[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                  REVIEW OF SBA'S TOP MANAGEMENT AND 
                 PERFORMANCE CHALLENGES IN FISCAL YEAR 
                 2022 AND SBA OIG'S SEMIANNUAL REPORT 
                 TO CONGRESS

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            JANUARY 12, 2022

                               __________

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 117-042
             Available via the GPO Website: www.govinfo.gov             
             
                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-712                      WASHINGTON : 2022                     
          
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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
                         TROY CARTER, Louisiana
                          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..........................................     2

                                WITNESS

Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the 
  Inspector General, United States Small Business Administration, 
  Washington, DC.................................................     4

                                APPENDIX

Prepared Statement:
    Mr. Hannibal ``Mike'' Ware, Inspector General, Office of the 
      Inspector General, United States Small Business 
      Administration, Washington, DC.............................    35
Questions and Answers for the Record:
    Questions from Hon. Velazquez and Answers from Mr. Ware......    46
    Questions from Hon. Chu and Answers from Mr. Ware............    50
    Questions from Hon. Luetkemeyer and Answers from Mr. Ware....    51
    Questions from Hon. Hagedorn and Answers from Mr. Ware.......    61
    Questions from Hon. Van Duyne and Answers from Mr. Ware......    65
Additional Material for the Record:
    NAFCU - National Association of Federally-Insured Credit 
      Unions.....................................................    68

 
  REVIEW OF SBA'S TOP MANAGEMENT AND PERFORMANCE CHALLENGES IN FISCAL 
                  YEAR 2022 AND SBA OIG'S SEMIANNUAL 
                           REPORT TO CONGRESS

                              ----------                              


                      WEDNESDAY, JANUARY 12, 2022

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:00 a.m., in Room 
2360, Rayburn House Office Building and via Zoom, Hon. Nydia 
Velazquez [chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Golden, Davids, Mfume, 
Phillips, Newman, Bourdeaux, Carter, Chu, Evans, Delgado, 
Houlahan, Mr. Kim, Craig, Luetkemeyer, Williams, Stauber, 
Meuser, Tenney, Garbarino, Mrs. Young Kim, Van Duyne, Donalds, 
and Fitzgerald.
    Chairwoman VELAZQUEZ. Good morning. I call this hearing to 
order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    I would like to begin by noting some important 
requirements. 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, remember to remain muted until you are 
recognized to minimize background noise.
    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 I 
will recognize that Member at the next appropriate time slot 
provided they have returned to the proceeding.
    For those Members and staff physically present in the 
Committee room today, in accordance with the attending 
physician's most recent guidance, all Members and staff who 
attend this hybrid hearing in person will be required to wear 
masks in the hearing room.
    Now I will move to my opening statement.
    First, I would like to welcome Inspector General Ware. 
Thank you for being here today. Your work has been 
indispensable throughout the COVID crisis, and you should be 
proud of your efforts to improve programs critical to small 
businesses. The IG's office is tasked with reporting on the top 
management and performance challenges facing the Small Business 
Administration every year. While this year's report covers many 
longstanding issues, it also calls attention to the biggest 
challenge facing the agency, the pandemic relief programs.
    Since 2020, the SBA has distributed nearly $1 trillion in 
economic relief to small firms. This figure surpasses the 
amount of money distributed in all other years of SBA's 
existence combined. This is an enormous achievement and helped 
keep millions of small businesses afloat during the pandemic. 
However, with any emergency effort of this magnitude, problems 
will inevitably occur. According to investigations, the COVID-
EIDL and Paycheck Protection Programs have been vulnerable to 
fraud. Much of this potential fraud can be traced back to the 
early days of the pandemic when programs were new, loan volume 
was high, and the need to get the loans out quickly was the 
priority.
    Your report also notes that in 2020, the previous 
administration ``relaxed internal controls,'' adding 
significant stress to the system and creating an environment 
ripe for fraud.
    This Committee has worked diligently to conduct oversight 
and institute legislative fixes to address these problems. We 
have conducted hearings, written letters, held briefings, and 
passed bills, ensuring money is going to small businesses that 
need it most and not the bad actors. Since taking office in 
January, the Biden administration has also demonstrated its 
commitment to rooting out fraud and abuse.
    Administrator Guzman inherited many open recommendations 
from the OIG. Under her leadership, the SBA has closed out 70 
OIG recommendations this year alone. SBA took steps to shore up 
fraud protections in critical pandemic programs. This includes 
implementing a master review plan for loan and forgiveness 
applications in the PPP program and allowing the agency to hold 
funds at any time in the EIDL process.
    The agency now also ensures that all borrowers are not on 
the Treasury Department's ``Do Not Pay'' list. These are just a 
few of the actions that help reduce fraud. I look forward to 
continuing our work with the administration on this front.
    At the same time, the IG's reports cover other critical 
issues unrelated to pandemic relief. These include challenges 
in small business contracting, IT security, access to capital, 
and disaster assistance.
    Addressing these problems will require sustained work on a 
bipartisan basis from this committee. I hope that today's 
hearing allows us to take a close look at all of these issues 
and discuss bipartisan solutions to fix them.
    I would now like to yield to the Ranking Member, Mr. 
Luetkemeyer.
    Mr. LUETKEMEYER. Thank you, Madam Chair. And thank you for 
calling today's hearing with Inspector Ware. Welcome, 
Inspector. Always good to have you before us to explain what is 
going on.
    Before I begin, I also want to thank the Chairman for the 
announced changes in the order in which Members will question 
the witnesses. This is an important announcement. I am thankful 
for your action. Likewise, I know Members will appreciate going 
back to regular order and the methods that were voted on within 
the rules package.
    Additionally, I would like to take this time to recognize 
and congratulate the Committee's chief counsel, Jan Oliver, on 
her upcoming retirement. Jan has been a stalworth for small 
businesses for years and has worked in public service for 
decades. From her time with now-Senator Portman to working at 
the White House and to her time and her services committee, her 
steady guidance and counsel for the past 31 years has always 
been welcomed by the several Chairmen and many Committee 
Members that she has served. Jan, thank you for the thoughtful 
insight, analysis on all issues, including and especially those 
pertaining to regulations and its impact on small businesses. 
Thank you very much.
    Now, as we start the second session of the 117th Congress, 
it is critically important that we begin with a discussion on 
oversight. With roughly $1 trillion in assistance provided to 
the nation's smallest firms through the Small Business 
Administration, we must exercise our oversight responsibilities 
wisely and often. It is not just dollars flowing to small 
businesses. There are new programs at the SBA that also require 
our attention. That is why I am thankful we have today's 
conversation with Inspector General Ware.
    Congress moved quickly in the spring of 2020 to support the 
nation's economy with hundreds of billions of dollars for small 
businesses. Some of these programs, like the Paycheck 
Protection Program, which was driven by private sector lenders, 
focused heavily on the nation's workers. Other programs that 
were administered directly through the SBA moved slower and 
were overall less successful. Fraud took place and taxpayer 
dollars were and continue to be wasted. This is unacceptable.
    The numbers presented by the inspector are significant. 
While the IG reports approximately $4.6 billion in possible 
fraudulent activity within the Paycheck Protection Program, the 
Economic Injury Disaster Loan Program, also known as EIDL, is 
enmeshed in roughly $84 billion in potentially fraudulent 
activity. The PPP was administered by private sector financial 
institutions. The EIDL program was not. The SBA acted as the 
sole and only gatekeeper to the EIDL program. That any theft or 
businesses and individuals illegally entered the program is a 
major problem for the EIDL program.
    Differences on how these programs were run cannot be 
overstated and they should serve as case studies for future 
public policy debates on how the SBA should run its programs. 
Asking SBA to expand or enhance their direct lending ability 
would be counter to the facts that we have on the ground.
    Beyond the COVID relief programs, we know that the SBA has 
struggled with identifying risks within their access to capital 
programs, overseeing their contracting programs, and updating 
and keeping pace with their information technology needs for 
years.
    The COVID emergency period has compounded all these 
programs and challenges for SBA. I always say that when you put 
something under stress, that is when you find out where your 
real problems are. And obviously with this COVID situation and 
the SBA taking on a tremendously increased workload, we now 
know where a lot of problems are.
    Due to PPP and EIDL, more businesses know about the 
services and functions of SBA than ever. Therefore, the SBA 
must be ready to serve and assist small businesses, all the 
while protecting taxpayer dollars and preserving the integrity 
of the existing programs.
    Small business owners do not have time to waste. They are 
facing significant price increases and they are having trouble 
finding workers. Unfortunately, it does not end there. Supply 
chain issues continue to thwart their planning and uncertainty 
surrounding a vaccine mandate is ever present. Now more than 
ever, the federal government programs cannot be duplicative, 
wasteful, or counterproductive.
    I look forward to hearing more from Inspector Ware on where 
fraud stands today with the COVID relief programs, an update on 
all recommendations, and what programs his office will be 
examining next. With such a significant amount of potential 
fraud clogging the process for small businesses, I know the 
discussion will not end here. This will require ongoing efforts 
for years to come.
    With that, Madam Chair, I look forward to working with you 
this year, and I look forward to continuing to work with the 
Inspector General. To that end, I want to give you this letter 
which is a list. And we can give that to your staff. This 
letter which is a list of some of the witnesses and topics that 
I think would be impactful for and helpful to us in our 
legislative and oversight work.
    With that, Madam Chair, I yield back and look forward to 
working with you this coming year.
    Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The 
gentleman yields back.
    With that, I will now introduce our distinguished witness, 
the Honorable Hannibal ``Mike'' Ware, Inspector General of the 
SBA. Mr. Ware was sworn in as the inspector general in May 2018 
and has been an effective leader in his role and an asset to 
this Committee. He has nearly 30 years of experience in the IG 
community rooting out fraud, waste, and abuse in federal 
programs.
    Welcome, Mr. Ware. You are recognized for 5 minutes.

