess, you know, what comes to mind 
when I hear you talk about all that, I wish there was some way 
that we did not need you as much as we need you. With all the 
loans that are going out, I mean, when you see all the 
inefficiencies and outright fraud and corruption, is there 
anything that you see that could be done on the front end? Why 
do you think that it is so widespread? Is it just the nature of 
the beast making loans like this, or the third-party folks that 
are administering the loans? What are your thoughts on reducing 
your work and doing a better job on the front end of making 
sure all this stuff does not happen?
    Ms. Gustafson. Well, I think that is a difficult question 
to this extent: Where there is money, there is always going to 
be fraud. I am sure that everybody knows that and everybody 
says that. And so, you know, I think there will always, 
obviously, be a need for somebody watching the money, be it 
here, or in Agriculture, or in any department where there is 
money going out the door. There is going to be somebody out 
there figuring out a way to take some wrongfully.
    So I do not know that it is really possible to do that. I 
do think, you know, SBA, for an agency of its size, there is a 
tremendous amount of money at risk in SBA because of the nature 
of it, because of the guaranteed portions of the loans. The SBA 
loan portfolio is over $100 billion right now. The small 
business contracts, you know, to the extent that SBA has a 
role, certainly in the 8(a), the HUBZone, that is almost $100 
billion as well. So it is a tremendous amount of money, and on 
a good day, I am about 100 people. So what I try to do, and I 
think that the thing that needs to be done is, again, try to 
proactively, and through my work, identify the risks and see 
where the process can be tightened. I truly think what all you 
can do is be forever watchful, make sure that you are notifying 
the agency and Congress of the things that really need to be 
fixed to help close these loopholes. You know, every time you 
close a loophole, they will find another one, so you just have 
to be vigilant. I really think that that is the best thing that 
you can do.
    Mr. Crenshaw. You mentioned the lack of resources impacts 
everybody. We are going through this sequestration, the 
sequester. We do not know yet what is in the president's 
request, but we do know that the resolution that the House 
passed on their budget side and the budget resolution in the 
Senate, and we anticipate that the sequester kind of stays 
there, which means it is probably going to be hard to see a lot 
of increases.
    Tell us how it has impacted you. You mentioned you have got 
one person doing all that. How does it impact not only you, but 
do you think the SBA as well, and what are you doing to try to 
deal with that? Because some agencies say, ``Well, to some 
extent it forces us to try to be more efficient.'' And, you 
know, there is only so much you could do. But talk about that: 
(a), how it affects you, and then (b), what you are doing to 
try to just deal with it.
    Ms. Gustafson. Right. Well, as far as my office and the 
sequester, one important thing to note, and this is very 
typical of all IG offices, the vast majority of my money, 84 
percent of the money that I receive, goes to people. It is 
salary and expenses. I do not have programs. I do not have 
stuff. So when you break down my money, 84 percent is just to 
keep the people that I have there. Ten percent goes to the 
financial statement audit, which is a statutorily mandated 
audit, which is especially important, I think, in the context 
of SBA because of the amount of money. We have to do it anyway, 
but, again, because of the credit risks and stuff, that is an 
important audit. That is about 10 percent of my budget. And 6 
percent is everything else, which includes any time my 
investigators need to travel to Springfield, Missouri, things 
like that. I mean, that is what it goes to. Training, and when 
I am talking about training, I mean my auditors need a certain 
number of CPEs every year, and my investigators need mandated 
training every year. And that is it.
    And so when things like the sequester hit, had I not lost 
people through attrition or had I filled those jobs, I would be 
undergoing furloughs right now. I could not avoid it. We have 
not filled positions as they have come open, and so right now I 
am down five positions, which, in my office, is pretty 
substantial, especially because the work that we do takes a lot 
of time. Audits work in teams, investigators, you know, work in 
teams. And so when you lose a person, you are really affecting 
even the efficiency of the people who are there. But I have 
made that decision so that I did not have to furlough people, 
which I think is the most unattractive solution. I mean, I 
would really hate to do that.
    What I still may end up doing, given the resources and 
salary and expenses, I do have some money that I was given 
under the Recovery Act, that, of course, can only be used when 
I am looking at recovery, which is fair. And I have also been 
given money under the Hurricane Sandy supplemental. And, of 
course, normally what you do, and what we have done and will do 
in Sandy, is you bring on people specifically to work on Sandy. 
And I will do that. But I may also have to move some of my 
resources to that, again, in order to avoid furloughs, which 
Sandy needs to be looked at, so that is fine. But if I am 
moving people from my credit programs, for example, then there 
is a loan audit that is not going on. So it is going to be very 
problematic for me, but it is the best possible solution, I 
think.
    As far as the agency, you know, I know that the agency has 
announced they do not have to do, as it stands right now, they 
did not have to furlough anybody. Widespread furloughs in the 
agency would be of a concern to me because they are pretty 
small as they are. I mean, if they start having less people 
doing the oversight that they do, I would be very concerned 
about that. So going forward, I do not know what October 2013 
holds, but if they start having to furlough, it would be a 
concern to me about their ability to monitor their programs as 
well.
    Mr. Crenshaw. You mentioned Sandy. I was going to ask you 
about the $5 million that you received to deal with that; how 
do you go about utilizing those dollars and how do you strike a 
balance? You have got a hurricane, you have got people in need, 
time is of essence. How do you balance the desire to get the 
money to people as quick as you can, but, on the other hand, 
make sure that you are doing the right processes and avoid some 
of the things that we are talking about?
    Ms. Gustafson. Well, you know, the way that we approach 
disasters the size of Sandy, the way that we are looking, and I 
am looking at Sandy, this is the biggest test for SBA since 
Katrina. And there were certainly many, many well-documented 
issues and problems with how things that happened during 
Katrina, and even as it relates to SBA and the deliverables 
that they were doing. And so one of the things that we will be 
doing with Sandy is seeing how that worked. I mean, this is 
really the first test of a wide-scale, multi-billion-dollar 
disaster. And so we will be going in. And for us, in all 
honesty, there is not a rush for us to get money out the door, 
you know, not being the agency. Really, for us, it is to be 
much more thoughtful and to come in with the plan that we have. 
