    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

     A CAUTIONARY TALE: A REVIEW OF SBA'S FAILED 2014 AGENCY RESTRUCTURE

    =======================================================================

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD
                                 JUNE 14, 2017

                                   __________

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                Small Business Committee Document Number 115-023
                  Available via the GPO Website: www.fdsys.gov

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                      HOUSE COMMITTEE ON SMALL BUSINESS

                          STEVE CHABOT, Ohio, Chairman
                                STEVE KING, Iowa
                          BLAINE LUETKEMEYER, Missouri
                              DAVE BRAT, Virginia
                 AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                            STEVE KNIGHT, California
                            TRENT KELLY, Mississippi
                                 ROD BLUM, Iowa
                             JAMES COMER, Kentucky
                     JENNIFFER GONZALEZ-COLON, Puerto Rico
                              DON BACON, Nebraska
                        BRIAN FITZPATRICK, Pennsylvania
                             ROGER MARSHALL, Kansas
                               RON ESTES, Kansas
                   NYDIA VELAZQUEZ, New York, Ranking Member
                           DWIGHT EVANS, Pennsylvania
                           STEPHANIE MURPHY, Florida
                            AL LAWSON, JR., Florida
                             YVETTE CLARK, New York
                              JUDY CHU, California
                           ALMA ADAMS, North Carolina
                          ADRIANO ESPAILLAT, New York
                            BRAD SCHNEIDER, Illinois
                                     VACANT

                   Kevin Fitzpatrick, Majority Staff Director
          Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                         Adam Minehardt, Staff Director

                                C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Steve Chabot................................................     1
    Hon. Nydia Velazquez.............................................     3

                                   WITNESSES

    Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United
      States Small Business Administration, Washington, DC...........     4
    Mr. Joseph Loddo, Chief Operating Officer, United States Small
      Business Administration, Washington, DC........................     6

                                    APPENDIX

    Prepared Statements:
        Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United
          States Small Business Administration, Washington, DC.......    23
        Mr. Joseph Loddo, Chief Operating Officer, United States
          Small Business Administration, Washington, DC..............    27
    Questions for the Record:
        None.
    Answers for the Record:
        None.
    Additional Material for the Record:
        SBA OIG Report...............................................    30

      A CAUTIONARY TALE: A REVIEW OF SBA'S FAILED FISCAL YEAR 2014 AGENCY
                                  RESTRUCTURE

                                  ----------

                            WEDNESDAY, JUNE 14, 2017

                      House of Representatives,
                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 12:50 p.m., in Room
    2360, Rayburn House Office Building. Hon. Steve Chabot
    [chairman of the Committee] presiding.
        Present: Representatives Chabot, Luetkemeyer, Kelly, Comer,
    Velazquez, Lawson, and Espaillat.
        Chairman CHABOT. Good morning. The Committee will come to
    order.
        I would like to first address the tragedy that happened
    this morning. Our prayers and thoughts go out to all those who
    were affected, our colleagues, staff, and Capitol Police who
    were injured in the shooting this morning. Obviously, our
    colleague Steve Scalise, the Whip, who I understand has
    undergone surgery or is currently, and also Special Agent David
    Bailey and Crystal Griner, as well as a former staffer and a
    current staffer, Zachary Barth and Matt Mika. So we want to do
    everything we can within our powers to pull for them and keep
    them in our prayers. I think I speak for all of us when I say
    how grateful we are to the Capitol Police and the security
    detail, particularly that they were on the scene. With the Whip
    not there, I guess there would not have been security there and
    that is a very scary thought because unfortunately, the carnage
    which could have occurred is hard to imagine, or you just do
    not want to think about it. They are heroes and we should
    applaud them today, and our prayers will continue to out for
    those recovering and we hope that they are back on Capitol Hill
    as soon as possible.
        I will then move into my opening statement.
        The Committee is here today to examine how the Small
    Business Administration managed its fiscal year 2014 Voluntary
    Early Retirement Authority and Voluntary Separation Incentive
    Payment program. According to the SBA's Office of Inspector
    General, the SBA failed to effectively manage and implement
    this program. Now, I would note that the shortcomings that I am
    about to highlight, obviously, occurred under the previous
    administration and the current administration should not
    necessarily, obviously, be responsible for what happened in the
    past but we are hoping that they will improve on what was
    there. That is obviously the goal and the purpose of this
    Committee and our oversight.
        The Voluntary Early Retirement Authority (VERA) allows
    federal agencies the option to offer voluntary early retirement
    to restructure and downsize an agency's workforce. Usually
    combined with VERA, the Voluntary Separation Incentive Payment
    authority (VSIP) allows agencies to offer lump sum payments of
    up to $25,000 to employees who are in surplus positions or have
    skills that are no longer needed.
        In 2014, the SBA submitted a request to the Office of
    Personnel Management for VERA and VSIP authority. The SBA
    claimed that it wanted to: (1) address workforce competency and
    agency skills gaps; (2) decrease the average age of the
    agency's workforce; and (3) address budgetary constraints to
    avoid a reduction in force. OPM granted SBA's request.
        The Office of Inspector General conducted an audit of the
    SBA's management of its VERA/VSIP program, and in its audit
    released just a couple of weeks ago the OIG determined that the
    SBA failed to achieve any of its goals. Let me repeat that.
    They did not meet any of the goals. Not one or two of them, but
    all of them. It did not address workforce competency and agency
    skills gaps. It did not decrease the average age of the
    agency's workforce. It did not address budgetary constraints to
    avoid a reduction in force. In fact, apparently the agency was
    facing no real threat of a reduction in force.
        OIG's audit uncovered a number of other troubling findings.
    The SBA did not complete a skills gap assessment until a year
    after the VERA/VSIP was implemented. SBA did not have a
    contingency plan to transfer institutional knowledge to younger
    employees. The SBA did not even have a tracking mechanism to
    determine which employees were taking advantage of the early-
    retirement buyouts.
        Further, the SBA gave inaccurate information in its plan
    submitted to OPM. The SBA claimed it had established a high-
    risk task force to examine the challenges necessitating the
    VERA/VSIP. No such task force ever existed. The SBA claimed a
    steering committee was established to review the agency
    workforce allotments. No steering committee existed. The VERA
    and VSIP options are supposed to help agencies restructure and
    reshape their workforces; yet, the SBA's workforce was left
    almost completely unchanged.
        This hearing will hopefully pull out lessons learned from
    the SBA that they can use in the future. And more broadly, as
    other agencies potentially seek to restructure their workforces
    through the VERA/VSIP options, they can also learn from the
    SBA's experience or lack thereof.
        To learn that, as with most things in life, preparation is
    key. We want to thank the Office of Inspector General for its
    work on this topic. The OIG's work helps to improve the
    integrity, accountability, and performance of the SBA and its
    programs. This audit report is just one example of that.
        We want to thank our witnesses both for being here today.
    We look forward to your testimony.
        I would now like to yield to the Ranking Member, Ms.
    Velazquez, for her opening statement.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        And on behalf of the Democratic side, I, too, want to say
    that we stand united in praying for our colleagues, the
    staffers and the police injured, and we extend our profound
    thanks to the Capitol Police for their bravery in preventing
    this situation from being much, much worse.
        One of the benefits of serving on this committee is that
    even in times of political partisanship, this committee
    functions in a largely bipartisan manner. Given today's events,
    I think we can all agree that setting partisanship aside a
    little more often and focusing on our commonalities as
    legislators seeking to improve our nation might behoove us. I
    know this committee does that with great frequency, and that is
    something for which I am thankful. On that note, let me turn to
    today's hearing.
        SBA is the only agency in the federal government charged
    specifically with helping small businesses grow and succeed.
    The Small Business Administration is critical to our nation's
    overall economic health. All its functions serve to strengthen
    and preserve the entrepreneurial foundation of our economy. For
    small businesses to fully reap the benefits of SBA programs, it
    is important for the agency to operate efficiently and
    effectively. As such, one of the most important roles of this
    committee is conducting vigorous oversight of the SBA and its
    activities. This allows us to know that the agency is serving
    small businesses well, while spending taxpayers' dollars
    wisely. For example, as recently as last year, after a request
    to review the management of the SBA, GAO testified to this
    committee that the agency's organizational structure was overly
    complex and that workforce planning was not up to date. Because
    such redundancies and deficiencies can ultimately lead to poor
    service to entrepreneurs, we must emphasize the importance of
    improved agency operations.
        As such, today's hearing will focus on similar findings
    from the IG's recently released report on SBA's management of
    its fiscal year 2014 Voluntary Early Retirement Authority and
    Voluntary Separation Incentive Payment program. Specifically, I
    am greatly concerned about the lack of progress that SBA made
    in addressing its organizational structure through these
    programs. For instance, the IG found that because SBA did not
    achieve its goals, the agency paid over $2 million for early
    retirements for positions that were not restructured.
    Furthermore, former SBA administrator Maria Contreras-Sweet
    testified last year that 150 employees took early retirement
    under the VERA/VSIP program, allowing SBA to recruit candidates
    with specific competencies. Yet, no skills gap analysis was
    performed prior to the program and SBA failed to target such
    employees for the program based on those skills.
        These actions raise a number of questions that it is
    important we evaluate so we can ensure SBA is operating in the
    best way possible to assist our nation's job creators. But to
    do so, SBA must take heed of the IG's suggestions for better
    management of the VERA/VSIP authority. Effective implementation
    of organizational matters are critical to the agency's ability
    to serve small businesses.
        In that vein, I think it is notable to mention that the use
    of the program occurred prior to our current SBA management's
    arrival. And while there is still much work to do, I am pleased
    that steps are being taken to address the IG's recommendation.
        I look forward to the witnesses' testimonies and hearing
    how the agency can improve its structure and exercise of
    personnel authority.
        With that, I yield back, and I thank the witnesses.
        Chairman CHABOT. Thank you. The gentlelady yields back.
        I will take just a moment to explain our rules, and I would
    preface that with reminding Committee members that if they
    opening statements prepared, they can submit them for the
    record.
        We operate under the 5-minute rule as I am sure you know.
    Each of you will have 5 minutes to testify. There is a lighting
    system to assist you. The green light will be on for 4 minutes.
    The yellow light will come on and let you know you have got a
    minute to wrap up, and then the red light will come on and we
    would ask you as much as possible to stay within those time
    limits. And we also restrict ourselves to 5 minutes as well.
        I would now like to formally introduce our witnesses today.
    Our first witness, I think, has one of the coolest names in
    Washington, Hannibal Ware. And with a cool name like Hannibal,
    he goes by Mike. So, but great name. Mr. Ware serves as the
    Acting Inspector General for the Small Business Administration,
    Office of Inspector General. The OIG is responsible for the
    independent oversight of the SBA's programs and operations. The
    OIG conducted the audit that is the subject of today's hearing.
    We look forward to hearing Mr. Ware's testimony today.
        And our second witness will be Mr. Joseph Loddo, who is the
    Chief Operating Officer at the Small Business Administration.
    Joseph is a cool name, too. It happens to be my middle name. In
    this role, Mr. Loddo works to improve overall agency
    performance by implementing innovative, effective, and more
    efficient processes throughout the agency. Mr. Loddo is a
    member of the Senior Executive Service with 30 years of
    experience in the Federal Government. Mr. Loddo also served as
    a captain in the U.S. Army, and thank you for your service. We
    welcome Mr. Loddo today and look forward to his testimony as
    well.
        Mr. Ware, you are recognized for 5 minutes.

