[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
UPDATE ON SBA'S PANDEMIC RESPONSE
PROGRAMS
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
APRIL 20, 2021
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-008
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
44-271 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Blaine Luetkemeyer.......................................... 3
WITNESSES
Mr. William Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC................................................. 5
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the
Inspector General, United States Small Business Administration,
Washington, DC................................................. 6
APPENDIX
Prepared Statements:
Mr. William Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC............................................. 36
Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the
Inspector General, United States Small Business
Administration, Washington, DC............................. 58
Questions and Answers for the Record:
Question from Hon. Fitzgerald to Mr. Hannibal ``Mike'' Ware
and Answer from Mr. Hannibal ``Mike'' Ware................. 72
Additional Material for the Record:
CUNA - Credit Union National Association..................... 73
EIDL Validations and Internal Controls....................... 75
NAFCU - National Association of Federally-Insured Credit
Unions..................................................... 79
PPP & EIDL Oversight Info.................................... 81
UPDATE ON SBA'S PANDEMIC RESPONSE PROGRAMS
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TUESDAY, APRIL 20, 2021
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:02 a.m., in Room
2360, Rayburn House Office Building. Hon. Nydia Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Crow, Davids, Phillips,
Newman, Bourdeaux, Chu, Evans, Delgado, Houlahan, Kim of New
Jersey, Craig, Schneider, Luetkemeyer, Williams, Hagedorn,
Stauber, Meuser, Tenney, Kim of California, Van Duyne, Donalds,
Salazar, and Fitzerald.
Chairwoman VELAZQUEZ. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during hybrid
proceedings. All Members are reminded that they are expected to
adhere to these standing rules, including decorum.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. Also, please remember to remain muted until you are
recognized to minimize background noise. If you have to
participate in another proceeding, please exit this one and log
back in later.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party and
will recognize that Member at the next appropriate time slot
provided they have returned to the proceeding.
For those Members physically present in the Committee room
today, we will also be following the health and safety
guidelines issued by the attending physician. That includes
social distancing and especially the use of masks. Members and
staff are expected to wear a mask at all times while in the
hearing room, and I thank you in advance for your commitment to
a safe environment for all here today.
The COVID-19 pandemic sparked a once-in-a-lifetime crisis
for American small businesses. The pandemic hit small firms the
hardest, resulting in the most significant reduction in
business ownership in U.S. history. Facing an unprecedented
wave of small business closures, Congress acted by creating
economic relief programs to help businesses stay afloat through
the crisis.
Since the passage of the CARES Act, the SBA has approved
9.9 million PPP loans worth $762 billion, 3.77 million EIDL
loans for approximately $195 billion and has disbursed 5.8
million EIDL advances amounting to $20 billion. This was a tall
order for a small agency like SBA. It administered more aid
during the COVID crisis than it had for all other disasters
combined during its 67-year history.
I commend the SBA's staff who have worked diligently around
the clock, often 7 days a week for over a year now. Their
dedication and work, while not perfect, have made a difference
in the lives of millions of small business owners and workers.
Now is the time to continue this Committee's work to take a
hard look at this effort and learn lessons for the future. I
hope to examine the problems uncovered by our nation's
watchdogs and hear about SBA's efforts to address them.
Since the inception of the pandemic, the Government
Accountability Office and SBA's Office of the Inspector General
have combined to release 16 reports calling attention to SBA's
management of these programs. In fact, just last month, GAO
added PPP and EIDL to its annual ``High-Risk List,''
identifying the economic relief program as being at high risk
for waste, fraud, and abuse. These reports are sobering and a
call for action.
To that end, in the last Congress, I worked closely with
then Ranking Member Steve Chabot and the Members of this
Committee to conduct a robust oversight of the SBA. We held
hearings with the administrator and other high-level officials
in charge of the economic relief programs. We sent letters to
the agency, placed numerous calls, and requested countless
briefings.
We were relentless in our pursuit of making sure these
programs were working effectively for America's small
businesses. It is my hope that in this Congress the Committee
can put our partisan differences aside and work together to
support the new administration to deliver much needed economic
assistance to America's small businesses.
It is important to note that the administration inherited a
number of open recommendations from GAO and the IG. In the
first couple of months in office, the Biden administration has
heeded those recommendations and made it a priority to restore
program integrity in PPP and EIDL.
The agency implemented a long review plan, maximizing
program integrity. In 2021, before issuing an SBA loan number,
the agency began conducting front-end compliance checks on new
First Draw PPP and Second Draw PPP applications using a
modified version of the automated screening tool and
information from the Department of Treasury Do Not Pay lists.
I applaud the new administration for taking these concerns
seriously and acting quickly to prevent emergency loans from
going to bad actors. As I always say, if something is not
perfect, let's see what we can do to make it better.
I want to thank Mr. Ware and Mr. Shear for joining us here
today and I now yield to the Ranking Member for his opening
statement.
Mr. LUETKEMEYER. Thank you, Madam Chair. And good morning
to all, and a special thank you to Mr. Shear and Mr. Ware for
taking time to speak with us today.
The COVID-19 pandemic has thrown never-before-seen
obstacles in front of every American, especially our Nation's
small businesses. From the devastating state and local
shutdowns to the struggle to find access to sufficient capital
and employees to helps survive, our country has never faced a
disruptive problem like this.
Regardless of who has held the gavel over the years,
Congress, and specifically this Committee, has long held the
view that small businesses are vital to the health of this
Nation's economy and security. The Small Business Act of 1953
and the Small Business Investment Act of 1958 established that
the U.S. Small Business Administration's function is to aid,
counsel, assist, protect insofar as possible the interests of
all small business concerns.
This continues to hold true today nearly 70 years later.
Equally important to these roles is the need of the SBA to
maintain vigorous oversight of its own programs. Unfortunately,
we have seen numerous blunders--and I use that term very
politely--as the SBA has neglected to be good stewards of our
constituents' tax dollars. Over the course of the last year we
have seen countless stories of how the Paycheck Protection
program, Economic Injury Disaster Loan program (EIDL), and the
EIDL advances have benefitted small businesses, kept employees
on their payroll, and helped pay their mortgage, rent, and
utilities. Without these critical programs, more of our
country's smallest firms would have been closed permanently and
millions of employees would have been out of work. That is the
good news.
The bad news is that the SBA has mismanaged these programs
and opened them up to unprecedented levels of waste, fraud, and
abuse, limiting their effectiveness and previously squandering
taxpayer dollars that could help our economy move forward. This
is unacceptable.
We will hear from the SBA's Inspector General and Federal
Government's watchdog, the Government Accountability Office
during this hearing citing specific examples of troubling
failures by the SBA in administering these lifesaving programs.
Those of us on this side of the aisle have been working
diligently to help rectify these problems. Over the initial
months of the 117th Congress, Small Business Committee
Republicans offered numerous constructive amendments to
President Biden's COVID Relief Bill that moved through Congress
via the reconciliation process.
More specifically, we offered amendments that would enhance
and improve the oversight of SBA's COVID programs. For example,
we offered amendments that would significantly increase the
appropriation for SBA's Office of Inspector General to expand
oversight of the SBA programs, specifically calling on the
administrator to closely examine waste, fraud, and abuse within
the EIDL programs.
And while my colleagues on the other side of the aisle had
many kind things to say about most of our ideas at the time,
not one Democrat voted for any of our amendments. Perhaps after
this hearing and the subsequent events that have taken place at
the SBA, my friends on this side of the aisle will come to the
table and actually work with us on these serious issues. Do we
really need another OIG alert detailing the impending doom of
another congressionally-mandated SBA program like the one
published hours before the Shuttered Venue Operators Grant
program went live and quickly crashed? Nobody should want that
level of dysfunction to occur again. The SBA had more than 3
months to pull this program together and they could not do it.
Small business owners have been waiting a long time for
these funds to get out the door and we want those who qualify
to get the money as expeditiously as possible, but the
necessary safeguards need to be in place for all SBA programs
before American taxpayer dollars are disbursed.
In addition to the SVOG program, we are still waiting for
the majority of details, like the specific launch date, for the
Restaurant Revitalization Fund Program contained in President
Biden's partisan $1.9 trillion COVID package. We tried adding
more money and oversight protections to this important program
during reconciliation markup, but again, the Democrats chose to
go without this in a similar partisan manner.
I hope that all my friends across the aisle can agree that
we cannot afford another bungled rollout of the restaurant
program like we saw in the Shuttered Venue. We need to be
accurately pursing legislative vehicles to ensure that this
dysfunction does not occur again.
Moving forward, the Committee must focus on these three
areas. First, we need to prioritize eliminating existing fraud
within these programs. Second, we need to delay implementation
of all new programs until the SBA has the oversight controls in
place to protect against waste, fraud, and abuse. And third, we
need to take a hard look at restructuring the SBA as a whole.
Should they be a direct lender? That is a question that needs
to be answered.
I thank the Chairwoman for calling this timely hearing, and
I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The
gentleman yields back.
If Committee Members have an opening statement prepared, we
will ask that they be submitted for the record.
I would like to take a moment to explain how this hearing
will proceed. Each witness gets 5 minutes to provide a
statement, and each Committee Member will have 5 minutes for
questions. Please ensure that your mic is on when you begin
speaking and you return to mute when finished.
With that, I would like to introduce our witnesses.
Our first witness is Mr. Bill Shear. Mr. Shear is the
director in GAO's Financial Markets and Community Investment
Team. He leads GAO in addressing the SBA Community and Economic
Development programs and Native American Housing issues. As
part of his portfolio, he oversees evaluations of SBA
contracting, disaster assistance, credit and counseling
programs. He has a master's degree in Public Policy and a Ph.D.
in Economics, both from the University of Chicago. Welcome, Mr.
Shear.
Our second witness is the Honorable Hannibal ``Mike'' Ware,
Inspector General of the SBA. Mr. Ware was sworn in as the
Inspector General in May of 2018 and has been an effective
leader in his role and an asset to this Committee. He has 28
years of experience in the IG community rooting out fraud,
waste, and abuse in Federal programs. Welcome, Mr. Ware.
Mr. Shear, you are now recognized for 5 minutes.
STATEMENTS OF WILLIAM SHEAR, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY
OFFICE; HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL, OFFICE OF
THE INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS
ADMINISTRATION
STATEMENT OF WILLIAM SHEAR
Mr. SHEAR. Thank you. Chairwoman Velazquez, Ranking Member
Luetkemeyer, and members of the Committee, I am pleased to be
here this morning to discuss our work on SBA's Paycheck
Protection Program and the Economic Injury Disaster Loan
program.