STATEMENT OF HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL, OFFICE 
    OF THE INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS 
                         ADMINISTRATION

    Mr. WARE. Thank you, and good morning. Good morning, 
Chairwoman Velazquez, Ranking Member Luetkemeyer, and 
distinguished Members of the Committee. Thank you as always for 
inviting me to speak with you today and for your continued 
support of my office.
    It was my hope that my next appearance before this 
Committee would occur with the pandemic in our rearview 
mirrors. However, the pandemic has been lasting with 
everchanging challenges.
    SBA has played a pivotal and unprecedented role in 
stabilizing the U.S. economy. In doing so, the men and women of 
SBA who have been on the frontlines and who have directly met 
the needs of millions of small businesses, they have sacrificed 
their time and worked long hours to implement these programs on 
an unprecedented scale. Not only do we as taxpayers thank them 
for their hard work, but there are countless whistleblowers who 
have come forward to my office to shine the light of 
transparency on matters that they believe were of concern to 
stewarding the taxpayers' dollars. We thank them not only for 
their hard work but for their courage and sense of duty to the 
nation.
    The men and women of my office equally have been working 
diligently to provide oversight of SBA's pandemic response. We 
have never lost sight of the struggles of the small business 
owners and their employees who toil not only with financial 
hardship but in many cases personal loss as a result of the 
pandemic. We are keenly aware that nothing short of the 
public's trust is at stake in our oversight efforts.
    We have already issued 18 reports addressing SBA's pandemic 
efforts with dozens of recommendations for corrective action. 
Our investigative work to date has resulted in 366 indictments, 
294 arrests, and 142 convictions related to EIDL or PPP. The 
monetary recoveries and savings from our oversight 
investigations pandemic response efforts in fiscal year 2021 
alone were $4.2 billion, with Congress investing just $50 
million in supplemental funds to facilitate our oversight 
efforts.
    And the work has really just begun. A significant portion 
of our supplemental funding will be exhausted by the end of 
fiscal year 2024 which will coincide with hundreds of billions 
of dollars in EIDL loans coming due for payment. We anticipate 
this will be a key moment for realizing the true scope of fraud 
in the program which already is expensive.
    We believe our annual resource levels will need to be right 
sized to match this fraud landscape and to provide necessary 
oversight of SBA's management challenges in the years beyond 
the pandemic response.
    Notwithstanding the challenge, OIG has sought opportunity 
to more effectively and efficiently carry out our mission. We 
have provided oversight in real time, producing reports in 
under 2 months. In doing so, the IG community took note and 
used our oversight model to develop an agile products toolkit 
for OIGs across government. The result of our innovation is 
that we proudly kept the Congress, the administrator, our 
stakeholders, and the public currently and fully informed of 
SBA's pandemic response efforts.
    I am also happy to report that OIG has taken significant 
strides in leveraging data analytics to oversee these vast loan 
portfolios. We are moving from a reactive data analytics 
posture to leveraging artificial intelligence and machine 
learning to get in front of fraud and expand the reach of our 
oversight.
    In OIG's dealing with SBA's leaders throughout the 
pandemic, I have never had a reason to doubt their commitment 
to providing assistance to the nation's small businesses. In 
terms of characterization of SBA's response to our findings 
related to their pandemic response, it is my perspective that 
there were missed opportunities to recalibrate internal 
controls and implement corrective action in a timely manner at 
the outset of SBA's pandemic response efforts. This has since 
changed significantly as we work more closely to implement 
proper internal controls from the onset of new program 
startups. We are committed to providing independent and 
objective oversight of SBA's programs and operations. And in 
doing so, we will continue to shine the light of transparency 
and work diligently to keep everyone informed.
    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 now recognize myself for 5 minutes for questions.
    Mr. Ware, Administrator Guzman indicated that this 
administration is sincere in implementing the IG's 
recommendations and that SBA has made great strides in 
satisfying most recommendations. Is this administration 
cooperating with ongoing audits and investigations, and can you 
expand on your relationship with the administrator in resolving 
the IG's recommendations?
    Mr. WARE. Yes. Thank you for the question.
    I could say unequivocally that this, well, the leadership 
team at SBA currently is definitely taking recommendations 
seriously and moving quite quickly to resolve them.
    Chairwoman VELAZQUEZ. Thank you.
    In your July briefing with the Committee, you indicated 
that 50 recommendations made by the OIG related to PPP and 
COVID-EIDL remained open. At this time, how many remain open?
    Mr. WARE. At this time, I believe that number is, it could 
be 20. I could get back to you on the exact number. What I do 
know is that half of the number that remain open have not quite 
come due yet to be closed. And the date for another set of them 
passed just December 31st and we may have the information on it 
but we have not reconciled that information yet to give an 
update as to which ones can be closed.
    Chairwoman VELAZQUEZ. Thank you. Speed was imperative at 
the beginning of the pandemic leading to fraud controls being 
removed. The current administration put guardrails back in 
place to prevent further fraud and abuse. Has your office 
evaluated whether any of the new safeguards are achieving their 
intended goals since most of the audits and investigation have 
focused on the performance of the PPP and COVID-EIDL programs 
under the previous administration?
    Mr. WARE. So there are a few ways to look at that. To 
answer the question directly, we are in the process of 
reviewing those. And as a matter of fact, two reports should be 
out addressing those questions more directly within the next 30 
days I believe. I hope; right? That is what we are looking at. 
But I could tell you this, what was done differently in terms 
of this leadership team was an upfront focus on the internal 
control environment that included an actual sit-down to 
determine what was best to be put in place prior to setting 
anything else up.
    Chairwoman VELAZQUEZ. Thank you. Mr. Ware, Congress created 
the COVID-EIDL program to provide quick working capital to 
small businesses suffering economic injury due to the COVID-19 
pandemic. In creating this program, Congress acknowledged that 
the private sector will struggle to deliver relief funds to 
small dollar borrowers quickly. Given the COVID-EIDL emphasis 
on the fast delivery of funds and the approach the private 
sector took to focus on larger businesses and existing clients 
with PPP, do you believe it is fair and appropriate to compare 
COVID-EIDL to the 7(a loan program?
    Mr. WARE. Being that they are two totally completely 
different animals, it is difficult, based on the evidence that 
we have, to make a comparison of the two in terms of how 
delivery is. Certainly, the body of work definitely says that 
the direct lending programs have had issues in terms of a fraud 
environment, but so has the 7(a) program as well. We have our 
own issues with them. To make up a comparison of the two when 
speaking about direct lending, I do not believe that we have a 
body of work that can make that because there are so many 
different aspects that have to be considered. And we have 
focused primarily based on fraud risk.
    Chairwoman VELAZQUEZ. Okay. So is it fair to compare new 
direct lending programs to the COVID-EIDL given the stark 
differences and goals in the two programs?
    Mr. WARE. I believe that a whole lot of angles have to be 
considered if you are going to do a comparison. From an 
Inspector General perspective, from my perspective, either way 
there is the control environment that will tell the tale.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. WARE. A proper control environment could----
    Chairwoman VELAZQUEZ. My time has expired.
    Mr. WARE.--a lot of issues that we have seen.
    Chairwoman VELAZQUEZ. Thank you.
    Mr. WARE. Thank you.
    Chairwoman VELAZQUEZ. Now I recognize the Ranking Member, 
Mr. Luetkemeyer, for 5 minutes.
    Mr. LUETKEMEYER. Thank you, Madam Chair. And again, 
welcome, Inspector. Good to see you again.
    I would like to start today by discussing some of the 
numbers that your reports identified when it comes to fraud. In 
total it looks like there is approximately $80 billion in 
potentially fraudulent EIDL activity and another $4.6 billion 
potentially fraudulent activity within the PPP. These two 
programs have different mechanics as you have just described 
but I think contrary to the point of the Chairman, that there 
is some similarities here in that they are direct lending 
programs, money going out the door, but they were done in a 
different fashion from the standpoint that the PPP had the 
private sector, the banks, credit unions and some fintech folks 
delivering those funds versus SBA and their folks delivering 
that. And so I think the difference there, correct me if I am 
wrong here, but this is my question. It would appear to me that 
the rules, regulations, processes, procedures, controls were 
not followed by the SBA folks when it comes to the EIDL program 
and some of the other direct programs, 7(a) programs that they 
implement versus the banks and credit unions who have `` know 
your customer'' rules in place, laws in place that minimized. 
When you look at $4.6 billion in PPP, that is roughly 5 percent 
fraud rate. Eighty billion is over 30 percent fraud rate in the 
EIDL program. That is a significant difference between the two 
and I think there is a significant difference in the way that 
they were adjudicated by the SBA. Would you agree with that?
    Mr. WARE. I would agree that the 7(a) program in dealing 
with the lenders meant that they had more of a relationship and 
they were able to let us know from the onset where the issues 
were and to work with us to call back a whole lot of the money.
    In terms of EIDL oversight initially with the focus being 
solely on speed, initially and guardrails being lowered, it is 
just, that was the reason. That was the reason that we ended up 
with what we have.
    Mr. LUETKEMEYER. Okay. So it begs the question then, have 
the guardrails been put back up?
    Mr. WARE. Have they? That is what you are asking me?
    Mr. LUETKEMEYER. Yeah. You said the problem with the fraud 
was the guardrails were taken off. Have they been put back up?
    Mr. WARE. Yes. Many of the guardrails have, and many of our 
recommendations to that regard have been put in place.
    Mr. LUETKEMEYER. I am going to follow up with regards to 
the PPP. We had this discussion before and we found that a lot 
of the fraud that was in the PPP program was in the fintech 
folks. They did not have the `` know your customer'' law in 
place that the banks and credit unions do, or the banks have in 
place, and did not really take the precautions to make sure 
that those dollars were actually going to a real person and 
that this was not duplicative actin on the part of the 
borrower. And so you were telling me in earlier conversations 
and your other reports that the fintechs were really kind of 
the problem children here. Have you seen that continue to be 
the situation? Do you see something different now or where are 
we at with this?
    Mr. WARE. What I told you at the time was that our 
investigative work was finding that where we were seeing the 
most fraud in terms of our arrests, convictions, indictments 
and everything else, there was a great deal, a percentage of 
those that had to do with fintechs. Not saying that if the 
proper control environment is in place that would be the case 
but that is what the evidence demonstrates.
    Mr. LUETKEMEYER. Okay. I know that the Chairman asked a 
number of times about the recommendations that you are making 
and it seems that they are making some progress, which is 
great. I know the last time we talked there was some concern 
that one of the problems was you make recommendations and the 
SBA administration would put them in place but their staffs 
would not execute on those recommendations. Have you seen that 
improve? Is that still going on? Is it getting worse? What are 
you seeing?
    Mr. WARE. I am actually happy for that question because I 
wanted to clarify something. What I needed to clarify in this 
regard is that these things normally take time to happen in 
earnest. So somebody conducting a loan review and what my folks 
brought me up to speed on was this. It is not every person 
conducting a review that did not follow what is currently in 
place; right? We are finding that in some instances it happens; 