And, really, what we do necessarily follows what the agency 
does anyway. And so I think we do not suffer from some of the 
same pressures the agency does. This will be like we did with 
Katrina.
    What I anticipate is the first work that we will be doing, 
we will be doing audit work because the agency is now 
undergoing the process. They have approved the loans. The money 
is going to start going out the door. The money goes out later 
than the loans are approved. And we will be following that with 
our audits. And then the criminal investigations, which will 
come, because it is a lot of money, that always follows. You 
know, that does not happen until later, when the loans start 
defaulting, or we start hearing the reports of the person in 
Ohio getting the money, claiming that they had a house in New 
Jersey. It is going to happen. I do not want to sound like it 
is too much of a good thing, but we do benefit a little bit in 
that we do not feel that pressure. And I would not want to do 
that because I want the money to be used very smartly. You 
know, I am very grateful. I do not know how we would have 
overseen $2 billion as it stands today without that money. But 
even that, if it is anything like Katrina, and we just wrapped 
up Katrina, we ended up having two closed cases. We ran out of 
time and we ran out of money because there is a lot going on. 
And you run into statute of limitations problems as well. I 
anticipate Sandy being the same way.
    Mr. Crenshaw. Well, thank you very much. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Mr. Chairman, we are 
winding down the hearing season. And I just wanted to take this 
opportunity, on behalf of the folks on this side, to thank you 
for your style of conducting the hearings and your treatment of 
us. This sounds like a lovefest here, right? But you are a 
gentleman and a good guy, and we appreciate that. I certainly 
do.
    Mr. Crenshaw. Well, there is more work to be done.
    Mr. Serrano. I know. So before it gets heated, I wanted to 
say something nice.
    Mr. Crenshaw. Your timing is exquisite. I was just getting 
ready to, no.
    Mr. Serrano. Inspector General, we might as well start with 
the elephant in the room, and I am not referring to my 
Republican colleagues: sequestration. And that is, with the 
effect, what do you know fully the effects so far to be on the 
SBA, and perhaps, just as important, you know, what is the 
impact in terms of how it affects small businesses and the 
community at large. And as people have to adjust to this time 
we are living in now, some agencies seem to be able to tell us 
right away how it affects their ability to deliver services. 
What can you tell us about SBA in that sense?
    Ms. Gustafson. Ranking Member Serrano, at the risk of 
sounding like I do not know what I am doing, there is very 
little I can tell you.
    Mr. Serrano. Oh, around here, that is not a strange thing.
    Ms. Gustafson. There is very little I can tell you.
    Mr. Serrano. I do it all the time in two languages.
    Ms. Gustafson. My perspective comes just from what the 
agency has said, and I will tell you what I feel, and I think I 
look at it from a slightly different perspective as, you know, 
I understand the agencies, which I certainly saw the letter 
that they sent, saying if there is a reduction in subsidy, less 
loans will be made. That makes sense. If you do not have 
subsidies to support loans, you cannot make those loans. So 
that makes sense to me. I certainly have not gone beyond that 
to see if there has been a net effect of less loans being made; 
have not looked at it. Since we are auditors, we would have to 
actually do an audit to do that.
    The other thing that the agency has said is if there are 
less federal government contracts being let, less small 
businesses will be getting those contracts. Again, that seems 
absolutely logical, and I would absolutely anticipate that to 
be the case. In general, I think a lot of times small 
businesses get contracts not just because the government, out 
of the goodness of their heart, wants to give small businesses 
contracts, but because you have that goal. You have that goal 
of 23 percent, and the agencies take that goal very, very 
seriously. And so I think it is logical to think that if the 
goal is now a smaller pot, they are still going to aim for that 
23 percent. And 23 percent now represents a different number. 
It did represent this before sequestration, and now it 
represents this. And I think that is what the agencies are 
going to be aiming for because they do not meet that goal as it 
is. So they still are going to aim for the goal and probably 
not meet it. So, again, that makes sense.
    Again, what I was most concerned with and what I remain 
concerned with is if, in the end, there has to be furloughs, 
depending on where those furloughs are, that is going to 
concern me because I think they conduct limited oversight 
themselves to the extent that they can, and so if they are 
having less people there, it is going to affect their ability 
to do that. And they are the first line of defense before we 
are, so that is going to be a problem. I would think it would 
cause delays. I think it would cause all those things, should 
it happen. My understanding, from what Administrator Mills has 
said, is so far it has not.
    Mr. Serrano. So if I was to ask you as an added question 
what part of the budget is the most vulnerable, in your 
opinion, I guess it would be the ability to provide the service 
to meet the goals of 23 percent or other goals that the agency 
has to meet.
    Ms. Gustafson. Actually, I do not know that I could say 
what is most vulnerable. I think, in general, I certainly think 
for my office, I am way smaller than I need to be if I were to 
ever get a handle. For example, to your opening statement, and 
Chairman to yours, whether fraud is increasing or not, we are 
so busy, I do not know if it is increasing or not because we 
are constantly having to turn stuff away, you know what I mean. 
I do not know that you ever get to know the universe of fraud, 
but I know that I know that we have more than we can handle. I 
think the agency operates a little bit in that same way, which 
is to say they are as small as they can possibly be without 
losing effectiveness. I mean, I am sure that there are things 
that can happen internally. Obviously, there are not things 
that can be changed, but, again, there is a tremendous amount 
of money at risk through the programs of the SBA, and so 
reductions in size would concern me.
    Mr. Serrano. On your point of having to turn things away, I 
am not understanding that. Does that mean that you have to 
decide what alleged fraud is more important or bigger than 
another alleged fraud, or just determining whether it is fraud 
or not, or both? I am afraid that your statement makes it sound 
like some folks could get away with something, and that is a 
concern, obviously.