    STATEMENTS OF HANNIBAL ``MIKE'' WARE, ACTING INSPECTOR GENERAL,
      UNITED STATES SMALL BUSINESS ADMINISTRATION; JOSEPH LODDO,
         CHIEF OPERATING OFFICER, UNITED STATES SMALL BUSINESS
                             ADMINISTRATION

                  STATEMENT OF HANNIBAL ``MIKE'' WARE

        Mr. WARE. Thank you very much.
        Chairman Chabot, Ranking Member Velazquez, and
    distinguished members of the Committee. Thank you for the
    opportunity to be here today and for your continued support of
    the Office of Inspector General.
        We recently published the results of our audit of the Small
    Business Administration's Management of the Voluntary Early
    Retirement Authority, also called VERA, and Voluntary
    Separation Incentive Payment, also called VSIP program. I am
    happy to discuss our findings with you today.
        According to the Office of Personnel Management, agencies
    may use VERA and VSIP to decrease the workforce when undergoing
    substantial organizational change, such as restructuring or
    downsizing. Both reorganization tools require approval from
    OPM. In fiscal year 2014, SBA requested and obtained VERA and
    VSIP authority from OPM. Within SBA's fiscal year 2014 request
    and approval, only employees eligible for either full
    retirement or VERA were entitled to apply for the VSIP. In its
    request, SBA cited programmatic, demographic, and budgetary
    challenges as justification to use the VERA/VSIP authority to
    reshape its workforce to succeed in meeting its mission.
        To achieve this initiative, SBA drafted the VERA/VSIP plan
    with the purposes of: (1) addressing workforce competency and
    skills gaps; (2) increasing the population of early career
    employees and creating a pipeline of new leaders; and (3)
    addressing budgetary constraints to avoid a reduction in force.
        It should be noted, OIG was made aware of concerns
    regarding the manner in which SBA exercised its authority from
    OPM. As such, we conducted a review to determine whether SBA
    accomplished its fiscal year 2014 VERA/VSIP program goals. As a
    basis for our audit, we relied upon applicable laws,
    regulations, and OPM's guidance on VERA and VSIP.
        Our office found that while SBA made limited progress in
    restructuring and reshaping the workforce, it did not
    accomplish its stated goals of the VERA/VSIP program. As a
    result, SBA paid $2.1 million for early retirements for
    positions that were not restricted following VERA/VSIP.
        In context of goals stated to OPM, it was troubling to find
    SBA included inaccurate information in the VERA/VSIP plan. We
    also found in carrying out the VERA/VSIP plan, SBA did not make
    significant changes to its organizational structure. In fact,
    SBA did not have a restructuring plan in place before offering
    the VERA/VSIP option, which, of course, made it difficult for
    SBA to achieve desired organizational structure changes.
        Overall, SBA may have been more successful in achieving its
    goals had it properly managed the VERA/VSIP program by
    developing specific and measurable VERA/VSIP goals, including
    accurate information in the plan making significant changes to
    its organizational structure and making substantial changes to
    job functions following VERA/VSIP.
        We provided two recommendations to improve SBA's management
    of its VERA/VSIP program. We recommended that SBA conduct and
    document a lessons-learned review on the fiscal year 2014 VERA/
    VSIP performance, including planning, implementation, results,
    and recommended improvements. We also recommended that SBA
    develop and issue procedural guidance to ensure that agency
    officials conduct future VERA/VSIP programs in accordance with
    VERA and VSIP regulations and OPM guidance. SBA officials
    agreed to implement corrective actions to resolve both of these
    recommendations. It is important to note the decisions and
    actions that underline our findings occurred in the past. As
    such, our recommendations are aimed at ensuring SBA learns from
    this most recent experience and strengthens internal controls
    to ensure any future exercise of VERA/VSIP authority achieves
    stated goals and objectives and to ensure the agency is a
    steward of the taxpayer's dollars.
        I am proud of the work performed by our auditors to shine
    the light on this significant exercise of personnel authority
    by the SBA. Though the findings of our report are ascribed to
    SBA, it is a timely report in context of the March 13, 2017,
    presidential executive order on a comprehensive plan for
    reorganizing the executive branch. VERA/VSIP authority
    undoubtedly will be a tool that many agencies will consider as
    they seek to implement this order. In this regard, it is noted,
    OPM updated its VERA/VSIP guidance in March of 2017.
        Thank you for the opportunity to speak to you today, and I
    look forward to your questions.
        And if I may, I would like to publicly offer my concern and
    prayers for those affected by that outrageous act of violence
    this morning. Thank you very much.
        Chairman CHABOT. Thank you very much. We appreciate that
    greatly.
        Mr. Loddo, you are recognized for 5 minutes.

