    [Senate Hearing 117-731]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-731

         OVERSIGHT OF SBA'S COVID ECONOMIC INJURY DISASTER LOAN PROGRAM

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

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                              AND ENTREPRENEURSHIP

                                     OF THE

                              UNITED STATES SENATE

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 AUGUST 2, 2022

                                   __________

          Printed for the use of the Committee on Small Business and
                                Entrepreneurship

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov
                                 _________

                     U.S. GOVERNMENT PUBLISHING OFFICE

    50-573                   WASHINGTON : 2023

                COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                        ONE HUNDRED SEVENTEENTH CONGRESS

                                  ----------

                     BENJAMIN L. CARDIN, Maryland, Chairman
                      RAND PAUL, Kentucky, Ranking Member
    MARIA CANTWELL, Washington           MARCO RUBIO, Florida
    JEANNE SHAHEEN, New Hampshire        JAMES E. RISCH, Idaho
    EDWARD J. MARKEY, Massachusetts      TIM SCOTT, South Carolina
    CORY A. BOOKER, New Jersey           JONI ERNST, Iowa
    CHRISTOPHER A. COONS, Delaware       JAMES M. INHOFE, Oklahoma
    MAZIE HIRONO, Hawaii                 TODD YOUNG, Indiana
    TAMMY DUCKWORTH, Illinois            JOHN KENNEDY, Louisiana
    JACKY ROSEN, Nevada                  JOSH HAWLEY, Missouri
    JOHN HICKENLOOPER, Colorado          ROGER MARSHALL, Kansas
                     Sean Moore, Democratic Staff Director
                  William Henderson, Republican Staff Director

                                 C O N T E N T S

                                  ----------

                          Witness Prepared Statements
                                    Panel 1

                                                                       Page
    Mr. Patrick Kelley, Associate Administrator, Office of Capital
      Access, U.S. Small Business Administration, Washington, D.C....     5

                            Questions for the Record

    Mr. Patrick Kelley, Responses to questions submitted by Chairman
      Cardin and Ranking Member Paul, Senator Shaheen, Senator
      Duckworth, and Senator Inhofe..................................    36

                      Additional Statements for the Record

    New Jersey Business Alliance, Statement..........................    65

         OVERSIGHT OF SBA'S COVID ECONOMIC INJURY DISASTER LOAN PROGRAM

                            TUESDAY, AUGUST 2, 2022

                          United States Senate,
                            Committee on Small Business
                                          and Entrepreneurship,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:00 a.m., in
    Room 428A, Russell Senate Office Building, Hon. Ben Cardin,
    Chairman of the Committee, presiding.
        Present: Senators Cardin, Shaheen, Hirono, Rosen,
    Hickenlooper, Scott, Ernst, Young, and Marshall.