    Ms. Gustafson. That is what I am saying. I am saying that 
we, at times, have to, I think I have somewhere around the area 
of 40 investigators, 40 criminal investigators, maybe a couple 
more than that, and there are times every day they have to make 
a decision, can I open this case or not? Do I have the 
resources to open this case, or am I completely full? And that 
happens all the time. And to your point, the other point 
happens as well. Again, as I mentioned in my opening statement, 
we have, for several years, had what we called an early fraud 
detection working group because there are certain 
characteristics of a loan that we know to be indicative of 
fraud. It is a fraud indicator, one of it being whether it 
defaults very early. Loans that default very early, more likely 
than other loans, there may have been some fraud in there. Very 
often, we will do an analysis and say, ``Here are the loans 
that meet enough characteristics it concerns us.'' More often 
than not, that is all we can do. We will let the agency know 
which loans they are, but we cannot do anything further. And I 
have to say I am sure I am not the only law enforcement agency 
that does that, but absolutely, it happens.
    Mr. Serrano. Well, we thank you. I had more questions, 
obviously, but we will wait for the second round. Thank you. 
And when I said something about the Republicans, I noticed that 
they got very sad.
    Mr. Crenshaw. They are very engrossed with the president's 
budget that just got released this morning, so they are, you 
know, they are preoccupied. Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman. Good morning, 
Inspector General. Just a couple of questions, really in 
relation to veterans returning and some of the programs that 
are available to them, and I am sure you are familiar with 
some. Are there any interdepartmental areas in which they are 
rating or ranking or scoring the effectiveness of the 
availability of loans or opportunities for veterans returning 
from conflict to civilian life and helping them start small 
businesses? I know there has been some effort from the Small 
Business Administration.
    Ms. Gustafson. I think there has been some effort. I am not 
intimately familiar. It is a very small part, you know, it is a 
very small number of people, given the size of the agency. I do 
know that they have a specific office. I do not know to the 
extent that they have tried to do ratings or rankings. I do 
think they try very much to get the word out and be advocates 
and things like that, but I do not know that there has been a 
judge of effectiveness or success.
    Mr. Graves. So is it just a small part of the SBA's budget 
that is dedicated to the veterans program?
    Ms. Gustafson. That is right. And, of course, there is the 
service-disabled veteran owned contracting set-aside program as 
well, which, needless to say, Veterans' Affairs certainly has a 
role in, too.
    Mr. Graves. Okay, do you know what percentage that is of 
the budget that is dedicated to veterans?
    Ms. Gustafson. Sorry, I do not.
    Mr. Graves. Okay. And then on the pilot program, the 
Operation Boots to Business. Are you familiar with that?
    Ms. Gustafson. Very slightly. Not much.
    Mr. Graves. Okay, okay, because we would like to learn a 
little bit more about that, and I guess in doing some of the 
research, it seems like it is very difficult to navigate the 
websites, a little bit, to discover what is available for 
veterans, and, particularly, we think that if it is hard for us 
and our staff in our offices then maybe it is hard for those in 
our districts as well. So we are trying to get a better 
understanding of what is available and what is successful. And 
the Boots to Business program, I know you are not real familiar 
with it, but we would be interested to know if you think it is 
being successful as a pilot program. Is it something that 
should be permanent in the future? And would the department 
support legislation that potentially did that as well? So maybe 
you all could get back with us on that.
    Ms. Gustafson. Absolutely, Representative Graves. I am 
happy to get back with that, and we will even contact you and 
make sure that I have everything that you need. Thank you for 
asking.
    Mr. Graves. And then if I could just ask one other, Mr. 
Chairman. I was listening a little bit about the discussion 
about the cuts, the sequestration cuts, and some things come to 
mind, and, on an average, do you know, in the department, how 
many vacation days an average employee takes a year?
    Ms. Gustafson. No, I really do not look at that. I do not 
know.
    Mr. Graves. So it would be more than five?
    Ms. Gustafson. Oh, I could not even begin to speak to the 
agency. I mean, I know they are all career employees, so they 
get a certain number of days. I know that we have not had a 
complaint about it, but does not mean it does not happen.
    Mr. Graves. Right. So to help me, how many vacation days do 
you get a year?
    Ms. Gustafson. Well, I do not get any. As a presidential 
appointee, actually, I do not get any.
    Mr. Graves. You do not get any. Okay. But a non-appointee?
    Ms. Gustafson. It depends on level of service. I am 
actually not in the career. I am not a career. But I know it 
depends on years of service, and it increases depending on 
years of service. I would assume, this is a big assumption 
because their Human Capital Office is a work in progress, but I 
would assume that that is something that is probably available 
in a quick spreadsheet or something for you that, again, I 
would be happy to ask. Okay. I have received a note from the 
field. If you have been a government employee for less than 
three years, you get four hours per pay period; three to 15 
years, six hours per pay period; and 15 years, eight hours per 
pay period. And I do know there are limits on how much you can 
carry over.
    Mr. Graves. Pretty quick notes there, yeah.
    Ms. Gustafson. I have career people behind me, they know. I 
just do not know.
    Mr. Graves. And with that, there are sick days, I guess, as 
well.
    Ms. Gustafson. Right, right.
    Mr. Graves. And so I would be curious what your definition 
of furlough is because we hear furlough referred to quite a 
bit, and it is, you know, a negative connotation.
    Ms. Gustafson. My definition of furlough is that you are 
taking a day where you do not get any pay.
    Mr. Graves. Right.
    Ms. Gustafson. A furlough, where, with notice, you know 
that for every pay period, for example, there is one day that 
you are not working and not getting paid for. That is my 
definition of furlough.
    Mr. Graves. And in your description of the impact of 
furloughs, it was more of, they would not be able to provide as 
many services or loans to those who are seeking them. But then 
I tried to correlate that with, well, employees take days off 
for vacation, or they take them off for a sick day, and it does 
not seem to slow the process down. So I do not see where you 
draw the connection that a furlough day, while I do agree with 
you that it is a day without pay that someone is not working, I 
do not know how that impacts the work delivery if vacation does 
not impact work delivery or sick days do not.
    Ms. Gustafson. I think not being at work impacts work 
delivery. I think that if you are going to furlough somebody 
they are probably going to be at work even less, do you know 
what I mean? I mean, you know, I guess that I would anticipate 
this as an add; you know, I think that employees would take 
their vacation and they will take their sick, and there will be 
one day where they are not paid. So I guess it was just as if 
more people were taking sick or they were taking more sick or 
vacation days, I just envision less people at work. So, and, 
you know, assuming everybody is working when they are at work, 
and the longer it goes, I would assume that there is going to 
be some impact on it.