                       STATEMENT OF JOSEPH LODDO

        Mr. LODDO. Chairman Chabot, Ranking Member Nydia Velazquez,
    and distinguished members of the Committee. On behalf of
    Administrator Linda McMahon and the SBA family, we extend our
    sorrow and prayers for your colleagues and the staff who were
    impacted today. We hope for their rapid recovery.
        Chairman CHABOT. Thank you very much. We appreciate that.
        Mr. LODDO. Thank you for inviting me here to speak to you
    today. My name is Joe Loddo, and I am the Chief Operating
    Officer of the United States Small Business Administration. I
    am here to talk to you about SBA's 2014 agency restructuring
    plan under the Voluntary Early Retirement Authority and the
    Voluntary Separation Incentive Program.
        VERA provides agencies the option to offer voluntary early
    retirement. VSIP, often combined with VERA, allows agencies to
    offer lump sum payments to employees as an incentive to
    separate. Both VERA and VSIP require OPM's approval and are
    used along with careful strategic workforce planning to reshape
    the agency's workforce when undergoing substantial
    organizational changes such as restructuring or reorganization.
    In SBA's case, there was a large percentage of retirement-
    eligible employees at the time of the 2014 VERA/VSIP. Twenty-
    five percent of the current employees were eligible to retire
    immediately, including 50 percent of those in occupation series
    that cover most of the field office positions. Over 1,000 SBA
    employees were eligible for VERA/VSIP at the time of approval.
    The average SBA employee's age was 51, compared to the average
    age of 47 for the rest of the Federal Government. Because of
    the large number of employees eligible for the VERA/VSIP
    offering, there was a risk of putting SBA in a vulnerable
    position, and therefore, it was important to prepare for and
    manage these impending departures.
        SBA's VERA/VSIP program was approved by OPM on August 12,
    2014, and announced to the agency's employees on August 19,
    2014. All employees accepting the VERA/VSIP were required to
    separate from the agency by September 30, 2014. SBA's
    management approved 300 positions as eligible for the VERA/
    VSIP; 149 employees took the VERA/VSIP option. As the inspector
    general's report indicates, SBA did not carry out the 2014
    VERA/VSIP properly. As a result, SBA did not achieve the goals
    of the program. We agree with the OIG's recommendation in the
    audit report dated May 30, 2017, and are conducting an analysis
    of the program. We will document the lessons learned, including
    the areas of planning, implementation, results, and recommended
    improvements. We will include all stakeholders in the process.
        Since I joined the Office of the Chief Operating Officer,
    first as the Deputy Chief Operating Officer and now as the COO,
    I have worked to ensure that all personnel hiring decisions are
    made on a sound basis. To begin to remedy some of the mistakes
    made with VERA/VSIP, I issued guidance on May 11, 2016, that
    all remaining 2014 VERA/VSIP vacancies must be modified to
    conform to OPM's guidelines.
        Under Administrator McMahon, SBA has created the Resource
    Management Board. The mission of the board is to ensure the
    best use of SBA's limited resources by reviewing FTE allotments
    and determining the best use of resources to accomplish the
    agency's mission. The board meets on a biweekly basis and it is
    comprised of four senior executive-level personnel.
        Further, SBA has determined that there is no need for the
    VERA/VSIP program during Fiscal Year 2017, and consequently, we
    will not be offering the program to employees this fiscal year.
    Administrator McMahon has made it very clear that SBA must
    operate efficiently and effectively. She is holding every
    senior management accountable for the results and expects to
    see them. I fully share her view.
        Thank you very much for the invitation to testify, and I
    welcome your questions.
        Chairman CHABOT. Thank you very much.
        I would first like to yield to my colleague, Mr. Kelly, who
    is Chairman of the Subcommittee on Investigations, Oversight,
    and Regulations, for his questions. I will take mine then after
    the Ranking Member. I would note that our colleague was on the
    ballfield this morning, and even though he served two tours in
    Iraq, that is a very stressful thing to go through. So God
    bless you, man.
        Mr. KELLY. Thank you, Mr. Chairman, and ranking member.
        I first want to say I thought it was important to be here
    today at this hearing. I, with the Congress, with the people of
    this great Nation, will not be intimated by cowards. We all,
    both parties, will continue to do the people's work even in the
    face of these type of things. All involved are in my prayers. I
    want to echo the chairman and the ranking member's thing. Let
    me tell you; I was there, and our Capitol Police, those two
    great officers, Officer Bailey or Agent Bailey and Agent
    Griner. Let me tell you; they are warriors and they are heroes,
    and they saved countless lives there this morning. And with
    that being said, let us get to work.
        On May 30, 2017, the SBA Office of the Inspector General
    released an audit which included that SBA failed to effectively
    manage its VERA/VSIP program. As a result, SBA wasted at least
    $2.1 million in its attempt to restructure and reshape its
    agency's workforce.
        And to Mr. Ware, your audit determined that SBA wasted $2.1
    million in its attempt to restructure. How did your office
    determine that dollar figure?
        Mr. WARE. Thanks, Congressman. The dollar figure was
    determined by our auditors. Let me start that because the
    agency did not have a tracking mechanism for those positions,
    our auditors had to basically go in and extrapolate this data
    from multiple sources to try to figure out which positions
    aligned with the ones that the people had left with. So they
    looked at whether or not the position was in the same place?
    Did it have the same title? The same area and everything like
    that? And from that, they were able to identify the 54 that
    came up with that.
        Mr. KELLY. And that number only represents the balance of
    54, like you said----
        Mr. WARE. Yes.
        Mr. KELLY. --that the SBA subsequently refilled without a
    significant change in the function of those. So that $2.1
    million could even be a higher price tag than that; is that
    correct?
        Mr. WARE. That is correct.
        Mr. KELLY. Okay. And to Mr. Loddo, how were the buyouts
    funded? And what funding stream did the money come from?
        Mr. LODDO. The salary fund; the source was the salary and
    benefits line item in SBA's appropriation.
        Mr. KELLY. I just, I want to make sure that we dig into
    this. This is the people's money and you have people up here
    working in a bipartisan fashion. We cannot afford for these
    things to do that, and I know it was not necessarily on your
    watch, but that does not alleviate the responsibility going
    forward to make sure that it does not happy worse on your
    watch. And I want your assurement--not really you, Mr. Ware,
    because you have already done your work, but Mr. Loddo--that
    you will do all that you can to ensure that something like this
    does not happen and waste the taxpayers' hard-earned dollars
    that they give to this Congress and to the SBA to do the
    people's work.
        Mr. LODDO. My promise to the entire Committee is that that
    will never happen under my watch. I can add that the CHCO and
    the deputy CHCO are no longer with the agency; I hired a new
    CHCO that is very well qualified. In the interview process, I
    said to him that I want this agency's HR department to be one
    of the best in two years, and the best in three years. Will you
    commit to that mission? He said, yes, sir; I will. We are very
    fortunate to have our CHCO, and I promise you that SBA will
    never allow something that happened in the past like this to
    ever occur, especially on my watch.
        Mr. KELLY. Thank you. And Ranking Member Velazquez, thank
    you for your kind words, and Chairman Chabot. Let me tell you,
    we are a bipartisan Committee, and we are about the people's
    work. And there is no greater honor than to be on this
    Committee with both of you all. And with that, I yield back,
    Mr. Chairman.
        Chairman CHABOT. Thank you very much. And I think we are
    both honored to have you on this Committee. So thank you very
    much.
        I would now like to yield to the gentlelady from North
    Carolina, Ms. Adams, who is the Ranking Member of the
    Subcommittee on Investigations, Oversight, and Regulations.
        Ms. ADAMS. Thank you, Mr. Chair, and Ranking Member
    Velazquez, for hosting today's meeting. And thank you,
    gentlemen, for your testimony.
        I do want to identify with the remarks of both the chair
    and my colleague, as well as our ranking member about the
    really terrible, terrible situation this morning. And of
    course, we keep our colleague, as well as those others who were
    hurt, including Capitol Police, in our prayers and thank them
    for their support.
        I just want to take a second and introduce, if I can, Mr.
    Chair, my grandson, my youngest grandson, Aaron Lindsay, who is
    here working in my office this week. He is not getting paid but
    he is learning a lot.
        Chairman CHABOT. Welcome. All right.
        Ms. ADAMS. He is a rising junior.
        Chairman CHABOT. Would you mind standing up so we can see?
    All right. There we go. We want to make sure that Grandma
    embarrasses you enough.
        Ms. ADAMS. Thank you very much for your testimony. I do
    want to say that the SBA, in accordance with the inspector
    general's recommendation, has indicated that they will provide
