[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
EXAMINING FEDERAL EFFORTS TO PREVENT,
DETECT, AND PROSECUTE PANDEMIC RELIEF
FRAUD TO SAFEGUARD FUNDS FOR ALL
ELIGIBLE AMERICANS
=======================================================================
HEARING
BEFORE THE
SELECT SUBCOMMITTEE ON THE CORONAVIRUS CRISIS
OF THE
COMMITTEE ON OVERSIGHT AND REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
JUNE 14, 2022
__________
Serial No. 117-86
__________
Printed for the use of the Committee on Oversight and Reform
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov,
oversight.house.gov or
docs.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-805 PDF WASHINGTON : 2022
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COMMITTEE ON OVERSIGHT AND REFORM
CAROLYN B. MALONEY, New York, Chairwoman
Eleanor Holmes Norton, District of James Comer, Kentucky, Ranking
Columbia Minority Member
Stephen F. Lynch, Massachusetts Jim Jordan, Ohio
Jim Cooper, Tennessee Virginia Foxx, North Carolina
Gerald E. Connolly, Virginia Jody B. Hice, Georgia
Raja Krishnamoorthi, Illinois Glenn Grothman, Wisconsin
Jamie Raskin, Maryland Michael Cloud, Texas
Ro Khanna, California Bob Gibbs, Ohio
Kweisi Mfume, Maryland Clay Higgins, Louisiana
Alexandria Ocasio-Cortez, New York Ralph Norman, South Carolina
Rashida Tlaib, Michigan Pete Sessions, Texas
Katie Porter, California Fred Keller, Pennsylvania
Cori Bush, Missouri Andy Biggs, Arizona
Shontel M. Brown, Ohio Andrew Clyde, Georgia
Danny K. Davis, Illinois Nancy Mace, South Carolina
Debbie Wasserman Schultz, Florida Scott Franklin, Florida
Peter Welch, Vermont Jake LaTurner, Kansas
Henry C. ``Hank'' Johnson, Jr., Pat Fallon, Texas
Georgia Yvette Herrell, New Mexico
John P. Sarbanes, Maryland Byron Donalds, Florida
Jackie Speier, California Vacancy
Robin L. Kelly, Illinois
Brenda L. Lawrence, Michigan
Mark DeSaulnier, California
Jimmy Gomez, California
Ayanna Pressley, Massachusetts
Jennifer Gaspar, Staff Director
Derek Collins, Clerk
Contact Number: 202-225-5051
Mark Marin, Minority Staff Director
Select Subcommittee On The Coronavirus Crisis
James E. Clyburn, South Carolina, Chairman
Maxine Waters, California Steve Scalise, Louisiana, Ranking
Carolyn B. Maloney, New York Minority Member
Nydia M. Velazquez, New York Jim Jordan, Ohio
Bill Foster, Illinois Mark E. Green, Tennessee
Jamie Raskin, Maryland Nicole Malliotakis, New York
Raja Krishnamoorthi, Illinois Mariannette Miller-Meeks, Iowa
C O N T E N T S
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Page
Hearing held on June 14, 2022.................................... 1
Witnesses
Michael Horowitz, Chair, Pandemic Response Accountability
Committee
Oral Statement................................................... 5
Hannibal ``Mike'' Ware, Inspector General, Small Business
Administration
Oral Statement................................................... 7
Kevin Chambers, Director for COVID-19 Fraud Enforcement,
Department of Justice
Oral Statement................................................... 8
Roy D. Dotson, Jr., Acting Special Agent in Charge, National
Pandemic Fraud Recovery Coordinator, United States Secret
Service
Oral Statement................................................... 10
* Written opening statements and the written statements of the
witnesses are available on the U.S. House of Representatives
Document Repository at: docs.house.gov.
Index of Documents
----------
* OIG COVID-19 Fraud Investigations, Indictments, and
Convictions; submitted by Chairman James Clyburn.
No additional documents were entered into the record for this
hearing.
EXAMINING FEDERAL EFFORTS TO PREVENT,
DETECT, AND PROSECUTE PANDEMIC RELIEF
FRAUD TO SAFEGUARD FUNDS FOR ALL
ELIGIBLE AMERICANS
----------
Tuesday, June 14, 2022
House of Representatives
Committee on Oversight and Reform
Select Subcommittee on the Coronavirus Crisis
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2247, Rayburn House Office Building, and via Zoom; Hon.
James E. Clyburn (chairman of the subcommittee) presiding.
Present: Representatives Clyburn, Maloney, Foster, Raskin,
Krishnamoorthi, Scalise, Green, Malliotakis, and Miller-Meeks.
Chairman Clyburn. Good morning. The committee will come to
order. Without objection, the chair is authorized to declare a
recess of the committee at any time. I now recognize myself for
an opening statement.
The coronavirus crisis caused significant economic
suffering as millions of Americans lost their jobs and
businesses struggled to keep their doors open. Congress took
decisive action to ease this pain, appropriating unprecedented
relief for small businesses and workers who lost their jobs.
First, through the CARES Act, and later, under President Biden,
through the American Rescue Plan. These laws funded the Small
Business Administration's Paycheck Protection Program or PPP,
and Economic Injury Disaster Loan program or E-I-D-L, we call
EIDL, as well as expanded unemployment insurance.
Unfortunately, criminals and criminal organizations took
advantage of Americans suffering during this crisis and
committed substantial fraud against these critical pandemic
relief programs, stealing billions of dollars in aid. These
acts of fraud are not victimless crimes. This fraud exhausted
funds badly needed by eligible Americans, particularly funds
allocated to support small businesses that are crucial to
making the American economy thrive.
In some cases, pandemic relief fraud involved a tentative
theft that prevented innocent people from accessing
unemployment insurance when they lost their jobs and were in
desperate need of assistance. In other cases, pandemic fraud
put identity theft victims' credit at risk as fraudulent relief
loans were taken out in their names.
The Trump administration contributed to this problem by
failing to put basic fraud controls in place to protect these
vital relief programs and American taxpayers from fraud. Today,
the select subcommittee released a report showing that under
the Trump administration, SBA failed to implement basic
safeguards to prevent fraud against the EIDL program. The Trump
administration even directed loan officers to approve EIDL loan
applications when there were clear indications that the
applicants were engaged in identity theft. This both depleted
funds from a critical relief program and put Americans at
increased risk of suffering the consequences of identity theft.
The SBA Office of Inspector General similarly found that
during the Trump administration, SBA failed to use sufficient
controls to prevent PPP fraud--and I'm quoting here, ``lowered
the guardrails,'' end of quote, in the EIDL program,
significantly increasing fraud vulnerabilities.
We look forward to hearing from SBA Inspector General Ware
today about his office's efforts to address the fraud that
occurred because of these failures, including his office's work
to recoup taxpayer dollars lost to fraud. The Biden
administration has taken action to reverse the damage caused by
the prior administration and to prevent future fraud. In the
EIDL program, the Biden administration implemented measures to
identify potential fraud, directed loan officers to address
indications of fraud before approving loans, and took
additional steps to make sure applications were legitimate.
Further, through the American Rescue Plan, Congress made
critical investments in fraud prevention and accountability,
including providing more than $200 million in funding for
watchdogs to investigate fraud, waste, and abuse, as well as $2
billion to support states' modernization of unemployment
insurance systems to reduce fraud vulnerabilities. The Biden
administration has begun using these funds to support state
efforts to make unemployment insurance systems both more
accessible to eligible recipients, and less susceptible to
fraud.
This funding is also supporting the work of the Pandemic
Response Accountability Committee, or PRAC, chaired by
Inspector General Michael Horowitz. The PRAC has coordinated
efforts to conduct and investigate fraud across the Federal
Government. We will hear about those important efforts from
Inspector General Horowitz today.
As the Biden administration works to prevent and detect
fraud, they have also taken action to hold perpetrators of
fraud accountable. As he continued to do in this year's State
Of The Union, President Biden directed the Department of
Defense to appoint a chief prosecutor to lead efforts to
investigate pandemic relief fraud. Kevin Chambers, who was
named to this role in March, is here with us today. Data the
Department provided to the select subcommittee showed that it
has already charged nearly 1,500 people with alleged fraud
against pandemic relief programs. We look forward to hearing
from Mr. Chambers about the Department of Justice's efforts.
There is more that must be done to bring perpetrators of
fraud to justice and to protect future emergency programs. We
should consider whether to extend statutes of limitations to
allow investigators more time to uncover pandemic relief fraud,
and we should continue efforts to protect relief funds by
fulfilling the Biden administration's requests for more funds
to protect and strengthen state unemployment insurance systems.
I would like to thank our witnesses for being with us
today. I look forward to hearing more about the
administration's efforts to hold perpetrators of fraud
accountable and what else we can do to protect vital relief
programs going forward.
I now recognize the Ranking Member Scalise for his opening
statement.
Mr. Scalise. Thank you, Mr. Chairman, and I'd also like to
welcome the witnesses and thank them for joining us today for
this important hearing.
In the initial days and months of the COVID pandemic,
uncertainty was rampant, and much of the economy was locked
down. Congress acted multiple times in a bipartisan way to
deliver much-needed relief as fast as we could to help save as
many jobs as we could. We knew keeping people employed was the
best way to keep our economy from crashing. Perhaps the most
significant program was the Paycheck Protection Program, known
as PPP. Initially, Congress gave the new program $349 billion
in March 2020, and mandated that the Small Business
Administration implement the program within 15 days of enacting
this new program.
Over time, the program received more than $800 billion, and
the SBA estimates that it saved more than 51 million jobs.
That's right. President Trump worked with Democrats and
Republicans in Congress to pass a program at the beginning of a
global pandemic that saved more than 51 million jobs and turned
it around at rapid pace.
Using loan data as of August 2020, the SBA office of
Inspector General has flagged an estimated $4.6 billion, which
represents roughly one-half of one percent of the total loan
funding for potential fraud or other improper payments. Fraud
of any kind is wrong, but given the size of the program and the
demands placed on the agency by Congress to rush the money out
of the door to save as many jobs as possible, about one-half of
one percent is better than most Federal programs that have been
around for decades. Sadly, despite this fact, Democrats have
continued their effort to undermine the PPP's success by
attacking the Trump administration and financial institutions
involved in the program despite the PPP's well documented
successes.
In stark contrast to PPP, is the enhanced unemployment
insurance program. The Labor Department's Office of Inspector
General estimates an improper payment rate of 18.7 percent in
2021. That means about 6--$163 billion--$163 billion of the
program's $872 billion in Federal, state unemployment benefits
paid during the pandemic, could have been improperly paid with
a significant portion attributable to fraud.
The OIG found that, quote, ``Based on their audit and
investigative work, the improper payment rate for the pandemic
UI program is likely higher than 18.71 percent.'' Why aren't we
having a hearing on that? Great. Let's go after the $4 billion,
but why aren't we going after the $163 billion that's being
completely ignored in fraud? There are numerous examples of
domestic UI fraud.