SBA has made or guaranteed about 19 million loans and
grants through these programs, providing about $970 billion to
help small businesses adversely affected by COVID-19.
In April 2020, SBA moved quickly on these programs to help
small businesses survive during the pandemic. SBA initially put
limited controls in place, leaving both programs susceptible to
program integrity issues, improper payments, and fraud.
Since June 2020, we have made eight recommendations to SBA
to improve the programs. In addition, we included these
programs as a new area on our high-risk list in March 2021
because of their potential for fraud, significant program
integrity risk, and need for much-improved program management
and better oversight.
We also cited the results of SBA's most recent financial
statement audit in which the auditor issued a disclaimer of
opinion on SBA's financial statements because SBA was unable to
provide adequate documentation to support a significant number
of transactions and account balances related to PPP and EIDL.
Further, as we reported multiple times, SBA's failure to
provide us with data and documentation in a timely manner
impeded efforts to ensure transparency and accountability for
the programs. However, I am glad to report that we have
received a significant amount of information and data from SBA
and its contractors over the past 2-1/2 months. Here, I will
quickly summarize steps SBA has begun to take to address
initial deficiencies.
In June 2020, we recommended that SBA develop plans to
respond to PPP risk to ensure program integrity, achieve
program effectiveness, and address potential fraud. SBA has
developed a loan review process and added upfront verifications
before it approves new loans.
In November of 2020, we recommended that SBA expeditiously
estimate improper payments for PPP and report estimates in
error rates. SBA has now developed a plan for testing needed to
estimate improper payments.
In January 2021, we recommended that SBA conduct portfolio-
level analyses to detect potentially ineligible applications.
SBA has not announced plans to implement this recommendation.
In March 2021, we recommended that SBA implement a
comprehensive oversight plan for EIDL to ensure program
integrity. SBA agreed to implement such a plan.
In March 2021, we made four recommendations, two for each
program, for SBA to conduct a formal assessment and develop a
strategy to manage fraud risk for each program. SBA said it
would work to complete fraud risk assessments for both programs
and continually monitor fraud risk.
We continue to review information SBA recently provided,
including data on PPP loan forgiveness and details on the PPP
and EIDL loan review processes. In addition, we have obtained
additional information from a survey of PPP participating
lenders, interviews with SBA's PPP contractors, and written
responses to questions provided by SBA's EIDL contractor and
subcontractors.
This concludes my statement. I would be pleased to respond
to any questions you may have.
Chairwoman VELAZQUEZ. Thank you, Mr. Shear.
Mr. Ware, you are now recognized for 5 minutes.
STATEMENT OF HANNIBAL ``MIKE'' WARE
Mr. WARE. Good morning. Chairwoman Velazquez, Ranking
Member Luetkemeyer, and distinguished members of the Committee,
thank you for inviting me to speak with you today and for your
continued support of my office.
I come before you today in the midst of a historic
challenge to the Nation, a challenge in which SBA has a pivotal
and unprecedented role in stabilizing the U.S. economy. The men
and women in my office have been working diligently to provide
oversight of SBA's pandemic response. I am always proud to
represent them publicly and to speak to you about our important
work. We share in the Nation's grief for those lost in the
pandemic and are keenly aware that nothing short of the
public's trust is at stake in our oversight efforts.
SBA's [inaudible] trillion in lending authority through the
PPP and the EIDL programs with the most recent tranche of
lending authority being contained within the American Rescue
Plan Act (ARPA).
As with OIG, the men and women of SBA have been running at
a sprinter's pace; however, the race we are running has been
more of a marathon. Nonetheless, we have sought to have an
aggressive and focused approach to our oversight to ensure our
work is properly calibrated and relevant. Congress recognized
that the oversight required of the pandemic response was
outsized for existing oversight resources [inaudible]
government to include my office. We have received three
supplemental appropriations to increase our oversight capacity.
Initially, we focused on the recruitment of a mix of auditors,
analysts, and criminal investigators to provide immediate and
timely insight into these programs.
In December, we received funding directed to oversight of
the EIDL program that seeks to address the rampant fraud
identified by my office. These funds are being used to increase
our investigative staff and enhance our data analytics
capacity.
We received our most recent supplemental increase a couple
of weeks ago, and those funds will be used to further increase
our investigative capacity to combat fraud. Fraud
investigations will be a decades-long effort due to the
performance of these loans within SBA's portfolios and the
statute of limitations on fraud. Our office will have
approximately 40 percent more staff onboard after our hiring
surges for EIDL and ARPA conclude than we had before March of
2020.
Even still, we recognized from the beginning that the level
of oversight required would take a whole of government
approach. We partner with law enforcement entities across
government and join multiple taskforces to multiply our reach.
Since the outset of the pandemic response, our strategy has
been to prevent and deter fraud, waste, and abuse, and to
identify and combat instances of the same.
The first step was the issuance of three reports sharing
risks and lessons learned from our past oversight work.
Principally, that most closely related, which is of the
American Recovery and Reinvestment Act of 2009. These reports,
as well as a fraud and scam alert were published before SBA
made the first PPP and EIDL loans. Recognizing the speed at
which lending was occurring in both these programs, we
developed innovative report products to provide timely insight
to our stakeholders. Our first flash report was published just
a little over 30 days of PPP's implementation.
Our next report will come out in July, which found
significant deficiencies in internal controls and rampant fraud
within the EIDL program. We have issued 13 reports on SBA's
pandemic response oversight with two more near issuance. Most
recently, we issued a management alert on serious concerns
about SBA's control environment and the tracking of performance
results in the Shuttered Venue Operators Grant Program prior to
the program launch.
In light of having to plan a program under tight
constraints, it is imperative that SBA design the program in a
way that provides for a balanced audit risk framework,
consistent application of Federal regulations for grant
management, clearly defined performance goals and adequate
resources to effectively administer the program.
While our audit work was ongoing, our criminal
investigators were aggressively pursuing fraud. On May 5, that
is a little over a month after the first PPP loans, the first
in the Nation fraud charges were announced against an
individual fraudulently seeking a PPP loan. We have since
initiated over 420 investigations, and together with our law
enforcement partners, the Department of Justice has announced
over 100 indictments against individuals committing fraud
against the PPP and EIDL programs.
We have received over 150,000 complaints on our hotline
since March of last year. This is over 150 years' worth of
complaints when compared to prior years. We have sought and
obtained assistance from the Pandemic Response Accountability
Committee (PRAC), the catalogue complaints being received
outside of our online complaint submission system, and we are
employing data analytics to further triage these efforts.
I look forward to discussing our most recently published
works surrounding implementation of PPP, EIDL, and SVOG. Thank
you for the opportunity to speak to you today. I am happy to
answer any questions you may have of me.
Chairwoman VELAZQUEZ. Thank you, Mr. Ware.
I will begin recognizing myself for 5 minutes.
Mr. Ware, the Biden administration has taken steps to
restore program integrity, including implementing front end
compliance checks on PPP loans. What other steps have been
taken by the new administration to improve program integrity?
Also, how effective will these steps be?
You are muted.
Mr. WARE. Yes. I had to figure out the mute button.
Thank you. Thank you for that question.
This administration has implemented quite a bit of front-
end controls to include addressing our recommendations that
have to do with IP address deconfliction, checking on those
accounts that have at the last second changed the bank account
information, and many of the other controls that we asked them
to put in place, specifically with our December memo to the
administrator.
Chairwoman VELAZQUEZ. Thank you.
Mr. WARE. Yes.
Chairwoman VELAZQUEZ. Mr. Shear and Mr. Ware, has the new
administration been responsive to your requests? Has SBA, under
the leadership of President Biden and Administrator Guzman
increased the level of cooperation and transparency? Has the
new administration been more forthcoming with information?
Mr. SHEAR. Yes. Definitely. As in my written statement and
my oral statement, since the beginning of February, in terms of
access to people, having in-depth discussions with SBA
officials and their contractors, in terms of providing us data
and information, providing us details about the oversight plans
particularly for PPP, I am glad to report that it has become
much better.
Chairwoman VELAZQUEZ. Thank you.
Mr. Ware?
Mr. WARE. I also agree. I did not have many of the problems
that GAO encountered, but this administration has been very
upfront, very transparent, very interested in implementing the
recommendations, or at least taking steps to move in that
direction, and very interested in hearing what the Office of
Inspector General has to say.
Chairwoman VELAZQUEZ. I would like to submit for the record
a list of improvements to SBA programs that have been made by
the Biden administration.
Without objection, so ordered.
Mr. Shear and Mr. Ware, were the loans mentioned in your
report made during the last administration or since March 16th
when the new administrator was sworn in?
Mr. Shear?
Mr. SHEAR. The loans that we are referring to are over a
period that goes into the beginning of 2021. But for the most
part it was loans over the period during the previous
administration.
Chairwoman VELAZQUEZ. Mr. Ware?
Mr. WARE. Pretty much the same. Like, we started from
before the first loan even went out. So that work is still
ongoing, but the majority of our work informs what happened in
the past in order to set up what is to happen in the future.
Chairwoman VELAZQUEZ. Thank you.
Mr. Ware, your office issued a management alert on April 7,
2021, the night before the launch of the Shuttered Venue
program citing a number of concerns but you missed the main
issue, the technical issues that throttled the system on the
day of the launch. What happened on your end and why did you
not flag these concerns earlier?
Mr. WARE. Thank you for that.
So, a management alert or advisory, the purpose of it is to
present interim engagement results or share information as
quickly as we can during a broad scope review. So we are
assessing the program and we saw this at the onset of the
program and thought let's stop and get this information in
their hands right now while they still had time to improve the
control environment. At that time we had not yet got to those
controls.
Chairwoman VELAZQUEZ. Mr. Ware, is it not customary to
alert Congress and the agency of such concerns in a timely
manner?
Mr. WARE. It is. But the alert, right, is a part of a
broader scope review. So in terms of alerting timely, this is
what we alerted timely on. This is what we had known for
certain at the time in the review. So the review on this
program is still ongoing. These were the concerns that we
thought we should raise immediately.
Chairwoman VELAZQUEZ. Thank you. My time has expired.
Now I recognize the Ranking Member, Mr. Luetkemeyer, for 5
minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair.
I think we need to sort of set the stage a little bit here
with regards to what we are talking about this morning from a
standpoint that the PPP program was implemented in a very, very
quick fashion. In a way that we knew we had our economy at
risk. We had jobs at risk. Businesses at risk. And we knew that
this was probably not the perfect way of going about dispensing
those dollars and get them out in a hurry. And I think SBA did
a great job of getting those dollars out the door and in the
hands of folks who needed it.