    written guidance outlining expectations for ensuring compliance
    with any OPM approved VERA/VSIP plan.
        Mr. Loddo, will the SBA include diversity goals in its
    guidance to ensure that the agency has a diverse staff
    concluding any future workforce restricting?
        Mr. LODDO. In any VERA/VSIP plan, as well as any plan that
    we are looking at in terms of restructuring or reorganizing the
    agency, that is a critical component in terms of making sure
    that the minority staff that is on board with SBA has an
    important role to play and that we take into consideration
    their role in any plan, particularly VERA/VSIP.
        Ms. ADAMS. Thank you. I am happy to hear that.
        The OIG report concluded that the SBA did not make
    significant changes to its organizational structure and that 54
    of the 149 positions vacated were filled.
        Mr. Loddo, does the lack of organizational changes and the
    vacant positions mean that SBA is currently understaffed?
        Mr. LODDO. In the Fiscal Year 2018, we requested 2,100
    employees, which is down 55. What we are currently doing as a
    result of a discussion with Administrator Linda McMahon, is we
    are restructuring and reorganizing the entire agency. I have
    the privilege tomorrow to present those recommendations to the
    Administrator. She allowed us to get all the senior executives
    together to make those recommendations in terms of improving
    the program and restructuring and reorganizing the agency. So
    that presentation will be tomorrow.
        Ms. ADAMS. Okay. Well, thank you very much.
        Mr. Ware, SBA has indicated that they will take steps to
    meet your recommendations; however, they need additional time
    to do so. Do you have plans to follow up on those actions later
    this fall?
        Mr. WARE. We definitely do have plans. And I have to say
    that Mr. Loddo and I spoke about the recommendations, and Mr.
    Loddo has assured us that they will even before the time that
    they requested. But we have a standard audit recommendation
    follow-up process that we work closely with the agency with,
    and we will definitely be carrying them all the way through to
    closure using that process.
        Ms. ADAMS. Thank you, sir. During your investigation, did
    SBA explain why it took them one year after VERA/VSIP was
    implemented to complete their skills gap analysis?
        Mr. WARE. I did not hear from them as to why it took that
    long, but it was not something that was at the forefront of the
    planning.
        Ms. ADAMS. Okay.
        Mr. WARE. So I would guess that they were trying to rectify
    that on the back end.
        Ms. ADAMS. Okay. So you did not ask the question?
        Mr. WARE. No, I did not.
        Ms. ADAMS. Okay.
        Mr. WARE. I am pretty sure the auditors asked the question
    though. I could get that answer for you.
        Ms. ADAMS. All right. Thank you. I would appreciate it if
    you would.
        Mr. WARE. Okay.
        Ms. ADAMS. And thank you both very much for your responses
    to my questions. And again, Mr. Chair, I thank you for yielding
    to me. I yield back.
        Chairman CHABOT. Thank you very much. The gentlelady yields
    back.
        I will now recognize myself for 5 minutes, and I will begin
    with you, Mr. Ware.
        What prompted your office to conduct an audit of the 2014
    VERA/VSIP buyout process in the first place? And do you think
    that the SBA's management of the VERA/VSIP rollout affected
    agency morale?
        Mr. WARE. What prompted us to look into this was that we
    received inquiries from our Congressional authorizing
    committee. And we also received hotline complaints. And these
    complaints were saying that this just was not being rolled out
    correctly. That there was not any planning. And we, in essence,
    went and found that. That was the reason why we went in there.
        And in terms of the effect on morale, our review did not
    focus on morale. But I would say this; that it was evident that
    at least some were affected enough to come forward, to go to
    their congressional representatives, to come to our office
    through the hotline, and some even went to the Office of
    Special Counsel. So in that regard I would definitely say.
        Chairman CHABOT. How about the morale issue?
        Mr. WARE. That is what I was saying. Our office did not
    take a look directly at the morale issue but it was evident
    that there was enough of a morale issue that the staff felt
    that they needed to come forward to talk about this.
        Chairman CHABOT. Thank you.
        Mr. Loddo, could you comment on the morale issue?
        Mr. LODDO. Yes. Two points. Two weeks after the VERA/VSIP
    was announced, the CHCO at that particular point in time, sent
    a letter to the rest of SBA, basically saying to ignore the
    guidelines of the OPM policy and the SBA plan for VERA/VSIP;
    any critical position could be filled without any restrictions.
    That is the first point that I would like to make.
        The second is that there was a tremendous morale problem
    within OHRS. As the Deputy Chief Operating Officer, I began
    day-to-day operations meetings within the Office of Human
    Resources because of a lack of leadership in OHRS; given that
    they had no chief human capital officer at that particular
    point in time. I remained with OHRS for about 4 months, at
    which point I discovered the letter written by the previous
    CHCO ignoring the OPM guidance. I rescinded the letter
    immediately so that the agency would follow the OPM guidelines
    implemented and promised in the agreement for the VERA/VSIP
    plan.
        Chairman CHABOT. Thank you very much.
        Let me ask you both a question before my next question. Are
    either one of you attorneys by any chance?
        Mr. WARE. I am not.
        Mr. LODDO. I am not.
        Chairman CHABOT. Okay. Well, I am, and I just had a
    question. It is somewhat of a legal question but it bothered me
    a little bit when I read that, you know, one of the purposes of
    this whole thing was to decrease the average age of the
    agency's workforce. It sounds a little bit like age
    discrimination to me. And I do not know if the legal beagles at
    the department have looked into that? And perhaps this is
    rampant throughout the Federal Government. I am not quite sure.
    But do either one of you want to respond to that?
        Mr. LODDO. I will take the first observation.
        The Office of Personnel Management has certain criteria in
    terms of you have to be eligible in terms of length of service
    in the Federal Government. So basically, one option is 25
    years. Another option is 20 years. So it is really based off of
    length of service in the Federal Government, not truly based
    off of the age, per se.
        Mr. WARE. Can I add to that?
        Chairman CHABOT. Yes, go ahead.
        Mr. WARE. That is actually one of the things that are
    covered under the use of VERA or VSIP. That was one of the
    approved things that OPM would approve in terms of trying to
    help to generate a younger workforce.
        Chairman CHABOT. Okay. It just seems instinctively
    bothersome to me, and I know it is number of years' service,
    but that sort of goes with your age, too, over time. The two go
    hand in hand. So that bugs me a little bit. In Ohio, we have
    got, you know, judges have to retire, I believe it is at age
    70. They can stay there but they cannot run for reelection
    after age 70. And it has gone to the Supreme Court and they
    have said it is okay. So I am assuming that I am not the first
    person or the first plaintiff's attorney that has ever thought
    of this. And so I am guessing somebody there. But if you would
    not mind perhaps having your legal beagles get back to our
    legal beagles so we can make sure that we are covered there.
        I have run out of time so I cannot ask even more probing
    questions at this time, but I would now like to recognize the
    Ranking Member for 5 minutes.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman. I guess at our age
    we are more sensitive to that issue.
        Mr. Ware, in your testimony you noted a number of ways that
    SBA might have been more successful in achieving its VERA/VSIP
    goals. What would you identify as the underlying cost of SBA's
    failed VERA/VSIP?
        Mr. WARE. Thank you for that question. I would actually
    assign three causes to it. The first one would be the lack of
    any true level of planning that would have aligned with OPM's
    requirements and SBA's stated goals. That would be the first
    one. To add to the first one as well, it is almost as if they
    rushed to implement something they were not exactly ready for.
    Otherwise, the plan would have been done on the top.
        But the second one is the lack of tracking because they did
    not have a formal tracking mechanism to really track who left
    what and what positions would need to be restructured and all
    that. That was the second cause.
        And the last one----
        Ms. VELAZQUEZ. So what are they doing about that in terms
    of tracking?
        Mr. WARE. We have not found, as of this date, and Mr. Loddo
    probably could speak about that some more, but at the time that
    we looked, that snapshot that we looked at, and even the
    follow-up past, the snapshot, we had not found that they were
    able to effectively track them even now.
        And then the third one was that what Mr. Loddo spoke about,
    that the former CHCO put out really poor guidance in the form
    of that memorandum that in essence told everybody in HR you
    could just simply backfill the positions.
        Ms. VELAZQUEZ. Thank you.
        Mr. Loddo, the IG reported that as a result of the VERA/
    VSIP, SBA experienced a loss of instructional knowledge in some
    program offices, including the Office of Capital Access. What
    action has SBA taken to rectify this?