    Mr. Graves. But the longer an employee is with the agency, 
the more days that they are granted to take off, so the logic 
would lead me to believe, that if you are having difficulty 
delivering services, then why do you encourage more people to 
take more days off the longer you serve, but taking one off to 
save the republic is a different question.
    Ms. Gustafson. Right, well, you know, I guess I just think 
that if one day every two weeks the SBA is closed, I think that 
is going to have an impact on timing, on efficiency; I think 
that that is going to happen.
    Mr. Graves. Not closed; it is going to be rolling 
furloughs.
    Ms. Gustafson. Right.
    Mr. Graves. The state of Georgia has been through a 
tremendous amount of furloughs over the last several years; 
teachers have been furloughed 10, 11, 12 days, but voluntarily 
saying, you know what? I am willing to do that for the state 
because, one, I know it is important; number two, I know that I 
get to keep my job, but I am being a part of the solution. But 
here on the federal government level, it just does not seem to 
be as accepting. Mr. Chairman, I think my time has been 
expired. Thank you.
    Ms. Gustafson. Thank you.
    Mr. Crenshaw. All I know is when you read how you determine 
holidays or days off, you have got to get an accountant to 
figure out the pay period times, the hour times, whatever.
    Ms. Gustafson. I know, they know it. Believe me, I think 
the employees know, Chairman, I just do not.
    Mr. Crenshaw. I think you just muddled it so he would not 
understand, but you did a good job. Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman, Mr. Serrano. Peggy, 
thanks for being here today. You did not turn me off there, Mr. 
Serrano, did you? I noted that you had worked for Senator 
McCaskill; as a Kansan, we appreciate having Missouri nearby, 
but it does not make you a Missouri Tiger fan, though, does it?
    Ms. Gustafson. I lived in Columbia for eight years, so, 
yes.
    Mr. Yoder. Did you catch the cold there of being a Missouri 
Tiger fan?
    Ms. Gustafson. Well, I noted you were from Kansas.
    Mr. Yoder. Okay, so we will just agree to disagree on that. 
I noted your testimony in some specific areas, and one of the 
issues that you raised is the exposure that has been discussed 
already a little bit today, the exposure that the SBA has with 
loan guarantees; that is a big part of what the SBA does. Do 
you have thoughts on what the right balance is? I know you 
noted that there is a statutory change in 2010 that increased 
the size of the loans that SBA should be able to guarantee, and 
that creates additional exposure. Do you have thoughts on what 
that right balance is between exposure to taxpayers and 
providing assistance maybe that the private sector lending is 
not able to support? How necessary is that? Should it grow? 
Should it shrink? What is that sweet spot?
    Ms. Gustafson. I tend to leave the policy questions of 
whether it needs to be $2 million and whether it needs to be $5 
million to the policymakers, which I am most certainly am not, 
so I do not. Really, the nature of my work and my focus is 
always, are we, and as SBA, doing the best job given the fact 
that there will be more exposure, given that the fact that 
these are bigger loans. And if a $5 million loan defaults, it 
is a couple million dollars more than a $2 million, and that is 
just more money for the taxpayers. And so, really, my focus is 
just, is the oversight of this lending as strong as it needs to 
be to protect the taxpayers, whether it be $2 million, whether 
it be $50,000 express loan, which, often, they default pretty 
often, too, so that is really what my focus is, so I do not 
have an opinion on a sweet spot.
    Mr. Yoder. And you discuss in your testimony that we need 
to strengthen oversight, that the standards need to be 
modified; can you discuss, on those suggestions, things that we 
might be able to implement in terms of policies, that when we 
have the SBA before us, we might suggest on what we are doing 
with our budget changes that we could specifically could make? 
I mean, certainly, we can raise these suggestions you have made 
as concerns. Are there thoughts in terms of what Congress could 
do to tighten up? I know, again, it is back to a policy 
question.
    Ms. Gustafson. Right.
    Mr. Yoder. But based upon your findings, what could fix 
some of those problems on our end?
    Ms. Gustafson. I very much appreciate your question because 
I think the best reference for you, and something that I am 
happy to talk about right now, would be our management 
challenges report which comes out once a year because there are 
several challenges that have existed a long time that deal with 
lender oversight and talk about some things, that it is not 
even a policy change; often, the best thing that you could do 
for me is just ask them about it because they do listen to me 
but they do not have to listen to me, and they do not have to 
do what I think they should. But they listen to you, and kind 
of have to do what you think they should do, so there are 
certain things, I mean, they have gotten better at lender 
oversight.
    What I have personally seen in my three years there is they 
are taking a more risk-based approach to their lender 
oversight, which I think is key. I mean, I think they need to 
be smart about how they are choosing to look at the lenders and 
what they are doing. You know, I think it just makes for better 
oversight, and I think that the lenders appreciate that more, 
too. I mean, rather than just doing a one-size-fits-all, we are 
going to do a quick annual review of everybody and do a check-
the-box, what I have seen through the Office of Credit Risk 
Management, OCRM, as they have new head since I have been 
there, a man named Brent Ciurlino, I should not say that name, 
they will probably treat him badly now, but is they are being 
smarter where do we need to focus when we are doing our lender 
oversight, and I think that that is really important and it 
needs to be appreciated that they are doing that. They brought 
Mr. Ciurlino on; I think that was a big step. I think the 
agency needs to be encouraged to give OCRM all the support that 
it wants and needs because I think that they are heading in the 
right direction as far as lender oversight.
    We have some concerns about the improper payments in 7(a) 
program. There is some concerns about their quality assurance 
reviews that we are still working through; again, that is part 
of the management challenges. I think that it would be helpful 
to talk to them about that, because, again, I think that they 
are getting there but I think it would be helpful to hear about 
that.
    Mr. Yoder. And just finally, Mr. Chairman, certainly, I 
think in our debates in Washington, D.C., we focus a lot on the 
economy, job creation, unemployment. We know from reams of data 
that the majority of the jobs that are going to be created in a 
post-recession environment, almost 100 percent of the jobs are 
going to come from small businesses, new companies, start-ups, 
innovators, entrepreneurs, those types of folks in our country. 