One man from New York received $1.5 million over 10 months.
A California real estate broker got more than $500,000 over six
months. One person used the same social security numbers to
file UI claims in 40 different states. We're not having a
hearing on this. In addition, the program was targeted by
criminal organizations and enemy nation states. A ProPublica
investigation found that a substantial amount of UI fraud can
be attributed to organized crime, both in the United States and
abroad.
Estimates by some say at least 70 percent of the money
stolen ultimately went to foreign nationals in countries like
China, Russia, and Nigeria. One state received fake
unemployment claims that came from IP addresses in nearly 170
different countries. That was just one state's reported fraud.
So far, just over $4 billion has been recovered of that 160-
plus billion dollars in fraud from the enhanced UI program.
We should be doing everything we can to aggressively
identify, investigate, and prosecute the criminal fraud in
pandemic unemployment programs. That's why I introduced a bill
last week with many of my fellow Republican colleagues to help
encourage states to recover fraudulent payments. I hope we'll
be able to get that bill moved through Congress quickly.
On top of the egregious and unprecedented fraud, the
pandemic's enhanced UI program has been cited as a leading
contributor to the historically high inflation that is crushing
American families right now. With all the legislative
extensions, some claimants could receive up to 79 weeks of
enhanced unemployment, about a year-and-a-half of getting paid
more money not to work than what they were making at their job.
And all this while businesses all across the country are still
looking for workers, you had the government paying hundreds of
billions of dollars to pay people more money not to work than
they were working prior to the pandemic.
Democrats insisted on extending the program for another six
months and providing an additional $300 a week in their
partisan $1.9 trillion spending spree that caused the highest
inflation in 40 years. The latest numbers have inflation
hitting 8.6 percent last month. This is costing the average
American household an additional $327 a month. That's right.
Families across America are paying $300 a month more in higher
inflation because of all the trillions of dollars in spending
here in Washington doing things like paying people not to work.
Washington Democrats shamelessly used the pandemic to
pursue their socialist dreams of government dependency. They
paid people not to work, handed out big stimulus checks and
expanded government welfare programs, all while ignoring the
warnings about inflation that would be caused. Instead of
dumping cash into the already recovering economy, we should
have been focused on reopening schools and getting our
businesses back open safely and helping those workers get back
into their jobs.
While PPP and other pandemic programs have a few
detractors, they were overwhelmingly bipartisan and largely
succeeded in delivering much-needed relief, and, again, saving
51 million jobs for those hard-working families who are luckily
still in the work force today because of this program.
I hope that in our oversight of pandemic programs, my
Democrat colleagues will be able to recognize the difference
between what was needed to save the economy during
unprecedented pandemic versus pushing a partisan inflation
inducing agenda.
With that, again, I look forward to hearing from our
witnesses.
And Mr. Chairman, I yield back the balance of my time.
Chairman Clyburn. Thank you very much, Mr. Scalise.
I would now like to introduce our distinguished witnesses.
The Honorable Michael Horowitz is the Inspector General for the
Department of Justice, and chairs the Pandemic Response
Accountability Committee. Inspector General Horowitz testified
before this committee last March, and we appreciate his return
to testify today.
The Honorable Hannibal ``Mike'' Ware is the Inspector
General for the Small Business Administration. Inspector
General Ware also testified before this committee last year,
and we look forward to hearing from him again today.
Mr. Kevin Chambers is an Associate Deputy Attorney General
who is serving as Director for COVID 19 fraud enforcement.
Thank you for being here today.
Mr. Roy Dotson is the National Pandemic Fraud Recovery
coordinator for the United States Secret Service. Thank you.
And I would like for the--all witnesses please stand, raise
your right hands.
Do you swear or affirm that the testimony you are about to
give is the truth, the whole truth, and nothing but the truth,
so help you God?
Thank you. You may be seated.
Let the record show that the witnesses answered in the
affirmative. Without objection, your written statements will be
made part of the record.
Mr. Horowitz, you're now recognized for five minutes for
your opening statement.
STATEMENT OF HON. MICHAEL HOROWITZ, CHAIR, PANDEMIC RESPONSE
ACCOUNTABILITY COMMITTEE;
Mr. Horowitz. Thank you, Mr. Chairman, Ranking Member
Scalise, members of the subcommittee. Thank you for inviting me
to testify today about the work of the PRAC, which Congress
created in March 2020 to oversee what is now over $5 trillion
in pandemic relief spending across 426 Federal programs at 40
agencies. Given the magnitude of these responsibilities, we've
developed a new model of conducting oversight in a crisis that
involves promoting transparency by providing the public with
accessible and comprehensive spending data on our website,
pandemicoversight.gov, collaborating across Inspector General
community, in the oversight community, to identify cross-
cutting issues and risks, by detecting and preventing fraud,
waste, abuse, and mismanagement through the use of leading edge
data insights and analytic tools, and holding wrongdoers
accountable by marshaling the investigative and analytical
resources of the oversight community.
A key to our success has been the transparency we've
provided to the public about pandemic-related spending.
Pandemicoversight.gov, our website, empowers Americans to see
how their money is being spent and enables whistleblowers to
help us prevent and detect wrongdoing. However, we face several
challenges in our efforts to advance transparency.
As we reported in November 2020 and October 2021,
significant agency data gaps present challenges to our pandemic
oversight efforts. And data completeness is just one of the
challenges we've identified as part of our oversight efforts.
In September 2021, and again last week, we issued reports
highlighting the important lessons we've learned from reviewing
some of the largest pandemic relief programs. Among those
lessons that we've detailed in those reports are that agencies
should be using the existing data to determine program
eligibility rather than relying on individual self-
certifications as occurred in many instances here.
I want to briefly mention the critical role collaboration
has played in our oversight efforts. From the earliest days of
the pandemic, we regularly coordinated with GAO leadership, and
similarly engaged with our state and local oversight partners.
For example, the PRAC conducts quarterly briefings to share
fraud indicators with our state and local oversight partners.
To date, close to 400 state and local officials have
participated in those briefings.
We've also had strong working relationship with senior
executive branch officials. This level of engagement with IGs
and the PRAC has become a model for how to manage large-scale
spending programs and to ensure that agencies benefit from the
knowledge that IGs have developed through our oversight work.
Let me turn to our accountability efforts. The only way to
effectively oversee $5 trillion in relief spending is with
data. At the PRAC, we've use advanced data science to further
our oversight by creating the Pandemic Analysis Center of
Excellence, or PACE, to deliver world class analytic, audit,
and investigative support. Our data analytic center is
currently providing 37 law enforcement agencies access to more
than 150 million records from public, nonpublic, and commercial
data sources. The work of the PRAC and partner IGs have already
led to more than 1,200 indictments and complaints, about 950
arrests and over 450 convictions.
We are committed to using all available tools to hold
wrongdoers accountable, including criminal, civil and
administrative actions, such as forfeiture and suspension and
debarment. This investigative and oversight work has also led
us to conclude that prevention and detection of identity theft
should be among the highest priorities of Federal agencies.
Identity theft has been endemic in the fraud cases we've seen,
and just yesterday, the PRAC issued a report summarizing our
key insights on this issue. We've also found that identity
theft victims have few avenues of assistance available to them.
That's why the PRAC created the identity fraud Reduction and
Redress Working Group. Our working group is partnering with IGs
to identify ways agencies can help close those gaps and to help
identity theft victims move forward.
Finally, I want to voice my support for three bipartisan
bills pending in Congress that would assist our efforts to
fight fraud and pandemic-related spending. Two of those bills
passed the House earlier this month, as the chairman mentioned.
The third is currently pending on the Senate floor that would
allow us to increase the jurisdictional recoveries for smaller
false claims. I'm hoping for prompt congressional action on all
three bills.
Thank you for your continued strong support for our
oversight work, and I am pleased to answer any questions the
committee may have.
Chairman Clyburn. Thank you very much, Mr. Horowitz.
The Chair now recognizes for five minutes Mr.--the
Honorable Hannibal Ware.
STATEMENT OF HON. HANNIBAL ``MIKE'' WARE, INSPECTOR GENERAL,
SMALL BUSINESS ADMINISTRATION
Mr. Ware. Chairman Clyburn, Ranking Member Scalise, and the
distinguished members of the subcommittee. Thank you for
inviting me to speak with you today and for your continued
support of my office.
My office is providing oversight of more than $1 trillion
in pandemic funds. The unprecedented pandemic response demanded
an unprecedented oversight approach. Our office has performed
audits in real time, and we literally rewrote the book on how
to present findings in a timely and proactive manner. OIG
reviews typically take 10 to 12 months to conclude, whereas we
published reports meeting stringent review standards in little
as two weeks.
To date, we have issued 22 pandemic-related reports. Our
recommendations for corrective action to the agency have
resulted in SBA tightening their internal control systems and
our work continues to focus on the various phases of the
program to mitigate fraud and ensure only eligible recipients
receive funds. The importance of this ongoing oversight to the
Nation cannot be overstated. It is our goal, a goal I know that
is shared by the PRAC and the IG community, that the lessons
learned will prevent future missteps when taxpayer dollars are
at stake.
This brings me to the fraud landscape and the urgency by
which I bring this message to you today. This subcommittee
knows well the tens of billions of dollars that have been
identified by my office as potentially fraudulent. The actions
of these fraudsters will not simply vanish. The evidence trail
left behind can best be described as footprints in concrete.
Our oversight accomplishments are significant, literally
billions of dollars, but we are nowhere near a full
understanding of the fraud landscape. What we do understand is
that we are far beyond the notion of potential fraud, and we
are attacking this fraud head on. Our investigators are
topnotch and viewed as experts across the law enforcement
community. They have forged partnerships with counterparts,
joined task forces, and worked hand in glove with prosecutors
to bring wrongdoers to justice.
Our data analytics team is using cutting-edge artificial
intelligence and machine learning to develop high-impact leads,
which are aggressively pursued by our investigators. We are
systematically approaching the use of these resources to
develop the capability to detect fraud in near real time going
forward.
In addition to independently developed leads, we're combing
through financial suspicious activity reports, allegations of
fraud directly from financial constitutions, SBA program
offices, and our hotlines to prioritize our investigative work.
With under 70 criminal investigators on board, we alone are
far outmatched with the hundreds of thousands of investigative
leads. We have 399 open investigations regarding EIDL and PPP
fraud, which are associated with over $1 billion of estimated
loss. Our investigators have proven to be tireless and
collaborative, and represent the best of a whole-of-government
response to this massive theft of taxpayer funds.
Now, let me raise awareness of the fraud landscape before
us, and why it is vital that the statute of limitations is
extended to close the disparity between the 10-year bank fraud
statute of limitations, and fraud that is committed against
non-banking institutions, such as SBA. The House took action
last week to pass such measures. EIDL loans were provided a 30-
month deferment period for the first payment, with the program
just closing a couple weeks ago.