        Mr. LODDO. Thank you for the question. There are two
    offices that were impacted severely by the VERA/VSIP. Twenty-
    six percent came from the field and----
        Ms. VELAZQUEZ. Twenty-six percent came from the field?
        Mr. LODDO. Yes, from the District Offices in the field. And
    16 percent came from the Office of Capital Access. What was
    important for us knowing that that knowledge was leaving; we
    have the responsibility to transfer the knowledge that is
    within the agency to the future leaders and to the new people
    coming on board. We do that in four major ways.
        One is what we call the peer-to-peer hour. Every Thursday
    at 1 o'clock, throughout the agency, we provide training on
    different subjects.
        Ms. VELAZQUEZ. Okay.
        Mr. LODDO. The second is mentoring. The third is lender-
    teacher. And the fourth is related to the employees actually do
    this themselves and then identifying areas that they want to
    study.
        Ms. VELAZQUEZ. Okay.
        Mr. Ware, in your report, you note that the Office of Human
    Resource Solutions, the division responsible for planning the
    VERA/VSIP and the OPM justification, did not include the
    majorities of SBA leadership team in the planning of the VERA/
    VSIP. This did not occur until after the plan had been signed
    by the administrator and submitted to OPM. So please help me
    understand what effect did the leadership exclusion have on the
    entire process and the success of the program?
        Mr. WARE. Without the leadership, without the key members
    of the leadership team being at the table, these people would
    have been in the best position to ascertain how to most
    effectively restructure and reshape the agencies, in
    particular, their divisions. So not having them at the table
    meant that even if the plan was in place, the plan would have
    missed the type of insight that any of them could have brought
    to the table. And because of that as well, there was
    miscommunication and misinformation. They actually thought
    because they had done it before that they could simply backfill
    the positions.
        Ms. VELAZQUEZ. So what actions are you taking to correct
    the inefficiency of not having the leadership providing the
    input when they needed to do it?
        Mr. LODDO. The audit report done by the IG in Table 3
    outlines 14 steps for a program related to VERA/VSIP. Clearly,
    it is communications and leadership involvement. Every one of
    these items was skipped in that one month of planning under
    2014 leadership. There was no transparency. There were no
    communications. It was implemented in 30 days. Ninety-five
    people were done by position; 54 were done because of the
    employee. That is not the way you would do a VERA/VSIP. It
    would never happen under my watch.
        Chairman CHABOT. The gentlelady's time is expired. Thank
    you.
        The gentleman from Kentucky, Mr. Comer is recognized for 5
    minutes.
        Mr. COMER. Thank you, Mr. Chairman.
        You all mentioned that the SBA did not develop any
    mechanism or designate any person to track who was taking
    advantage of the early retirement buyouts. And you also touched
    on the effect of not having any tracking mechanism. My question
    is do you know why the SBA did not track which employees were
    accepting these early retirement buyout packages?
        Mr. Loddo?
        Mr. LODDO. Thank you for the question. In large part it was
    due to the letter from the CHCO saying there are no
    restrictions in terms of your re-hiring, which is outside of
    the guidelines of the OPM policy.
        Mr. COMER. Okay. Mr. Ware, what do you think the most
    important improvements SBA should make to increase the
    effectiveness of any future VERA/VSIP buyouts?
        Mr. WARE. Well, definitely they need to sit and come up
    with a comprehensive plan that would get them to where they
    need to be in terms of their restructuring and reclassifying
    positions, anything they need to make them more streamlined and
    efficient. And of course, they could implement our
    recommendations, the two which they will do. And lastly, Mr.
    Loddo spoke about the best practices associated with the
    effective use of VERA/VSIP. That is something we offered in the
    report and that they are aware of.
        Mr. COMER. Okay. Mr. Ware, do you think the SBA's mistakes
    are unique to the SBA? Or do you know whether other agencies
    have been committing the same or similar mistakes?
        Mr. WARE. In our audit, one of the things that the auditors
    looked for was had similar reports been done across government?
    And I believe if I am not mistaken, it was EPA OIG where they
    found that it had similar issues. Other than that, I have been
    in the Office of Inspector General community for going on 28
    years, and this was my first foray into this. But I do know
    this; that experience tells me that if you do not start at the
    front in terms of putting together a proper plan that you can
    implement, this is the type of thing that happens in all kinds
    of programs across government.
        Mr. COMER. My last question to Mr. Loddo, you stated in
    your testimony that SBA will not be conducting early retirement
    buyouts this year. Since SBA will not be using VERA or VSIP,
    how does SBA plan to reform its agency workforce?
        Mr. LODDO. Thank you for the question.
        Having discussions with the administrator, she asked at the
    very beginning how can we restructure and reorganize the
    agency? She tasked the senior executives to come up with a plan
    to look at the programs and restructure the agency. We are
    presenting that plan tomorrow to her. It will streamline the
    agency. It will improve the programs and allow us to work
    within the 2,100 employee ceiling level that we requested for
    Fiscal Year 2018.
        Mr. COMER. Okay.
        Thank you, Mr. Chairman. I yield back.
        Chairman CHABOT. Thank you. The gentleman yields back.
        The gentleman from Florida, Mr. Lawson, who is the Ranking
    Member of the Subcommittee on Health and Technology, is
    recognized for 5 minutes.
        Mr. LAWSON. Thank you, Mr. Chairman. And welcome to the
    Committee.
        I am still trying to understand the skills gap, you know,
    and how the skills gap really occurred from 2004, I think. Now,
    with my relationship in dealing with employees with this VERA/
    VSIP option that they had, it appears that more emphasis is
    placed on the worker than it is the administration. Can you
    respond to that? With the skills gap?
        Mr. WARE. Well, with the skills gap analysis, that is
    supposed to really be done by the agency who is implementing
    the VERA/VSIP. So what that does is one of the requirements
    that OPM has is in order to implement, in order to even get
    approval for this, you need to show that you have a real reason
    that you need to offer this to employees to help them to retire
    quickly. So the way that you do that is by restructuring. So
    you are saying we are on longer going to need these positions.
    We need a new type of skill in order to move the agency in
    whatever direction the agency thinks it needs to be going in.
    So that is what it meant by that.
        Mr. LAWSON. Okay. And I had one other question. It can go
    to either one of you. And you might have to a certain extent,
    but can you describe the current status of the health of SBA
    with regard to the capacity to guarantee loans and provide
    resources to small businesses? And has the skills gap that
    existed before this requirement on the VERA/VSIP been
    eliminated?
        Mr. LODDO. The skills gap will always be a continuous
    problem for SBA because of people retiring and new people
    coming on, and we have to train middle management to be the new
    leaders of tomorrow. To ensure that we do not lose that
    knowledge, we have specialized training for our staff,
    particularly in Capital Access, as it relates to our guarantee
    programs, our 504 programs, and our other lending programs.
        Mr. LAWSON. Okay. And this would be my last question here.
    And it is for either of you. The economic factors that result
    in the VERA/VSIP being implemented and is SBA immune to any of
    these factors?
        Mr. WARE. Congressman Lawson, could you please repeat that?
    I did not catch the first part of the question.
        Mr. LAWSON. It says that, and now I am seeing if it is here
    on his answer, what economic factors can result in VERA/VSIP
    being implemented and is SBA immune to any of these factors?
        Mr. WARE. Do you want me to go? I figure that is an agency
    question.
        Mr. LODDO. The agency works in an environment that is
    changing, where the economy is good, and sometimes less good.
    The wonderful programs that we offer are applicable whether
    there are bad times or good times, in terms of our lending
    programs, our contracting programs, and our counseling
    programs. We have the economic toolbox for the Nation's small
    businesses to survive and thrive in an economy, particularly
    when the economy is on a downswing and lending seems to slow
    down. Our guarantee program is, as in the past and will in the
    future, continue to help and save our Nation's small
    businesses, particularly on a downturn.
        Mr. LAWSON. Okay. Mr. Chairman, with that I yield back.
        Chairman CHABOT. Thank you. The gentleman yields back.
        The gentleman from Missouri, Mr. Luetkemeyer, who is the
    Vice Chairman of this Committee, is recognized for 5 minutes.
        Mr. LUETKEMEYER. Thank you, Mr. Chairman. And welcome,
    witnesses.
        I am kind of curious. We have a situation where we talked
    about there was not a skills gap analysis. Why was that not
    done prior to the OPM approval of the plan? It would seem to me
    that there would be documents and proposals and plans that