And so as you review the SBA, and giving it, hopefully, the 
most extensive review that it gets in this process, are there 
ways that we can make the SBA, again, another policy question, 
more effective at reaching more of these start-up companies in 
particular, helping new companies get off the ground? And 
certainly the SBA plays a role; but, I mean, how many companies 
is the SBA touching? Would it be important to increase it as 
such, is the SBA a value in that process and how could they 
increase their value to taxpayers? My guess is that most of our 
small businesses do not have a lot of interaction with the SBA 
to get it off the ground. We know that new corporate formations 
is at a 20-year low in this country, and so I think a lot of us 
are concerned with, okay, we are not starting new small 
businesses at the same rate we need to. They are not growing, 
folks are not taking risks, they are not expanding, and so we 
talk about what we can do here in Washington, and as it relates 
to this, you know, SBA, what a perfect place to address those 
concerns.
    Ms. Gustafson. I do think, kind of as you intimated, that 
is a much better question for the administrator in that it is a 
policy question, but I do have a couple thoughts on that. One 
is, it does seem to me from what they have stated that SBA 
consider that to be one of their very important jobs. Now, one 
of the things that has been noted in a couple reports, 
specifically in the GAO reports, is, I think there is some 
question about, kind of, the counseling centers. One of the 
main ways that citizens do have contact with SBA or other 
government agencies are through several, several different 
types of counseling centers located throughout the country. 
SCORE, which is the retired executives, there are women's 
counseling centers, there are veterans counseling centers.
    And one of the questions that I think might be helpful to 
have the SBA think through, and is something that has been 
raised in these GAO reports, is whether those centers are 
duplicative, whether, perhaps, some of these resources might be 
better used if there is a consolidation of them. Commerce has 
some of these centers. Agriculture has some of these centers. 
SBA has some of these centers. I am not saying absolutely they 
need to be eliminated or gut down to one, but I think there are 
questions there about efficiencies in that, such that I think 
if the agencies, and, again, the GAO duplicative report, the 
first one that they issued, which was at least a year ago 
pursuant to statute, talked about these centers. It raises, I 
think, a lot of good questions, especially in these times that 
I think should be thought through about whether the federal 
government is doing this as smartly as they need to, because it 
has become, just like in many times in the lending programs, 
because there are lending programs in several different 
agencies, it is a patchwork, just kind of in the nature of the 
government. And maybe it is time to take a look at that and see 
if there can be more bang for the buck by kind of combing 
through that and doing it the most efficient way possible.
    Mr. Yoder. Great. And thank you, Inspector. Thank you, Mr. 
Chairman.
    Mr. Crenshaw. Thank you. Ms. Herrera Beutler.
    Ms. Herrera Beutler. Thank you. And I am not sure I am 
going to have the right name of this program. So this might be 
a follow up conversation, but it is something I am very 
interested in.
    In recent weeks I have had some small mills in my area 
contact me, timber mills, regarding a program through the SBA 
where it is incentivizing timber sales. And what they are 
expressing to me is some real challenges, that the SBA is not, 
and I am trying to get details on it, but not fulfilling, 
basically, I do not know if it is the letter of the law or the 
spirit of the law with regard to the set-aside. Are you 
familiar with it?
    Ms. Gustafson. I am not but, you know, we can go back, and 
we can get more information.
    Ms. Herrera Beutler. I would very much like to.
    Ms. Gustafson. I can make sure that the agency knows that 
they are asking us, and they will know, and we can get you some 
answers.
    Ms. Herrera Beutler. That would be great. I will get you 
all the specific information. I was just hoping you would know. 
It is like my memory, I am going two months back in my calendar 
going, okay, I had the title of this program, and I do not 
remember it. But I believe it is the only, within SBA, I 
believe it is the only program that deals with timber sales for 
small mills.
    Ms. Gustafson. Sure.
    Ms. Herrera Beutler. So I do not think there are a lot of 
them.
    Ms. Gustafson. Right, one would think. But, yeah, but we 
can definitely look at it. And I am sure, in the big scheme of 
SBA, it is small enough such that we may not have looked at it, 
but it does not mean that we cannot get you answers. We can do 
that.
    Ms. Herrera Beutler. That would be great. That is what we 
would like to follow up on. So that is it.
    Ms. Gustafson. All right.
    Ms. Herrera Beutler. Thank you, Mr. Chairman.
    Mr. Yoder. Thank you. Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman. Morning.
    Ms. Gustafson. Good morning.
    Mr. Quigley. Earlier in your testimony you talked about 
your staff having to make decisions about whether or not to 
pursue a case. What number of people are we roughly talking 
about?
    Ms. Gustafson. On that I was talking about my criminal 
investigators.
    Mr. Quigley. Right.
    Ms. Gustafson. Right. And I think that I am at, I should 
know that off the top of my head, I am either at 40 or 42. 
About 40, 40. And I am about 100, as far as my professional 
staff, I am almost evenly divided. I have more criminal 
investigators than auditors right now, but we are talking about 
40.
    Mr. Quigley. So when you talk to them or their supervisors, 
this choice you talk about them having to make. Do you talk in 
general about how to set that criteria, I mean, besides a 
judgment call? Is it likelihood of winning? The amount in 
question? Who the victim is? How egregious this is? I mean, 
what are the criteria, or do you let them decide that for 
themselves?
    Ms. Gustafson. They are not on their own just deciding for 
themselves. First off, I will tell you that we are talking 
about a universe of cases. I can even limit this conversation 
to likelihood to win. You know, we are talking about cases 
where we think that there is a potential to win. Very often 
that decision is made certainly with supervisors, but also, 
quite frankly, my criminal investigators work very closely with 
their U.S. attorneys and their assistant U.S. attorneys 
wherever the crime is located because, often, one of the 
factors has to be will the prosecutor, at least to go criminal, 
will the prosecutor take this case. Or if they are not going to 
take this case, they also say, will the civil attorney take 
this case.
    Mr. Quigley. Prosecutors like to win their cases.
    Ms. Gustafson. And they like to win big cases. So it is 
never, you know, it is not a function of us bringing cases that 
they are not going to win, it is a function of bringing cases 
that they are going to win big.