History tells us that the fraud fully reveals itself when
loans begin to default. Given we already have brought
wrongdoers to justice associated with hundreds of millions of
dollars in fraud, and we have identified tens of billions of
potential fraud as being prioritized, there simply must be more
time made available in the interest of justice to the taxpayer.
We similarly are faced with a wave of fraud to be fully
realized in PPP. Already, over 66,000 loans have defaulted
where SBA paid the 100 percent guarantee to the lenders in the
amount of $3.7 billion. An additional 1.2 million PPP borrowers
have not requested loan forgiveness on a program designed to
forgive their debt. Needless to say, these are highly
suspicious loans and will require focus and scrutiny.
The President has submitted a $10 million increase to my
office's base operating budget in Fiscal Year 2023. This
increase will position my office to carry forward approximately
just half of the staff we on-boarded to provide oversight of
SBA's pandemic response, the quid suggests 30 positions. It is
vital that the President's budget is supported and that we
consider the fraud landscape that I've presented to you today.
The Nation can depend on us to provide independent, objective,
and timely oversight of SBA as we have demonstrated.
Thank you for the opportunity to speak to you today, and
I'm happy to answer any questions you may have of me.
Chairman Clyburn. Thank you very much, Mr. Ware.
The Chair now recognizes Mr. Chambers for five minutes.
STATEMENT OF KEVIN CHAMBERS, DIRECTOR FOR COVID 19 FRAUD
ENFORCEMENT, DEPARTMENT OF JUSTICE
Mr. Chambers. Mr. Chairman, Ranking Member and members of
the committee, thank you for the invitation to meet with you
today.
The Department fully shares your concern about pandemic-
related fraud and is committed to doing all that it can do to
vigorously prosecute pandemic fraud, bring to bear all
appropriate criminal, civil, and administrative tools. This is
not a new commitment. The Department has been prosecuting
pandemic-related fraud since COVID-19 arrived on our shores.
Since then, U.S. attorneys offices have criminally charged
approximately 1,300 defendants, and the criminal division fraud
section has criminally charged and prosecuted 220 defendants in
pandemic-fraud-related matters. These cases, most of which are
still in progress, have involved over $1.1 billion in lawsuits.
Many more matters are in the investigative stage.
As with our criminal matters, our civil attorneys have also
been hard at work. They've opened 300 civil investigations into
over 2,300 individuals and entities for alleged misconduct in
connection with pandemic fraud. Now, all of our attorneys are
working tirelessly on other not yet public matters not included
in these totals, but the resolved cases do exemplify the
Department's efforts.
In the western district of Washington, just to give one
example, prosecutors secured a guilty plea for a foreign
national who used the stolen identities of more than 20,000
Americans to file for more than $2 million in government
benefits across multiple states. This is just one example of
the many cases already resolved by the Department.
We are proud of the work done so far, but it is no time to
pat ourselves on the back. As with any government relief
program, there were those here and abroad who saw pandemic
relief as an opportunity for personal enrichment. These thieves
employed a number of schemes to carry out their selfish ends.
They purchased stolen identities and filed for unemployment
insurance relief benefits, using bank accounts opened online to
receive the funds and money mules to help transfer the benefits
overseas.
They created fake businesses and received funds in the
names of those imaginary companies. They used fishing scams to
trick unsuspecting citizens into downloading malware onto their
computers and used that malware to steal personal and financial
information. Criminals have worked together in loose, online
networks using encrypted messaging applications to coordinate
schemes to file for SBA loans and unemployment insurance
benefits. This is not imaginary money.
Each dollar stolen was a dollar taken from a small
restaurant owner who wanted nothing more than to keep her staff
on the payroll, or taken from suddenly unemployed parents who
needed help feeding their families. Each dollar stolen could
have been used to obtain protective gear, COVID tests or other
scarce resources. Instead, the stolen money was diverted into
the hands of criminals.
As we approach the next phase of our enforcement work, we
will focus on data. Indeed, we will start with the data, and
there is plenty of it. For each fraudulent application, someone
provided a name, a mailing, email, or IP address, a bank
account or other data. Through use of advanced analytical
tools, we will continue to identify patterns and trends that
will lead us to those who put themselves above the safety and
security of the American people, and we will be bringing all of
our tools to this fight.
We will deploy skilled, dedicated prosecutors across the
Department to lead the effort to prosecute these cases. And
dedicated analysts will pour through millions of pieces of data
to create the leads that will result in investigations and
ultimately convictions. We are supported by investigators from
across the Federal Government who have committed resources to
assist.
And I would like to thank the other witnesses at the table
today, all of whom have lent their support and commitment. I
appreciate their partnership.
Like the relief and like the fraud, our response must be
unprecedented. The enormous amount of data and the years of
work ahead will require significant resources. The President's
2022 budget sought $41.2 million for COVID fraud enforcement
efforts. Unfortunately, that amount was not approved by
Congress. The President's 2023 budget contains the same
request. These resources will speed our data analysis and our
identification of fraudulent schemes, and that will increase
our ability to bring people to justice and recover funds.
And our experience so far shows a tremendous return on
investment when it comes to resources committed to COVID-19
fraud enforcement. So, we ask for your continued support to
properly staff this effort with the agents, analysts and
prosecutors needed to bring these criminals to justice, and to
seize their ill-gotten gains.
Once again, thank you for attention to this matter and for
your support. I'm happy to answer any questions you may have.
Thank you.
Chairman Clyburn. Thank you very much.
Mr. Dotson, you're recognized for five minutes.
STATEMENT OF ROY D. DOTSON, JR., ACTING SPECIAL AGENT IN
CHARGE, NATIONAL PANDEMIC FRAUD RECOVERY COORDINATOR, UNITED
STATES SECRET SERVICE
Mr. Dotson. Good morning, Chairman Clyburn, Ranking Member
Scalise, and distinguished members of the select subcommittee.
Thank you for the opportunity to appear before you today to
discuss the ongoing efforts in the United States Secret Service
to counter cyber-enabled financial crimes targeting the
Nation's financial infrastructure, in particular COVID-19
fraud.
My name is Roy Dotson, and I'm assigned to the Secret
Service Office of Investigation as the national pandemic fraud
recovery coordinator. The operative word regarding the CARES
Act was speed. U.S. citizens were suffering from the effects of
COVID-19 and needed assistance. Unfortunately, fast money
sometimes equals fast crime, and fast crime requires an equally
fast response by law enforcement.
The CARES Act was signed into law March 27th, 2020, and by
the first week of May, the Secret Service was investigating
cases involving unemployment fraud. It quickly became apparent
that organized groups, as well as individuals, were targeting
the system's programs. Within weeks, the Secret Service
partnered with the Financial Crimes Enforcement Network, or
FinCEN, to issue two advisories alerting the financial sector
to potential fraud.
We also mobilized our more than 160 offices and 44 cyber
fraud task forces to focus on these investigations. These task
forces are comprised of partners from the state, local
partners, many of them received training at our National
Computer Forensic Institution, or NCFI in Hoover, Alabama. In
2008, NCFI has trained more than 18,000 state, local, Tribal
and territorial partners for more than 2,500 agencies
throughout all 50 states, and five U.S. territories. Those
receiving NCFI training and Secret Service-issued cyber
equipment, have become essential in assisting their local
communities in countering COVID-19 fraud.
Our success in launching quick and efficient investigations
is made possible by our partnerships maintained nationwide with
Federal, state, and local government entities, as well as the
private sector. In July 2020, the Secret Service partnered with
the Department of Labor Office of Inspector General to publish
our first joint advisory on pandemic fraud. This advisory was
sent to nearly 30,000 financial institutions and outlined fraud
indicators associated with pandemic-related schemes.
It requested those in the financial sector to work with the
Secret Service to identify suspected fraudulently obtained
unemployment benefits. The Secret Service also collaborated
with Small Business Administration Office of Inspector General,
and the Pandemic Response Accountability Committee to send out
additional advisories when Economic Injury Disaster Loan and
paycheck protection loan fraud was detected.
The Secret Service's efforts to recover stolen assets and
hold criminals accountable will be ongoing for years.
Countering this fraud and ensuring the integrity of the
Nation's financial infrastructure remains a core focus of the
Secret Service's investigative work. Over the past 26 months,
the Secret Service has observed a clear evolution of the type
of frauds being perpetrated.
These fraud schemes are not unfamiliar to the Secret
Service. Phishing campaigns have given way to nondelivery of
fraudulent goods and services, and those schemes have evolved
into more sophisticated cyber crimes, such as ransomware
attacks and business email compromises. I would like to
highlight the successful completion of the Secret Service's
investigation into a Michigan unemployment insurance fraud
scheme.
In this case, a contract employee for the state of
Michigan's unemployment insurance agency conspired with others
to submit hundreds of false unemployment insurance claims. Over
the course of the subject's criminal activity in exchange for
bribes, she released payment on 700 fraudulent claims,
resulting in the illegal disbursement of more than $3.7
million. The joint Secret Service investigation with the
Department of Labor and multiple other Federal and state
agencies epitomizes the outstanding teamwork across the law
enforcement community.
The subject has already been sentenced to 58 months in
prison and ordered to pay restitution in the amount of nearly
$3.8 million. While this one case represents a single example
of the exceptional work being done by the Secret Service and
our partners to prevent and combat fraud, I'm also able to
report that we continue to see mission successes emerge from
hundreds of other investigative efforts. To date, the Secret
Service has initiated over 1,000 criminal investigations in the
pandemic relief crimes, seized over $1.26 billion, and
prevented approximately $2.3 billion in fraud losses.
Chairman Clyburn, Ranking Member Scalise and distinguished
members of the select committee, thank you for your time. I am
honored to represent the dedicated professionals of the Secret
Service, and I look forward to your questions.
Chairman Clyburn. Well, thank you very much. Let me thank
the entire panel, not just for your very substantive
presentations here today, but also for your very timely
presentations. I don't know that we've had four members who
stayed within the time allotted. You're to be congratulated. I
suspect that comes from experience at this sort of thing. So,
thank you so much.
Of course, each member will now have five minutes with
which to ask any questions that they may have.
And I'm going to begin with a question for you, Mr.
Chambers. You mentioned in your opening statement about the
steps that President Biden has taken in directing your work.
Can you give us a little thumbnail sketch, a little bit
like we just heard, of your work?
Mr. Chambers. Sure. So, Mr. Chairman, I should start by
saying while I'm new to this role, this role is new. The work
of the Department has been ongoing for two years, again, right
from the beginning of the pandemic. The women and men of the
Department in our U.S. Attorney's Office and Justice
Departments components were tasked with, on top of their
already-full-capacity workloads, taking on these new and often
complex cases.
My role as Director of COVID-19 fraud enforcement is to
enhance and supplement the work that they've been doing. I see
my role as involving three primary pillars. First is to act as
point of coordination across the Department of Justice with
respect to the code enforcement work that is going on in all
our offices and at Main Justice.