in other instances, it does not. And I believe though we may 
find that in just about every program or every industry that 
sometimes what is in place is not followed.
    Mr. LUETKEMEYER. Inspector, you just opened up a whole new 
can of works there. So do we have people that are doing a good 
job and adhering to the recommendations and now we have other 
people that are not? Have you identified those other people yet 
so we can point to them and say these people have to either 
shape up or ship out? I mean, if we have got some bad apples in 
the barrel, we need to get rid of them.
    Chairwoman VELAZQUEZ. Mr. Ware, time has expired but I will 
let you answer the question.
    Mr. WARE. Thanks.
    Mr. Luetkemeyer, I do not believe it is a bad apple 
situation; right? I believe that it is in terms of expertise. 
It is in terms of training and it is in terms of having people 
know exactly what people need to do to the T. We have not found 
where someone is willfully doing a poor job in terms of loan 
review. So I would not want to categorize it in that way. And 
we have work coming out on that that will be coming to you 
very, very shortly.
    Mr. LUETKEMEYER. Well, when 40 percent of the program is 
being fraudulently active, we have got a problem, sir. Thank 
you.
    Chairwoman VELAZQUEZ. Time has expired.
    Now we recognize the gentlelady from Illinois, Ms. Newman, 
for 5 minutes.
    Ms. NEWMAN. Thank you, Madam Chair, and thank you Ranking 
Member. This is a great discussion today.
    Thank you, Mr. Ware, for being here, and thank you for 
executing this very daunting task. It does not fall short on us 
that this is a complicated action that involves actions that 
took place 2 and 3 years ago, so this forensic taskforce has 
really been helpful but realizing that it is tough.
    I want to make one comment and clarify something because I 
just want to clarify with you, you are investigating potential 
fraud and those numbers are relative to potential fraud, not 
proven fraud; correct?
    Mr. WARE. So investigations and audits, two different 
things clearly.
    Ms. NEWMAN. Yes.
    Mr. WARE. So in terms of our audit findings, those were 
potential fraud. We have not reviewed or completed our review 
on the entire package, large package to determine what is the 
actual fraud. We do know anecdotally that what we have called 
potential fraud is very likely fraud because our fraud cases 
and criminal convictions and indictments speak directly to the 
patterns that we document as potential fraud.
    Ms. NEWMAN. Thank you for clarifying.
    So I have three areas of question. I hope we can get it in 
in the five. Tell me a little bit about this right-sizing 
project. I really like this idea. I have done this in business 
before so I really like the agile product. Can you just share a 
little bit about what is in that product kit?
    Mr. WARE. Great. In the toolkit is a way for you to 
identify and focus on a single question or to notify management 
and leadership of serious crucial problems that they need to 
take action on immediately.
    So in the case of EIDL, for example, once we started to see 
the trends, we got to the table with the leadership team here 
while the team was working on putting together something for 
public consumption and told them, listen, you need to put a 
stop to this right now. You need to set up a system of control 
that can identify these duplicate IP addresses and these bad 
emails and these things that fall in like three, four buckets. 
It needs to be addressed right now. And we try to get that so 
the information is immediate and then the public sees the 
entire thing that they could respond to within 30 to 60 days.
    Ms. NEWMAN. Thank you. That sounds like it is working in 
real time which is what we want right now. We do not want to 
lose any more time.
    A couple of other areas. One is data integrity. In our 
visit, oh, gosh, it was probably in first quarter, it was clear 
that there were some data integrity issues. Can you share with 
the Committee here what has been done in the last 3 quarters to 
address the data integrity issues?
    Mr. WARE. Great. So what we have found in working with 
them, initially, of course, the deluge of things that came in 
completely broke the system; right? So since that time they 
brought in a third-party contractor that has done a great job 
in terms of cleaning up the data. And as you know they put out, 
what, I think monthly they put out the stats. They put out 
these things. This data has been fixed tremendously. There are 
some, I think there is one field. I am trying to remember. It 
has to do with congressional data that we are looking at right 
now. So we are in the process of determining just how clean it 
is.
    Ms. NEWMAN. Good. And I will look forward to that report.
    And then finally, which of all of the loan programs did you 
find the least potential fraud and why do you think that fared 
the best?
    Mr. WARE. Great. So, the least potential fraud, of course, 
was found in the Paycheck Protection program. And I believe one 
of the reasons was because they knew, most of the lenders knew 
their customers. So they were able to ask the right questions 
off the bat and to put a stop to it prior to funds being 
disbursed. We got like within the first week or so like 5,000 
contacts from banks where we knew there was a problem. And they 
were being able to hold and they have been a great partner with 
us in terms of having the funds seized and returned to the 
government.
    Ms. NEWMAN. Well, thank you for that. And thank you for 
your great work on this. And I will say again, thank you for 
going back forensically to 2 or 3 years prior to this in 
solving some of the issues that arose at that time. So 
appreciate your work.
    Mr. WARE. Thank you.
    Chairwoman VELAZQUEZ. The gentlelady's time has expired.
    Now we recognize Mr. Williams, the Vice Ranking Member of 
the Committee from Texas.
    Mr. WILLIAMS. Thank you, Madam Chairwoman, and Ranking 
Member Luetkemeyer. I am just listening to this. Already as a 
small business owner it is amazing to me how this Committee and 
this agency is so political and the main street small business 
owner is getting squeezed right in the middle. This is going to 
have to change.
    Now, Mr. Ware, your report found massive fraud in almost 
every one of the SBA's COVID relief programs. In the EIDL 
program we talked about this morning alone there has been 
nearly $80 billion in fraudulent activity. This leads to us to 
question the ability of the SBA to carry out or set up new 
programs in the future if they are unable to properly account 
for taxpayer dollars when main street businesses need it most 
and have earned it. The SBA demonstrated their inability to 
discharge emergency lending at every single turn, yet, my 
democratic colleagues want to expand the SBA's lending 
authority and kind of reward bad behavior even when the private 
sector has proven willing and better suited to take on these 
efforts. The private sector always does it better.
    Mr. Ware, why should we expand direct lending authority for 
the SBA when evidence that you talked about today has clearly 
proven they were unsuccessful in properly executing their 
duties in combatting fraud in COVID relief programs?
    Mr. WARE. Mr. Williams, thank you very much for that 
question. The question as to why should you do that is really a 
policy and program question that the IG is prohibited by law 
from responding to. I could tell you what our body of work 
talks about in terms of an internal control structure and that 
a proper internal control structure, regardless of which way 
this Congress or the administration determines to go from a 
policy perspective is what is most critical in my eyes.
    Mr. WILLIAMS. Okay. During the pandemic, various federal 
agencies were tasked with getting money to the American people 
as fast as possible. Now, unfortunately, the SBA seemed to be 
one of the worst in distributing business saving funds for the 
last 2 years. The Shuttered Venues Operator Grant (SVOG) 
program, which was created from my bipartisan Save Our Stages 
Act, took over 6 months from being signed into law before a 
single dollar was disbursed. Cinemas, theaters, concert halls, 
and other entertainment venues across the country struggled to 
stay in business while they were left in the dark by the SBA's 
Administrator Guzman who has still not been held to account for 
these catastrophic failures. People lost jobs. Futures were 
torn apart.
    So Mr. Ware, based on their fundamentally unprepared to 
perform their duties, is it your opinion that the SBA setbacks 
are indicative of greater organizational challenges? Or was it 
basic incompetence and lack of leadership that caused these 
embarrassing rollouts of events and lifechanging events for 
small business owners? That is a pretty simple question.
    Mr. WARE. Well, I mean, again, I go back simply to the work 
that we have done. And you know, we put out a management alert 
on the control environment and tracking performance results in 
that program, the Shuttered Venue Operators Grant Program; 
right? And in terms of the risk framework that we asked them to 
put in place, clearly the five performance goals, we know that 
they put those items in place. Relative to the rollout of it 
and what happened and who was to blame and everything like that 
for the delay, we have not looked into that. We have another 
report on SVOG that should be out shortly.
    Mr. WILLIAMS. Well, I look forward to seeing that but you 
ought to look into it and see who is responsible for delaying 
this to these businesses that cost so many jobs.
    So the SBA is tasked with assisting small businesses across 
the country. I am a small business owner. However, they fail to 
properly communicate with businesses, borrowers, and lenders 
and Members of this Committee during important times of need. 
So when the SBA system disruptions halted the SVOG program in 
the spring of 2021, businesses were unable to reach anyone at 
the SBA to get a status update on their applications. And I 
mean, you could not get anybody. So meanwhile, Members of this 
Committee such as myself, were being stonewalled and did not 
receive the answers to our pressing letters until October when 
our concerns were really pressing. As Members of this 
Committee, we are charged with overseeing the SBA and I find 
this lack of communication troubling.
    So Mr. Ware, do you have any information or data on the 
SBA's lack of communication with borrowers, lenders, or Members 
of this Committee? We are customers, too, and you have to take 
care of your customer. So if not, would your office to commit 
to looking into the efficiency and the effectiveness of SBA's 
communication with stakeholders?
    Mr. WARE. Yes. Well, definitely. Anything that is a concern 
to this Committee is taken seriously as a concern by my office. 
And if there is a request that you would like to put forward 
for us to look into that, we can.
    Mr. WILLIAMS. Yeah. I just did.
    Chairwoman VELAZQUEZ. The gentleman's time has expired.
    Now we recognize the gentlelady from California, Ms. Chu, 
for 5 minutes.
    Ms. CHU. Mr. Ware, I am so glad to hear that your office 
will continue to audit the PPP program and take a focus on 
fraud in the loan forgiveness process. As you know, in order to 
qualify for total loan forgiveness, the employers had to expend 
at least 60 percent of their PPP proceeds on payroll. Well, I 
have heard from labor unions representing hospitality workers 
in Southern California who have made very concerning 
allegations of several major hotels in the area including JW 
Marriott and the Chateau Marmont. Their Members experienced 
widespread layoffs at the start of the pandemic, yet the 
employer still received millions in PPP loans and have applied 
for forgiveness. It is unclear how they could have met the 
payroll requirements for the loan after laying off nearly all 
of their workers so they have submitted complaints to OIG but 
they have not been contacted yet.
    So can you talk about the office's process for responding 
to complaints regarding PPP forgiveness? And with tens of 
thousands of complaints coming in, will your office need 
assistance to investigate these claims in a timely manner? 
Also, let me ask this. I mean, in the hospitality business, the 
allegations are made of larger employers who received loans 
worth millions of dollars, so are you planning to establish a 
dollar threshold over which loan forgiveness recipients will 
receive more scrutiny?
    Mr. WARE. Thank you. So, there is a lot to unpack there. 
Let me start with our hotline process and what we are dealing 
with. You are correct; there are tens of thousands constantly 
coming in. Here is what we have done. Clearly, my office, we 
tried just about everything up front in terms of dealing with 
all the hotline complaints, including reassigning staff. 
Including we got help from 10 different IG offices in terms of 
processing. What we have done now is we have moved to more of a 
data-driven model in concert with the Pandemic Response 
Accountability Committee (PRAC). And the PRAC and my office 
developed a system by which we could take this in and 
categorize them and do some triaging so we could get these 
things out to the field. We actually got a public award for 