    We have a loan case made by one of my agents in D.C. that 
involves $100 million loss to the SBA, $100 million. We have a 
case, again, involving contracting, and bribery, and kickbacks 
involving, I think it was, a $1.2 billion contract and they 
were trying to steer an almost $780 million contract, and there 
were, we proved, at least $20 million in kickbacks. Not every 
case I have is a $20 million or $100 million case, but they are 
big, they are really big.
    Mr. Quigley. But we do not want to give people the 
impression in this country that if you steal $10,000 or 
$20,000, no one is going to come get you. So how do we avoid 
that perception? How do you at least go after enough of them to 
scare people to think that, well, the decimal point is in the 
wrong spot for them to come after me.
    Ms. Gustafson. Well, one of the things that I am actually 
most proud of my office recently is we have had some really big 
victories, and when I say big victories, I mean to the 
community who is caring about this stuff on just those type of 
cases. So, for example, you know, we have the HUBZone program 
which involves contracts which tend to be smaller and which 
involve cases that tend to be more complex. And I will tell you 
that I think, historically, sometimes those cases are hard to 
get accepted because a prosecutor also likes a case that is 
easy to win because it saves them time. And the HUBZone program 
is very complicated. There are all these, you know, you have to 
have so many people that live in the HUBZone. And you have to 
attempt to maintain that residency and all of that. But we had 
a very big victory in Kentucky in a HUBZone case that resulted 
in a multi-million-dollar judgment. Now, I will tell you that 
when we get those type of cases, we just had somebody plead 
guilty to a case where he had not even gotten a contract, but 
he had lied to get into the 8(a) program.
    Now, those cases, I think, have a very chilling affect 
because I think the people who matter are paying attention to 
those cases. And so I have been very heartened because it seems 
like there is definitely an appetite for those cases on the 
part of many of the prosecutors. They often tend to be U.S. 
attorneys because they are federal cases. It is federal 
statutes.
    But I think that especially in the contracting arena, which 
has been traditionally harder to do because you have a contract 
where the government is getting what they were supposed to get. 
And so sometimes prosecutors used to be, well, you know, okay, 
so maybe he should not have gotten the contract, but at least 
you got your widgets. I am seeing a turn in that, and I am 
seeing that there is an appetite for those cases, which is 
great, because, personally, as a former prosecutor, I think 
they have tremendous jury appeal because that really upsets 
citizens who are playing by the rules, you know. And I think we 
have had some really good victories. And, like I said, I think 
that the people paying attention to that, the loan cases, the 
contract cases, they are being noticed. So I do think that that 
message is getting out.
    Mr. Quigley. I think there is some inside sports involved 
to the point you made that people who work in this field follow 
that stuff.
    Ms. Gustafson. Right.
    Mr. Quigley. But I am curious if there is another way to 
let people out there who would play games with this. I mean, 
how do you publicize these cases? I mean, how does it get out 
to the general public?
    Ms. Gustafson. Well, very often, DOJ takes the lead on 
that, which is fine, which is fair. They are the attorneys. So 
they do get out. But I do think, and, again, it might be 
insider baseball, but I do note that on all the papers that we 
all in this room tend to read, the GovExecs, those things, The 
Federal Times, things like that, The Fed Page on the Washington 
Post, again, that is insider baseball, but these cases will get 
noticed in that.
    A lot of times in the lending community, some of my biggest 
cases, the one in Baltimore and then also I have a very large 
case in Missouri, actually involves, like, a community, I mean, 
people who kind of know one another, and it just kind of gets 
out. This was in Springfield, Missouri.
    Mr. Quigley. And I appreciate that. I guess my final point 
would be, and we talked to the administrator, perhaps, but you 
could encourage this as well, through the application process 
reminding people of what prosecution can mean to them would 
help as well.
    Ms. Gustafson. And to your point, and I appreciate you 
making that point, one of the conversations that I have 
actually been having is, is I think that the SBA website is a 
tremendous place to put that kind of notice. And I think you 
are right. I think you could reach a lot of people that way. I 
think some of these cases that I am talking to you about now 
that I guess I would call smaller, and, to be fair, maybe that 
is not giving them enough credit, I think that there are ways 
to publicize that, and that will reach a lot of people. So I 
appreciate your thoughts on that.
    And I would say that mentioning that to an administrator 
would only help as we go forward because they certainly do 
those portals that the public often visits. You know, we have a 
presence on the web, but we are way on the bottom on this side. 
That is where they put us.
    Mr. Quigley. Well, I appreciate that, and I thank you for 
your service.
    Ms. Gustafson. Thank you.
    Mr. Quigley. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you, Mr. Quigley. We have got time for 
a couple more questions. And one thing that keeps bothering me 
is to hear you talk about is that there is an awful lot of 
money involved, and so it is almost like we just assume there 
is going to be a lot of fraud, a lot of corruption. And then, 
of course, you got to come in at the end and try to catch 
everybody. But if we got $100 billion out, part of those loans 
are made by outside kind of third-party lenders. And Mr. Yoder 
talked a little bit about it. Somehow we got to do a better job 
of having oversight on these lenders. Maybe it is a point well 
taken that we ought to talk to the SBA and say, ``How do you 
decide who is going to oversee these loans?''
    Then the other part is you got these improper payments. And 
once again, it is just like you assume we got $800 million that 
is going to go for hurricane relief, and we just sit here and 
assume a lot of that is going to get wasted. People in Ohio are 
going to ask for money. And somehow, again, that is not your 
problem. That is a policy decision that SBA has got to do a 
better job of. But maybe you get to see that; you see it up 
close, you tell them they are making improper payments. I think 
I read somewhere they said, ``Well, we are not making any 
improper payments.'' You said, ``Well, you made like 1,100 
improper payments.''
    Ms. Gustafson. Right.
    Mr. Crenshaw. I think in the 7(a) it is like 20 percent; 
Disaster it is 17 or 18 percent.
    Ms. Gustafson. Right.
    Mr. Crenshaw. So from your perspective, and when we talk to 
them, we are going to encourage them to do a better job, but in 
your view, is that just lack of oversight, or is it outright 
fraud, or is it a combination of both? I mean, how are we going 
to solve the problem so that you do not have to clean up such a 
big mess every time?