Second is to serve as a line of facilitation and
communication. Over the course of the past two years, each
prosecution, each civil case has brought new lessons to be
learned. And those lessons are ones that in my role I will
share across the Department to make sure that we are working as
effectively and as efficiently as we possibly can.
Third, in my role, we will be focusing on particular types
of COVID fraud, and we will be focusing specifically on large-
scale COVID-related fraud perpetrated by criminal organizations
and foreign actors. We've seen some of this already in some of
the cases that have been resolved, deal with that type of
fraud. We will be in the not-too-distant future standing up
strike teams in specifically selected locations that will be
made up of dedicated prosecutors, dedicated investigative
agents, and dedicated analysts, who will do nothing but
prosecute that type of large-scale fraud that allows us to
develop an expertise and will allow our U.S. Attorney Offices
and Main Justice components to continue to do the good work
they've been doing.
Chairman Clyburn. Well, thank you very much for that. While
I do not in any way condone the small actors, and I do consider
the case--the Michigan case that Mr. Dotson just mentioned to
be big by my estimations, but--by what we know to be taking
place, it's kind of small. And so, I'm glad to see you are
going to focus on these organizations that seem to be
perpetrating tremendous fraud among the American people.
But the Biden administration has also prioritized other
forms of fraud, and the Democrats in the Congress assisted in
that effort. We assisted by appropriating $40 million in
additional funds to the PRAC as part of the American Rescue
Plan. Now, if I might--if you can see the graphic on the--on
yesterday, select subcommittee--I don't--there it is.
Select subcommittee, 1,200 indictments resulting from OIG
pandemic-related at the PRAC; 1,150 ongoing investigations in
COVID-19 EIDL; and PPP and unemployment. I don't know if you
can see this, but 450 convictions.
Now, I would like to ask for unanimous consent that we
enter this into the record.
Chairman Clyburn. Mr. Horowitz, can you please describe
specific PRAC activities coordinating and supporting the
efforts of these Federal agencies, such as the initiative to
provide detailees and data science fellows to various offices
of the Inspector Generals?
Mr. Horowitz. Certainly, Mr. Chairman.
You know, in the CARES Act, Congress gave us various hiring
authority, and we've used that successfully to bring on board a
number of data scientists. This is just one example of the work
we've done to collaborate across the Inspector General
community. And we've hired numerous data scientists and
mathematicians and statisticians from around the country with
the authority you gave us. And what we've been able to do is
assign those data scientists and fellows to IG offices
throughout the community.
And so, we've already placed about 20 data scientists to
help IG offices look at data and find anomalies and find
issues. Because, as you indicated, one of the things we want to
do at the PRAC, and I know our member IGs want to do, I know
Mr. Ware is trying to do it as are others, we're looking for
the entire scope of the wrongdoing. And the way you do that is
to use data and to use analytics and to see the thousands of
applicants that use the same social security number to get
unemployment benefits or PPP benefits or EIDL benefits, the
same telephone numbers that are used in thousands of
applications, the same drop boxes in terms of mailing
addresses, social security numbers.
We have a project right now, we've identified well over a
million suspiciously used social security numbers for multiple
applications, and what we're looking to do is to understand
from the Social Security Administration whether the Social
Security numbers and names on the applications match the Social
Security numbers and names the Social Security Administration
has for the true owner of those accounts. We're looking at over
1 million of those instances. So, we're trying to use, on a
large scale, data analytics to address some of the issues you
referenced.
Chairman Clyburn. Thank you very much. I had to be the
first one to violate the five-minute rule here.
So, I'm now going to yield five minutes plus to Dr. Green.
Mr. Green. Mr. Chairman, I don't think I'll need it, but
thank you. You're kind. Thank you, Chairman Clyburn, and
Ranking Member Scalise, and I want to thank our witnesses for
being here today. I really appreciate the work you're doing.
You know, when people break the law, they should pay the price
for it, especially considering how hurting everyone was during
this time.
On Friday, the Bureau of Labor Statistics released its
latest update on the inflation crisis, which continues to eat
away at Americans' wallets. The Consumer Price Index rose to
8.6 percent in May, the highest it's been in four decades.
Prices are up on everyday goods and services across the board.
Rent is up a record 11.3 percent over the last year. The price
of groceries has increased by nearly 12 percent, the largest
increase since Jimmy Carter was President.
Gas prices have more than doubled since President Biden
took office and launched a crusade against American energy
production. On Inauguration Day, gas averaged $2.39 a gallon.
Now, for the first time ever, the average price of a gallon of
gasoline is over $5. The cause is obvious. It's what happens
when the President decides to decrease the volume of flow
through our pipelines, suspend new Federal oil and gas leases,
and stifle producers with costly regulations.
Core CPI, which excludes food and energy prices, is at six
percent, reflecting that inflationary pressures are straining
all sectors of the economy. Overall, the typical family is
having to spend around 450 more dollars per month just to buy
the same things they would have normally bought a year ago.
Real wages are falling in a way that we haven't seen in 40
years. This isn't surprising. As much as President Biden tries
to pin the blame on everything but his own policies, his
administration has shown more willingness to negotiate with
Iran and Venezuela than our own domestic oil producers.
Speaker Pelosi and President's Biden wasteful and
completely partisan $2 trillion stimulus package supercharged
inflation, pumping vast sums of Federal spending into the
economy and requiring more borrowing and money printing. At the
time, many warned that this sort of stimulus would come with a
heavy price. Now, even the liberal website, Vox, ran a piece
last month acknowledging, and I quote, ``The Biden stimulus
made the U.S. inflation problem even more severe,'' end quote.
The Biden stimulus was the turning point that marked the
beginning of the inflation crisis, which is making it much more
difficult for Americans to save and make ends meet.
And a key part of that was the reckless extension of
Federal unemployment benefits where many people got paid more
to stay at home than to return to work. Now we know that a
significant amount of the unemployment money was subject to
massive fraud, with the Department of Labor's Inspector General
estimating that at minimum, $163 billion worth of unemployment
spending could be attributed to fraud or improper payments out
of the estimated $872 billion that was spent out of pandemic
unemployment programs. We're talking about an improper payment
rate approaching 20 percent. With hundreds of billions of
taxpayer dollars flushed down the drain, most of it gone
forever. Hopefully not.
Agent Dotson, my first question is to you. In the course of
your investigations, have you seen that a significant amount of
fraud, you know, is committed by transnational or criminal
organizations, and if so, do you mind detailing a little bit
about that?
Mr. Dotson. Mr. Congressman, thank you for your question.
There's no doubt that transnational and domestic organized
crime groups committed fraud during this pandemic benefit
programs and across the board. And we look at these
investigations, you know, not to get back to Michigan, but
nobody has to--you don't have to be a citizen of Michigan to
apply for Michigan unemployment assistance. So, anybody
anywhere can apply, and took that opportunity. We are
definitely--we have several ongoing investigations that I can't
speak to today----
Mr. Green. Sure.
Mr. Dotson [continuing]. that do involve transnational
organized groups. I can highlight one case that dealt with a
west African organized crime group that we have dealt with for
years basically that commit all types of cyber crime, including
ransomwares and business email compromise. And of course, this
was a crime of opportunity, so they took that opportunity. They
committed pandemic fraud, but they have been arrested, and they
are currently being prosecuted. That's kind of the black ax
group out of western Africa.
Mr. Green. Excellent.
Mr. Dotson. We've had some success, and we will continue to
look no matter where they are. We are able to go worldwide, not
only, you know, here at the Secret Service, but with our
partners. We will turn over every stone, and we will go after
if it's an organized group, or if it's somebody that's
committed substantial fraud.
Mr. Green. I will take grace you've given me, Mr. Chairman,
and ask one last question.
If you had to predict the amount domestic versus, you know,
transnational, what would be your predictions, any one of you,
on the fraud? You think it's mostly domestic? Is it mostly
foreign? Is there an even mix? What's the rough guess?
Mr. Dotson. Well, Congressman, I can say that at this time,
we're still--as my distinguished colleagues here said--still
trying to ascertain the amount of fraud that's occurred, and
who's committed that. To give those numbers wouldn't be proper
at this time.
Mr. Green. Fair enough.
Mr. Dotson. I would say that it's a combination.
Mr. Green. Well, again, let me reiterate my thanks to the
hard work that you're doing trying to dig that out. Thank you.
Did you want to say something, sir?
Chairman Clyburn. Are you asking in terms of volume?
Mr. Green. Yes.
Chairman Clyburn. Or amount of money?
Mr. Green. Amount of money, actually. Yes.
Mr. Ware. We have--my office, as the Office of Inspector
General, has a report that will be out shortly within probably
the next 30 days or so that speaks to this. We have a report
coming out on foreign IP addressees that will tell a good part
of the story of what happened.
Mr. Green. Excellent. Thank you. Very good.
Mr. Horowitz. If I could just add, because it relates to
legislation the House passed that the Chairman mentioned--that
the House passed last week, the bipartisan legislation to
extend statute of limitations. The challenge at this point of
estimating it is finding domestic fraud is a lot easier early
on than finding the overseas fraud.
Mr. Green. Sure.
Mr. Horowitz. We have to go through not only all of the
resource issues that come with figuring out what happened from
overseas, but also from an investigative standpoint, we need
approval to go get the information from overseas, and it
highlights the importance of having more than the five years
the statute of limitations currently is.
The statute of limitations that the House passed extends
PPP and EIDL fraud to 10 years, lining it up with bank fraud,
which Congress passed back when the S&L crisis hit 40 years ago
or so, for good reason back then. It needs to happen now.
Hopefully the Senate will pass it. Appreciate the House doing
so already.
Mr. Green. Thank you.
Thank you, Mr. Chairman
Chairman Clyburn. Thank you.
Thanks to this immediate past action and the work of Dr.
Green and Mr. Foster, this subcommittee has operated in a
bipartisan way to effectuate those kinds of results. So, thank
you. You thought I wasn't watching, but I've been watching.
Thank you, guys.
Now, we're going to go a little bit out of order, because
of the schedule of one of our members and, with the
acquiescence of Mrs. Maloney, the chair will now recognize Mr.
Krishnamoorthi for five minutes.
Mr. Krishnamoorthi. Thank you so much, Mr. Chair, and thank
you for accommodating----
Mrs. Maloney. Thank you, Mr. Chairman. Small business----
Chairman Clyburn. The chair is now recognizing Mr.
Krishnamoorthi. And I understood, Mrs. Maloney, that you had
agreed for me to go out of order.
Mrs. Maloney. OK. All right. Whatever. Whatever works, Mr.
Chairman.
Chairman Clyburn. Thank you. Mr. Krishnamoorthi.
Mr. Krishnamoorthi. Thank you, Mr. Chair.
Thank you, Madam Chair Maloney, for accommodating my
hearing that's happening in another committee simultaneously.