innovation for putting that together and we are still working 
on it. As a matter of fact, it is my hope that if I was to be 
in front of you in 30 days that I would tell you that there is 
no backlog; that everything has been addressed. That is how 
aggressively we are moving on it.
    But that lends itself to a different issue; right? The 
issue is that I have a finite amount of staff, investigative 
staff, that we have staffed up. We are at about 180. And my 
criminal investigators are carrying huge workloads. That is why 
we are partnering across the entire law enforcement landscape. 
So the process in terms of getting back to someone on like the 
people that you spoke about, right, for us is an 
acknowledgement that we received it but we do not provide 
updates, case updates to complaints. So that is the process of 
maybe why they would know that.
    I hope I touched everything. What did I miss?
    Ms. CHU. Oh, I also asked about thresholds and how are you 
ensuring that the larger transgressors are being addressed?
    Mr. WARE. So as you are aware, all our criminal 
investigations are run through the Department of Justice, and 
AUSAs across the nation. These offices set the thresholds for 
our community. So what we are doing, listen, the focus right 
now, really, is on the big ones. The ones that were the rings 
and everything like that. So you might see some that pop up 
because we have been providing I think monthly, I hope. 
Monthly, we have been providing you an update with the 
convictions, the cases and everything like that. You might see 
some that are a small dollar amount, smaller dollar amount. You 
see others with large dollar amounts. The small ones would 
spill into what we are looking at in terms of a ring. They are 
natural outpourings of that.
    Chairwoman VELAZQUEZ. The gentlelady's time has expired.
    Now we recognize the Ranking Member from the Subcommittee 
on Economic Growth, Tax, and Capital Access, Mr. Meuser, from 
Pennsylvania, for 5 minutes.
    Mr. MEUSER. I thank the Chairwoman very much. And I thank 
our Ranking Member. And Mr. Ware, I appreciate you being here 
as well. It is unfortunate as this is an oversight hearing that 
the United States Treasury Department has oversight of PPP as 
you well know, and Secretary Yellen has been requested along 
with by law required to appear before this Committee twice on 
an annual basis and yet has yet to appear.
    Do you have conversations with Secretary Yellen? Can you 
inform her perhaps for us since she is ignoring our requests to 
appear before this Committee and answer some of these important 
oversight questions, Mr. Ware?
    Mr. WARE. No, I do not. My oversight is within the Small 
Business Administration.
    Mr. MEUSER. Okay.
    Mr. WARE. I meet regularly, every other week with the 
administrator here.
    Mr. MEUSER. Well, PPP obviously falls within your 
wheelhouse as well. So perhaps her insight and answers would be 
helpful to you as well as this Committee.
    So let me continue along related to the EIDL Disaster Loan 
Program. Perhaps appropriately named, unfortunately. The thing 
is that, look, there was $80 billion in fraud out of $260 
billion in loans. I mean, that is a really outrageous figure 
here as well as to taxpayers. PPP as you offered and stated 
honestly was far more effective and successful. Nine hundred 
billion in loans with $4.6 billion in potential fraud. So a 
far, far better ratio for legitimate loans. And as you 
mentioned, Mr. Ware, it is due to the partnership with the 
private sector. So it would be considered to expand the SBA 
sole lending vehicles by Members, our colleagues on this 
Committee, or even your office. Would that be something that 
you would advocate for, expanding lending vehicles solely 
through the SBA resources as opposed to advocating for such 
lending vehicles to be expanded via the partnership of the 
community banks such as how the PPP loan was handled? Which 
would you prefer?
    Mr. WARE. In my role, I do not advocate one way or the 
next; right? I rely solely on the work that is done by my 
office to inform this Congress and the people who would set up 
policies and the people who would set up programs on what you 
have before you. There are a lot of moving parts in order to 
make a determination into that. Our focus has been on the fraud 
environment in terms of----
    Mr. MEUSER. Well, you are in charge of it. We need your 
input on what would be most effectively carried out by the SBA. 
So please keep that in mind.
    Let me just ask you this as well regarding EIDL loans. Is 
it going to get better before it gets worse? Are you 
comfortable at this point with the loans being made? Have we 
put, as Ranking Member Luetkemeyer brought up, additional 
safeguards in place so this fraud does not continue?
    Mr. WARE. I believe, and I think I have said it on record, 
and I will say it again here, I believe that SBA's programs 
have more integrity in them right now than they did at the 
onset. And I believe that, for example, the major fraud 
concern, right, initially SBA was dependent on self-
certification. There was not sufficient vetting of that 
information, even when information was clearly illogical. And 
that led to many of the problems that we found. I think it is 
the 4506T tax transcripts and the type of data that they are 
processing from the Internal Revenue Service, I think it 
addresses much of it and I will tell you, we are in the process 
of making a determination as to how that fraud landscape 
changed and what that meant in terms of savings to the American 
taxpayer.
    Mr. MEUSER. Thank you, Madam Chairwoman. I yield back.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Pennsylvania, Mr. 
Evans, for 5 minutes.
    Mr. EVANS. Thank you, Madam Chair.
    In the past, you have reported that many missions critical 
and senior positions at SBA are staffed by federal employees 
nearing retirement. How has the SBA been dealing with the 
alleviation of the workforce challenges? And can you please 
share with the Committee the progress that has been made in 
this area?
    Mr. WARE. Thank you for that question. This is one of them 
that I hate to have to say I believe I am going to have to get 
back to you on that because I do not believe I have current 
work that informs it. But I do know that my people ask 
questions like this regularly. I know I have seen from the 
chief human capital officer here, Elias Hernandez, that they 
have put together some plans to address that. We have not 
reviewed those plans as yet.
    Mr. EVANS. Let me ask this question. Many small businesses 
in my district are interested in contracting with the 
government. Such contracts can help the businesses grow and 
expand. In recent years, the federal government has been 
successful in achieving the statutory goal of awarding 23 
percent of all contracts primarily to businesses. Can you tell 
us exactly how is that process proceeding?
    Mr. WARE. The process of determining whether or not the 
mandate has been met in terms of the percentage?
    Mr. EVANS. Exactly. Exactly.
    Mr. WARE. Well, over the past, at least since I got in, 
long before I got here in 2016, we have been going back and 
forth with the agency on how they actually calculate those 
percentages. And including how they run the numbers. They have 
been, actually, the one change that they have made is that they 
have been transparent to everyone in what goes into the 
denominator or what goes into the numerator and coming up with 
that percentage. So at least they are doing that. But it is 
within, remember, they are responsible for ensuring that all 
other government agencies are calculating the same way in terms 
of making their percentage. The improvement that they have made 
is that we all know how they do it.
    Mr. EVANS. Thank you.
    Thank you, Madam Chair. I yield back the balance of my 
time.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Florida, Mr. Donalds, 
for 5 minutes.
    Mr. DONALDS. Thank you, Madam Chair. And Mr. Ware, thanks 
so much for making yourself available to the Committee on such 
an important topic and for all the work of you and your staff 
that you have been doing here.
    I was taking some in-depth time reviewing your written 
statement and you identified several challenges for the SBA in 
the financial year 2022.
    Challenge 3. The SBA's economic relief programs are 
susceptible to significant fraud risks and vulnerabilities.
    Challenge 2. Inaccurate procurement data and eligibility 
concerns in small business contracting programs undermine the 
reliability of contracting goal achievements.
    Challenge 3. SBA faces significant challenges in IT 
investment, system development, and security controls.
    Challenge 4. SBA risk management and oversight practices 
need improvement to ensure the integrity of loan programs.
    Challenge 5. SBA's management and monitoring of 8(a) 
business development program needs improvement.
    Challenge 6. Identification of improper payment in SBA loan 
programs remains a challenge.
    Challenge 7. The SBA's Disaster Assistance Program must 
balance competing priorities to deliver prompt assistance and 
prevent fraud; and
    Challenge 8. The SBA needs robust grants management 
oversight.
    Mr. Ware, these challenges are significant for any lending 
institution, let alone the SBA. Based upon all of this, does 
the SBA have frankly the necessary infrastructure and 
wherewithal and capacity to embark on direct business lending 
considering all the challenges the agency still faces?
    Mr. WARE. That is a good question. Our goal and the goal of 
all IGs, because all of us have to put out the top management 
challenges facing whatever agency or department that we are 
responsible for. In all of this, I believe that the men and 
women of the Small Business Administration are up to the task. 
I do believe that there needs to be the type of systemic 
changes that we have detailed in this document put in place and 
then I believe that the programs could run and we could have an 
assurance that there is more integrity in these programs.
    I think it is probably better that I stop there. I do 
believe that the Small Business Administration has the capacity 
to be able to run the programs that they are charged with 
running.
    Mr. DONALDS. Mr. Ware, what I will tell you is that could 
they run their existing programs? I believe it is a maybe. But 
in the world of lending, and I spent, you know, many years as a 
loan underwriter, in the world of lending, maybe is what costs 
you your customers money. And with respect to the SBA, maybe is 
what is going to cost taxpayers money. I mean, I think the core 
question for the Committee, and frankly for the American people 
overall, is that if the SBA has a track record with direct 
business lending that they have already had with the EIDL 
program, who is going to actually carry the losses when the SBA 
gets it wrong because of so many systemic challenges they have 
in their infrastructure? Like, who bears the real burden of 
losses from the SBA if they do not have basic, you know, 
underwriting capacity that has been outlined in your report?
    Mr. WARE. You are asking me who bears it?
    Mr. DONALDS. Yeah. Who bears the responsibility? Who is 
going to bear the responsibility for dollars lost?
    Mr. WARE. Well, for dollars lost it is the taxpayer; right? 
But that is in all the programs. That is in the direct lending 
program. That is in the 7(a) program because the agency pays 
the guarantee.
    Mr. DONALDS. Well, and honestly, it is a statement, 
frankly, Mr. Ware, that I think we both know but I think it is 
important for all the Members of the Committee, no matter what 
side of the aisle that you are on, for us to understand that 
even though there are some good intentions that the Members may 
want to have or want to see SBA engage in for the benefit of 
various business in our country, the reality is that the SBA is 
nowhere near capable from an institutional standpoint, from an 
infrastructure standpoint, from a capacity standpoint to 
address those needs, especially considering the fact that what 
they already have on their books with respect to the EIDL 
program and the PPP program and the existing loans in the 7(a) 
program. There is a lot of work to be done over at the SBA. 
They are nowhere close. And to, in my view, radically change 
the mandate into direct lending would actually cause 
significantly more problems and exacerbate those programs. It 
will not fix them and we will be right back here having more 
hands just like this one.
    I yield back. Thank you so much, Madam Chair.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentlelady from Pennsylvania, Ms. 
Houlahan, for 5 minutes.
    Ms. HOULAHAN. Thank you, Madam Chair. And thank you so much 
for being here today and for your diligent work, Mr. Ware, to 
oversee SBA's unprecedented response to COVID and the COVID-19 
pandemic.
    And I wanted to take my time and opportunity to ask for 
your insights on how we can possibly apply lessons that we have 
learned from the pandemic and the pandemic response to future 
disaster relief programs.
    Many small businesses in my community have also been 
seriously impacted by the damage that was recently caused by 
Hurricane Ida. In fact, my community is under a federal State 