    Ms. Gustafson. I think that there are a couple of things. I 
do think that historically, and I am going back truly 
historically, SBA really viewed itself solely as an advocacy 
organization. I mean, I really think that they took very 
seriously and fairly, that their job was to make sure that the 
money was going out the door and serving the public because 
that is why they were there. I think that their focus on 
oversight is often very, very, very secondary to that. And I 
think the fact that they view themselves as an advocacy 
organization kind of cuts against them seeing themselves as an 
oversight organization because sometimes they get worried, 
well, we do not want lenders to leave the program. And, of 
course, you do not want good lenders to leave the program. I 
would argue maybe not so much if there are bad lenders, it 
would not be the end of the world if they left the program.
    So I do think that they need to constantly let it be known 
that they do have a role in oversight. And you are right, the 
fact that the lending authority is now delegated caused a sea 
change. It is vastly different from what it was when SBA was 
created, and they were all direct loans.
    Again, as I said earlier, I personally, and again, I have 
three years there, have seen them spend more time and talk a 
lot more about their role in oversight, and their role both in 
lending oversight and in contracting oversight which is a key 
first step, because the message has to come from the top, 
especially one that had not been the message before.
    Mr. Crenshaw. It sounds like it is almost like they view it 
as a grant program. That is a point well taken. We want to help 
everybody. We want to get the money out.
    Ms. Gustafson. Right.
    Mr. Crenshaw. And somebody said, ``Wait a minute. I think 
they are supposed to pay this back.'' And so now we are kind of 
focusing on making a good loan that has a chance of being 
repaid.
    Ms. Gustafson. Right. Right. And to be fair, obviously, you 
know, I would hate to come out of this thinking that I thought 
that lenders were doing a bad job. I mean, I think the lenders 
take their job very seriously, and I mean, they are banks. I 
mean, they take their responsibilities very seriously, and they 
do not want to make bad loans. And so I do not want to imply 
that all heck is breaking loose because, you know, they have 
guarantees. I mean, I certainly would not go that far. But I 
think that you are right. I do think the focus on improper 
payments is one that I, personally, have had very animated 
disagreements with the administrator on this because I do not 
know if they take it as seriously as they should.
    You know, I was actually on the Hill when the Improper 
Payments Act, I worked with people on this and Homeland 
Security, and so I know how important it is. And, you know, I 
do not think it is enough to say, well, the loan is getting 
repaid, so it is going to be okay. Or, you know, they did the 
best they could. I do not think that that is what the Improper 
Payments Act means. And I struggle with them. I struggle 
sometimes because I do not think the agency necessarily always 
sees it that way.
    Now, I think the agency will tell you that they are making 
progress, and, you know, the Improper Payments Recovery Act is 
just a couple years old. And our annual review has shown that 
they are getting better in their processes. But, you know, I 
have unfortunately also seen when I first came, kind of, they 
were here on 7(a), and I was here. We kind of came closer 
together. Well, I should not do it that way. They moved closer 
to me. As we went through, their rate actually came much closer 
to mine. And the next year I found myself in the exact same 
position, where I was up here and they were down there, and 
that was frustrating for me.
    You know, I think there is, you know, a fear of the 
improper payments rate such that, you know, that they are 
disagreeing with me. And, I mean, I think my rates are right. 
And you are right; my last 7(a) rate was still substantially 
higher than theirs. We did not go behind theirs. And so I think 
that focusing on that and emphasizing that that is something 
that is very important would be extraordinarily helpful.
    Mr. Crenshaw. I think that would be a thing that we could 
help as we talk to those folks.
    Ms. Gustafson. Yeah.
    Mr. Crenshaw. And just in terms of recovery.
    Ms. Gustafson. Right.
    Mr. Crenshaw. I understand that they do not seem to have 
that as a priority. You make a bad loan; it does not get paid 
back. I think what I hear you saying is sometimes you are 
charged with finding the things that go wrong.
    Ms. Gustafson. Right.
    Mr. Crenshaw. And what might look like fraud, it might look 
like administrative lack of oversight, somehow we need to 
encourage the agency to just do a better job. It would just 
save us all a whole lot of money, the taxpayers, the 
government, everybody else, if they did a better job. Actually, 
then we would not have to give you as much money to go out and 
catch all the bad guys.
    Ms. Gustafson. It certainly costs less to stop the money 
going out the door than to go back and get it. But to your 
point, our last Improper Payments Review noted that one of the 
things in the Act that they have not yet shown is they are 
supposed to do a cost benefit analysis about whether recovery 
audits would be feasible and worth the time. And that had not 
been done by the time of our Improper Payments Review. I think 
they said it would be done by the time they released their 
annual financial report to the president, I think it was.
    But I would strongly encourage you to, when they do make 
that decision, ask them how they decided. Because if I were a 
betting girl, I would bet they are going to say it is not worth 
it.
    Mr. Crenshaw. Well, we appreciate that. Mr. Serrano.
    Mr. Serrano. Thank you. You know at the expense of sounding 
like I am going to praise you all day, that was masterful how 
you went around, around, around, to come to your important 
point of, therefore, we can give you less money in the future.
    Mr. Crenshaw. It just happened.
    Mr. Serrano. That is good work. Somehow I would have come 
up with a different. You need to grow. We call it investment.
    Ms. Gustafson. Fivefold return.
    Mr. Serrano. Yeah. You know, you are so right, Mr. 
Chairman, for so many years. And I have been doing this for a 
long time now. There are a lot of people out there who actually 
think that SBA is strictly a grants program, that somehow there 
is no repayment involved. And when we tell them there is, they 
go, ``Really?'' And we say, yes. It is like the rest of us, so, 
but, you are right. Some things we have to work on.
    You know, one of the things that we learn when a tragedy 
hits home is what other people go through. Once Congress dealt 
with the Katrina issue, to many of us, unfortunately, that was 
out of sight, out of mind, it is over.
    Ms. Gustafson. Right.
    Mr. Serrano. And now that we are dealing with the affects 
of Hurricane Sandy in New York, we know that these are things 
that will last for a long, long time. The September 11 attacks 
these many years later are still very much a health issue, a 
business issue, an emotional issue in New York, a security 
issue in New York.