First of all, the select subcommittee released a new report
today revealing the Trump administration's shocking failures to
protect critical pandemic relief funds from fraud.
The committee's analysis and this document right here,
which we just released today--I think it's going up--basically
shows that 98 percent of DOJ's prosecutions of fraud against
the EIDL program involved fraudulent applications submitted
during the Trump administration. Here's actually one example
why, and there's a graphic showing basically some guidance that
the Trump administration had given to officers at the SBA with
regard to EIDL loans.
The select subcommittee found that under the Trump
administration, loan reviewers at the SBA were directed to
approve applications for the EIDL program even when they had
red flags that indicated potential identity theft.
Inspector General Ware, your office has specifically
investigated identity theft fraud committed against the EIDL
program through January 2021. Isn't that right?
Mr. Ware. That is correct.
Mr. Krishnamoorthi. Did the choice to approve applications
for the EIDL program despite red flags indicating potential
identity theft increase the likelihood of fraud?
Mr. Ware. Well, thank you for your question. The work that
we are doing in this regard is ongoing. What we did--so we have
not fully completed that work within my office.
Mr. Krishnamoorthi. I understand, but I guess my question
is this: Would approving EIDL program loans despite red flags
with regard to identity theft increase the likelihood of fraud?
Mr. Ware. Yes, it would. I believe that we did have a
report that asked them to flag items such as that. It gave them
specifically which ones we asked them to flag, and we also
asked them to set up a system where you could clear a flag if
it was, indeed, a reason for something happening.
Mr. Krishnamoorthi. Right. And prior to the pandemic, SBA
actually had a, quote, ``rule of two control,'' close quote,
rule of two, where basically two SBA employees would review and
approve a loan application, but the SBA OIG reported that this
control was abandoned for EIDL loans related to the pandemic.
Mr. Ware, did the choice to abandon the rule of two control
for the EIDL program increase the likelihood of fraud? I
presume it did.
Mr. Ware. Yes, it did.
Mr. Krishnamoorthi. Whenever you dispense with a
requirement that two people, you know, basically act as a check
on fraud, well, you're going to have more fraud, and that was
predictable.
Now, let me ask you this: Mr. Horowitz, from your work with
partners across the government, do you believe that EIDL and
other vital programs could have delivered quick relief while
doing a better job of preventing fraud?
Mr. Horowitz. Congressman, I think that is correct. What--
the challenge here in any program, particularly in a national
emergency that we're facing, is speed versus proper payments
and controls. And what we saw here early on for several
programs, including PPP and EIDL, was that speed overrode any
controls whatsoever.
And, so, having simply a situation where you're requiring
self-certification and nothing more is an invitation to
fraudsters to come in and try and obtain benefits they
shouldn't otherwise get.
As Mr. Ware has reported, I think it was 57,000
applications in PPP were individual--were for applicants who
are on the Do Not Pay List involving several billions of
dollars. Well, that Do Not Pay List is sitting in the Treasury
Department. It doesn't take a lot of time to compare that data
with the applications. So----
Mr. Krishnamoorthi. And can you just tell us, do you know
what were among the biggest loans among those 57,000?
Mr. Horowitz. Mr. Ware.
Mr. Ware. I don't have that--unfortunately, I don't have
that report in front of me currently, so I can't speak
specifically to what the biggest loans were, but any of them
would have been an issue.
Mr. Krishnamoorthi. And how much fraud are we talking about
just in those loans?
Mr. Ware. $3.6 billion.
Mr. Krishnamoorthi. Yes, that's a lot of money. Thank you
so much for your time.
Chairman Clyburn. Thank you very much.
The chair now recognizes Dr. Miller-Meeks for five minutes.
Mrs. Miller-Meeks. Thank you, Mr. Chair.
And I'd like to thank all of our witnesses for taking time
to come and testify before the committee today. And I want to
say for the companies, the businesses, the employers in my
district in Iowa, the Second District of Iowa, they were
tremendously appreciative when the government closed down their
businesses, and their business had the potential to fail and
never come back, not from their own poor planning or poor
execution or poor savings, but because the government shut them
down, they were tremendously appreciative of the PPP program,
how it was administered, that it was administered through their
local banks. And it was what helped to save them through the
pandemic and to come back and to be part of the strong economy
in Iowa today.
So, I'd like to take a brief moment to discuss the actual
rates of fraud in the programs we're discussing today.
So, Mr. Ware, what was the fraud rate in the PPP program?
Mr. Ware. Thank you for your question. The fraud rate in
the PPP program is not something that we have calculated yet.
What you saw at the onset was a report that raised immediate
awareness that we had an issue, and that was where the 4.6-,
$4.7 billion came from in PPP.
Once we identified that we had issues, we pivoted into
making SBA raise the controls in order to prevent more up
front, because we realized the pay and chase model that would
be necessary afterward would not be effective. So, we spun into
identifying real fraud, in terms of our casework and everything
else.
I said earlier that we're nowhere near understanding what
the full amount is.
Mrs. Miller-Meeks. I thought the fraud rate was 0.6
percent. That was my understanding. So, I could see that you
put in roadblocks and guardrails.
Are you aware of the improper payment estimates for the
pandemic unemployment insurance program?
Mr. Ware. Yes, I do. Yes, I am.
Mrs. Miller-Meeks. And what's the rate there?
Mr. Ware. The rate there is like 18-point-something
percent, but----
Mrs. Miller-Meeks. 18.71 percent. So, 0.6 percent versus
18.71 percent. According to the Department of Labor Inspector
General, this means that if you use the estimated $872.5
billion in pandemic unemployment insurance payments, at least
$163 billion in pandemic UI payment benefits could have been
paid improperly, with a significant portion attributable to
fraud.
Some of the states have reported on unemployment fraud, and
it's jarring the amounts we're talking about. For example, one
man filed for unemployment in 40 states and received more than
$222,000.
Even more jarring are the investigations that have found a
substantial amount of this fraud can be attributed to organized
crime, including reports of up to 70 percent of the fraudulent
money ended up in the hands of Russian, Chinese, and Nigerian
nationals.
So, what we've seen perpetrated on the Federal level is now
the same criminal organizations targeting state governments and
state benefit programs.
Mr. Dotson, I'd like to ask you to discuss, from your
perspective, what has been done and what can be done to combat
this transnational criminal fraud now and in the future,
knowing that it's targeted these Federal programs and is
looking at state programs, where they may not have substantial
guardrails?
Mr. Dotson. Yes, Congresswoman. Thank you for your
question. Obviously, the Secret Service and our Cyber Fraud
Task Forces regularly work transnational crime. And so, this is
nothing new to us. We are financial-crimes investigating
experts.
So, when we work these cases annually, we're kind of used
to following the trail, the money trail. So, we will follow
that. We will continue to do that. We have some great
relationships internationally with numerous countries that
allow us to partner with them and identify transnational
organized groups.
And, as I said earlier, we have several investigations, you
know, hundreds of investigations that involve transnational
organized groups that I just can't talk to today, but I hope to
at a later time bring more information to this committee.
So, we will continue to follow that money, recover as much
as we can for the U.S. taxpayer, and bring those that have
committed this fraud to justice as best we can.
Mrs. Miller-Meeks. And is there work with the technical
assistance or training for states, especially where they
interface with the Federal Government?
Mr. Dotson. Yes, ma'am. So, I talked about, earlier, our
National Computer Forensics Institute in Hoover, Alabama. You
know, countless Federal, state, and local partners, primarily
state and local partners, have received specialized training
there, you know, technical training that includes for our
forensic examiners. They are also issued special equipment in
order to do those examinations.
And it is such a great force multiplier for the Secret
Service. It gives us additional thousands of extra
investigators, detectives from our state and local departments
that we can equip, and then have them focus on these
investigations along with us.
Mrs. Miller-Meeks. Thank you very much. I yield back my
time.
Chairman Clyburn. Thank you very much.
The chair now recognizes Mrs. Maloney for five minutes.
Mrs. Maloney. Thank you, Mr. Chairman, for your leadership
and for this hearing.
Small Business Administration relief programs were vital to
keeping local business open in New York City, which, as you
know, was hit early. We were the epicenter of the whole
epidemic and the pandemic.
And, unfortunately, the report released by the select
subcommittee today shows that significant fraud occurred in
Small Business Administration relief programs under the former
Trump administration because of failures to implement even the
most basic fraud prevention safeguards. And it is disheartening
to learn the extent to which identity theft harmed many of our
most vulnerable residents.
Thankfully, the Biden administration has prioritized a
whole-of-government approach to combating pandemic relief
fraud, and the SBA has introduced new controls to ensure funds
go to the intended recipients.
So, my first question is to Mr. Ware: Can you describe
SBA's efforts over the past year to prevent fraud in the
Economic Injury Disaster Loan program?
Mr. Ware. Thank you for your question. Yes, I can. It's
important for me to state that the efforts to raise the
controls that were lowered is not really an administration
thing from one to the next. This was an ongoing situation,
which is why it's important for me to at some point address
this point. Six percent, that's not an accurate portrayal of
the improper payment rate.
What happened is that we pivoted to making sure that the
control environment was strengthened from the very beginning.
And the December report that I put out was to address the
serious concerns to lift the control environment. So, things
started to change from that point, dealing with requiring--like
checking the Do Not Pay List, not allowing folks to change the
bank routing information after loan approval, starting with the
rule of two again.
Raising all these type of controls was something that took
some time, unfortunately, but started and continued to where we
are today, where we have a much stronger controlled
environment.
Mrs. Maloney. Thank you. Uncovering and prosecuting fraud
that has already occurred in pandemic relief programs is vital,
and requires close collaboration across Federal agencies.
Mr. Horowitz, how do different entities, such as Inspectors
General and the Secret Service, work together to get cases to
the Department of Justice for prosecution, and why is this
collaboration so important?
Mr. Horowitz. Thank you, Congresswoman. It's critical to
this effort, and what we've done is we've created at the PRAC
our own task force to bring together--law enforcement task
force, to bring together the law enforcement community within
the IG community to partner with the Secret Service, the FBI,
others in Federal law enforcement, so that we can share the
expertise we each have in these areas.
We each bring unique abilities to these efforts. The SBA IG
agents, for example, have tremendous expertise in PPP, EIDL,
and related program fraud issues. The Labor IG has that with
regard to unemployment insurance. And it's critical that we do
that.
We are having IG offices--my own office has had agents
volunteer and contribute to this effort, and we've had a great
partnership with the Department and been a critical part, I
think, of their task force as well as we've brought them these
cases.
We are all committed to making sure that we use every
single available tool to not only hold individuals and entities
accountable for fraud and wrongdoing, but to ensure we are
recovering every single penny for the taxpayers. That's our
responsibility and our goal.
Mrs. Maloney. Thank you.