of Emergency. While some have bounced back quickly, others have 
been less fortunate such as the Veterans Construction and 
Utility Services Company that is located in Modena. Faced with 
damages to equipment on top of economic pressures from the 
pandemic, this veteran-owned and service-disabled small 
business opted to close its doors for good, informing my office 
that they simply did not have the capital to apply for an SBA 
loan, nor the capacity to take on another bill to pay, 
particularly without the possibility of forgiveness.
    Unfortunately, this situation is very common. According to 
FEMA, between 40 and 60 percent of small businesses never 
reopen their doors after a natural disaster like Ida. Something 
I heard time and again from small businesses in my community 
following the hurricane is where is PPP for natural disasters? 
I agree. Why do we not have loan forgiveness like we did under 
PPP for small businesses impacted by these natural disasters 
that are increasingly more and more common. It is our 
responsibility to take the positive aspects of our SBA COVID 
assistance programs, making improvements where necessary to 
address lessons learned and ensure that our small businesses 
have the support they need to recover from all disasters, 
whether they be related to public health or climate change.
    So with this context in mind, I am interested in learning 
more from you about how we can appropriately balance the need 
that we have talked about here to get more money into the hands 
of small businesses quickly in an emergency while understanding 
certainly that the prevention of fraud can require a much more 
deliberative and careful review.
    So my question, sir, to you is has the SBA and has your 
organization and operation examined what the tipping point is 
between getting money to businesses in a timely manner while 
also sufficiently rooting out cases of fraud and abuse? So my 
specific question is, are you not just looking at cases and 
addressing whether they are fraud or not, but are you also 
trying to catalogue what it is that we could be doing to be 
better at preventing this fraud and abuse to begin with so that 
we can take the good of the PPP program and apply it to other 
uses?
    Mr. WARE. Thank you for your question. Please know that 
that is a major focus of my office. We have put out 18 
different reports on the pandemic programs. From before the 
very first loan was issued on PPP, we issued a report 
addressing this very same thing, what needs to be done to 
balance speed and controls. How you need to communicate to 
folks so that everybody knows what they are doing. It is a 
major part of what we are looking at. And I have sought to do 
this across government in my role on the PRAC. We are going to 
work on a document that tells the entire disaster story and to 
make sure that the lessons that we learn this time around are 
there forever so that we do not make the same type of mistakes 
again. So, yes, it is a huge focus of my office and has been 
from the beginning.
    Ms. HOULAHAN. And of those 18 reports, and I am sure in 
counting that you are working on right now, are there any 
aspects of those reports that this Congress and its 
responsibility can be helpful in terms of changing, modifying 
PPP so that we could end up with a PPE disaster program?
    Mr. WARE. Yes. As a matter of fact, we worked closely with 
Congress on one of the earlier reports on PPP where legislation 
was put in place to address some of our findings. So this body 
has actually been on top of it in terms of making immediate 
changes, changes that move pretty rapidly.
    Ms. HOULAHAN. So I only have 40 seconds left of time and I 
would really rather not ask my second question because I do not 
believe we would have time for an answer but with the very 
limited time I have left, I am an entrepreneur, a small 
businessperson, mid-size businessperson as well, and some of 
the most remarkable things that ever happen, happen under 
duress, when a company is under duress or when an organization 
is under duress. And so we have experienced extreme duress in 
this country due to COVID and the innovations that have 
resulted are things like the PPP program which arguably, and 
granted, have definitely, we have seen some abuse. But we 
really should make sure that we are taking advantage of an 
innovation such as PPP, figuring out how to take advantage of 
the neuropathways that we have created between companies and 
their banking institutions and our SBA, and make sure that we 
are able to use those innovations for something like the 
stressors that happen in natural disasters as well.
    And with that I yield back. And thank you, Madam Chair.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    Now we recognize the gentleman from Minnesota, Mr. Stauber, 
for 5 minutes.
    Mr. STAUBER. Thank you very much, Madam Chair, and Ranking 
Member Luetkemeyer for putting this hearing on. Thank you, Mr. 
Inspector General for being here to answer our important 
questions.
    What number of recommendations that you have made to the 
Biden administration's SBA in relation to fraud have yet to be 
closed out?
    Mr. WARE. So the exact number of the recommendations I 
could get back to you really quickly on. But I do know----
    Mr. STAUBER. Mr. Ware, has the agency explained why they 
have yet to be closed out to you?
    Mr. WARE. Oh, no. So it is important for me to note this. 
The agency has moved rather expeditiously to close out the 
majority of the recommendations. There are not that many 
outstanding that have to do directly with what our systemic 
recommendations were. When you look at it, the numbers are 
coming back to me, like 110 recommendations but about, what, 
60, 70 of them had to do with the financial statement audit. So 
in terms of the systemic things to move PPP and EIDL and to 
deal with the Shuttered Venues program that we issued----
    Mr. STAUBER. Mr. Ware----
    Mr. WARE.--they have pretty much closed those out. There 
are only a few that are remaining. Most of them the date has 
not come for when they are supposed to be closed.
    Mr. STAUBER. Mr. Inspector General----
    Mr. WARE. There are a handful that came----
    Mr. STAUBER.--because my time is limited, Mr. Inspector 
General, you mentioned that the SBA has either partially or 
totally disagreed with some of your recommendations. What 
procedure is in place that occurs if they do not support your 
recommendation? Do they remain open or what?
    Mr. WARE. No. So here is what we have. It is both the 
agency's and my office's responsibility to get these closed 
out. So we have a process in place where we go to what we call 
the audit follow-up official to make a final determination. If 
the final determination is that, well, we flat out do not agree 
with you, I raise that with this Committee as an item to 
determine whether or not you feel----
    Mr. STAUBER. And I think, Mr. Ware, I think that some of 
those suggestions are going to be coming back to this Committee 
I am quite sure.
    One of the things that you had mentioned in your previous 
testimony today, and this is almost a quote, that you do not 
advocate in one way or the other. Mr. Ware, we need you to 
advocate one way or the other because when you look at $4.6 
billion of fraud in the PPP and $84 billion in the EIDL loan, 
you see some deficiencies. The SBA needs some changing and so 
we need you to advocate for those changes. Eighty-four billion, 
and my guess is as you go, as you look into this further, you 
are going to see more fraud. And my colleague, Byron Donalds 
from Florida asked you who pays for this? It is the American 
taxpayer that pays for this. I understand in this town, 
millions and billions, and now even trillions is thrown around 
like it is nothing. Eighty-four billion dollars, Mr. Ware, is 
exactly what we need you to find and hold these people 
accountable, so we need your advocacy. That is the priority 
that your mission statement says as Inspector General, to 
advocate for the taxpayers.
    And lastly, lastly because my time is limited, I just want 
to say in closing, I just want to express my deep concern about 
this fraud at the SBA. It should be troubling to everyone here 
that as families are struggling with inflation, higher energy 
bills and the supply chain crisis, that their hard-earned tax 
dollars are not being stripped away to pay criminals for fraud.
    I completely, Mr. Ware, and I want you to understand this, 
I completely respect the work that you are doing to recover 
these taxpayer dollars but it is beyond me that my colleagues 
on the other side of the aisle still are trying to ram through 
their Build Back Broke program to increase the funds at the SBA 
when we know that they are not efficient right now. When the 
safeguards that you have recommended are not even put in place 
by the SBA. So we need your advocacy in this. We need you to 
step up and help us. This Committee has full oversight of the 
SBA and we cannot allow career bureaucrats in the SBA to 
determine this because when we have done that, like the EIDL, 
$84 billion. That is with a B. Billion dollars of taxpayer 
money. I cannot explain that to my constituents in Northern 
Minnesota but I will tell them we are going to find that money 
and we are going to prosecute the fraud. We need your help, Mr. 
Ware. I am asking you to be an advocate for every taxpayer.
    Chairwoman VELAZQUEZ. Time has expired.
    Mr. STAUBER. And I yield back.
    Chairwoman VELAZQUEZ. The gentlelady from Georgia, Ms. 
Bourdeaux, is recognized for 5 minutes.
    Ms. BOURDEAUX. Thank you, Chairwoman Velazquez and Ranking 
Member Luetkemeyer for holding today's hearing. And thank you, 
Inspector General Ware, for joining us today and for your 
important work.
    Since taking office, I have been working to ensure small 
businessowners in my district have access to the tools they 
need to apply for and receive loan forgiveness under the PPP 
program. Can you give us an update on the OIG's work to 
evaluate the PPP loan forgiveness activity? So how involved 
have you been in this process? And of particular interest to me 
was that early on we noticed that there was disparity among 
different communities in my very diverse district and who was 
receiving that loan forgiveness and who was not. And so I would 
ask that you talk to that particular issue as well if you have 
looked at that.
    Mr. WARE. Thank you for the question.
    We have two ongoing reviews right now on the loan 
forgiveness process. What I do know as of this month probably a 
week ago or so, 94 percent of the loans have been fully or 
partially forgiven. The 2020 PPP loans that is. And less than 
95 percent of the amount that the loan value for 2020 PPP has 
been forgiven all or in part. I do know that. So that is what I 
have so far. The work is in progress.
    Ms. BOURDEAUX. Okay. Thank you. That should cover everybody 
pretty much.
    So on that, so then moving on with this, so the other half 
of it, of course, is making sure that we are preventing fraud 
in the loan forgiveness piece. And can you speak to the work 
you are doing to prevent PPP forgiveness fraud, of course, 
without holding up forgiveness process for rule following 
businessowners?
    Mr. WARE. Great. So I think what I do know, last year, 
about the middle of last year, that is when SBA changed the way 
that it was going to do the loan review process for forgiveness 
status; right? So they decided that they were going to 
prioritize more manual reviews that were based on fraud risk 
rather than the status of forgiveness. They have gone to more 
of a, they say, a machine learning type environment where they 
are able to determine risk. Know this, getting forgiven does 
not mean that we cannot review the loan afterward, that we 
cannot come after a fraudulent actor after. So we are still in 
the fight for that.
    Ms. BOURDEAUX. Okay. Thank you.
    And you are going to be evaluating, it sounds like, sort of 
a data driven risk program to see if that is really effective?
    Mr. WARE. Yes.
    Ms. BOURDEAUX. Okay. Thank you.
    And then last of all, I know your office has been working 
on identifying preventing fraud, you know, across different 
programs. And can you provide some insight into why the agency 
is further along in addressing the PPP fraud issues as compared 
to the COVID EIDL issues?
    Mr. WARE. Is the question why were they further along?
    Ms. BOURDEAUX. Yes.
    Mr. WARE. Maybe an answer could be found. And so COVID EIDL 
was realigned internally in order to address it. They were 
realigned under the division within SBA that deals with the PPP 
lending. So it is a familiar, more of a familiarity from the 
banks, the lending institution private standpoint in terms of 
the systems that they have in place to address and to catch 
fraud and to catch things up front that allowed it to be better 
suited to deal with this attack by fraudsters that came the 
agency's way. And the lowering of guardrails in the EIDL 
program in order to focus specifically on speed at the time.
    Ms. BOURDEAUX. Thank you. I yield back.
    Chairwoman VELAZQUEZ. The gentlelady yields back and now we 
recognize the gentlelady from California, Mrs. Young Kim, 
Ranking Member of the Subcommittee on Innovation, 
Entrepreneurship, and Workforce Development for 5 minutes.