    would need to be in place and approved prior to their approval
    for the entire program and any money being released. Was that
    not done?
        Mr. LODDO. Your statement is absolutely correct; it was not
    done.
        Mr. LUETKEMEYER. Is that not part of the process?
        Mr. LODDO. It is very much----
        Chairman CHABOT. Could you pull that mic a little closer so
    everybody can hear you?
        Mr. LODDO. I am sorry.
        Chairman CHABOT. Thank you.
        Mr. LODDO. It is very much a part of the process and it was
    not done. The entire plan was done in 30 days. It did not
    follow 12 of the 14 recommended approaches in terms of building
    out a VERA/VSIP plan. This was meant primarily to help what
    turned out to be----
        Chairman CHABOT. Not to interrupt you but that mic is
    still--you have got it over here. And if you could--there are
    people in the room----
        Mr. LODDO. Like that?
        Chairman CHABOT. There you go.
        Mr. LODDO. The program was offered to 149 people. What is
    disappointing is that for 54 people, it was not about
    positions, it was about who they were, the employee. And the
    lack of that planning, the lack of communications, and the lack
    of leadership really caused that program to be a failure before
    it even started.
        Mr. LUETKEMEYER. What you are telling me is that OPM is the
    one that really screwed up here from the standpoint--they
    approved a plan without all of the doucumentation and
    everything in place, without checking all the boxes. Is that
    what you just said?
        Mr. LODDO. The Office of Personnel Management approved the
    plan. With little real diligence they should not have but they
    did. And we violated what we agreed to.
        Mr. LUETKEMEYER. Okay. To follow up on that, are there any
    processes in place? Now, Mr. Ware, you recall--I guess the
    first question is, today you indicated that there were some
    folks that contacted your office and that is why you instigated
    the investigationis that correct?
        Mr. LODDO. Yes.
        Mr. LUETKEMEYER. Are you normally, do you in a routine go
    through and audit programs like this or do you have to have a
    contact in order to be able to do that?
        Mr. WARE. Thank you for the question.
        Currently, we have a risk-based approach to the many
    programs that the SBA has in order to efficiently and
    effectively put our resources where they need to be to make
    sure that we are covering everything.
        Mr. LUETKEMEYER. Okay. So you do not have a routine that
    you go through? Like every 6 months, every year, every 5 years
    you go through and audit the program? You have to have some
    sort of a reason to go in. Is that what you are telling me?
        Mr. WARE. No, sir. True.
        Mr. LUETKEMEYER. Okay.
        Mr. WARE. We do for the major programs.
        Mr. LUETKEMEYER. Okay. So the OPM, do they have a review
    process? Is part of the process of allowing this to happen,
    approving the VERA/VSIP program, is part of that process for
    them to go back and periodically review? Or do they request
    reports, periodic reports, audits?
        Mr. WARE. Yes, they do. We found that that is part of it.
        Mr. LUETKEMEYER. Were you doing it?
        Mr. WARE. They----
        Mr. LUETKEMEYER. Obviously, not.
        Mr. WARE. No. Actually, no. What we found was that a
    requirement was made that they had to do quarterly updates. But
    what we found was the agency reported to OPM that it was too
    premature at that stage to provide the quarterly updates and
    there was no follow up.
        Mr. LUETKEMEYER. So OPM really dropped the ball on this
    one.
        Yes, sir. Mr. Loddo?
        Mr. LODDO. What SBA presented to OPM, some of the premises
    they used were false.
        Chairman CHABOT. Mr. Loddo, could you----
        Mr. LODDO. What OPM received from SBA were some false
    premises. And as a result of those premises, they made a
    decision. Their decision, based off of false premises, is why
    we ended up with an approval.
        Mr. LUETKEMEYER. All right. Well, the point I am trying to
    make is we have got two bad actors here. We have got the SBA
    that did not fulfill the requirements of the plan that they
    requested be put in place and approved for, and you have got
    OPM that really approved a plan they should not have to begin
    with because none of the documentation was in place and did not
    do the audits that were necessary. Is that a fair statement?
        Mr. LODDO. I would say that they had limited documentation
    and some of the documentation was false. And as a result, they
    approved the plan.
        Mr. LUETKEMEYER. Okay.
        Mr. WARE. I would say this.
        Mr. LUETKEMEYER. I have one more question. Be quick.
        Mr. WARE. Okay. Be quick. What I would say is this; I think
    that the boxes, the necessary boxes were checked based on what
    SBA provided them and telling them that they were going to do.
        Mr. LUETKEMEYER. Okay. So we know we had a bad actor at SBA
    who wrote a letter that sort of said here is a get out of free
    jail card. Do what you want to do. Ignore the guidance from
    this plan. Has that person been prosecuted? Have any sort of
    charges been brought? Has any sort of punitive action been
    taken against that individual?
        Mr. LODDO. That CHCO is no longer with SBA.
        Mr. LUETKEMEYER. That is not my question.
        Mr. LODDO. There were no penalties other than she is no
    longer----
        Mr. LUETKEMEYER. Did he get a VERA/VSIP exit package?
        Mr. LODDO. She did not apply for the VERA/VSIP. However,
    the COO who had oversight over this plan did and took the
    $25,000, which is also disappointing.
        Mr. LUETKEMEYER. Well, if I may----
        Chairman CHABOT. The gentleman's time has expired, but this
    is getting interesting so the chair will give you an additional
    minute.
        Mr. LUETKEMEYER. Okay. So we have someone here who
    basically violated the tenet of the approved plan. There is no
    punitive action being planned whatsoever? Is that what you are
    telling me?
        Mr. LODDO. The person no longer works for SBA and there are
    no punitive plans in place. What we are witnessing is the lack
    of integrity, the lack of vision, and the lack of execution.
        Mr. LUETKEMEYER. Okay. We have $2.1 million that was doled
    out apparently incorrectly. Is that what you are telling me,
    Mr. Ware?
        Mr. WARE. Yes.
        Mr. LUETKEMEYER. So therefore, is there any chance of
    getting that back because of this individual's blatant
    disregard for the plan itself?
        Mr. WARE. It is important to understand this; that the $2.1
    million, they were actually paid to folks who qualified for a
    program that SBA offered.
        Mr. LUETKEMEYER. Yes, but they were paid under false
    pretenses from the standpoint that we did not have a skills gap
    analysis done here to show that the people that they are
    replacing or would replace them, this is not the way that the
    program should be qualified. They should not be qualified;
    correct?
        Chairman CHABOT. The gentleman's time is expired, but go
    ahead and answer the question.
        Mr. WARE. That is actually a part of the execution of the
    plan after these people have duly qualified to leave. The
    execution is what went wrong with the plan. But these people
    appropriately applied for and got what they applied for.
        Mr. LUETKEMEYER. I appreciate the chair's indulgence. Thank
    you.
        Chairman CHABOT. The gentleman's time is expired.
        The gentleman from Pennsylvania, Mr. Evans, who is the
    Ranking Member of the Subcommittee on Economic Growth, Tax, and
    Capital Access is recognized for 5 minutes.
        Mr. EVANS. Thank you, Mr. Chairman.
        Mr. Chairman and ranking member, before I ask my questions,
    there is a young lady I would like to introduce. She is a Girl
    Scout intern. She has been with me all week this week. Ms.
    Lindsay Rodgers from Centerville, Virginia. Could she----
        Chairman CHABOT. Lindsay, if you could stand up. Thank you.
        Mr. EVANS. I think, Mr. Chair and ranking member, she is
    trying to measure what seat she would like to have up here. I
    think that is what she is doing.
        I would like to follow up to what my colleague was just
    raising some questions, particularly to the inspector general.
    And you have some experience on this.
        Based on your experience, do you feel the administration's
    past history will tend towards compliance? So I know a lot of
    specific questions have been asked to you, but as you have gone
    through this process, do you think they will tend towards
    compliance?
        Mr. WARE. My work with Mr. Loddo has shown me that he is at
    face value at what he has said. This has been my experience
    with working with Joe for over a year. And he has moved quickly
    and swiftly when he heard about what was going on, and he has
    assured us that he is going to comply with our recommendations
    even before the date that we agreed to, and I have no reason to
    doubt that he will do as he said as long as he is in that
    position.
        Mr. EVANS. Okay.
        Mr. Loddo, are there any plans to attempt to privatize any
    of the jobs that currently exist in SBA?
        Mr. LODDO. In our plan that we are presenting to the
    Administrator tomorrow, it would be, I think, premature for me
    to make that conclusion because it is the Administrator's
    decision. But generally speaking, we are looking to improve our
    programs. I have not identified any programs that would be
    outsourced at this particular point.
        Mr. EVANS. At this point, but is that on the table in the
    discussions?
        Mr. LODDO. Not to my knowledge.
        Mr. EVANS. I yield back the balance of my time.
        Chairman CHABOT. Thank you very much. The gentleman yields
    back.