I think the numbers have come back with some concerns about
some of these loans. As a former regulator, I can tell you that
whenever you are looking at a loan file and you see something
that there is an I dotted or T not crossed in there you kick it
out for what they call a technical exception. In discussing
this issue with some of the IG and GAO folks, I think that is
where we are with some of this stuff that is in these reports.
That being said, there has been some documented fraud in
there as well, and I think that is the concern that I have is
that we make sure we go back and recover those dollars. Make
sure that there is an effort made to stop those folks from
getting at those dollars and setting up the new programs, which
are the EIDL program here with a recharge of money, as well as
the restaurant program and the venue program, make sure those
programs are set up so that this does not happen again. And
this is my concern this morning from the standpoint that the
EIDL program, and to quote Mr. Ware, you called it rampant
fraud in the EIDL program with regards to identity theft. This
program was not that big compared to the amount of money that
is going out with regards to identity theft.
Have you seen any kind of controls put in place by the SBA
with regards to identity theft? Because I think the Shuttered
Venue program was going to be operated very similar to, if I am
not mistaken, the way that the EIDL program is. So have you
seen them put anything in place that could be considered
protection against that kind of activity? Mr. Ware?
Mr. WARE. Yes. Actually, I have. Yes. Actually, we have.
SBA, and in particular, the Office of Disaster Assistance--
since we are talking about EIDL, they have been at the table
quickly implementing the upfront controls. At least they are
stated; we have not tested them as yet. We trust that they are
doing it but we always verify. The alert on Shuttered Venues,
for example, never addressed the upfront controls for fraud.
That we found that they had in place, at least what we had
asked them to implement. What we were talking about was
relative to measuring the program and having enough people to
actually oversee the program on the backend so that we know
that the program met its intended purpose.
Mr. LUETKEMEYER. Well, with regards to that, according to
you two all's reports, there was not that much identity theft
of a problem in the PPP program comparatively to the EIDL
program. So it begs the question, the difference between the
EIDL program and PPP program is that the banks basically were
the ones that went through the program and got these dollars
out the door. And they have a ``know your customer'' law in
place to make sure that they know who the person is who is
contacting them, the business that they are working with, and
yet in the EIDL program, those sort of safeguards had not been
in place. And maybe they are now, but it would seem to me and
to beg the question, if SBA is going to stop that sort of
fraud, they need to change the way that they do lending and let
the lending be direct as it was in the PPP program or they
become just a guarantor of the loan versus the actual lender of
those dollars.
And so I guess my question to you is, are you satisfied
that the controls in place are such that you would not want to
see perhaps a third party actually get those dollars out the
door so there is another level of safeguards in place,
especially when the banks are there and used to I dotting and T
crossing, collecting information, collecting forms and doing it
in a very efficient manner? Would you consider that something
that we need to be taking a look at?
Mr. WARE. My oversight is to the criteria based on the way
that the programs are set up. In order for me to say that I
would be satisfied with the controls, we would have to test the
controls, which we have not done yet.
Mr. LUETKEMEYER. Okay.
Mr. WARE. We believe in what we have recommended to SBA and
we believe that if properly implemented it would stem the tide
of fraud in these programs.
Mr. LUETKEMEYER. Excuse me, Mr. Ware. I would like for Mr.
Shear to get in on the question.
What would be your opinion on that?
Mr. SHEAR. I would agree with Mr. Ware that the mechanisms
from the programs are different. With respect to PPP and the
role of the banks, there is some information that comes out of
it. We have suspicious activity reports that are used with that
type of arrangement but banks also made suspicious activity
reports on EIDL as well but they are of a different nature. So
there is some control in place, ``know your customer'' type of
controls that also affects who was able to get in and get the
loans from the banks. So there are certain tradeoffs here in
terms of who is being served. So there is a mechanism there
through, as you say, through banks. But just like Mr. Ware
said, we have not tested controls and we are looking for the
details now on the oversight of the banks themselves and we are
going through the information which is quite extensive that we
have been getting to look at what the oversight of the banks
is.
Mr. LUETKEMEYER. Okay. Thank you very much. I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Colorado, Mr. Crow,
Chairman of the Committee on Innovation, Entrepreneurship and
Workforce Development, for 5 minutes.
Mr. CROW. Thank you, Chairwoman. Thank you to the witnesses
for coming here today.
Mr. Ware, I have a question regarding data and the
integrity of data. Last year it was discovered that the Miter
system that the database had significantly data disparities. So
just as one example, the zip codes and the congressional data,
the district data did not match up. And the SBA itself had
found we were doing 500 PPP loans over the $150,000 threshold,
that 111 of those did not match the state code for the loan. So
it was nearly a 22 percent disparity. We actually did our own
analysis in our office and found significant loans that had
been allocated to other districts that actually occurred within
our district, hundreds of loans, in fact, and had our staff do
that.
So did you all see that same disparity in your review? And
have you been able to track any trends as to whether or not
that data disparity is getting cleaned up?
Mr. WARE. Thank you very much.
Yes, we actually found the very same thing in terms of our
data analytics unit. It kept reporting that some of the data is
dirty. That is the term that they use. It is not good. But I
know that they were able to work with SBA to rectify some of
those challenges, which means that SBA is able to clean the
data once they know that it is incorrect. So I know it is
something that they are working on. They are working on making
sure that they have clean data.
Mr. CROW. Can you give me some sense, I mean, I always kind
of bristle at this notion, they are like, oh, we are working on
it. And the problem for us is I am sitting here and we all
represent districts. And I literally want to know what loans
have been given in my district. Like, I want to know where
those loans went, what the loan numbers are, and I just do not
have trust right now that I understand that. That any one of us
sitting here today can pull that data up and trust that data
and actually understand what is going on in our own
communities. So can you give me some sense as to when we can
have that trust and a date by which we can say this is the
data, this is what is going on in our community?
Mr. WARE. So, as you know, that data belongs to SBA, not to
SBA-OIG. So I know that question would be best posed to the
program, which is SBA. I could tell you that when we look at
the data----
Mr. CROW. No, Mr. Ware, you are the watchdog of SBA, right?
So I am asking you as the watchdog, the person that is charged
with internal oversight, what you think the timeline is for
when they are going to clean this up.
Mr. WARE. Like I was saying, as I am not on the program
side of things, I cannot give you a definitive date on which
they would clean their data up. What I can tell you----
Mr. CROW. I am not asking for a definitive date, Mr. Ware.
I am sorry, I am not asking for a definitive date. Can you give
me an estimate as to the glide path that they are on to
cleaning this up? Are we talking about a week? Are we talking
about a year? Are we talking about somewhere in between? Can
you give me any sense as to where they are at?
Mr. WARE. It is real difficult for me to give you a sense
of where they are at in that. What I could tell you is this;
what my office reviews, we clean to make sure that the data
that we are putting out in our reports is indeed accurate.
Mr. CROW. Okay. I understand. That does not help us,
unfortunately.
Mr. WARE. Right.
Mr. CROW. It does not help us. And you can tell I am
frustrated because we do not even know what is going on or have
trust in the data fully in our own communities because the data
is dirty, as you say. And we need answers to when it is going
to be clean.
So I think I made my point here. This needs to be fixed and
we would expect you to push hard and we would like better
answers from somebody as to when this is going to be fixed.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentleman from Texas, Mr. Williams, Vice Ranking Member
of the Committee is recognized for 5 minutes.
Mr. WILLIAMS. Thank you, Madam Chair.
On April 8, small business across the country were
devastated to see the Shuttered Venue Operator Grant portal
shut down within 2 hours of launching, and I was the Republican
lead on the House side so I am very disturbed on what I see.
These businesses have already suffered enough economic injury
while waiting 4 months for this program to be open.
So Mr. Ware, you mentioned in your testimony that you have
serious concerns about the SBA's control environment over SVOG
program, Save Our Stages program. Can you elaborate on specific
internal controls that need to be implemented within the SBA
regarding waste and fraud within the SVOG program, and are you
confident that the changes outlined in your initial report will
be solved by the time the application portal reopens? We have
businesses across the country that are closing every day
because this was approved into law on December 8th and we are
still not there yet. So what can we do to fix that?
Mr. WARE. Thank you for your question.
First off, the alert that we put out raised the attention
of serious concerns with the control environment and the
tracking of performance results. We need them to reduce or
eliminate risk by implementing controls to address the misuse
to Federal funds. In this case it was the way that they wanted
to go about identifying the vulnerabilities commensurate with
the expected volume of applications that they were going to
get. We wanted them to clearly establish 2 CFR 200 criteria for
the program to ensure compliance. It is important for me to
point out that this is a grant program, not a lending program.
Grant programs come with specific rules and regulations that
need to be followed in order to determine the impact of program
funds. We did not feel that they had sufficient resources
available to implement or oversee the program from the onset.
Relative to the fraud risk side of it, this did not address
that because we found that they had implemented the
recommendations that we had been given all along in terms of
what checks should be in place to mitigate the risk of fraud.
Mr. WILLIAMS. Okay. I spoke with Administrator Guzman the
other day after the OIG report, and it seems like they are
claiming the report was released prematurely as a result of
miscommunication and that many of the concerns had already been
addressed. So even if that is true, it raises serious concerns
about the agency's ability to carry out similar programs in the
future if they cannot even get on the same page with their
communications with the Office of Inspector General.
So Mr. Ware, what improvements need to be made to solve
these communications issues so we can have confidence that all
the programs being run out of the SBA are doing so with the
proper levels of oversight? And again, I remind you, many, many
people are waiting to get on these programs to save their
businesses.
Mr. WARE. Right. This is a little surprising to me, kind of
news to me, catches me a little bit off guard. Internally,
before we release anything there are quite a bit of meetings
that are taking place between our audit teams and the program
staff. And even in those, not necessarily a communication
issue. It was an understanding of what we mean by you have to
establish criteria that is different because this is a grant
program and not a lending program. And that we did not think
that you could shut off certain requirements of CFR 200 that
governs these programs. So that was the main thing.
But relative to communication, the administrator is new. We
are building our relationship. Right now I think that is off to
a much better start, especially after this was issued. We now
have stated rules of engagement for how we go forward to make
sure that they----
Mr. WILLIAMS. Okay.
Mr. WARE.--do not feel like there is a communication issue.
Mr. WILLIAMS. All right. Let me move on to another
question.
I recently sent a letter to the Small Business
Administration expressing concerns about the outstanding PPP
loan forgiveness application past the 90-day deadline. The
inaction and lack of communication coming out of the agency on
these outstanding loans are keeping financial institution
businesses in the dark. The result is that hardworking
Americans are stuck holding enormous liabilities. It prevents
them from investing in business growth as we recover from
COVID.