Finally, there's bipartisan legislation now being
considered by the House that would extend the statute of
limitations on the Paycheck Protection Program and Economic
Injury Disaster Loan program fraud for 10 years.
My final question, Mr. Chambers: Mr. Chambers, would it be
helpful for Congress to extend the statute of limitations on
pandemic relief fraud so that DOJ can hold all those who
committed fraud accountable?
Mr. Chambers. Thank you for the question, Congresswoman.
Not only would it be helpful, it is near essential. With the
amount of relief that was provided and the amount of potential
fraud, there is an incredible volume of cases in the hopper and
an incredible volume of cases yet to come.
As you all know, cases, particularly the ones that are more
complex, take time. And with the greater volume, that means
less time per case. To the extent that Congress can help to get
the statute of limitations extended, it would be appropriate
and, again, not only helpful, but essential.
Mrs. Maloney. Well, I just want to say that Congress needs
to help law enforcement and ensure that law enforcement has
strong tools to prosecute pandemic fraud, so that small
business owners and working families in the U.S. can get
crucial relief without becoming victims of fraud. I want to
thank all the panelists and the chairman and ranking member.
I yield back. Thank you.
Chairman Clyburn. Thank you very much.
The chair now recognizes Mr. Foster for five minutes.
Mr. Foster. Thank you, Mr. Chair, and thank you to our
witnesses.
I've been struck in all of your testimony how central
identity fraud and particularly online identify fraud is to the
money that the taxpayers lost on this.
Am I correct that the large-scale criminal gangs are
essentially operating 100 percent using online identify fraud?
Is that an essential part of these large-scale things? They're
not having people show up in person at an office and collecting
things. Mr. Dotson.
Mr. Dotson. Congressman Foster, yes, that's a great
question. Yes, for the majority of the cases that we
investigate, that's what we see. You know, it was basically an
online application and the use of other people's identity.
Particularly, I would say, in the unemployment area,
unemployment insurance fraud, we saw a lot of identity theft.
Mr. Foster. And in terms of something where someone has to
show up in person, I believe that we have a good tool to
prevent identity fraud there in the form of the REAL ID-
compliant ID card, which I think will be required, for example,
to get on airplanes next May, something like that. So, that
that will be--you know, for non-online identity fraud, that
will be a really pretty solid tool for citizens to--are there--
do you pretty much concur that that's going to make it much
more difficult to present multiple fake identities in an in-
person environment?
Mr. Dotson. Yes, sir. Any time someone has to present real
identification, it's going to eliminate a lot of fraud.
Mr. Foster. OK. Then, so, we're left pretty much with the
online aspect. And there's a very powerful tool that's now
actually being rolled out in a number of states, these so-
called Mobile IDs, sometimes digital driver's licenses, that
essentially associate a REAL ID-compliant driver's license or
ID with a cell phone.
And a modern cell phone has the ability to identity itself
as a single traceable device, so that you can use it to assert
your identity online and prove that you are who you say you
are, that you own not only a REAL ID-compliant driver's
license, but one that is associated with the cell phone that it
was registered with. And then so what that allows you to do is
to pretty much prove you are who you say you are.
Now, if we had such a system in place where that was the
standard for applying for any kind of Federal benefit, you
know, get out your cell phone, convince your cell phone that--
you know, log into your cell phone, let your cell phone prove
it's the one associated with the digital--with the REAL ID-
compliant driver's license, would that largely have short-
circuited all of the fraud that we've seen with identity fraud?
Mr. Dotson. It would definitely have limited some, but I
will say--you know, any time you put in an extra level of
identification, it's going to benefit the program. It's going
to eliminate some fraud.
By far, it will not eliminate all of the fraud. Our, you
know--our complex criminals are ever-evolving, just like we
are, investigations, trying to circumvent different parameters
that are set, particularly in identification and their identity
online.
So, there will always be an issue there that we'll be
fighting just because it is online. But yes, sir, in short, it
would help eliminate some fraud.
Mr. Foster. And there seems to be a difference between the
sort of fraud that the SBA was seeing where these were like
real people with fake businesses versus--or were these largely
fake people that didn't exist or you're stealing someone else's
ID?
Mr. Ware. All of the above. So, we had quite a bit with
businesses that existed but didn't have the number of employees
that they said they had, businesses that started way after the
date that you were eligible to be started but still got
through. And then we saw some that were just fake altogether,
and tons of identity theft as well within the SBA's programs.
Mr. Foster. And that's why looking at, for example, tax
data is the way to find out the business doesn't really exist.
Mr. Ware. That's one of the ways, but that was something
that was not done in this instance.
Mr. Foster. Were there legal impediments or just it was too
much volume of things to approve?
Mr. Ware. There were legal impediments. The Act, in
essence, said that they couldn't do that.
Mr. Foster. OK. If you could get us a little more detail on
that for the record, I would be very interested, because that
sounded like we were shooting ourselves in the foot in terms of
eliminating that kind of fraud.
I'd like to also point out that there is an Act that I am
sponsoring called the Improving Digital Identity Act of 2021.
It's cosponsored by myself, Ranking Member Katko of the House
Homeland Security Committee, Congressmen Langevin and
Loudermilk. And what this does is it encourages the government,
all agencies to get together and come up with a standardized
way of proving you are who you say you are when you're applying
for a Federal benefit or other purpose, with I believe the idea
in most people's mind that that would be the NIST standard for
mobile ID associated with a REAL ID-compliant ID.
And so I'd be interested in your reaction. You can respond
for the record to see if that would be a useful step forward
here, because I'll be asking that again for the record.
And my time is up, and I will yield back.
Chairman Clyburn. Thank you very much, Mr. Foster.
The chair now recognizes Ms. Malliotakis for five minutes.
Ms. Malliotakis. Thank you, Mr. Chairman.
Thank you all for your testimony today and for being here.
I think it is a very important topic that should have been
probably done before issuing another $1.9 trillion in the COVID
package last year.
I wanted to followup on some of the questions that were
raised regarding the estimated 400 billion that was believed to
have been stolen from the 900 billion COVID unemployment relief
program. NBC had reported that at least half of that money was
taken by international fraudsters. You alluded to some of the
investigations that have been taking place.
How much of that funding has the United States been able to
recover for the taxpayers?
Mr. Dotson. Well, ma'am, again, as far as numbers, you
know, I know we've recovered about $1.26 billion, that there's
a slight amount there that it's international, but the majority
of that is domestic.
We continue to investigate those cases that involve
transnational organized groups and the funds they stole, and we
will followup. And anything we can recover, we will recover.
Obviously, when it leaves the United States and goes
international, it makes our job tougher to recover funds.
Ms. Malliotakis. The 1.26, that is--what is the latest
estimate that has been stolen? Is it still $400 billion or is
it more than that overall, not just internationally,
domestically as well?
Mr. Dotson. Well, I just have to say, as many of us have
stated, we have no idea the actual fraud amount. We know it's
substantial. We just--those analyses are still ongoing, and I
think we hope to have those numbers.
Ms. Malliotakis. Now, there's been minimal efforts to
review state eligibility determinations, which were the most
common cause of the unemployment fraud.
Do you have any recommendations for how the Federal
Government can better ensure that these funds are used
appropriately? Would it be feasible for the Federal Government
to audit funds that we give to states or municipalities let's
say of a million or more to try to ensure that their process is
appropriate to ensure that the funds are going for their
intended purpose?
Mr. Horowitz. Certainly, Congresswoman, the oversight
effort of following Federal funds is something that we all do
as Inspectors General. It's something that's very important to
do.
And I know from talking with the IG at the Labor Department
how much of a challenge it's been because of the decentralized
nature of the unemployment insurance system that has been set
up, created by Congress and through administrative actions over
long periods of time.
And the importance of reforming those, I think, is
something that's very worthwhile and significant that we've
seen here the need to do.
Ms. Malliotakis. I want to thank you all for the work that
you do, because I think it's incredibly important that we get
to the bottom, and also learn from the process, how do we fix
it? Because too much money is being wasted when people are
truly in need of it or programs are truly in need of it.
New York, California, Illinois, it was reported that there
were among--there were 12 states that used COVID relief money
that was supposed to be used to reopen schools and that it
somehow shifted to equity, implicit bias training, critical
race theory.
What are--are you aware of that, No. 1? No. 2, any other
egregious examples of how funds were used by municipalities or
states not for their intended purpose?
Mr. Horowitz. I have seen the reports on that, but I'll
just say, this is an area, where I mentioned earlier, data gaps
and data challenges exist for us. We're still waiting for a
fair amount of data. This has been going on since 2020, over
two-plus years.
Agencies need to do a better job of getting data to the
public. The public has a right to know where the money went.
We've issued reports in 2020 and 2021 about those gaps, about
information being listed. Thousands of grants, for example,
going out where we can't make heads or tails, let alone the
public, of who were the end--where did that money ultimately
go? And that's something that I think needs to be looked at as
well.
Ms. Malliotakis. And when you say agencies, Federal
agencies, state agencies, or both?
Mr. Horowitz. Federal agencies I'm now talking about. And
this has been a long-time issue. Comptroller General Gene
Dodaro has testified about this many, many times I know. We've
talked about as well, the importance of data and data accuracy.
Congress made an important step forward with the DATA Act
several years ago, but there's certainly more work to be done.
Ms. Malliotakis. Well, again, thank you for your work. I
think we need to make sure that you guys have the resources to
do your job to make sure that taxpayers' money is protected and
used for their intended purpose.
Thank you, Mr. Chairman.
Chairman Clyburn. Thank you.
The chair now recognizes Mr. Raskin for five minutes.
Mr. Raskin. Mr. Chairman, thank you very much.
Which one of you talked about the conflict or the tension
between speed and accuracy? You did, Mr. Horowitz. And I get
that, and I remember clearly that when we were doing, you know,
the EIDL program or doing PPP our constituents were desperate
to get the money, legitimately desperate. But then, as you
suggest, we've got criminals waiting in the wings to rip off
the program.
So, when we did this and we created it under the Trump
administration, what controls and regulations were put into
place to make sure that transnational criminals and other
thieves weren't ripping off the taxpayers?
Mr. Horowitz. So, the problem at the outset was that, you
know, for example, the PPP program, about $400 billion went out
in two weeks out of an $800-billion program, relying
essentially only on self-certification. And so, we had 57,000
PPP loans be approved for entities/individuals who were on the
Treasury Department's and other agencies' Do Not Pay List. No
one checked.
So, what I've said is, you need--I understand completely
the need for speed. No one is suggesting in the IG community,
the oversight community, you wait weeks or months. I just think
there were several steps that could have been taken that easily
match some existing data, basic checks that could have
prevented some of the fraud.
Because, you know, all the data shows that if you put a
roadblock in front of a fraudster in the first instance, they
usually won't come back and try another door. Now, that may not
be true for some of the more sophisticated actors, but the goal
is to stop as much of the fraud as possible.