        The gentleman from Iowa, Mr. Blum, who is the Chairman of
    the Subcommittee on Agriculture, Energy, and Trade, is
    recognized for 5 minutes.
        Mr. BLUM. Thank you, Mr. Chairman. And thank you to the
    panelists for being here today.
        Mr. Loddo, my question is going to be directed toward you.
    I think you stated in your testimony that Administrator McMahon
    instructed senior level executives in the SBA to put together a
    plan to streamline the agency; is that correct?
        Mr. LODDO. Yes, that is correct.
        Mr. BLUM. When is the last time the agency was streamlined?
        Mr. LODDO. I joined the agency in 1991. This is the first
    time that I have witnessed where senior executives have come
    together to offer to the Administrator reorganizing,
    restructuring, and looking at programs to improve them to our
    Nation's small businesses.
        Mr. BLUM. That is like 26 years ago. A long time ago?
        Mr. LODDO. That is correct.
        Mr. BLUM. I come from the private sector. I was CEO of a
    publicly-traded company. Does the agency need to be told to
    stream, to reorganize, to be more effective, efficient stewards
    of the taxpayers' money? Please answer that.
        Mr. LODDO. The answer to that question is under the
    leadership of Administrator Linda McMahon, there is no need to
    tell her that. She is definitely interested----
        Mr. BLUM. No. No, I said does the agency though, the first
    time in 25 years you have streamlined. Why would the management
    of the agency streamline the agency every other year? Every
    year? Every 5 years? Why is there 20 years in between?
        Mr. LODDO. I think we go through that in what I would call
    micro perks, a particular program, or a particular
    restructuring of a particular office. But what we are looking
    at and what will be presented to the administrator tomorrow is
    the restructuring and reorganizing of the entire agency. And
    she has a requirement to report to OMB by June 30th on those
    recommendations.
        Mr. BLUM. And she comes from the private sector so I am
    sure she has. I was just wondering why it took 26 years. I
    would think the management of the agency would want to do that
    on their own is my point. Are you familiar with best practices?
    Best practices in the private sector, are you familiar with
    that concept?
        Mr. LODDO. Absolutely, having owned two small businesses
    that grew very rapidly, we did it all the time because the
    markets were changing.
        Mr. BLUM. So do you stay abreast of best practices today in
    your job?
        Mr. LODDO. Yes; absolutely. I have to, particularly on the
    technology side and particularly as it relates to cyber
    security.
        Mr. BLUM. And do you think the agency is effective? Is
    efficient? Is a great steward of taxpayer money today?
        Mr. LODDO. It will be after Administrator Linda McMahon
    makes the decisions on the proposals submitted to her.
        Mr. BLUM. So it has not been?
        Mr. LODDO. There is room for improvement. Significant room
    for improvement.
        Mr. BLUM. In your compensation plan, is there incentives in
    your compensation plan to have the agency be streamlined and
    effective and efficient?
        Mr. LODDO. That would be a decision by the Administrator.
    There are funds that could be used to award people for
    performance outside of the normal routines.
        Mr. BLUM. That is good to hear because I think we need
    incentives, more incentives like they have in the private
    sector in the public sector so the employees of the Federal
    Government have an incentive to save taxpayers money.
        Mr. LODDO. If I could add?
        Mr. BLUM. Absolutely.
        Mr. LODDO. The Senior Executive Service of the Small
    Business Administration is absolutely committed to improving
    the efficiency and effectiveness of the agency under
    Administrator Linda McMahon. This is the first time we have had
    that option.
        Mr. BLUM. That is good to hear. Bad to hear about the past
    but good to hear that things are changing.
        As a Committee, how do we judge your performance? Do you
    have markers? Do you have performance goals, parameters that we
    are familiar with, that we are aware with, or is this like
    typical Federal agency, it just goes on and on and on forever
    without any real measurement, without anybody being held
    accountable?
        Mr. LODDO. Let me frame this answer in the words of
    Administrator Linda McMahon. We have performance plans, and in
    fact, my office overlooks those performance plans to make sure
    that they are done. When I reported to her that they were not
    in the best shape, this was her message to the supervisors and
    the leadership of SBA on her first week at SBA. In her opinion,
    it is intolerable that those performance plans are not perfect;
    that the communications between the supervisors and the staff
    must occur in person, when possible. Then she went on to say
    anything less than that she views as insubordination.
        Mr. BLUM. That is good to hear. I have confidence in
    Administrator McMahon. It is just I am concerned about the
    past. The past. But we cannot change that. All we can do is
    change the future. So thank you for your answers, and I yield
    back the time I do not have.
        Chairman CHABOT. Thank you. The gentleman's time is
    expired.
        And the chair will just note for the record we are very
    encouraged to hear the words of the gentleman. So we will
    follow up down the road and see if it actually happened. We
    certainly hope it does, and the Committee is determined to do
    everything we can to work with you to make sure that does
    happen.
        And unless one other colleague would come, our final
    interrogator this afternoon will be the gentleman from New
    York, Mr. Espaillat, and then the Ranking Member has a question
    after that.
        Mr. ESPAILLAT. Thank you, Mr. Chairman, and Ranking Member
    Velazquez. I will be brief. Much has been said already.
        Mr. Loddo, I want to know, what is the SBA doing to attract
    like more younger members, employees, the millennium types to
    fill these vacancies? What is your outreach to ensure that that
    kind of new employee comes in?
        Mr. LODDO. The agency is very fortunate to have 68 District
    Offices across the country. When we place an announcement for
    recruiting, it is required to go out onto USAJobs. In addition
    to that, our office, under the Office of Human Resources
    Solutions, reaches out to particular organizations in
    government as well as the CIO councils to look for people that
    could come on board with SBA. So we are looking at targeted
    communities. We are looking at the broad USAJobs. And we are
    looking at the specialty areas where we can find the people
    that are good in cyber, find the people that are good in HR, as
    well as the most important people that we have, the people in
    the field that work day in and day out with our Nation's small
    businesses.
        Mr. ESPAILLAT. I will encourage that as technology
    continues to play a bigger role in small businesses that there
    is a full effort to try to engage those that are really
    knowledgeable in assisting small businesses in that endeavor.
        And what about diversity? How are you planning to make the
    agency be fully diverse? And what are you doing to recruit from
    different groups?
        Mr. LODDO. We have an office that reports to me under the
    Office of Diversity, Inclusion, and Civil Rights. They report
    to all senior management by office in terms of the makeup of
    the staff that we have, and where we have a disparity, we, in
    OHRS, need to resolve that issue. And that is why we target
    particular communities in order to be able to cause that gap to
    be removed.
        Mr. ESPAILLAT. Again, in this arena, also, many small
    businesses are owned by recent arrivals or first generation
    Americans that require, I think, daily access to the services
    that you provide but perhaps are not getting there through the
    front door because they may not be full effort with regards to
    having a healthy diversity within the agency that will get them
    there. So I encourage you to also do that.
        I yield my time.
        Chairman CHABOT. Thank you. The gentleman yields back.
        And the Ranking Member has a question.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        Mr. Loddo, how long have you been at SBA? Working at SBA?
        Mr. LODDO. I have been at the Small Business Administration
    since 1991. I joined in the District Director candidate
    program. I was the first person hired outside of the agency
    from the private sector.
        Ms. VELAZQUEZ. So when they were working, the
    administration at SBA was working on the VERA/VSIP plan, what
    position did you hold?
        Mr. LODDO. I was the Deputy in the Disaster Assistance
    Program.
        Ms. VELAZQUEZ. So you were not working at the office that
    was in charge of overseeing and making----
        Mr. LODDO. That is correct. And if I was, this would not
    have happened.
        Ms. VELAZQUEZ. Okay. Thank you.
        Chairman CHABOT. That was the right answer.
        That concludes the questions for today. We want to thank
    both of you for your testimony. It has been very important and
    clearly, the SBA needs to do better. I like what I am hearing.
    And as I said, sometime down the road, and our staff will work
    with your staff, we would like to hear what the results have
    been from the reforms and improvements that are being made
    there.
        I would remind members that they will have 5 days to extend
    their remarks or add supplemental materials. And if there is no
    further business to come before the Committee, we are
    adjourned. Thank you very much.
        [Whereupon, at 1:58 p.m., the Committee was adjourned.]
                                A P P E N D I X