So Mr. Shear, quickly, what steps do we need to be taking
with the SBA so we can clear this backlog of PPP loans waiting
to be forgiven?
Mr. SHEAR. Part of it is consistent with putting in the
right internal controls that pay attention to what are the
elements that are slowing down the forgiveness decisions, such
as when flags go up. I will call it flags of potential fraud.
When flags go up, is there a disciplined approach of
determining which flags are more important than others are? So
I think that these are the types of things that we are looking
for in that program.
Now that we have PPP forgiveness data, we are really
analyzing it in depth to try to see how rampant these problems
are. So I do not have an answer to your question yet as far as
whether it is isolated or whether there is a large magnitude to
this.
Mr. WILLIAMS. I yield my time back.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentlelady from Kansas, Ms. Davids, Chairwoman of the
Subcommittee on Economic Growth, Tax, and Capital Access is
recognized for 5 minutes.
Ms. DAVIDS. Thank you, Chairwoman. And thank you to you and
to the Ranking Member for holding this hearing today. And of
course, to Mr. Shear and Mr. Ware for your critical oversight
work.
As of earlier this month, the SBA had approved over 13
million loans totaling approximately $964 billion through the
Paycheck Protection Program and the EIDL Program. And these
programs have been absolutely essential lifelines to small
businesses across the country, and we know there is more to be
done to support our small businesses until the end of this
pandemic.
But part of that support definitely has to include the
exact thing we have been talking about so much today, ensuring
the integrity of the programs, of preventing further fraud and
abuse from frankly wasting taxpayer dollars. And I know the
Office of Inspector General and the GAO reports have
highlighted persistent fraud in both the PPP and EIDL programs.
In the Kansas 3rd, which I represent, a local newspaper was
able to share some information about 35 cases of relatively
easy-to-identify fraud in just one of the counties in our
district. And that was mostly fake farming enterprises in a
largely suburban and residential area. And in addition to
wasting taxpayer dollars, these cases are, of course,
defrauding innocent people through identity theft and it is
obviously urgent and critical that SBA is able to root out this
type of fraud really quickly. I know I have urged, and I know
others have, too, for the SBA to adopt the OIG recommendations
that we have already seen so that the victims of identity theft
are not held at fault.
Mr. Ware, I would love to ask you my first question. In
your testimony, you mentioned the ongoing review of SBA's
response to allegations of identity theft. And I know the
Chairwoman kind of touched on this a little bit ago. But can
you give us an assessment? I know you indicated that there is
some new frontend controls, but can you give us a sense of how
the SBA is handling these types of cases?
Mr. WARE. In terms of identity theft?
Ms. DAVIDS. Yeah, identity theft, particularly as it
relates to PPP and EIDL. Or the EIDL is the one that seems to
have the most impact in the district that I represent based on
the data we have.
Mr. WARE. Correct. Well, we have an ongoing review right
now. As a matter of fact, that report, I think the response
from SBA to this report is due today if I am not mistaken--I
think it was the 20th--and will be issued shortly thereafter
provided they do not ask for an extension being that the
administrator is new. But in that, we are reporting publicly on
what SBA has done to address what is happening with identity
theft because, like you, we have heard countless stories and
complaints involving identity theft.
And just so we are clear, SBA-OIG does not have principal
jurisdiction on investigations involving identity theft. That
belongs to the Federal Trade Commission. But we have a direct
link on our hotline page in hopes of helping victims. We share
those complaints with SBA so they can take appropriate actions,
and we view this as a significant matter for SBA to address,
one that is tied to internal controls within the programs. So
it is something that we are taking very seriously and many of
our active investigations have to do with this identity theft
issue.
Ms. DAVIDS. Yeah. So that is helpful context. I am curious
if you are able to give any kind of indication about, now that
the EIDL loan repayments have been delayed by another year,
some of those victims of identity theft are going to have other
parts of their lives disrupted. Do you know if SBA, or have you
made recommendations about how SBA might be able to reduce down
or solve that issue so that people who have been the victim of
identity theft through these EIDL loans are not negatively
impacted in a bunch of other aspects of their lives?
Mr. WARE. Right. We have provided recommendations. The
thing is, it is still in draft so it is not a completed work
that I can speak about publicly.
Ms. DAVIDS. Okay.
Mr. WARE. Like in this setting.
Ms. DAVIDS. Yeah, so actually, so we will follow up with
you based on your answers today. Thank you so much.
Chairwoman, I yield back.
Mr. WARE. Thank you.
Chairwoman VELAZQUEZ. The gentlelady yields back.
The gentleman from Minnesota, Mr. Hagedorn, is recognized
for 5 minutes.
Mr. HAGEDORN. Thank you, Chair. I appreciate this
opportunity. And thanks to the witnesses.
Mr. Ware, I think you have been around government a little
while and you kind of realize that this was quite an avalanche
of lending that was going on by SBA through their partnerships
with financial institutions and others. And quite something
that the Congress and the president could get a bill enacted
and then 7 days later they would actually have regulations on
the books in order to move the program along. Usually I think
regulations like that would take 3 to 6 months, maybe even
longer.
So I understand there are going to be some issues. We do
not want any of that. But in looking at your testimony, it
seems to be a big difference here between the Paycheck
Protection Program and whatever monies might have gone out the
door that were not supposed to be. And then compare that with
the EIDL program. And you know, Congressman Luetkemeyer, our
ranking Republican member was making the point that, boy, the
EIDL program had substantially less money and yet there seems
to be a lot of issues.
In your testimony you account for about $75 billion that
may have been inappropriately sent to ineligible businesses,
but those numbers are from back in July of last year; right?
Mr. WARE. Yes. The numbers at that time were from back
then.
Mr. HAGEDORN. So since then have you been able to update
those or do we have some idea that this is way less than it was
before or they have reclaimed some of those monies on all these
other things?
Mr. WARE. That is a good question. We have been working
diligently, of course, to claw back money that has gone to
folks that it should not have gone to. I think we are up to a
total between us and SBA, our partners, $1.9 billion. We are
continuing to move along those lines. We do have updated
figures. I just do not have them at my fingertips right here.
Mr. HAGEDORN. All right.
Mr. WARE. It would take me a couple.
Mr. HAGEDORN. I mean, it looks here, this looks terrible
but hopefully there is something that accounts for that and the
problem is not this big. But it seems to me again that where
you had lenders, financial institutions and others working with
customers where they have to know their customers, there was
not as big of an issue, as big of a problem. But then we get in
to where the government is dealing with these folks directly
there is all this identity theft and so forth.
So what was the most serious broad scheme that they had
targeting these EIDL loans? What is your experience on that?
Mr. WARE. Before that there are two important things to
point out here. When we were providing context as to what was
going on in terms of fraud, the Office of Capital Access deals
with PPP. They were very quick to implement controls that we
thought were missing, very, very quick. And we know that is a
big reason why there was a lot less that we found in that area.
ODA took a much longer time to implement. That is a fact.
Secondly, in terms of identity theft, we are starting to
see more of it raise its ugly head on the PPP side with the
bringing on of the Schedule Cs. And so, I mean, we are still at
the very beginning of this. We are starting to see the trends
start to take shape. And so it might turn out to be a different
story a little bit later. But you asked about the schemes;
right?
Mr. HAGEDORN. Yeah. What is the role of the most prevalent
scheme?
Mr. WARE. One of the most prevalent schemes, particularly
for the EIDL Advance program was where people were being
contacted by, I do not know, fraudsters who would say the
government is giving out free money and all you have to do is
have us sign up for you and SBA will give you a check for up to
$10,000 and it will be deposited into your account and you just
have to pay us out a portion of it. And that is what we were
seeing with the multiple IP address hits. It would be like one
computer handling all this for maybe 200, 300, 400 different
loans and just really bombarding base controls with that.
Mr. HAGEDORN. So people were literally just handing over
their basic information to the fraudsters and then they were
going ahead and making those applications and taking the money.
Should the government have not figured out some way that all
these things were coming from the same addresses? I mean, were
there not any controls that were in place before this started
out?
Mr. WARE. That argument that we were faced with was, well,
multiple loans came from a single IP address doesn't mean it is
fraud. And I would say maybe there might be a real reason for
it but until you check you would not know.
Mr. HAGEDORN. You might want to look into that; right?
Yeah. Check into it.
I do not know how much time I have. I am not seeing the
computer. If I have just another minute----
Mr. PHILLIPS. Mr. Hagedorn, your time has expired.
Mr. HAGEDORN. Okay. I yield back then. Thank you.
Mr. PHILLIPS. All right. The gentleman yields back.
And now I recognize myself for 5 minutes.
I want to thank our witnesses for being here today, and I
believe I speak for all of my colleagues on this Committee when
I say we are deeply troubled by the reports of rampant fraud
and abuse within the PPP and EIDL programs. Congress
established these facilities to be a vital lifeline to American
businesses in their darkest hour and now we are bringing some
much needed sunlight as a disinfectant for corruption.
I am also troubled by the frenzied environment that gave
birth to the programs with all their shortcomings, and I would
hope today's hearing stands as a lesson to those of us in
Congress to return to regular order, and those of us in the
administration, to exercise the very highest standards of
ethics in implementing and enforcing the law which ought to be
amongst our highest priorities.
Mr. Ware, on February 2nd, the Biden administration
published a fact sheet detailing new measures to prevent fraud
in the PPP and EIDL programs. These measures provided that loan
guarantee approval would now be contingent on passing SBA fraud
checks, Treasury's Do Not Pay database, and public records.
While implementing these checks at the late stage has somewhat
slowed the processing of loan applications, these safeguards
could have been implemented from the very beginning. In fact,
on the day that lenders began processing applications for PPP
loans last year, you issued a white paper outlining lessons
learned from previous stimulus loan programs. In that document
you warned that ``increased loan volume, loan amounts, and
expedited loan processing timeframes may make it more difficult
for the SBA to identify red flags in loan applications.'' You
urged the agency to put sufficient controls in place then. Did
administrative officials at the agency heed your warnings at
that time, sir?
Mr. WARE. At that time, no.
Mr. PHILLIPS. Okay. And when it became clear that the set
up of EIDL, which is directly processed by SBA loan officers
also made it particularly susceptible to abuse, you issued a
July report containing another warning of ``potentially rampant
fraud'' in that program as well. Is that correct?
Mr. WARE. This is correct.
Mr. PHILLIPS. And then last month, the Justice Department
unveiled charges against a former Florida tax collector who
allegedly bribed an SBA loan officer to ``use her access to the
SBA's computer systems and her access to EIDLs to manipulate
the status of EIDLs to trigger the system to extend funding''
for the benefit of the defendant.