Mr. Raskin. Right. I mean, I just find it outrageous. I
understand that there was huge need and so on, but the failure
to institute the most simple mechanisms of accuracy to check
where the money is going is just indefensible.
And, you know, we don't want to act with speed in getting
money to the wrong people, to criminals. And I certainly have a
lot of constituents who were legitimately in line to get it who
never got it. And then to hear that there are other people who
are getting it who are just ripping off the system is just--to
me, it's appalling.
Well, Mr.--yes.
Mr. Horowitz. I was just going to say can I add also----
Mr. Raskin. Yes.
Mr. Horowitz [continuing]. what people don't tend to focus
on is identity theft, not only how it rips off the program and
it depletes the program from helping people it was intended
for, but we've now heard of instances where the people who were
intended beneficiaries, when they tried to show up for the
benefit, couldn't get it.
Mr. Raskin. Oh, I had a bunch of constituents like that.
Mr. Horowitz. They thought they were the fraudsters.
Mr. Raskin. I had a number of constituents who said, I
applied and they said I'd already gotten--I'd already gotten my
money.
So, you know, the greatest country on earth can do better
than this in distributing a huge amount of money. I hope, Mr.
Horowitz, that we've learned our lessons for the next crisis.
There's going to be another crisis in the history of the United
States, so I hope we've learned our lesson and we're going to
institute some real mechanisms of control.
Mr. Ware, I understand your office got $25 million in the
American Rescue Plan to combat waste and misdirection, fraud
and corruption in the process. How are you using that money to
investigate fraud, and to improve the underlying SBA program?
Mr. Ware. Well, thank you very much for the question. At
the onset, setting up these controls exactly like you are
talking about, we were the first in the oversight committee
to--I mean community to put out a report on pandemic-related
fraud and issues that were happening. We had three reports out
before the first loan went through the door asking for these
controls to be raised.
We were first in the Nation to make an arrest on PPP fraud.
We staffed up our office utilizing that money. To date, we
have, what, over 300--over 300 arrests, close to 400, as a
matter of fact--convictions and--that we have taken a part on.
We joined every single task force. We've returned over $1
billion in funds and helped SBA to recover another $3.1
billion, and that number is growing.
Mr. Raskin. Well, that's great to hear. And it's obviously
a shrewd investment and payoff for us to do it.
Mr. Horowitz, are there additional resources that are
needed to identify and combat fraud in the pandemic relief
programs, knowing that we're going to get a lot more money back
if we do the job right?
Mr. Horowitz. Congressman, there absolutely are. I think
one of the things that has been frustrating, frankly, through
the various appropriation processes that I know for--not for
the PRAC specifically but for the IG members, like IG Ware's
office, the Labor IG office, other IGs, has been the lack of
followup funding and the fact that the emergency funding, which
was obviously not an annual appropriation, required the IGs to
make now decisions on do we cut back on employees right as--I
can tell you the fraud numbers and the investigative work is
growing.
The recoveries, by any measure, if you want to look at
return on investment, any measure of return on investment will
show that taxpayers benefit by multiples, 14, 15, even more
than that percent--times the money invested in IG work.
I just hope the Congress in their--in looking at the
appropriation process considers not for our office, the PRAC,
but for the IGs that are doing this work, for the law
enforcement agencies that are doing this work, that effort.
And for the PRAC, I'll just make one observation, which is
we've set up this data analytics effort at the PRAC. We're
identifying fraud. Analytics work is the only way you can
figure this out with $5 trillion in money going out the door.
During the Recovery Act in 2009, Congress created the
Oversight Board then. It created a data analytics platform. It
sunset in 2015. The administration, Congress, and the Treasury
Department, which ultimately got that data analytics platform,
decided not to keep it.
To your point, five years later, here we were with no
analytics platform in the IG community and we had to start from
scratch. Congress appropriated in the American Rescue Plan $40
million to us to startup what had sunset in 2015.
And you are exactly right, we will have more earthquakes,
hurricanes, fires, other, unfortunately, disasters, hopefully
no more pandemics. But as we all know, all of those happen. We
need those tools. We're talking to the--on the Senate side,
after the last hearing we had there in March, they've followed
up with us about extending this analytics platform. We're
engaged in those discussions.
Gene Dodaro the Comptroller General, is very supportive of
that. And that's something I think is also very important.
Mr. Raskin. Thank you, Mr. Chairman. Thank you. I yield
back.
Chairman Clyburn. Thank you very much.
Now, we were noticed that there would be time for a second
round of questions, and we are going to allow that at this
time.
Now, as we go to a second round, the chair is going to
recognize himself for a second round. I am particularly
interested in the last issue raised by Mr. Raskin, not just for
any future pandemics, but I come from a part of the country
where we've experienced similar fraudulent activity relating to
hurricanes and the kind of disaster relief that has gone out,
not just to do--for the families involved, but the people who--
the fly by-night organizations that step up and all of a sudden
they're big-time contractors and they're getting all kinds of
money.
Now, I seem to recall--in fact, in the report that we're
releasing today, we are dealing with this issue where the SBA
Office of the Inspector General, as you just noted, said that
the SBA failed to use sufficient controls to prevent PPP fraud,
and quoting from your report, lowered the guardrails in the
EIDL program, significantly increasing fraud vulnerabilities. I
mean, after you all identified there's a problem here, the
guardrails were lowered and increased vulnerabilities.
Now, that doesn't sound like anybody is trying to prevent
fraud and abuse and protecting the additional money that's
going to come. That sounds like somebody is trying to make it
easier for these criminals to get at the money in the first
place.
And when you order people to put the money out, when there
are red flags saying this looked like a crook, and you had no
ability to stop it, I want you to speak to that, Mr. Ware.
Mr. Ware. Thanks. Initially, like Mr. Horowitz spoke about,
there was a huge struggle between the need for speed versus the
need for control. I'm at the table screaming for the need for
control after identifying that we have major issues. Each one
of the flags that I raised were met with, but there could be a
reason for that. So, I raise another flag. There could be a
reason for that. Another flag.
And then I said, aha, but all these flags come together in
one circle. So, it's just not one instance with an illogical
Social Security number, or that the bank account was changed at
the end or an illogical email or hundreds if not thousands of
loans from the same IP address.
Again, the need for speed, thinking that these flags and
them not having sufficient resources to clear the flags would
be a hindrance for speed, that was the issue that the agency
was faced with up front, initially. Beginning in December of
that year, of 2020, finally came to the realization that we
have a large enough problem that the controls have to be raised
once again.
Chairman Clyburn. It's one thing to have a need for speed.
It's something else to use the need for speed as a subterfuge
for getting money out of the door to people known to be
criminals, or felt to be criminals. Lowering the guardrails has
got nothing to do with speed. That sounds more like
convenience.
With that, I'll yield five minutes to Ms. Malliotakis, if
you would like to.
Ms. Malliotakis. Just to followup on the questions, I know
I talked a lot about the international fraudsters.
Domestically, can you talk a little bit about some of the cases
that--where there have been arrests that you can speak about,
and what is the responsibility of the states in these cases?
Because, again, the UI criteria was usually established by the
state, right? So, they bear some responsibility here. And are
you getting cooperation from local authorities?
Mr. Chambers. Congresswoman, thank you for that question.
As you point out, the UI programs are, in the first instance,
administered by the State Workforce Agencies. They, during the
pandemic, took the first role in distributing funds.
As part of our work to combat that fraud, we have relied on
the State Workforce Agencies to provide the data that
applicants gave them when they applied for unemployment
insurance. And that's the data that's going to lead to
prosecutions, and, eventually, convictions.
I'm happy to say that we have data from all 50 states at
this point, the data is coming in, as well as from all
territories. There's a lot more to receive, but we have had
cooperation from all 50 states.
In terms of what the states can do--and Congressman Foster
raised this a moment ago--standardization of the data would be
incredibly helpful for the purpose of our work in identifying
where fraud has occurred.
It's a large thing to ask. Many of these State Workforce
Agencies may, you know, not have had occasion to have to
collaborate or work together. But we've seen with this
pandemic, when the Federal Government is giving money through
these State Workforce Agencies, we need to have a way to
analyze that data without wasting months or years cleaning it
up. So, one thing I think that would be very helpful is
standardization of data for those applying for unemployment
benefits.
Chairman Clyburn. Thank you very much.
The chair now recognizes Mrs. Maloney for five minutes, or
Mr. Foster for five----
Mrs. Maloney. Hi. Thank you, Mr. Chairman.
Chairman Clyburn. OK.
Mrs. Maloney. Mr. Chairman.
Chairman Clyburn. Yes.
Mrs. Maloney. In 2020, Congress took bold action to provide
unprecedented relief to Americans struggling because of this
terrible pandemic. Yet, due to the failures of the Trump
administration, fraud prevented many vulnerable Americans from
receiving the much-needed aid that they justly deserved. Your
select committee's report clearly shows that the Trump
administration failed to implement basic fraud controls in the
COVID-19 Epidemic Impact Disaster Loan program, or EIDL. These
failures had devastating effects for many Americans in need who
were seeking this vital aid.
So, my question to you, Mr. Ware, is what were the most
concerning deficiencies that enabled fraud in the early
administration of the EIDL program?
Mr. Ware. Well, one of the most concerning--the most
concerning thing was self-certification was the route that was
taken. So, you just had to say that you had a business, so you
had X amount of employees, and you could get money. That was
the most concerning thing, and the thing that we sounded the
alarm on very early, that this can't be the way.
Mrs. Maloney. I've got to say I was very concerned by the
unprecedented amount of fraud, because programs such as the
Paycheck Protection Act and the EIDL program ran out of funds
so quickly. They ran out really early. One of them ran out in
one day. Individuals and small businesses and communities of
color were disproportionately unable to receive any relief or
the relief that they needed.
So, Mr. Horowitz, could you speak about the harms to
communities of color when fraud consumed the resources of these
vital relief programs? You know, the fraudsters were ready to
pounce and the regular people were still filling out the forms
while they stole the money from the system. So, could you
please respond?
Mr. Horowitz. Yes, Congresswoman. It's a very important
point, something we've written about and have held hearings on.
And people can go to our website and see the hearings we've
held about these issues, about how underserved communities and
individuals who had challenges applying through the internet.
So, we saw underserved communities that were economically
impacted not be able to get benefits that were intended for
them. We've seen the same, by the way, with rural communities
that didn't have good internet service or strong internet
service be challenged in applying for programs that you had to
apply through the internet. We were in the middle of a
pandemic, of course.
We've seen challenges for elderly applicants in navigating
through the internet application process. And so we've
identified a lot of different issues that came up through these
processes that need to be addressed.
I mean, what--at bottom line, what we saw in multiple
agencies, they were woefully unprepared to be able to deal with
this kind--these kind of programs in a way that they should
have been able to deal with at a basic level. They could have
been more sophisticated. You could continue to increase their
ability to deal with it. But even at the most basic level, so
many agencies we found were unprepared to deal with these
challenges.