    So what have you learned, in your opinion? What has the SBA 
learned from dealing with Hurricane Katrina that they can now 
apply to dealing with Hurricane Sandy? Because as this 
continues to be an issue, of course, there is, you know, 
everything, from, ``When are the loans coming? When are the 
dollars coming?'' It is always a matter of, you know, the red 
tape, and paperwork, and so on. There are other related issues 
that have to deal with mold removals and the whole thing. But 
what do you think we learned from Katrina that we can apply to 
Sandy and to further situations, because, unfortunately, you 
know, it is not made up by the media, this weather situation 
seems to be getting rougher and rougher all the time.
    Ms. Gustafson. Well, I think, you know, I would like to 
kind of defer my answer. I will know better how well they 
learned when we get in there and do some audits to see how well 
they did compared to Katrina, you know, some of the lessons 
learned. I do think one of the key lessons from Katrina, 
certainly both for the IGs and for the agencies is, you know, 
it is almost fantasizing to me, one of the most interesting 
things about a natural disaster is how many different federal 
agencies have a crucial role in that disaster and how disparate 
those agencies are, up to and including the SBA. I mean, I 
would think the average homeowner does not think, if my home is 
destroyed by a hurricane, the Small Business Administration is 
where I am going to get the loan. I mean, the word ``business'' 
is in there. I mean, who thinks that that is where you get the 
loan to rebuild your house?
    So, I think one of the key lessons for Katrina is going to 
be if the coordination has worked better as far as how the 
federal government responds to a disaster. And again, and I am 
not talking about the bottles of water and stuff like that, but 
I am talking about the aid to the victims. And I think that we 
certainly saw some big issues with that. We saw a lot of 
duplication of benefits because FEMA gives money, SBA loans 
money, and HUD, later, through Community Development Block 
grants in the states gives money again. And sometimes the money 
is for the same thing, and, you know, there is supposed to be a 
certain priority for the money, and, quite frankly, the way the 
system works is to the extent that you can pay it back, the 
government wants that money back. I mean, priority is supposed 
to be given to the loans. But what we saw in Katrina that is 
concerning to me, especially in these economic times, is a lot 
of times through the Block Grants that came later, they were 
used to pay off the loans, so that the government was paying 
itself back, and then the people got grants for that purpose.
    And our audit in that, I forget how many hundreds of 
millions of dollars that we found that we thought were 
duplication of benefits, and it was because HUD comes in later, 
and there can be confusion over who is supposed to do the 
priorities and in what order, and what that money is supposed 
to be used for. Homeland Security has a key role in 
prioritizing it, but one of the difficulties is, to be fair, 
they are also focused on their mission. I mean, HUD has a very 
specific mission; FEMA has a very specific mission on dealing 
with the victims; SBA has their own mission. I think sometimes 
that gets lost, and, for me, especially because of the money 
issue, that is going to be something that is key for us to see 
if that has improved because I think that could be significant 
money.
    Mr. Serrano. Right. Well, I know that you will stay on top 
of it, and in the process to make sure that this happens and 
the money flows. I have one last question, and it is, in your 
testimony you highlight several areas where the SBA made 
improvements based on your recommendations. You know, Inspector 
Generals are seen sometimes as, you know, being in the way. 
What is, in general, your relationship to the SBA, and then if 
it is not perfect, you know, what needs to improve, in your 
opinion?
    Ms. Gustafson. If it is perfect, I am probably being too 
nice, to be fair. I mean, I think that that is true.
    Mr. Crenshaw. By the way, after they get the transcript of 
this hearing----
    Ms. Gustafson. I do not know if they are here right now, so 
I guess it depends----
    Mr. Serrano. You mean this is a public meeting?
    Ms. Gustafson. You know, I spent eight years in an 
auditor's office before I came to D.C., and we were always 
viewed as the enemy, and we were always viewed as, ``You only 
come here and tell us what we are doing wrong,'' which was our 
job; ``Why can't you ever tell us what we are doing right?'' 
Well, that is your job, do it right. But, you know, I do think 
that it is important, and what I have strived to do is to have 
a respectful relationship with the agency. And I think, you 
know, I do want to be fair on that. Improvements have been 
made. On improper payments, they have made improvements in the 
reporting. The quality assurance, for example, in the 7(a) 
program on improper payments is a concern, but in the 
management challenges, we made clear that at least they have 
one; I mean, it truly is progress, I am not trying to belittle 
that. I mean, they are making progress, and I tried to make 
those points to the extent that I can without all of the sudden 
having a 600-page report to tell them everything they did right 
in the last six months.
    So I think in that way it is a good relationship. I think 
in other ways it is a typical relationship; you know, they hate 
to see us coming. I mean, you know, that is every agency, they 
just hate to see the IG coming. But it is working. I was 
heartened in the management challenges that we had, I think, 
six go up, six made progress. And I think that that is very 
good, and I think that that was more progress than historically 
often happens. And so I think that that is good, and I hope 
that that message comes out, if not here in the transcript, at 
least in the report.
    Mr. Serrano. Right, sounds something like Congress' 
relationship with the media. We have been waiting for that one 
story that says that we have done a great session and did 
everything right. Yeah, I am not going to hold my breath. 
Anyway, thank you so much for your service. Thank you for your 
work. Please, please keep an eye on the whole Sandy thing.
    Ms. Gustafson. Yes, yes.
    Mr. Serrano. Like I said, it is something we did not know 
existed, and we saw it upfront, and it is very sad.
    Ms. Gustafson. Right.
    Mr. Serrano. And I think we need a lot of help. Thank you 
so much.
    Mr. Crenshaw. Does anybody else have any questions? Well, 
once again, we thank you for spending the morning with us, 
appreciate the work that you are doing very, very much.
    Ms. Gustafson. Thank you. Thank you very much. Thank you, 
Chairman.
    Mr. Crenshaw. Thank you. This meeting is adjourned.

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                           W I T N E S S E S

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Gustafson, Peggy.................................................   193
Hoecker, C. W....................................................     1
Tangherlini, D. M................................................   127
White, M. J......................................................    45

                                  
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