Mr. Ware, this is not the first instance of questionable
behavior by agency employees. So please elaborate, if you
would, on why these activities did not trigger red flags in the
loan system, and please speak to the OIG report that you issued
in October of 2020 concerning SBA employees and contractors who
were involved in inappropriately influencing loan approval.
Mr. WARE. Well, the control that you are speaking about was
not in place to begin with and that was one of the controls
that we were talking about, hey, you have to implement these
controls. I mean, we were at the table on several instances
speaking about this even before the reports were out saying
this is a serious issue and there are certain things that need
to be implemented. But as I was saying before, it was not I
guess the best way to say it. It was not always taken as
seriously. So there was always a justification trying to be
made that there could be a valid reason for why we were seeing
what we were seeing, although we had already made dozens of
arrests up to that point using the same red flag indicators.
Mr. PHILLIPS. Okay. On the subject of taking things
seriously, Mr. Ware, if you could just spend a moment and speak
about your knowledge of the staffing challenges at SBA given
the workforce needed to administer programs of this scale and
any recommendations that you have to ensure that employees are
thoroughly vetted moving forward.
Mr. WARE. Right. Well, relative to that, as you know,
especially in the disaster area, SBA has the authority to very,
very quickly ramp up and they did that. Our issue was where the
ramping up was taking place. So we wanted them to put more
people to address the red flags. More people to check why is
there 200 loans from a single IP address. Why did all these
loans have a changed bank account? We wanted them to assign
folks there and they did. They actually, they did that and that
was one of the things that they did rather quickly once they
decided that they would review the red flag areas because many
of them had to be cleared. So I believe they went from four
people to 40 to 250. The numbers probably are not exact but I
am pretty positive they are close in terms of how big they
moved on that.
Relative to that, we have long recommended the importance
of not only staffing up but properly training and vetting
folks. There are multiple reports with that as a
recommendation.
Mr. PHILLIPS. All right. Thank you, sir. Duly noted.
My time is expired. And now I recognize my fellow gentleman
from Minnesota, Mr. Stauber, for 5 minutes.
Mr. STAUBER. Thank you very much, Mr. Chair. And to the
witnesses, thanks for being here today.
Mr. Ware, a couple of questions. Of all the recommendations
OIG has made in the various reports over this last year, how
many recommendations has the SBA adopted?
Mr. WARE. That is a good question. I actually have it
somewhere. I am trying to scroll quickly to find the exact
number. But I do know that I could get you the number. But they
have moved to implement recommendations.
We have closed, of the almost I think 24 of them, we have
closed six. And are reviewing information necessary to close
others. We do know that they have shown us documentation that
several of the others, they have addressed them. And to be
quite honest, they are moving expeditiously to implement the
recommendations.
Mr. STAUBER. And Mr. Ware----
Mr. WARE. They are at least addressing them even if they
have not had the time to fully put them in place.
Mr. STAUBER. Mr. Ware, what has the SBA signaled to you as
their reason for not implementing more of the recommendations
that you have just suggested?
Mr. WARE. SBA, we have resolved all but one recommendation
with SBA. I know you are going to ask me which one that is. I
do not know the exact one that is. Oh, the one that they did
not resolve is one that they agree with but they have a
different way that they would like to address the cause of that
recommendation, which was fine with us. But we have resolved
just about all of them. They are not saying that they are not
going to implement them. Some just take a longer time than
others. The more critical ones they have moved on.
Mr. STAUBER. Thank you, Mr. Ware.
And then one last question for Mr. Ware. How would you rate
or describe the SBA's ability to prevent new fraudulent
behavior in the existing pandemic response programs as it
stands right now?
Mr. WARE. I would rate it much stronger than it was at the
beginning. I believe that we have all, SBA included, learned a
lot of lessons from where we were in the past months and that
SBA is intent, at least on what they have presented to us, they
are intent on making sure that the same errors do not happen
again. It is our intent to measure it in terms of where we were
before, what got through and where we were, where we are now in
terms of what has been prevented.
Mr. STAUBER. And Mr. Ware, if you could, could you provide
that information to the Committee?
Mr. WARE. Yes. Actually, I have it at my fingertips. I
mean, it is right here. I have it.
Mr. STAUBER. Thank you very much.
Mr. Shear, a question for you is, in your opinion, what is
the most important recommendation either the OIG or the GAO has
made that has yet to be adopted to the SBA?
Mr. SHEAR. I will speak to the eight recommendations that
we have made and they are all still open. And what I want to
emphasize, because four of them deal with fraud risk management
is that where Mr. Ware has a very important role to play in
terms of being part of law enforcement, our focus is on
preventative controls. So what you put in place.
So we have four recommendations that were made in our March
report that have to do with really developing a disciplined
approach, creating clear responsibility and authority in a unit
within SBA to carry out those four recommendations. They mirror
each other, two for EIDL and two for PPP. So I would probably
put those at the top. But then in terms of our role, again, and
I will emphasize that we coordinate with the IG, and we do
different things. And we are not conducting fraud
investigations as a part of law enforcement, but just to back
up to what we said originally with PPP, that you just needed an
approach that would ensure the integrity of the programs that
eligible businesses are participating in. That it is meeting,
more broadly, it is meeting the intent of the programs. And so
that is a more global approach. So I do not want to forget
about what I call the more global recommendation we made, but
the four in particular that we made, dealing with fraud risk
management I think are probably at the top of the list.
Mr. STAUBER. Thank you, Mr. Shear. And I see my time has
expired. Back to you, Mr. Chair. Thank you.
Mr. PHILLIPS. The gentleman yields back.
The gentlelady from Illinois, Ms. Newman, is recognized for
5 minutes.
Ms. NEWMAN. Thank you, Mr. Chair. And thank you to
Chairwoman Velazquez and Ranking Member for this hearing. It
has been very helpful.
So we have talked a lot about granular things today, Mr.
Shear and Mr. Ware, and I really appreciate that. So let me
start by saying that this program was huge and complicated to
start out with for the SBA. Given that we had to move very
quickly, it is not surprising that there were challenges in
2020. Throughout the year of 2020, many of these challenges
were identified and not corrected frequently. So I am glad we
are finally getting to a point.
And so I have the same question for both of you. I will
start with Mr. Shear because it probably is more GAO than it is
for Mr. Ware.
So it looks to me that while we have all these very
significant and severe granular problems, there is a higher
level management problem, that the structure of the SBA needs
to change. It appears they come in four buckets. There is fraud
and litigation issues. That there are categorization review
analysis and assessment and data integrity issues. It sounds
like there are workforce issues. So given that there are four
very systematic issues and they are very large buckets with
very granular problems in them it would appear that we need to
look at the structure of the SBA from an organizational
standpoint and really make some recommendations there so the
move forward is working better.
So can you speak to that, Mr. Shear?
Mr. SHEAR. Thank you for the question.
What I think that it really focuses on, some of the reasons
why we put SBA, these programs on our high-risk list. And so
when we think of, one of the things I was encouraged by,
basically starting with the transition team was how would we,
meaning SBA, would get ourselves off of the high-risk list?
When we said we planned to put these programs on the list, the
list came out March 2nd. And we look for certain elements there
and it starts with leadership and it involves rigorous
strategic planning and just a plan for how do you get from A to
B with all of these things? And so it involves assessment. It
involves commitment of resources. So for example, among the
things we are looking at now is SBA did not have the resources
for these programs and we are actually looking now at the use
of the supplemental appropriations. We are talking about $3.4
billion for administrative expenses and we are saying how were
those funds used? So it was a lot of contractors. And then you
start getting into issues of contractor oversight, and we are
trying to get more information about what is SBA doing to
oversee the contractors who are overseeing these programs? So
there are some basic structural issues there that I think you
raise a very good point.
The other issue I will point to is that SBA has had an
office for a number of years called the Office of Continuous
Operations and Risk Management. And when we first drafted our
recommendations around fraud risk management, we directed it to
having that office take the lead. Give it the responsibility
and the authority to lead these efforts. And with that they
said, well, now we also have a fraud risk council but both of
them seem to be kind of--one had become kind of an informal
body and the other one was an informal body that was just kind
of put together. There is no clear responsibility to carry this
out, and authority to carry it out. So this is also a
structural type of issue.
So those are the parts of what we have done that I think
pertain most closely to the very good question you asked.
Ms. NEWMAN. So let me follow that up, and I appreciate your
answer. And it is complex; right? But what is the plan? If I
was looking at this problem I would say that it looks like we
need, if it was an organization, an executive VP of fraud and
risk management. You know, that we need to look at workforce
issue from an HR standpoint. Do we have the right folks that
are assessing these things? And then from an information
systems standpoint, do we need to have a CTO and CIO change? So
for me, who is looking at that broader organizational
structural problem? It may not be you, Mr. Shear, and that is
okay. That is A-okay with me. But we need someone to look at
it.
If Mr. Shear could just respond.
Mr. SHEAR. Thank you. We had concerns way before the
pandemic, in 2015, that there were certain structural problems
in just how SBA carries out its mission and we did what we call
a general management review where we just looked from soup to
nuts, looking across the agency. And we made a number of
recommendations, and those recommendations were actually
implemented. Part of it had to do with enterprise risk
management and the risk management office that I just referred
to. There are certain things that are in place that could have
been teed up for this and probably still have to be teed up to
implement our recommendations. So there are structural issues
here and what we are looking for with respect to these two
programs is what has to be done to really resolve fraud risk
management for these programs, and some of these actions will
probably end up leading to some structural change in the
agency.
One of the things that I am very encouraged by, and I will
just refer to one more thing if you can bear with me on this,
is that last week I participated in a meeting between the
Comptroller General, Gene Dodaro and Administrator Guzman and
her chief of staff. And it was a very constructive meeting. It
was like, we are seeing some positive signs that Administrator
Guzman is stepping up, and certainly the transparency in
working with us has improved. So we hope this leads to changes
but it is like some of the changes as you bring up will
probably be structural. Our focus is on what is really needed
with respect to these programs? And some of them will probably
require some structural change, if nothing else, to make it
clear who is the authority on fraud risk management.
Mr. PHILLIPS. All right. The gentlelady's time has expired.
Ms. NEWMAN. Thank you.
Mr. PHILLIPS. We have to move on.
The gentleman from Pennsylvania, Mr. Meuser, is recognized
for 5 minutes.
Mr. MEUSER. Thank you, Chairman. And thank you, Mr. Shear.
Thank you, Mr. Ware for appearing with us here today.
So just to add to some perspectives, compared to the
average of 65,000 disaster loans, EIDL loans a year as of
April, the SBA has approved more than 3.77 million during the
COVID time period, EIDL loans totaling more than $200 billion.