Mrs. Maloney. Thank you.
Mr. Ware, in your opinion, could SBA have taken additional
steps to prioritize underserved small businesses and
communities of color during the early rollout of the PPP?
Mr. Ware. In my opinion, yes. And the report that we put
out probably like two weeks into the program, in essence, laid
out how they could do that. At the onset, SBA wasn't even able
to tell that it went there. So, we had them change the way that
they were doing the NIST codes that would provide for
demographic information. There would have been no way for them
to know whether they were served or not served initially.
Mrs. Maloney. Well, I want to thank all the panelists. My
time has expired. And I thank you for doing all that you are
doing to try to make sure the pandemic funds get to the people
who really need it and that it is distributed fairly and
honestly and equitably. I thank you.
And I yield back to the chairman and thank you for this
very important hearing.
Chairman Clyburn. Thank you very much.
The chair now recognizes Mr. Foster for five minutes.
Mr. Foster. Thank you, Mr. Chair.
Mr. Chambers, you mentioned data standardization as an
important priority toward making the system work better next
time. Does this occur, for example, in lists of bad actors,
where you might have different state and Federal agencies
accumulating lists of wrongdoers, and then it just is very
labor-intensive to find out that this person applying for
something is, in fact, on someone's list of bad actors, or is
that pretty well-organized at this point?
Mr. Chambers. Congressman, it's even more basic than that.
The standardization that I'm speaking of is things as basic as
Social Security numbers, addresses, phone numbers, email
addresses collected in a similar fashion, maintained in a
similar fashion. So that, for example, when we get state work
force data from four or five different states, we can quickly
compare and analyze those things to look for red flags.
Mr. Foster. Essentially, a unique identifier for the human
beings that you're trying to figure out who's who, you have a
data base index for the wonks and all of you.
Mr. Chambers. Precisely.
Mr. Foster. Yes. And so that is, I think, the motivation
behind getting--doing a good job of a secure digital ID, where
you take the data that exists in a REAL ID-compliant driver's
license or a passport if you want one and put it in--you know,
in people's cell phones so that there is no question that that
is the person and their cell phone, but then use that
effectively as the unique identifier. So, you can walk into
anything in person or online and prove you are a single legally
traceable person.
And, you know, it's my feeling that when we talked about
return on investment, there isn't really a higher return on
investment that our government can make than making such a
streamlined way of being able to prove you are who you say you
are.
I am very encouraged that the work that NIST has been doing
for the last decade is now--you know, it exists in every one of
your cell phones. The latest couple releases of IOS and Android
have implemented the NIST standards, so that it will actually--
and they're being--internationally, they're also being adopted
by the ISO.
So, that there is technologically the possibility of being
able to assert your digital identity online and in person in a
very streamlined way. And, you know, I think that's a natural
job for government, that we put a tremendous amount of work
into getting the data behind the REAL ID-compliant IDs, and
that just taking the additional step of putting that on
people's cell phone and allowing that to be the standard for,
you know, basically applying for Federal benefits.
Mr. Horowitz, when we talk about return on investment, are
there estimates of the total losses for government from
identity fraud? Does anyone take it upon themselves to just
look through all the agencies, all the programs, and say,
Here's how much money we could save by--with a high-quality ID
system in this country?
Mr. Horowitz. It's a great question, Congressman. I'm not
aware of an executive branch-wide effort to do that. And I
think that's one of the frustrations we have as--in the
oversight community, is this sort of siloed approach, with
agencies focusing on their individual issues and their
individual standards as opposed to across the executive branch
and the issues that arise.
And one of my concerns in this space is the perfect being
the enemy of the good. Starting doing some basics at the
outset. Everybody wants to find the perfect solution. What's
the right approach? This is not going to happen overnight that
that's going to get fixed.
The fact that, you know, as we've found in the PPP program,
a single telephone number was used in connection with 1,400 PPP
applications. One Social Security number was used in 29 states
to get UI benefits.
Mr. Foster. But if they had been required to, OK, fine, you
applied, get out your cell phone, prove you are who you say you
are, and use that single identifier. And the fact that you
can't clone a modern cell phone, because they have the Secure
Enclave and key generation, all that inside it. They're like--
basically like one of these security dongles. And so you could
use that to make sure that--if you have a unique ID that you
are demanding every time you apply for any Federal benefit, it
seems like you could have just stopped that in its tracks.
And the return on investment from getting that--you know,
the mobile IDs that are being implemented in individual states,
to get that implemented nationally and used universally by the
Federal Government would just be a huge cost savings.
And it's also my hope that if we actually--when we get
legislation for this, that it will actually have a huge
positive pay-for in the Congressional Budget Office sense,
which is always an interesting question, that where you can
actually save a lot more taxpayer money from a small
investment. And we wrestle with that all the time.
I just want to thank you again for all the work you're
doing. It's really important that everyone sees our government
is working as well as it can be under--even under stressful
situations.
So thank you, and I yield back.
Chairman Clyburn. Thank you, Mr. Foster. The chair now
recognizes Mr. Raskin for five minutes.
Mr. Raskin. Thank you, Mr. Chairman.
I want to start just by thanking you for your resolute
determination to ferret out the corruption and the fraud which
undermined the programs that we voted for our people. So, thank
you for that.
And I also want to salute President Biden for making an
investment and for asking for more funds to be invested in the
anticorruption, antifraud efforts across the agencies.
Let's see. Mr. Dotson, the SBA's Office of Inspector
General and SBA and the Secret Service got together to go after
fraud and recovered I think from our report it was reported
more than $1 billion that had been stolen from the EIDL
program.
Can you tell us, first of all, how you did that? And then
second, is it mainly organized criminals, like organized gangs
or groups or traditional organized crime here or abroad that
you're going after, or is it lone ranger individuals?
Mr. Dotson. Well, thank you for the question, Congressman.
The efforts put forth with the Secret Service and SBA OIG and
our partners here has been extraordinary. There's no doubt
there.
In working with them to identify fraud and also working
with the financial sector from early on, we were able to
identify several cases that involved what we looked to be as
fraud. In following up those cases, we were able to recover,
like you said, over $1 billion to date. And that's just by
sheer hard work of thousands of investigators and detectives,
like I said, from our Cyber Fraud Task Forces, not only out in
the field actually following up cases, you know, doing the
typical investigations of interviewing people and finding
assets, but it also was, at a global scale, working with SBA
OIG and the financial institutions who were identifying those
types of fraud.
Early on, we saw this--as Mr. Ware said, we saw this kind
of happening real time, and we got out advisories through
FinCEN that identified the fraud indicators that financial
institutions should look for. And they did an outstanding job
of trying to safeguard as much fraudulent funds as they could.
Mr. Raskin. Thank you.
Mr. Ware, your office gave us data showing that, with the
help of the OIG, that banks and financial institutions had
returned over $8 billion in EIDL funds to the SBA.
Why did they return this money? Was that money that had
been illegitimately taken by the banks and the financial
institutions, or was it from fraudsters?
Mr. Ware. No. So, it's for various reasons. Like, the
people didn't collect, the people turned it back. They realized
that--in many instances, that we're onto them. They left the
money, didn't come for it. And we assisted SBA in getting that
money back from the financial institutions. The number will be
even bigger than that.
Mr. Raskin. Gotcha. On this point about unemployment
insurance, I understand that the Biden administration is asking
for money to help the states modernize and upgrade their
unemployment insurance systems, which would be of great benefit
to the people of Maryland. Hundreds of thousands of people just
had a nightmarish time trying to get the unemployment benefits
that they were due in Maryland. So, I do hope we'll make some
progress on that.
Is your general response to all of these events, Mr.
Horowitz, that it would be better when we engage in programs
like this that we do it at the national level?
I mean, I know that the Social Security system, for
example, spends less than one percent of their money on
bureaucracy, and they seem to be extremely efficient and
there's very little fraud. And yet we have programs like this
that are thrown up overnight, they're just rife with fraud.
So, I mean, should we be doing this on the national level
rather than in a decentralized state-by-state way?
Mr. Horowitz. I certainly think what we've seen here is the
need to more centralize it. How far you go, whether it's
entirely Federal, or there's a better balance or a supported
way that states can upgrade their systems. But we're now in the
digital age, and what we saw at the executive branch level and
at the local level is so many entities were not ready for a
digital age problem that arose, right? People could not show up
to pick up their benefits. They had to do it remotely. We
weren't allowing people to go out. There were lockdowns. And
people just weren't ready.
If nothing else from this, it's let's step back, figure out
how to fund, support to create modernized systems that can talk
to one another, that can pick up these problems early on. This
shouldn't happen. We shouldn't have 29 states giving benefits
to the same Social Security number.
Mr. Raskin. Right. And it just seems to me, Mr. Chairman,
if we're at a national crisis and we are allocating national
benefits, we should have national programs with national
safeguards and controls, so we don't have people hopscotching
from state to state to rip off the taxpayers in each state.
I yield back to you.
Chairman Clyburn. Let me--thank you, Mr. Raskin. Thanks to
all of our witnesses here today.
I was thinking--as Mr. Raskin was asking this question
about a centralized process that seems to me up front would
have prevented a lot of all of this, I was thinking about how
far we tend to get away from this country's motto: E pluribus
unum, out of many, one.
If that were the practice more often, I think that a lot of
what we're trying to do here--people look to the Federal
Government for relief and assistance in this kind of instance.
Yet, when we set out to provide it, we tend to do whatever we
can to lessen the efficiency of the process.
We said with the subcommittee from the very beginning, that
we were going to ascribe three Es to whatever we were doing
here. We wanted to be efficient, effective, and equitable.
And it seems as if so much of what we've done to implement
this program is in violation of all of that. We have not been
as efficient as we could be, and, therefore, we have not been
as effective as we should be. And the equity that should have
been in this process was very, very lacking.
And so I want to thank all of you for what you're doing and
what I know you're going to do. I'm looking forward, Mr. Ware,
to your report that in 30 days--if it's not going to be 30
days, I would let the committee know, subcommittee know.
Mr. Ware. Thirty-ish.
Chairman Clyburn. I'm sorry, 30-ish. I know a little bit
about the ``ish.''
It's our responsibility, as yours, to ensure that these
relief funds are available to all eligible Americans and not
stolen by criminals and criminal enterprises. That's the thing
that's getting me more than anything else. I don't excuse the
run-of-the mill fraudster, but there seems to be a pretty big
widespread enterprise at work here and I think that we've got
to do more than we're currently doing.
Now, I applaud the Biden administration for taking the
steps that it's taken to protect these vital programs going
forward. And I want to thank you once again for being a
significant part of that.
And, without objection, all members will have five
legislative days within which to submit additional written
questions for the witnesses to the chair, which will be
forwarded to the witnesses for their response.
With that, this meeting is adjourned.
[Whereupon, at 12:05 p.m., the committee was adjourned.]
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