[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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