That is 60 times more than normal. The ratios are the same in
Pennsylvania.
In testimony, it was referenced that the SBA lowered the
guardrails, Mr. Ware, lowered the guardrails, relaxed internal
controls to get funds to struggling businesses but that led to
increases in potential fraud in EIDL. As well, Mr. Ware, your
initial report found that the SBA issued $14.3 billion in
potentially fraudulent EIDLs to accounts that differed from the
original bank account listed on the application, $62.7 billion
to multiple EIDL applicants using the same business and contact
information, and $1.1 billion in EIDLs and advanced grants to
potentially ineligible businesses. That is $78 billion out of
$200 billion, so almost 40 percent was potentially fraud? Is
that right? That is pretty staggering. Are those numbers
correct?
Mr. WARE. Yes. That is what we were saying.
Mr. MEUSER. Okay. Yeah, I know. But I just kind of wanted
to put it in perspective. Forty percent. So in a private
lending institution, if that were to occur, I think we would
all agree that they would be out of business, many people would
be fired, there would be investigations. So that is just
staggering.
Does the SBA model itself for fraud controls after private
lenders? Mr. Ware, can you comment on that?
Mr. WARE. Not----
Mr. MEUSER. No? Well, maybe you should.
Mr. WARE. That is a good question. Normally, a good
question for the program office how exactly they model
themselves because there are a couple of different ways of
looking at it. But one of the things relative to context that
must be placed here is that the 40 percent was in terms of
potential fraud. Right? Meaning that we could not look at all
of them in that time to determine whether or not fraud was
actually occurring. What we were asking SBA to do though was
because these things are under these red flags, the same red
flags that we are conducting our criminal investigations on,
the same ones that we have arrested many people on, are the
same ones. These are the indicators. These are what is showing
up and that you need to pay attention to.
Mr. MEUSER. All right. Well, despite all of these numerous
reports of fraud, the SBA in April raised the loan limit for
the COVID-19 EIDL program from 6 months of economic injury with
a maximum loan amount of $150,000 up to 24 months of economic
injury with a maximum loan of $500,000.
Can either one of you comment as to why that would be done
with all this potential fraud taking place?
Mr. WARE. If I may.
Mr. MEUSER. Sure.
Mr. WARE. From ODA's perspective it would be that they have
instituted the controls that we have recommended. Meaning that
they would feel we have not yet verified that the control
environment is a lot stronger than it was at the beginning, so
that they would be able to act on the flags and stop people
from getting into the program who should not be in the program.
Mr. MEUSER. All right. Well, we certainly hope, you are not
necessarily to blame but somebody is and we certainly hope that
you will do the things that we are discussing here to correct
this horrible problem.
I just want to shift gears here a little bit. Can you
comment, can either of you comment on the issues EIDL loans
have created for secured lenders? Secured lenders by the EIDL
have been very much crowded out. Secured lenders are
subordinate to the EIDL loans. The EIDL loans replace other
credit lines so as secured lenders cannot use the EIDL for
collateral. It has damaged the industry. And in the end, what
is more important is that it will damage that small business
over time. Just quickly, will this be addressed? Is this being
considered by you all? And would you state to me whether or not
you could meet with the secured finance network to try to
address and resolve this problem?
Mr. WARE. Bill, should I go?
Mr. SHEAR. No, I will go first.
Mr. WARE. Okay.
Mr. SHEAR. We have focused a lot on the question of a
secondary market with PPP, and so we have interacted with the
financial community on that. It has not risen to being an issue
with EIDL but we could look into the question that you have. We
could look at that.
Mr. MEUSER. Could you meet with them?
Mr. SHEAR. We meet with trade associations, and what is
important for us is to make sure that we are doing that in an
objective way in terms of who we meet with but I would think
so.
Mr. MEUSER. Of course. That is great. Thank you.
Mr. Chairman, thank you. I yield back.
Mr. PHILLIPS. Thank you. The gentleman's time is expired.
And I just ask members and our witnesses to try and be
respectful of the 5 minute rule.
With that, the gentlelady from Georgia, Ms. Bourdeaux, is
recognized for 5 minutes.
Ms. BOURDEAUX. Okay. Thank you so much. And I very much
appreciate our two witnesses here.
Obviously, these are huge programs and have really been
very important in shoring up our business community throughout
the crisis, but at the same time it is very, very important to
make sure that we are good stewards of taxpayer dollars. That
this is being spent wisely and well.
A lot of questions have already been covered about how we
make sure that we put the safeguards in place as we open some
of these new programs up and try to make sure that we are
cautious on that front and the money is going to the people who
need it and into the right spots.
One issue, and I know we kind of touched on this in some of
the other questions but just to ask Mr. Shear about this
because I think Mr. Ware has touched on this, and it is about
the targeting of the Restaurant Revitalization Fund. And we
know that when we initially launched the Paycheck Protection
Program it was not really getting to some of the underserved
markets as best we could see, and based on the current guidance
issued so far, are you confident that we will be able to
resolve this issue and make sure that we get the Restaurant
Revitalization Fund to some of the smaller minority-owned
businesses across the country?
Mr. SHEAR. I will start out by saying that a lot of our
focus on both PPP and EIDL is in terms of what are
characteristics of the borrowers who are getting these loans?
So this is something that has been a close focus of ours, and
as we initiate work on the restaurant program, we will be
looking at that as well. So it is important to see who the
program is serving. It has to do with what is the intent of the
program and looking at who is being served by the program. So
we will be taking a close look at that.
Ms. BOURDEAUX. Okay. We have this 21-day prioritization
period. What is your take on how effective that is going to be
in making sure that we get to the right people?
Mr. SHEAR. We are auditing in real time and we are going to
soon begin work on the Shuttered Venue and the restaurant
program. So the idea is we are auditing in real time but we are
going to be looking at who actually is being served by the
program, so I think we will get some indication as far as how
well it has worked in terms of serving its intended impact.
Ms. BOURDEAUX. Okay. All right. Well, just turning to one
more other issue that we have really been watching or trying to
see, although the data really is challenging as you all have
noted. And I guess this is a question for Mr. Ware or Mr. Shear
which is, we have a lot of businesses relying on the PPP loan
forgiveness. And I was wondering if you all have discovered any
reasons for concern with respect to access to loan forgiveness
among small business owners? And what standards are in place to
ensure that potentially fraudulent PPP loans are not given but
while ensuring that the small mom and pop businesses can still
access that loan forgiveness?
Mr. WARE. If I may, we are currently conducting an
evaluation of the loan review process. And the objective of
that was to assess SBA's process for reviewing the loans for
eligibility and forgiveness. It is in the early stages and it
is designed to set the foundation for a series of projects on
SBA's forgiveness of loans under the PPP eligibility. So it is
in our 2021 oversight plan, and we will be able to give you
real concrete answers on this as soon as that work is wrapped
up.
Ms. BOURDEAUX. Okay, great. Thank you.
Mr. Shear, do you have anything to add to that?
Mr. SHEAR. We look very seriously at the recommendations
having to do with thinking strategically about fraud risk
management because it is not a matter of putting in controls
that can slow down the process or can make it difficult for
those who are eligible and are being served by the program to
get forgiveness. But the idea of coming up with a strategic
approach that says, what flags can we pay attention to, do we
have to pay attention to, and which flags are of lesser
concern? So it is really to come up with an approach that we
are looking for.
Ms. BOURDEAUX. Okay. Thank you so much. And I yield back
the balance of my time.
Mr. PHILLIPS. The gentlelady yields back.
And now the gentlelady from New York, Ms. Tenney, is
recognized for 5 minutes.
Ms. TENNEY. Thank you, Mr. Chairman. I want to thank
Chairwoman Velazquez and Ranking Member Luetkemeyer for holding
this important meeting.
Our district was saved, basically, by the PPP program and
we are really excited that it was an opportunity to keep some
of our small business community alive. Ninety-four percent of
the jobs in our district are created by these small businesses,
so it was a vitally important issue, which is why I am so
disheartened by this fraud, abuse, and waste number that has
come up, particularly with the PPP program which really
affected us more.
And I wanted to address my first question to Mr. Shear. I
know that you had said in your testimony that SBA's failure to
provide the data and documentation on PPP and also on the
Economic Development Disaster Loan program in a timely manner
impacted efforts to ensure the transparency and accountability
of the programs which I guess has apparently happened.
What would you do, and I know you have somewhat answered
this question, but if you could answer in another way, could
you tell me what you would do to correct the way that SBA could
change its practices to get that data to you more efficiently
and quickly in the future so that we could make these loans and
avoid these sort of astounding fraud numbers that we are
seeing? And maybe a best practices guideline. Could you address
that quickly, sir, please?
Mr. SHEAR. There are two parts to it. One was, when we
refer to the lack of transparency and the uncooperative nature
of the agency with us, it was getting to the very notion of
just like not that they were inefficient in terms of getting us
data and information; it was not providing us data and
information. It was, I hate to say it but quite intentional.
So to get to the question is, how can they get information
to us more quickly? We are always working with them to try to
get information more quickly and we are certainly doing it now
in that there are a lot of outstanding items that we work
through with them. We are very busy interacting with them,
interacting with leadership at SBA and interacting with the
Office of General Counsel in terms of trying to improve the
process to get us the information that we seek. And there
certainly have been improvements.
Ms. TENNEY. That is interesting that you say that you think
they maybe intentionally did not give you the information. What
reason would they be trying to hide the information from you or
what would you attribute your opinion that they were
intentionally trying to keep the information from you?
Mr. SHEAR. This is one where I do not want to really state
an intent because the idea is it is getting into people's minds
as far as why was SBA not being cooperative? It was not from
lack of effort from our side, and certainly, there were efforts
made, not just by my teams but also by our General Counsel, by
the Comptroller General, by Members of Congress. So I really do
not want to comment on what the mindset was that led to the
lack of cooperation. But there certainly was a lack of
cooperation and it did impede transparency.
Ms. TENNEY. Would you recommend that those people not
continue to work in that regulatory agency and that we replace
them? Because obviously this is obstructionist in some ways.
Meeting the needs that the taxpayers are expecting with these
programs.
Mr. SHEAR. It was clear that this involved officials at
very senior levels. So with the changes that have occurred now
you have certainly new people in the associated administrator
type of positions and general counsel position. We have a new
Administrator. So it is a different environment.
Ms. TENNEY. Do you think that any of that intentional, as
you put it, do you think that has anything to do with the
massive amount of fraud that we have discussed, like the 3.6
billion alone for the PPP program where potentially ineligible
recipients receive that money? Is that something that you think
there was some kind of underhanded behavior on their part?