    Mrs. YOUNG KIM. Thank you, Chairwoman Velazquez. And I 
would also like to thank our Ranking Member Luetkemeyer for 
holding this very important hearing.
    Thank you, Mr. Ware, for being with us and taking time to 
testify about your findings and help shed light on some of the 
waste, fraud, and abuse issues taking place at the SBA. We all 
recognize that your work is indispensable in our efforts to 
safeguard taxpayer dollars and push the federal government to 
work more efficiently and effectively for all constituents and 
small businesses.
    A lot has been discussed regarding how SBA direct loans 
have been more susceptible to fraud than loans provided by 
private financial institutions. And I want to echo many of the 
same concerns raised by my colleagues on the fraud plaguing 
SBA's direct loan program. And I have to say that I am very 
troubled that we are considering expanding SBA's direct loan 
programs without ensuring internal controls against fraud and, 
you know, that is working properly before we do anything.
    So Mr. Ware, since the beginning of the pandemic, the SBA 
Economic Injury Disaster Loan program has been riddled with 
fraud and we all know this and we have been talking about this. 
With fraudulent loans potentially topping $78.1 billion, this 
program calls into question the efficiency of the SBA in any 
direct lending. So has SBA leadership done all that it should 
to combat fraud in the direct lending programs that the 
administration has administered over the past year?
    Mr. WARE. I would say yes. They have done a great deal. And 
there is so much that pops into my head. Remember, at the 
onset, in the EIDL program, that is when we put out the 
management alert that was able to capture what type of fraud we 
were dealing with within the program. And yes, SBA did not 
move. Leadership did not move at the time as quickly as we 
would have liked it to stem the tide of that fraud. But since 
that time, they have implemented quite a bit of our 
recommendations. Some they even did in real-time, like at the 
table making a telephone call. One that comes to mind was stop 
people from changing the bank account information after the 
verification has already been conducted. That was one way that 
we stopped it almost immediately, that level of fraud. 
Addressing the duplicate IP addresses and everything like that. 
So a lot of controls have been put in place. That is the answer 
to the question.
    Mrs. YOUNG KIM. Another concern, and my colleagues' concern 
about direct lending, given that the SBA has a checkered past 
in direct lending, would it not seem to call into question 
whether the SBA has the capacity to undertake more direct 
lending authority such as originating loans directly through 
the 7(a) program without opening the door for more fraud?
    Mr. WARE. What I would say is this, again, the work that I 
provided on the onset, right, was a completely different 
control environment. The reason that I said, and sorry to 
offend, that I do not advocate one way or the next, I think 
that to have any kind of advocacy that comes from an inspector 
general is in terms of the evidence that I put before you that 
shows you what is going on in the programs.
    Mrs. YOUNG KIM. Well, thank you for your response.
    I want to move on to another one of your findings regarding 
the SBA's failure to adopt effective IT systems. Your top 
management report said SBA was expected to complete work on 
revising the project scope and improving management areas by 
the end of 2021. Can you provide us with an update and tell us 
if SBA was successful in meeting that baseline reviews and 
completing the functionality of that as certified by the end of 
2021 like the report said?
    Mr. WARE. I can tell you right now that from the 
information that I have before me currently, the system is 
basically where it was when we last spoke but we are looking 
into it. Like you said, it was at the end. We are just at the 
beginning of 2022 so we are looking at it. My understanding is 
it still is not working as promised. That Beta Certify--was 
supposed to be what delivered the woman-owned small business 
capability and that the application is still in the program 
sustainment and production mode in other words. So they hope to 
make a directional decision in the next 2 months. That is what 
I was told.
    Mrs. YOUNG KIM. Well, thank you for your response.
    It looks like my time is up so I will yield back.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    Now we recognize the gentleman from Minnesota, Mr. 
Phillips, Chairman of the Subcommittee on Oversight, 
Investigations, and Regulations for 5 minutes.
    Mr. PHILLIPS. Thank you, Madam Chair. Greetings, Mr. Ware.
    Moments ago, one of my colleagues insinuated that Democrats 
seem to not care about the fraud and are reckless with 
investment in the SBA. I just want to remind everybody that I 
think we all agree we are all here to provide oversight and 
ensure that there is no fraud, at least as much as we can. 
Every dollar that is lost to fraud and fraudsters is a dollar 
denied to the very small businesses that we are here to serve 
and a source of understandable disgust by me and every American 
taxpayer. I just want to make that clear.
    And there is a lot of work to be done. We all know that. 
But I applaud OIG's dedication to providing oversight and to 
the SBA for its diligence in implementing a number of important 
IG recommendations in recent months.
    As Chair of the Small Business Committee on Oversight and 
Investigation, along with Ranking Member Van Duyne let me 
assure you we are both committed to ensuring that OIG has the 
necessary resources to conduct proper oversight. Period. And 
with just $50 million in support from Congress, the OIG 
recovered $4.2 billion in fiscal year 2021, which is an 
extraordinary return on investment.
    So Mr. Ware, with that in mind, what more can Congress do 
to support OIG and your efforts to ensure even more efficient 
and effective oversight and recovery efforts?
    Mr. WARE. Thank you. Thank you for that.
    Let me first say thank you to this Committee for all the 
work that you have done with our office to make sure that we 
get you what you need. But I think a reframing of the question 
might be do we have enough resources for the oversight that 
will provide for the pandemic loans that are going to perform 
many years after the pandemic? So at present, like we 
demonstrated, we could provide more oversight with more 
resources. That is not a good argument though. The current 
level of oversight that we have includes just over 180 
positions. The problem is that our nonsupplemental budget 
authority only provides for 125 and as I said in my opening, 
the supplemental funds are going to be gone by the end of 
fiscal year 2024. So I think that it is bad timing in terms of 
that is going to be a key moment for realizing the true scope 
of fraud in these programs. But, so I believe that the annual 
resource level, the ones that we get annual appropriation. You 
know, I am Executive Branch. I work with the Office of 
Management and Budget and they work well with me. What I could 
ask the Committee is to just please support what comes forward 
in terms of right sizing us to match the fraud landscape.
    Mr. PHILLIPS. Okay. Thank you, sir. And I encourage my 
colleagues to give that deep consideration when that request is 
made.
    As we all know, PPP was designed to expeditiously 
distribute funds with much of the fraud and eligibility 
controls designed to occur not at loan initiation; rather, 
during the loan forgiveness period. I know OIG has identified I 
think it is 70,000 loans roughly totaling $4.6 billion in 
potentially fraudulent PPP loans and stated `` this might the 
tip of the iceberg.'' So with a large majority of the PPP loans 
now being partially or fully forgiven, does OIG have a better 
sense of the extent of total PPP fraud? I do not remember if 
you gave a specific sense of that. And if not, when will you 
have a more distinct picture of fraud?
    Mr. WARE. That work is ongoing. So the work on loan 
forgiveness, we have I think there are two that are ongoing 
currently in which we should have at least some indication of 
what we are looking at. I still think we are going to see where 
the rubber meets the road on a lot of these that will not come 
back for loan forgiveness because the numbers are large; right? 
Even if it is 5 percent, the numbers are still huge. So, and on 
those that may default early, because we have an early default 
high-risk lending review program internally.
    Mr. PHILLIPS. Okay. With my minute left or so, we know 
there are a number of nonbank lenders that may have been 
particularly susceptible to processing fraudulent or ineligible 
loan applications. Is OIG working specifically to identify and 
investigate those lending institutions, the nonbank lenders?
    Mr. WARE. Well, we have not focused on any over any. The 
number that we are dealing with, we have enough from the entire 
landscape to select from. I mean, our agents have caseloads 
that are just unimaginable, quite frankly.
    Mr. PHILLIPS. I imagine.
    Mr. WARE. So.
    Mr. PHILLIPS. Okay. Well, with that in mind, you know, my 
first question was what resources do you need? I trust you will 
not be shy in asking us because it is our responsibility to 
ensure you have the resources to provide the oversight that we 
expect and demand, and so do American taxpayers. So thank you, 
again, for your service, sir.
    And with that, Madam Chair, I yield back.
    Mr. WARE. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from Wisconsin, Mr. 
Fitzgerald, for 5 minutes.
    Mr. FITZGERALD. Thank you, Madam Chair.
    General Ware, thanks for being here again. You can hear the 
level of frustration I think in some of the Members' voices as 
they continue to ask the questions. And it is difficult I think 
in a 5 minute exchange to kind of get down to the nitty-gritty.
    Let me just ask you a couple of things here. In the Fall of 
2021 Semi-Annual Report to Congress you mention that the OIG 
had been working diligently with federal, state, and local law 
enforcement partners over the past year to bring more than 300 
PPP or EIDL fraudsters to justice. The result has been 
reiterated numerous times today. It is $460 million in assets 
recovered not including the $3.1 billion that the OIG helped 
financial institutions recover. So I guess my question is, what 
is the measuring stick that you are using at this point to kind 
of gauge what you would consider success? You know, those 
numbers the way the math kind of shakes out is it is just a 3 
percent recovery but, you know, what I am wondering is what is 
that goal that you guys have internally right now and certainly 
I would love to hear updates on a regular basis given to the 
Committee so that we know kind of where we are at and what is 
going on.
    Mr. WARE. Regarding the updates, there is an update 
document sent to this Committee that comes out I believe on a 
monthly basis. Either monthly or quarterly. Yeah, it is 
monthly. On a monthly basis that goes to this Committee. 
Relative to measuring the numbers that you are using, do you 
remember that the Semi-Annual Report covers 6 months; right? So 
understand that as well.
    In terms of a measuring stick for success, success is the 
whole of government approach that we have taken from the onset. 
We are working with the Department of Justice and with AUSAs 
across this country in order to pull this together. We are 
working with the FBI, the Secret Service. Our success is all of 
our successes. It is really the success of the American 
taxpayer in terms of how much fraudulent actors we will catch. 
I do not have a number like we need to catch X amount of 
people. What I do know is that we are diligently working on 
bringing fraudulent acts, fraudsters to justice in these 
programs.
    Mr. FITZGERALD. Well, I think my concern is that as we go 
through this process now, and unfortunately, I mean, PPP and 
the EIDL program, you know, even though they have been great 
successes, they are tarnished now. And they are tarnished by 
this high fraudulent number. If there is some way for us to 
moving forward say this is where you might shutter a program, 
you may actually make a determination that it is no longer 
serving its purpose because of the high fraudulent number. I 
mean, I do not think that is out of the realm and that appears 
to be something that has happened in the past related to some 
other SBA programs. So I mean, from my perspective, I think 
that is something that we should be aware of, we should be 
watching and, you know, a year from now, let us all get back 
together and see exactly where we are at because, 
unfortunately, I think it might mean the end of some programs 
if it is not characterized this way or if there are not 
specific hard deadlines on trying to meet some of those goals. 
And I think it would be in the best interest of obviously the 
SBA but, you know, your office kind of has the reigns there and 
you can make that happen. So I am hoping that, you know, with 
these regular, and if you say it is monthly updates I certainly 
will pay more attention to that and I hope the communication is 
free flowing between the Committee and your office.
    Mr. WARE. Can I say one thing?
    Mr. FITZGERALD. Yeah, go ahead.