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                                  INTRODUCTION

        Chairman Chabot, Ranking Member Velazquez, and
    distinguished members of the Committee, thank you for the
    opportunity to be here today and for your continued support of
    the Office of Inspector General (OIG). We recently published
    the results of our audit of the Small Business Administration's
    (SBA's) management of the Voluntary Early Retirement Authority
    (VERA) and Voluntary Separation Incentive Payment (VSIP)
    program. I am happy to discuss our findings with you today.

                                   OIG's ROLE

        OIG was established within SBA by statute to promote
    economy, efficiency, and effectiveness and to deter and detect
    waste, fraud, abuse, and mismanagement in the Agency's programs
    and operations. During fiscal year (FY) 2016, OIG achieved
    nearly $145 million in monetary recoveries and savings--an
    almost 7-fold return on investment relative to our FY 2016
    operating budget--and made 81 recommendations for improving
    SBA's operations and reducing fraud and unnecessary losses in
    the Agency's programs.

        OIG audits are conducted in accordance with Federal audit
    standards established by the Comptroller General, and other
    reviews generally are conducted in accordance with standards
    established by the Council of the Inspectors General for
    Integrity and Efficiency (CIGIE). In addition, we coordinate
    with the Government Accountability Office to avoid duplicating
    Federal audits. We also establish criteria to ensure that the
    non-Federal auditors that OIG uses (typically, certified public
    accountant firms) comply with Federal audit standards.

         OIG's FINDINGS PERTAINING TO SBA's MANAGEMENT OF VERA AND VSIP

        OIG report 17-13, titled SBA's Management of Voluntary
    Early Retirement Authority and Voluntary Separation Incentive
    Payment Program presents the results of our audit of SBA's
    management of the VERA and VSIP program. VERA provides agencies
    the option to offer voluntary early retirement when
    restructuring as well as when downsizing. VSIP, often combined
    with VERA, allows agencies to offer lump-sum payments to
    employees who are in surplus positions or have skills that are
    no longer needed in the workforce, as an incentive to separate.
    SBA offered a VERA-VSIP option in fiscal year (FY) 2014.

        Our objective was to determine whether SBA accomplished its
    FY 2014 VERA-VSIP program goals. To accomplish this objective,
    we reviewed SBA's VERA-VSIP plan, the Office of Personnel
    Management's (OPM's) approval letter, and SBA's reports to OPM
    on the results of the VERA-VSIP program. We interviewed Office
    of Human Resources Solutions (OHRS) personnel, the individual
    at OPM who approved the plan, and other SBA officials to
    understand how SBA used the VERA-VSIP positions to restructure
    the agency.

        We reviewed the personnel records of the 149 employees who
    separated under the 2014 VERA-VSIP program, and we reviewed how
    SBA used these positions to accomplish its goals. We reviewed
    applicable laws, regulations, and OPM's guidance on VERA and
    VSIP, as a basis for our audit.

        What OIG Found

        We found that while SBA made limited progress in
    restructuring and reshaping the workforce, it did not
    accomplish its stated goals of the VERA-VSIP program. As a
    result, SBA paid $2.1 million for early retirements for
    positions that were not restructured following VERA-VSIP.

        Overall, SBA may have been more successful in achieving its
    goals had it properly managed the VERA-VSIP program by
    developing specific and measureable VERA-VSIP goals, including
    accurate information in the VERA-VSIP plan, making significant
    changes to its organizational structure, and making substantial
    changes to job functions following VERA-VSIP.

        OIG Recommendations

        We provided two recommendations to improve SBA's management
    of its VERA-VSIP program. We recommend that SBA conduct and
    document a lessons learned review on the FY 2014 VERA-VSIP
    performance, including planning, implementation, results, and
    recommended improvements. We also recommend that SBA develop
    and issue procedural guidance to ensure Agency officials
    conduct future VERA-VSIP programs in accordance with VERA and
    VSIP regulations and OPM guidance.

        Agency Response

        SBA's planned actions resolve the two recommendations. SBA
    will conduct an after action review on the FY 2014 VERA-VSIP
    performance that will address the components outlined in the
    recommendation. Additionally, SBA will provide written guidance
    outlining expectations and mitigation strategies for ensuring
    compliance with any OPM approved VERA-VSIP plan.

                                   CONCLUSION

        I am proud of the work performed by our auditors to shine
    the light on this significant exercise of personnel authority
    by the SBA. Though the findings of our report are ascribed to
    SBA, it is a timely report in context of the March 13, 2017
    Presidential Executive Order on a Comprehensive Plan for
    Reorganizing the Executive Branch. VERA-VSIP authority
    undoubtedly will be a tool that many agencies will consider as
    they seek to implement this order. In this regard, it is noted
    OPM updated its VERA-VSIP guidance in March 2017.

        OIG will continue to provide independent, objective
    oversight to improve the integrity, accountability, and
    performance of the SBA and its programs for the benefit of the
    American people. Our focus is to keep SBA leadership, our
    congressional stakeholders, and the public currently and fully
    informed about the problems and deficiencies in the programs as
    identified through our work. We value our relationship with the
    Committee and the Congress at large, and we look forward to
    working together to address identified risks and the most
    pressing management challenges facing SBA.
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        Chairman Chabot, Ranking Member Velazquez, and other
    distinguished members of this Committee. Thank you for inviting
    me here to speak with you today. My name is Joe Loddo. I am the
    Chief Operating Officer of the US Small Business Administration
    (SBA). I am here today to talk about SBA's 2014 Agency
    restructuring plan under the Voluntary Early Retirement
    Authority (VERA)/Voluntary Separation Incentive Program (VSIP).
    VERA provides agencies the option to offer voluntary early
    retirement. VSIP, often combined with VERA, allows agencies to
    offer lump-sum payments to employees as an incentive to
    separate. Both VERA and VSIP require OPM approval, and are used
    along with careful strategic workforce planning to reshape an
    agency's workforce when undergoing substantial organizational
    changes, such as restructuring or reorganization.

        In SBA's case, there were a large percentage of retirement
    eligible employees at the time of the 2014 VERA/VSIP: 25% of
    current employees were eligible to retire immediately,
    including 50% of those in the occupation series that covers
    most of the Field Office positions. Over 1,000 SBA employees
    were eligible for VERA/VSIP; at the time of approval, the
    average SBA employee's age was 51, compared to the average age
    of 47 for the rest of the Federal Government. Because of the
    large number of employees eligible for the VERA/VSIP offering,
    there was a risk of putting SBA in a vulnerable position, and
    therefore it was important to prepare for and manage these
    impending departures.

        SBA's VERA/VSIP program was approved by OPM on August 12,
    2014, and announced to Agency employees on August 19, 2014. All
    employees accepting VERA/VSIP were required to separate from
    the Agency by September 30, 2014. SBA management approved 300
    positions as eligible for VERA/VSIP; 149 employees took the
    VERA/VSIP.

        As the Inspector General's audit report indicates, SBA did
    not carry out the 2014 VERA/VSIP properly. As a result, SBA did
    not achieve the goals of the program. We agree with the OIG's
    recommendations in the audit report dated May 30, 2017 and are
    conducting an analysis of the program. We will document the
    lessons learned, including in the areas of planning,
    implementation, results and recommended improvements. We will
    include all stakeholders in the process.

        Since I joined the Office of the Chief Operating Officer--
    first as the Deputy COO, and now as the COO--a little over a
    year ago, I have worked to ensure that all personnel and hiring
    decisions are made on a sound basis. To begin to remedy some of
    the mistakes made with VERA/VSIP, I have issued guidance that
    all remaining 2014 VERA/VSIP vacancies must be modified to
    conform to OPM guidelines.

        Under Administrator McMahon, SBA has created the Resource
    Management Board. The mission of the board is ensure the best
    use of SBA's limited resources by reviewing FTE allotments and
    determining the best use of resources to accomplish the
    Agency's mission. The board meets on a bi-weekly basis (more
    often as needed) and is comprised of SES-Level personnel.

        Further, SBA has determined that there is no need for a
    VERA/VSIP program during FY2017 and, consequently, will not be
    offering the program to employees this fiscal year.

        Administrator McMahon has been very clear that the SBA must
    operate efficiently and effectively. She is holding every
    senior manager accountable for results and expects to see them.
    I fully support and share her view. Thank you very much for the
    invitation to testify and I welcome your questions.
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