Mr. SHEAR. I do not want to make the connection to saying
that the reason we see so much potential fraud in this program
and so much fraud risk is because of the behavior that reduced
the level of transparency and our inability to really audit the
programs in a rigorous manner. But what I will state to you is
that under normal conditions, and I will say this with SBA in
terms of their normal programs and things like that, I would
like to think that the cooperation leads to improvement of the
operations of the agency. And that was an opportunity that was
delayed by the lack of cooperation with us. The ability to have
us take a look at how they are doing things and to make
recommendations for improvement and act on those
recommendations. So I am making a more general point.
Mr. PHILLIPS. The gentlelady's time has expired.
Ms. TENNEY. Can you say that you have a similar issue with
the Treasury with the Do Not Pay business center?
Mr. PHILLIPS. Ms. Tenney?
Ms. TENNEY. Am I out of time?
Mr. PHILLIPS. Yeah, your time is expired. I am sorry.
Ms. TENNEY. Okay. Thank you. Thank you.
Mr. PHILLIPS. Now, the gentlelady from California, Ms. Chu,
is recognized for 5 minutes.
Ms. CHU. Thank you.
Mr. Ware, you provided such valuable testimony to the
Oversight Subcommittee hearing that I chaired in October. After
our hearing last fall, SBA strongly disagreed with the Office
of Inspector General's findings on the level of fraud risk in
the EIDL program and asserted that the agency had a robust
system with internal controls. However, the third-party audit
of SBA's 2020 finances found that despite this internal control
system, SBA's loan officers were never formally trained to
address flagged applications. So approvals on potentially
fraudulent loans and rents continued.
Well, today we have a new administration at SBA that is
disbursing the targeted EIDL funds that have been appropriated
by the American Rescue Plan. So Mr. Ware, you were saying that
now SBA has implemented internal controls. But I want to know
what the highest priority steps are that SBA can take today to
improve the security of the EIDL grant and loan program,
considering that these grants are being made as we speak, right
now?
Mr. WARE. Thank you. The highest priority as we would see
it is actually some of the things that they said that they
addressed. And we have some indication that they have. And that
is reinstituting the rule of two where two people would review
the loan, whereas they would stop the amount of batch
processing that they would do. Those were big weaknesses in
their system that allowed a lot of things to sneak through.
Those are two of the biggest ones that come to mind quite
quickly. They are doing the IP address checks. They are doing
the bank account checks. I know that is a major part of it.
Ms. CHU. So is it just implementation of the controls that
are there now?
Mr. WARE. Right. I believe that, well, the controls that
were completely absent.
Ms. CHU. Yes.
Mr. WARE. Right. The implementation of those should
actually help quite a bit.
Ms. CHU. Okay, thanks.
Mr. WARE. And I have got to tell you, it is a different
environment in terms of cooperativeness and in terms of
listening and in terms of sitting down to come up with what the
best way is to address the fraud risk.
Ms. CHU. So it sounds like they have implemented the
suggestions, every single one of the suggestions you have
talked about?
Mr. WARE. Well, they have stated that they have. We have
not yet tested them.
Ms. CHU. Oh.
Mr. WARE. Some we definitely can see that they have.
Others, we certainly have not tested as yet.
Ms. CHU. Okay. Mr. Ware, also, there is another issue. It
has been almost a year since you participated in an oversight
forum to discuss the findings of your flash report following
the program launch. And during that forum you told me that last
year SBA issued no guidance to lenders describing how they
should prioritize underserved borrowers and have taken almost
no steps to collect data on loan disbursements meaning that it
would be nearly impossible to evaluate whether the program was
reaching underserved businesses. And that is an important issue
to me. Congress is great at set asides for community financial
institutions in order to reach these underserved businesses--
data collection reporting we could never know how effective the
programs would be at reaching underserved markets or how we can
improve the outreach.
So since under the last administration the agency failed to
act on your recommendations, can you describe what specific
steps the SBA can take now to backfill the demographic data on
PPP recipients?
Mr. WARE. Well, although publicly they disagree, they
actually did make some changes to the forms. They did some
changes to way that they are going to be measuring. So that was
done even under the last administration to make sure that they
could capture going forward. But what happened in the past,
basically, it happened. So there is no way to capture that
initial part of it. But going forward that was something that
they did move to correct.
Ms. CHU. And how about now in terms of the data collection?
Mr. WARE. In terms of data collection, well, if you just
use the Restaurant Revitalization program as an example, you
are doing it in the pilot to make sure that they get to the
people they are supposed to get to up front and to be able to
take a deep breath and assess the effectiveness. I think that
is a major step forward. And we will be reviewing that pilot
program.
Mr. PHILLIPS. The gentlelady's time has expired.
And now the gentlelady from California, Ms. Kim, is
recognized for 5 minutes.
Ms. YOUNG KIM. Thank you, Chairman. I also want to thank
the Committee for holding this important hearing to discuss the
oversight of the SBA's COVID-19 programs.
We have heard a lot about the deficiencies that were found
through the GAO and IG report and I think we all agree that PPP
and the EIDL program have helped countless small businesses. It
certainly did in my 39th District. However, in order to explore
the PPP and the EIDL continues to provide assistance
[inaudible] taxpayer money, SBA [inaudible] better job
complying with GAO and Inspector General recommendations. The
purpose of this hearing is to let them know that we are
watching and they are on notice.
But SBA should also take note of the oversight deficiencies
of the PPP program to ensure that other programs do not face
the same problems.
So Mr. Ware, to your knowledge, does the SBA have the right
oversight capabilities in place for the [inaudible] program and
the Restaurant Revitalization Fund program?
Mr. WARE. What I can say is this: Based on what SBA has
provided to our office, it is apparent, number one, that they
are taking it very, very seriously. And number two, on the
surface, that they have built in a control structure that would
address all of our recommendations and that should, on the
surface because we have not yet tested them, it should mitigate
a lot of the fraud risk that we saw in the beginning.
Ms. YOUNG KIM. So when do you plan on doing a follow-up
inspection?
Mr. WARE. Well, for example, on the Restaurant
Revitalization program, we will be conducting a review of the
implementation of the pilot, for example. At that time we will
be able to talk more clearly and succinctly about what controls
were in place, what the controls achieved, and whether or not
they met the intent of the act.
Ms. YOUNG KIM. Mr. Ware, you mentioned the importance of
data analytics. So how does data analytics help? Can you
provide some examples?
Mr. WARE. Sure. Well, it has basically transformed the way
we do business. When you have that many loans to review, when
you have that many hotline complaints, when you have that many
referrals from the agency to the tune of almost like 15,000 a
week, the only way that you could focus your attention on what
needs to be focused on is through the use of data analytics,
through the use of trend analysis to see where the problems are
located so that we can assign our investigative staff to pursue
it. Or so that we can assign our audit staff to give a more
global look in terms of what is going on in these programs.
Where the fraud is so that we can move. It is the only thing
that has not crippled us. We would have been crippled had it
not been for data analytics.
Ms. YOUNG KIM. That is fine. I will yield the balance of my
time. Thank you.
Chairwoman VELAZQUEZ. The gentlelady yields back.
The gentleman from Pennsylvania, Mr. Evans, is recognized
for 5 minutes.
You need to unmute.
Mr. EVANS. Thank you. Thank you, Madam Chair. Thank you
also for this hearing.
I would like to ask a question, Madam Chair, to Mr. Shear
and Mr. Ware. The question I would like to ask is, if you had
to give the SBA a grade for handling of the programs during the
pandemic, what grade would you give it and why?
Mr. WARE. Bill? I would like to see how you tackle that
one.
Mr. SHEAR. Okay. I will give it a try.
It is a great question and it makes me think of my former
days as a college professor. It is just like how do you grade
students. And on this one, we were very accepting when SBA
said, going back to last April, we had to get the loans out
quickly, there was a pressing need to get the loans out
quickly. And so at any rate, they got the loans out very
quickly but then when you look at just the problems with
administering the program and moving forward and putting the
types of oversight in place that was so necessary and just the
lack of cooperation with us rather than trying to use us as a
tool to try to identify improvements that could be made in the
program, it is a poor record. And so these are some of the
things that are associated with why we have these programs on
our high risk list.
Mr. WARE. The role of an Inspector General is to assist our
agencies in being the best agencies that they can be in terms
of efficiency and effectiveness. As we all know, SBA was
charged with setting up a program in a matter of days. They got
14 years' worth of lending out in 14 days basically. And we
were along on the ride with them from the very beginning in
terms of the three white papers that we put out and in terms of
coming to the table and what needed to be set up from the very
beginning. I do not know what grade I would give but I know had
those been heeded it would be a much larger success story. I
cannot give a letter grade.
Mr. EVANS. Is that the same deal with Mr. Ware? Can you
give one to you or you would rather not to?
Mr. WARE. No, that was me.
Mr. EVANS. Mr. Shear. I mean, Mr. Shear.
Mr. WARE. Oh, yeah, yeah, sorry.
Mr. SHEAR. I would just say that personally, my focus is
more on this long period of time where there was the lack of
transparency, the lack of cooperation and where there was not a
demonstration basically that, for example, with PPP, that the
loan review process being in place, the lack of information
there. So I am not going to give, you know, I do not want to
give an exact letter grade but it would not be an A. So, but I
really, I really do not want to give it a letter grade. It is
not something that we are in the business of doing.
Mr. EVANS. Mr. Ware, is that what you are saying, too? You
do not want to give it a grade neither?
Mr. WARE. Yes. I am saying that it is clear that SBA worked
hard. And I am here. I know how hard these employees have
worked. And they helped Americans in need. The only thing is in
terms of our assurance, or anyone's assurance that the money
went to only the eligible. So, no letter grade.
Mr. EVANS. I thank both of you. I yield back the balance of
my time, Madam Chair. Thank you.
Chairwoman VELAZQUEZ. The gentleman yields back.
The gentlelady from Texas, Ms. Van Duyne, is recognized for
5 minutes.
Ms. VAN DUYNE. Thank you very much, Madam Chair. And to the
Ranking Member for holding this necessary hearing.
Each of today's testimonies have referenced that amidst
billion of dollars of fraud and identity theft and its pandemic
relief programs, that the SBA has failed to provide necessary
data and documentation on the PPP and EIDL in a timely manner.