    Mr. WARE. Okay. One of the things I forgot to mention that 
I think is very important for everyone here to understand is 
that white collar crime of this type normally takes years to 
manifest and to really come forward. What we have done is we 
have expedited this in a way that really has not happened in 
the past and so what we are seeing is we are only still at the 
beginning of it because the loan forgiveness process is not 
even done yet. The EIDL loans have not even come up for 
repayment yet. So that would be where the real rubber meets the 
road in terms of fraud cases and everything else. So that is 
understanding that we are still at the very onset of our 
oversight.
    Chairwoman VELAZQUEZ. The gentleman's time has expired.
    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, Mr. Ware, 
Inspector General Ware for joining us today to report on the 
SBA's managerial and programmatic challenges.
    As you mentioned in your testimony, the Paycheck Protection 
Program and the COVID EIDL program have unfortunately been 
susceptible to forms of fraud and abuse, and these programs 
have been especially vulnerable because of the broad scope and 
as you mentioned, the rapid implementation during the very 
beginning of the pandemic.
    I am particularly concerned about the fraud in the COVID 
EIDL program involving identity theft because it not only harms 
the taxpayers and real small businessowners, but also innocent 
individuals who are not at all connected in that way. So, you 
know, in your OIG report 21-15 which was released in May, you 
examined the SBA's handling of identity theft in the EIDL 
program and raised concerns about the OIG's lack of 
administrative seizure authority. So I am curious if the lack 
of seizure authority has impacted the case, you know, what you 
are seeing now and how that has impacted cases your office is 
able to pursue.
    Mr. WARE. Great. So I would say that in terms of impact, it 
has not stopped anything because we work very closely with the 
Secret Service. We have a great relationship with them to seize 
on our behalf because they have, obviously, the seizure 
authority. Now, if we had it in this instance I believe we 
would be able to move a little bit faster but that is it.
    Ms. DAVIDS. Okay. Well, I appreciate that. And that was 
definitely something that stuck out to me.
    And then I think I kind of want to switch over to ongoing 
liability. So you had mentioned many of the initial 
vulnerabilities of the program had been fixed and I am curious 
if you could speak to the ongoing liabilities in the Paycheck 
Protection Program and EIDL programs and what further steps the 
SBA or even this Committee need to take as we move forward. You 
know, if you want to speak to that for a minute.
    Mr. WARE. Can you help me to understand? What do you mean 
specifically by ongoing liability?
    Ms. DAVIDS. I guess what I am thinking about is, you know, 
there were some, you know, guidance to financial institution 
issues that had occurred earlier on and I am curious if, you 
know, whether or not there is ongoing, I say ongoing 
liabilities. I think what I am thinking about is the potential 
for, you know, additional fraud and those kinds of things. As 
you said, when the rubber meets the road, you know, those dates 
have not come up yet so I am curious if you could talk to us a 
little bit about what is going on or if there are any steps 
that we need to be taking.
    Mr. WARE. So the whole landscape would be different because 
of closed programs; right? So the money at this point is 
already out. So we are dealing with looking at it from a loan 
forgiveness perspective of which we have two ongoing reviews 
that will inform us greatly on what that continued risk is from 
that standpoint. The same will happen when the loans come up 
for repayment in COVID EIDL. So in terms of informing, that is 
the work that is ongoing currently. But it is kind of two 
different things, if you know what I mean. In terms of the 
money going out the door is where we were at before. The money 
is out the door already.
    Ms. DAVIDS. Yeah. Okay. Well, I appreciate your being here. 
I appreciate the work you guys are doing over there and I will 
look forward to if there are any further issues that we are 
seeing, we will absolutely keep the line of communication open 
with your office.
    Mr. WARE. Thank you.
    Ms. DAVIDS. Thank you, Madam Chair. I yield back.
    Chairwoman VELAZQUEZ. The gentlelady yields back.
    Now we recognize the gentlelady from Texas, Ms. Van Duyne, 
Ranking Member of the Subcommittee on Oversight, 
Investigations, and Regulations, for 5 minutes.
    Ms. VAN DUYNE. Thank you very much, Chairwoman Velazquez 
and Ranking Member Luetkemeyer for holding this hearing today.
    And thank you, Inspector General Ware for being here and 
for your continued oversight work. What your office does, 
especially over the last 2 years has been vital. This has been 
clear by the $4.2 billion in recovered funds and savings from 
your oversight of SBA's pandemic response efforts last year.
    As we are all aware, the December CPI numbers just came out 
today and they are even worse than expected once again. 
Gasoline is up 49.6 percent. Used cars and trucks are up 37.3 
percent. Rental cars and trucks are up 36 percent. Propane, 
kerosene, and firewood are up 33.8 percent. This is on the 
backs of working Americans and on small business employers. 
Many deserving applicants are being pushed out and being beat 
out by fraudulent applicants. So if about $80 to $100 billion 
worth of fraudulent improper payments have been given by the 
SBA, theoretically, if the SBA was to return that fraudulently 
obtained money, could they then provide that money to other 
more deserving applicants?
    Mr. WARE. I will need to get back to you on that one. That 
is a complicated question quite frankly and I believe that it 
has to go through Treasury. There are some rules that need to 
be followed. I do not believe it is as easy as going back into 
the program and going back out. But I would need to clarify 
that. I would not want to give a wrong answer on the record.
    Ms. VAN DUYNE. I would be interested in hearing the 
response on that. Because if $100 billion was appropriated to 
be able to give out in this fund to those deserving applicants 
and $100 billion was fraudulently given out, it seems to me 
that you would be able to take that money that was fraudulently 
given out and be able to help those people who need it the 
most. That was the purpose. That was the appropriation of those 
dollars by Congress. So if you could get back with my office on 
that I would really appreciate it.
    Mr. WARE. The only issue is that that money is still 
potential that we do not have our hands on the money to pull 
back yet.
    Ms. VAN DUYNE. I think that was part of my question is if 
you were able to obtain those fraudulent funds.
    Mr. WARE. Okay. Okay.
    Ms. VAN DUYNE. That was the assumption. Yeah.
    It is clear the amount of fraud is incredibly large and the 
Secret Service's National Pandemic Fraud Recovery Coordinator 
was quoted saying he has never seen something at this scale. So 
considering those kind of issues, what would you recommend this 
Committee, or who would you recommend that this Committee reach 
out to to expedite getting these funds back and prevent further 
fraud from occurring?
    Mr. WARE. To give which funds back?
    Ms. VAN DUYNE. The funds that have been handed out 
fraudulently.
    Mr. WARE. Oh, that have been recovered?
    Ms. VAN DUYNE. That we have not yet recovered. How can we 
get those funds back and quickly? How can we expedite the 
recovery of those funds? Who would you recommend that this 
Committee call and work with?
    Mr. WARE. Well, I would believe that that would be with the 
Department of Justice, but I do believe that the Department of 
Justice is working hand-in-hand with the law enforcement 
community, federal, state, and local in that regard.
    Ms. VAN DUYNE. All right. So the financial institutions 
that have been involved with this process from the beginning 
and they have not been able to help return funds. So would it 
be beneficial for Members of this Committee to work 
collaboratively with these financial institutions, either by 
holding hearings or by other means?
    Mr. WARE. So remember that you are talking about two 
different programs; right? One, a direct lending program that 
was done by SBA and the other that was done by banks. And like 
so many have pointed out, where we found rampant fraud was in 
the direct lending program.
    Ms. VAN DUYNE. I am just wondering if you think it would be 
beneficial for this Committee to be able to work with financial 
institutions to identify how we could better the program and 
prevent fraud from happening in the future.
    Mr. WARE. That is a tough one for me. Perhaps.
    Ms. VAN DUYNE. Okay. Okay. In your November 30th report you 
highlighted that your review of a Treasury Department analysis 
revealed that SBA's lack of adequate framework controls during 
this period of review led to 75,180 COVID-19 EIDLs totaling 
over $3.1 billion and 117,135 emergency EIDL grants totaling 
over $550 million being disbursed to potentially ineligible 
recipients. Has this lack of control been resolved?
    Mr. WARE. Yes. Yes, it has. SBA immediately instituted the 
Do Not Pay check that is now automatic in their process.
    Ms. VAN DUYNE. Excellent.
    Mr. Ware, I appreciate your hand work that you and your 
office continue to do. It will certainly give the Members of 
this Committee a lot to think about in terms of oversight. I 
hope the Chairman of the Oversight, Investigations, and 
Regulations Subcommittee, Mr. Phillips, agrees that we should 
be holding a hearing on the rampant fraud that we see in these 
programs and that would be an excellent first step. Thank you 
very much.
    I yield back.
    Chairwoman VELAZQUEZ. Time has expired.
    Now we recognize the gentleman from Louisiana, Mr. Carter, 
for 5 minutes.
    Mr. Carter, you need to unmute yourself.
    Mr. CARTER. Thank you. Madam Chair, thank you very much. 
Mr. Ware, thank you very much for your service.
    Staffing up for major disasters continue to be a top 
management performance challenge for SBA. The challenge has 
been even more evident with the current pandemic, and for me in 
Louisiana, insult to injury is the pandemic as well as the 
natural disasters that we suffered with with Hurricane Ida. 
When the agency was forced to hire more permanent and temporary 
staff than ever before and process millions of COVID EIDLs, Mr. 
Ware, your office recommended the agency develop an after 
action plan to assess how the agency staff performed during the 
pandemic so they could do better with the next disaster. To 
your knowledge has the agency committed to conducting these 
assessments?
    Mr. WARE. They have committed to conducting the 
assessments. We have not yet seen it.
    Mr. CARTER. So when do you anticipate, do you anticipate 
them actually doing it, and what effort do you have to kind of 
make sure that this actually gets done?
    Mr. WARE. I do anticipate. I believe that there was a date 
associated, a deadline for when they were supposed to do that. 
That deadline has not come up yet I believe. I do not have the 
exact dates in front of me. I certainly could get that to you 
but the only way that that recommendation would be resolved is 
with that document.
    Mr. CARTER. Will you provide any guidance for them on the 
best way to conduct this assessment or do you plan to play any 
role in providing guidance?
    Mr. WARE. That is the trick part of the job of an inspector 
general. I cannot build it for them and then review it by law. 
So what I could do is provide the evidence based on the work 
that I have done up to that point that they could get from and 
deal with the recommendation from there.
    Mr. CARTER. Are there best practices that are out there 
that does not put you in a potential conflict but that can 
provide some guidance on best practices on how this could be 
done?
    Mr. WARE. The best practices are what we can offer up. I do 
not recall, because I do not have that particular report in 
front of me where the recommendation came from but this is 
definitely something I could get back to you on more 
definitively.
    Mr. CARTER. Okay.
    Mr. WARE. I do not want to speak above it and then have the 
auditors come after me.
    Mr. CARTER. That is fair. Are there lessons you could take 
from FEMA or other agencies on how to rapidly staff up better?
    Mr. WARE. I certainly could but I also believe they have, 
because remember that the EIDL program is not new; right? The 
EIDL program has been around forever. So they have consistently 
had this challenge. They know how to ramp up. The question is 
the ramping up, are the folks trained? Are the folks properly 
vetted? And that is something that we continue to work with 
them to see that it is done.
    Mr. CARTER. As a part of your oversight, do you look for 
and determine if small minority businesses, woman-owned, 
disadvantaged enterprises are having an opportunity to be a 
part of that ramp up? Oftentimes we have these ramp ups and we 
have companies or agencies that are big and by its nature have 
the ability to be ready for these kinds of opportunities but 