I have got to tell you. I listened to a lot of blame game going
on today and it is frustrating. We have people who are being
blamed in leadership that are no longer here to defend
themselves. I know that SBA was a $17 billion agency that was
expected to put out over a trillion dollars in a matter of
months. I am not here to defend them but I think what we need
to do, instead of playing the blame game on the last
administration that I know elected officials were the ones who
were pushing that to make sure that that money got out, for
good reason. Governments shut down these businesses and made
them insoluble in a number of cases and we needed to help them
as soon as we could. But I am looking moving forward. What are
the steps that we are going to take as we are coming out with
more money to add to these programs, as we are coming out with
more programs of the new administration. Moving forward, what
are we doing to make sure that we will be in a position where
this fraud is not rampant, where we are having more controls
given the fact that we have had a number of months now to get
up to speed?
So with that, regarding the lack of data and documentation,
my question to both of you is, what information is still
outstanding and who can provide it? Are we expecting a time
period that we are going to look and work with the new
administration to say this is actually the numbers that we
looked at? I am sure that data exists. How do we get to it?
Mr. Ware, go ahead and go first.
Mr. WARE. Should I go first? Okay.
My issue was a lot different from GAO's, my experience was.
All right? I had access for the most part to the data that I
wanted. And I had access to the leadership. I sat at the table
with the leadership on numerous occasions. As a matter of fact,
every week the administrator and I had a standing meeting every
week where we would go over these things. So I did not have
that same experience. And I do not have anything that is
necessarily outstanding that would prevent us from providing
the type of fast information that the agency can use to make
sure that they are putting out these programs the way they are
supposed to.
Ms. VAN DUYNE. Mr. Shear?
Mr. SHEAR. Our focus is on looking at how SBA is acting to
implement our eight open recommendations. So that is a big
focus of ours and a lot of that is that we are being provided
information and we know that these recommendations are not
something that it is just a matter of giving us information,
that SBA will have to make some fundamental changes. And I
think that they are showing a responsiveness to realize that
certain changes have to be made in how these programs are
operated.
As far as what we are doing is that our next step, we have
had these bimonthly reports that are GAO-wide under the CARES
Act, and we are going to quarterly reports. And then we are
going to have three standalone reports this summer that will
focus on for PPP one report looking at who has been served by
the program and the lenders and borrowers that have been
participating in the program. On PPP, what I have been talking
about today has to do with internal controls and looking at the
forgiveness process. So we are analyzing a lot of data. We are
analyzing a lot of information. We are getting cooperation on
that. We are still seeking a fair amount of information on the
oversight structure for the EIDL program but we are going to be
reporting on the EIDL program in a standalone report that is
going to be both on who has been served by the program and
looking at questions as far as how is the agency implementing
our recommendations. And in doing that, now that we have a lot
more information----
Ms. VAN DUYNE. Understand, I have got 5 minutes and I have
got a ton more questions so if you could just make your answer
a little bit more----
Mr. SHEAR. I will just say we are probably going to have
more recommendations----
Ms. VAN DUYNE. Okay.
Mr. SHEAR.--now that we have more detailed information on
what the agency is doing.
Ms. VAN DUYNE. Okay. So we are going to see a lot more
reports coming out. But you have got two new programs that are
going to come out now, the Shuttered Venue and the Restaurant
Revitalization Fund, which are, again, new programs under the
new administration, their own challenges. You have already
noted that some of these have had horrendous launches. So do
you believe that the SBA has put in place enough controls to
limit the susceptibility to waste, fraud, and abuse for the new
programs?
Chairwoman VELAZQUEZ. Time has expired but I will let him
answer the question. Go ahead.
Mr. WARE. Okay. In response to the question, what we have
been presented with to date demonstrates that they are very
alert and attentive to the issues that were in place before and
intent on making sure that it is not there. They have set up a
control environment to address these issues.
Ms. VAN DUYNE. Okay. Well, I----
Mr. WARE. We have not tested it yet.
Ms. VAN DUYNE. Okay. I look forward to working with
Chairman Phillips to hold a hearing in the near future on some
of these issues with the OIG's office, GAO's office and SBA. I
know that we have got the SBA administrator coming in at our
next hearing but I really look forward on our Oversight,
Investigations, and Regulations Subcommittee on pulling
together a hearing. So thank you very much.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
The gentlelady from Minnesota, Ms. Craig, is recognized for
5 minutes.
Ms. CRAIG. Thank you so much, Chairwoman, and thank you in
particular for holding this hearing today.
Mr. Ware and Mr. Shear, thank you for being here, and for
keeping this Committee updated and well-informed on the SBA's
pandemic response. I know that this has been a significant
challenge for the Small Business administration over the last
just over a year now and we appreciate the work that the SBA
and its employees have undergone to make sure that our small
businesses, as many as possible, could survive this public
health crisis.
It is clear from testimony today though that there have
been some internal controls that are lacking, and action in the
SBA has resulted in several issues that ultimately harm the
people that we are trying to help, those small business owners.
While the SBA should certainly work toward corrective actions
based on its experience over the last year, we have an
opportunity to proactively add more internal controls and
address these issues as we stand up new programs such as the
Shuttered Venue Operator's Grant and the Restaurant
Revitalization Fund.
So Representative Van Duyne in her questioning here just a
moment ago touched on this at the end but I know she was out of
time and you did not get to really expand upon this, but our
hardest hit small businesses have been waiting for this
assistance for months and we must ensure these funds to get our
small business owners the money and not spammers.
So Mr. Ware, you noted in your testimony serious concerns
with the control and tracking of the Shuttered Venue Operators
Grant program that requires immediate action and attention.
Could you please provide an update on that work that you are
doing with the SBA to strengthen and launch this program? And
more specifically, have there been similar conversations, and
do you believe that the work you are doing for the Shuttered
Venue program will suffice as you launch the Restaurant
Revitalization Fund?
Mr. WARE. So maybe I will start backwards. So on the
Restaurant program, like I said, it is very evident that they
are intent on establishing a control structure that would
ensure that fraud risk is mitigated in a major way. I believe
they have done the same thing on the shuttered venue programs.
Those programs, they have shown us the control structures for
both of them that go a long way in addressing many, if not all
of our concerns. The issue that I reported on with the
Shuttered Venue had to do with what happens for the people that
get in the right way. Is there proper guidance? Is there any
way for you to monitor what those funds are actually going to
be used for? Because it is a grant program. It is not a lending
program. There are specific rules contained in the 2 CFR 200.
And so that was the issue that we thought was critical, that
they had to have the control structure on the inside to make
sure that we are able to know what the program results were.
Ms. CRAIG. Fantastic. Well, I also serve on the Oversight
Subcommittee, and we will look forward to continuing to receive
your information and I look forward to Chairman Phillips
continuing that dialogue.
And with that, Madam Chairwoman, I am going to yield back.
Chairwoman VELAZQUEZ. She yielded back. I am sorry. Thank
you. The gentlelady yields back.
The gentlelady from Florida is recognized, Ms. Salazar, for
5 minutes.
Ms. SALAZAR. Thank you, Madam Chairman. And thank you very
much, Mr. Ware, for your role as Inspector General which is
vital to do a good job. And myself, as well as my constituents
thank you for your hard work.
And I have a few questions which I know they are going to
be a little bit uncomfortable but I wanted to just ask you if
you the last year the SBA received $3.6 billion in salary and
administrative costs, the Inspector General office received $70
million, and it received $50 million extra for audits. But
after all this money that I just explained and I just told you
right now, still, $82 billion between PPP and EIDL was not used
properly. Eighty-two billion dollars. So where were you guys?
Were you guys asleep? You had, I am going to repeat, $3.6
billion in salaries and administrative costs, $70 million for
the Inspector General Office, and $50 million for audits.
Mr. WARE. I am not sure if you realize, I am the Inspector
General, so I did not get those funds that you are talking
about. My budget is generally $21 million and it is for audits,
investigations, and things of that nature. We were far from
asleep. We have been----
Ms. SALAZAR. Well, wait a minute. Were you not in charge?
Were you not the----
Mr. WARE.--issues of this before the first loan went out
the door.
Ms. SALAZAR. Let me just interrupt you in a minute. Were
you not in charge of making sure that whatever monies the SBA
was receiving was properly used?
Mr. WARE. I am the Inspector General. My job is to make
sure that I point out instances of fraud, waste, and abuse.
That is the role of an IG.
Ms. SALAZAR. Correct. So when $82 billion were being----
Mr. WARE. Correct. And that is what we did----
Ms. SALAZAR.--dilapidated. Yes, tell me. So where were you?
Mr. WARE. We were the ones who reported on the money that
is being misused. We are the ones conducting the criminal
investigations to make sure criminals are brought to justice.
That is our role. I think there is confusion between the role
of the Inspector General and the role of the administrator.
Ms. SALAZAR. And I am sorry my ignorance. And it is true.
Let's suppose that I am ignorant and I am very sorry, but then,
what then can we do with your help in order to make sure that
those people that did not use these monies properly are going
to be held responsible?
Mr. WARE. That is my role. To date, we have over 460
criminal investigations going on. We have already recovered,
along with SBA, over $1.9 billion. This is what we do. And we
have been the ones that have been recommending from the very
beginning the proper control environment that needs to be in
place up front so that I do not have as many criminal
investigations to run on the back end.
Ms. SALAZAR. All right. So then you did your job and I
commend you for that. So then who do we have to go to right now
in order to ask that person these questions? Somebody has to be
responsible and that is what I am trying to find out and you
are the person that needs to tell us.
Mr. WARE. I believe at this point where we are currently,
we are in an environment where the control environment is
greatly shrinking. We are in an environment where we have
partnered across the entire government to include FBI, Social
Security Administration, Secret Service, FDIC, everyone, the
PRAC working groups, all of us are looking into this at this
time.
Ms. SALAZAR. All right. So then please keep advising us as
to where we need to look at in order to make sure that we do
not have another $82 billion wasted.
Mr. WARE. Thank you.
Ms. SALAZAR. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
With that we conclude our important oversight hearing. Let
me thank our witnesses for joining us today.
Your oversight of SBA is a critical tool for Congress as we
seek to limit instances of fraud, waste, and abuse in agency
programs. PPP and EIDL have been vital lifelines for the
millions of small businesses that have been devastated by the
pandemic. However, it is clear that these programs'
unprecedented size and scope, in addition to the speed in which
the agency processed these loans have opened them up for fraud.
The steps SBA has been taking to mitigate fraud are
encouraging. However, your testimony today has made it clear
that more work needs to be done. This Committee must remain
diligent and work to root out instances of fraud, waste, and
abuse. To address the problems that we have heard about today,
we must conduct this oversight in a fair, bipartisan manner.
I look forward to working with Committee Members to ensure
that money goes to the small businesses that truly need it and
that taxpayers' dollars are protected.
I will ask unanimous consent that Members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
If there is no further business to come before the
Committee, we are adjourned. Thank you.
[Whereupon, at 12:02 p.m., the Committee was adjourned.]
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