because Small Business Administration obviously, we have an 
interest in making sure that we are providing opportunities for 
small businesses, truly small businesses to play a role. Any 
guidance or thoughts as you go through your oversight to 
determine if, in fact, we are reaching those small businesses 
so they have an opportunity to partake in the aftermath in the 
case of a pandemic or other natural disasters?
    Mr. WARE. That is a good question. I do not believe my 
office has performed or conducted any work in the area that is 
in alignment with your question. But it is certainly something 
that we could look at. I will talk with my team responsible for 
the disaster programs and get their thoughts on it.
    Mr. CARTER. That would be very helpful, particularly as I 
mentioned in my jurisdiction we have a plethora of small 
businesses that are, in fact, oftentimes on the side watching 
larger firms get the work, many of which are not in the 
jurisdiction that the natural disaster took place in and 
obviously that is very difficult when we are trying to build a 
small business base and create opportunities for small and 
emergent businesses. So any assistance that you can give us in 
that area and provide some guidance and/or resource would be 
greatly appreciated.
    Madam Chair, I yield back.
    Mr. WARE. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentleman from New York, Mr. 
Garbarino, for 5 minutes.
    Mr. GARBARINO. Thank you, Madam Chair and the Ranking 
Member, for having this hearing. Thank you, Mr. Ware, for being 
here.
    I have a question. And I know my colleagues brought it up 
before and you mentioned the top challenges, there are a couple 
that SBA is facing in fiscal year 2022 and the first one on the 
list was SBA's economic relief programs are susceptible to 
significant fraud risks and vulnerabilities. You have seen the 
books. You have seen the inner workings of the SBA. And I know 
a couple people have asked you already if you would advocate 
that they increase these programs. I am not asking you to say 
yes or if they should not, but is the SBA prepared to start new 
direct lending programs or increase the amount of money that 
they are lending before this challenge is addressed? I am not 
asking you if they should or not; are they prepared?
    Mr. WARE. Great. Good question.
    I believe that SBA is more prepared now than they have ever 
been in terms of the control environment that is currently in 
place from a risk perspective. And I look at it in my role from 
a risk perspective to the taxpayers' funds. So I believe that 
their control environment is stronger now than it has ever 
been. And certainly, much stronger than it was at the onset of 
the pandemic.
    Mr. GARBARINO. So for risk, you are saying that there still 
is risk of fraud because I am looking at your comments and you 
say your audits and investigations continue to find that the 
agency is facing significant risk of fraud because of the size 
and scope of its loan programs and related internal control 
environment. So that still currently exists. They are still 
facing significant risk of fraud but it is less fraud, risk of 
fraud than at the beginning when the program started?
    Mr. WARE. Yes. Let me clarify because it is important for 
us to understand that fraudsters do what fraudsters are going 
to do. There will be a risk of fraud to any program; right? Our 
role is to make sure that that risk of fraud is mitigated to 
the lowest level possible.
    Mr. GARBARINO. Is it as mitigated now as it could be? I 
mean, the reason I ask that is there are 110 open 
recommendations. Would there be less risk if those 110 open 
recommendations were taken into account?
    Mr. WARE. Certainly. Important to understand that more than 
half of those have to do with the financial statement audit 
which is dealing with something quite different.
    Mr. GARBARINO. No, I understand that. So, yeah, I think you 
said 60 or so are part of it. So there is still 50 out there 
that could be addressed that would even further reduce the risk 
of fraud if they were addressed; correct?
    Mr. WARE. Yes.
    Mr. GARBARINO. Okay. So----
    Mr. WARE. Although not all of the 50 have to do with fraud. 
But the ones that do, definitely.
    Mr. GARBARINO. There are some of them, out of these 
recommendations there are some that would reduce the risk of 
fraud?
    Mr. WARE. Yes.
    Mr. GARBARINO. Okay. So would you like to see those items 
addressed before any new programs start?
    Mr. WARE. Certainly. Certainly. I have advocated from the 
very beginning that certain controls need to be in place before 
any program is started. I said that before PPP was rolled out; 
right? Before COVID EIDL was rolled out. We had our report out 
imploring the agency to take a look at these things before 
kicking them off.
    Mr. GARBARINO. Okay. I appreciate that and I do appreciate 
the work that your office has been doing on these reports. They 
are very thorough. And I agree, I would love to see the SBA 
address these risks because I think any risk of fraud, and like 
you said, bad guys are going not do bad things. They are always 
going to find a way to do it. We need to stay on top of them to 
make sure that that risk is as diminished as possible. I just 
do not think based on what you said, and as you said, your 
advocacy is what you put in front of us with your reports. That 
is how you advocate. You are not going to take a position. I 
think what your reports are saying is clear to every Member on 
this Committee that before the SBA starts any new direct 
lending program or increases the amount of money that they do 
through current programs, they should listen to you and address 
those issues, those recommendations, because any risk of fraud 
of taxpayer dollars is unacceptable. Again, I appreciate the 
work you have been doing. Thank you for your testimony today 
and I hope the SBA administrators listen to you so less 
dollars, less taxpayer dollars go to fraud.
    And thank you, Madam Chair, I yield back.
    Mr. WARE. Thank you.
    Chairwoman VELAZQUEZ. The gentleman yields back.
    Now we recognize the gentlelady from New York, Ms. Tenney, 
for 5 minutes.
    Ms. TENNEY. Thank you, Chairwoman, and Ranking Member 
Luetkemeyer.
    I just want to say thank you, Mr. Ware, for taking your 
time for being here. And we are really grateful for your work 
and what you are doing and exposing some of the issues we have 
had with the Small Business Administration and how to improve 
it and make it more friendly to our business community.
    As a small businessowner, we greatly appreciate that. And 
we know that they have struggled at times and that is one of 
the reasons that I actually partnered with Senator Lee to 
introduce the Transparency and COVID-19 Expenditures Act. And 
only through the full audit of COVID-19 emergency programs can 
we really ensure that these mistakes are not made again and we 
appreciate your effort in trying to get these reports out.
    We do know that SBA has failed to respond to a lot of these 
policies that you have set forth in your reports which are 
highlighting where we need to move them. And as my colleague, 
Mr. Garbarino said, we want to make sure that we push them in 
the right direction.
    I want to specifically first get into an issue that I had 
with Administrator Guzman when she was here in November. She 
said she was unaware, and I tried every angle on this question 
to her, that SBA was illegally providing millions of dollars in 
Paycheck Protection Program loans to multiple Planned 
Parenthood affiliates, including a $10 million PPP loan for 
Planned Parenthood of Greater New York. And as you are aware, 
it is illegal for these federal funds to be used for abortion 
and all applicants for PPP must abide by the rules and the size 
standards. And since Planned Parenthood has over 16,000 
employees nationwide, they are ineligible. Have you provided 
information about the Paycheck Protection loans to Planned 
Parenthood to Administrator Guzman? Is she aware of these as 
far as you know or have you provided her with this information?
    Mr. WARE. I have not personally provided information on 
Planned Parenthood to the administrator. I believe, I hope that 
the Committee knows that we have kicked off a job that looks 
into eligibility of nonprofits that will deal with affiliation 
and size standards, and Planned Parenthood is a part of that.
    Ms. TENNEY. Let me ask----
    Mr. WARE. So we do have work that is going on right now 
that addresses it. As a matter of fact, it came as a request I 
believe from the Senate Small Business Committee.
    Ms. TENNEY. Great. So are you aware of loans that were made 
to Planned Parenthood?
    Mr. WARE. Yes, I am.
    Ms. TENNEY. Okay. And do you know if those loans were made, 
if Administrator Guzman was aware of that and if those loans 
were forgiven?
    Mr. WARE. No, I do not know either of the two right now off 
the cuff. Like I said, the work is ongoing.
    Ms. TENNEY. Right.
    Mr. WARE. When the team briefs me I will know.
    Ms. TENNEY. Does Administrator Guzman have access to this 
information, whether the topline numbers, does she know, does 
she have access to see this information anywhere as the rest of 
us would?
    Mr. WARE. I cannot say definitively that she does. I would 
guess so.
    Ms. TENNEY. Do you recommend that SBA change any of its 
internal controls or anything to make sure that these types of 
loans, illegal loans that violate either constitutional 
provisions or the provisions of the PPP program to ensure that 
SBA does not give these out in the future? That is something 
that I think through your inspector general role you could do 
that as far as recommendations to the administrator.
    Mr. WARE. I believe that recommendations will be 
forthcoming at the conclusion of our review.
    Ms. TENNEY. Have there been any----
    Mr. WARE. But the review is ongoing.
    Ms. TENNEY. So if it is ongoing, have there been any 
preliminary information given to Administrator Guzman? For 
example, she denied knowing of any of these, and as the 
administrator I found that quite startling. But would she be 
aware of those now since it is an ongoing production of 
information?
    Mr. WARE. I have not received an update myself from the 
audit staff as to where we are on this assignment. So I do not 
have something to provide to the administrator currently.
    Ms. TENNEY. So nothing is uploaded on any website or no 
information is in the public domain on this issue other than 
what we know because there have been loans given and received 
on their 990 forms? Or what other IRS forms are. It may not be 
a 990 Form.
    Mr. WARE. No. My work would never be uploaded before it is 
fully vetted and completed.
    Ms. TENNEY. Okay. So there has been nothing disclosed since 
November that she would know?
    Mr. WARE. No. I have not had any discussions with her. I 
meet with her every other week.
    Ms. TENNEY. Okay. Well, I just want to thank you.
    I also just wanted to reiterate the concerns that my 
colleague, Mr. Garbarino had about the customer service issue. 
We still are receiving information about loans and other things 
that are not being handled in an efficient and continuous 
matter. We hope that you will continue as the inspector general 
to urge the administration to answer customer information 
complaints faster and more efficiently as many people are out 
there waiting or have not had loans processed for over a year. 
But again, I appreciate, I know my time is running out but I 
appreciate your work in trying to get the correct information 
to the administration so SBA can work and function better for 
our communities and our small business community who are 
struggling through this pandemic. I thank you.
    And my time is out so I yield back my time. Thank you.
    Chairwoman VELAZQUEZ. The gentlelady's time has expired.
    Thank you again, Mr. Ware, for being here today. Your 
oversight of SBA programs is very important, and it is more 
important now than ever as we work to address the challenges 
with the stimulus lending programs and learn valuable lessons 
for the future. It is vital that we address the systemic 
challenges at SBA and work together to ensure that internal 
controls are put in place. Doing so we will make the agency 
stronger, nimbler, and better able to handle disasters in the 
future. To that end, it is encouraging to see SBA is heeding 
your advice and working to close out the outstanding 
recommendations. Most importantly, your work helps the 
Committee track challenges all throughout the agency that need 
to be addressed. If we have learned anything over the last 2 
years it is that we need to have a well-functioning, funded, 
and staffed agency to address the day-to-day needs of small 
firms and be ready for any catastrophe facing our nation. I 
truly hope that today's hearing motivates all of us to work to 
find bipartisan solutions to bolster the agency.
    Without objection, Members have 5 legislative days to 
submit statements and supporting materials for the record.
    If there is no further business to come before the 
Committee, without objection, we are adjourned. Thank you.
    [Whereupon, at 11:55 a.m., the committee was adjourned.]
                           
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