                  OPENING STATEMENT OF CHAIRMAN CARDIN

        Chairman Cardin. The Small Business Committee will come to
    order.
        Before I give my opening statement in regard to today's
    subject I do want to express all of our concerns about the
    devastation that is taking place in Kentucky. The flooding has
    been just horrible to see. We know these natural disasters are
    very, very hard on a community, and our prayers are with those
    that have been victimized by the flooding. And we recognize
    there are many needs to how we respond as a nation to deal with
    this natural disaster, and I know our country will do
    everything we can. We see the resiliency of the people of
    Kentucky.
        I say that particularly knowing that our Ranking Member,
    Senator Paul, represents the great state of Kentucky, and our
    thoughts are with them.
        I also recognize that small business relief is only one
    part of that recovery, but I commend the SBA's announcement
    yesterday to provide relief to small businesses, nonprofits,
    homeowners, and renters in the region. The Small Business
    Committee will work with the SBA to get this information out to
    the affected areas to help the people of southeastern Kentucky
    get back on their feet.
        I want to thank Senator Paul for his cooperation in
    arranging for today's hearing. It has been a challenge on
    scheduling. Thank you, Senator Ernst, for stepping up and being
    willing to take on the responsibilities. I know Senator Paul
    had a conflict, and we certainly understand that, but he
    cooperated with us and Senator Ernst is available, and I thank
    her for being able to take on this position today.
        And let me thank Patrick Kelley, the Associate
    Administrator, Office of Capital Access, at the Small Business
    Administration, for being here today and being willing to help
    us understand where we are in regard to the EIDL program.
        One of the most important functions of this Committee is
    oversight. Yes, we want to pass the right policies and make
    sure that they are adequately drafted and funded, that you have
    the resources and the direction you need. But then it is our
    responsibility to make sure these programs are being carried
    out as effectively as possible. So we look at today's hearing,
    which is to oversight the Economic Injury Disaster Loan Program
    during COVID, and recognize that this was an incredible
    undertaking.
        On April 24, 2020, $50 billion of subsidy was provided for
    the Economic Injury Disaster Loan Program under COVID. On May
    7th, 2020, the Small Business Administration announced the
    program and imposed $150,000 cap. Even though this program,
    under law, allows for loans up to $2 million, the Trump
    administration decided to limit that to $150,000 cap.
        We were not happy about that, and members of this
    Committee, as well as many members of the Senate, expressed our
    concern that that $150,000 cap was arbitrary, and we wanted to
    see that implemented at the full amount that Congress
    authorized, at $2 million.
        But by July 20th, the SBA had entered into 3.1 million
    loans, for $169 billion. Now I will repeat that again--3.1
    million loans by July 20th. On April 21st of this year, the
    Biden administration increased the cap from $150,000 to
    $500,000, and then, in September, increased it to the full $2
    million. We were all very pleased about that announcement, and
    we were very pleased that we were able to increase the total
    amounts available to the $2 million limit.
        The Biden administration deserves high marks for
    implementing the congressional intent at $2 million. The SBA
    administered the program and now there are almost 4 million
    loans that have been issued under the COVID EIDL program. That
    is quite a record.
        Over the past two years, the SBA has transformed a
    relatively small and unknown program, intended to support
    communities following natural disasters, into one of the
    Federal Government's primary tools to combat the economic
    impact of COVID-19 pandemic. The 3.9 million COVID EIDL loans
    the SBA has issued since April of 2020, are more than all the
    loans that have been issued during the entire history of the
    disaster loan program. That just tells you how much additional
    responsibilities the SBA took over and how they delivered on
    those programs.
        The EIDL loan program is a source of hope for small
    businesses. It is the critical capital they need during a
    pandemic. It provides a fixed-rate, low-interest, long-term
    capital that is absolutely essential for small businesses. They
    do not have the resiliency. This gives them the hope of being
    able to stay in business.
        In December of last year, December 31st, no new
    applications were allowed, under law, and the SBA basically
    closed the process for new applications.
        Here is where the confusion and frustration comes down, on
    the winding down of the program, and here is where we are
    really baffled as to the way, and information that we have
    received from the SBA.
        First, on May 6th of this year, the SBA said that funding
    was exhausted. On April 28th, they had set the deadline for
    loan modifications, appeals, and denials for reconsideration.
    Yet on May 11th, we were informed by the SBA that it had $1.3
    billion, a transfer of funds from the American Rescue Plan, and
    $1.2 billion available in regard to cancelled loans. So we did
    not understand that they gave the explanation on May 6th, the
    SBA, that funding had been exhausted. They sent another notice
    on May 16th that all workable files had been processed.
        So what I am confused about, we have a large number of
    small business owners that are in the process, with their SBA
    EIDL loan, receiving information from the SBA that they have
    exhausted funding and that all workable files had been made,
    and yet they have not been notified in regard to their
    individual cases.
        On June 22nd, applications could still not be processed
    because of lack of funds, another statement made by the SBA,
    yet in June, on a staff call with Administrator Kelley, we were
    informed that $800 million remained in the EIDL program.
        There is frustration and anger out there. We have 41,000
    applicants who have never received determinations. We have
    125,000 applicants that have been approved that have not
    received their funds.
        Now I can tell you, I talk to my state workers all the time
    that handle the calls from the small business community. They
    are my frontline workers. And there are small business owners
    that are really frustrated. They have gotten inconsistent
    information from the SBA. They believe their applications have
    never been litigated, never been completed, and they want to
    know why. They want a straight answer. As I said earlier, the
    small business community is the growth engine of our country.
    It is where innovation takes place. But small business owners
    do not have the same deep pockets and resiliency. They need to
    know what is going on with their applications, and if they are
    ineligible then declare them ineligible. Let them handle it or
    take an appeal, but do not leave them in the lurch.
        So I hope that this hearing will have an opportunity to get
    answers to those questions and that we can have the completion
    of the EIDL loan program done in a way that represents the
    values of our Committee and a policy that we developed and the
    values of the program that is so important to small businesses.
        And with that let me turn it over to Senator Ernst.

                   OPENING STATEMENT OF SENATOR ERNST

        Senator Ernst. Thank you, Senator Cardin, and I also want
    to express my sympathies to those families and those
    communities that were impacted in Kentucky. I think all of us
    are watching and praying for the best but understanding that
    this is a very difficult time for them, so thank you for
    mentioning that.
        And thank you, as well, Chairman Cardin, for holding this
    important hearing to discuss the SBA's lending and disaster
    assistance programs. And before we move forward any further on
    this I cannot overstate how harmful inflation has been for
    small businesses in Iowa and throughout the nation. As part of
    my 99-county tour across Iowa I speak with those small business
    owners who are continuing to tell me how record-setting levels
    of inflation have created a significant financial burden across
    their value chains.
        The most recent Consumer Price Index report shows that
    prices increased by 9.1 percent over the last 12 months, the
    largest year-over-year increase in over 40 years. Over the same
    period, the Producer Price Index increased by 11.3 percent,
    indicating that most small businesses are experiencing
    increasingly diminished margins, impacting their ability to
    provide paychecks to working families, especially those that
    reside in my rural communities.
        Small businesses are the backbone of the American economy,
    and despite being told otherwise, small business owners know
    the impact of inflation on their businesses is not transitory
    and it is proving not to be short term. This inflation crisis
    has created a hidden value-added tax that has deeply impacted
    their economic security, which is why it is deeply troubling to
    me that the Democrats in Congress plan to move forward with a
    reckless, partisan tax and spending spree focused on raising
    taxes to pay for electric vehicles for the rich, hamstring our
    manufacturers, and all sorts of other pet projects of far-left
    interest groups.
        The COVID Economic Injury Disaster Loan Program, or EIDL,
    provided support for small businesses facing financial hardship
    as a result of the COVID-19 pandemic. As the rush of pandemic
    aid went out the door, bad actors took advantage of the
    American taxpayer's generosity. We now know fraudsters bilked
    millions and millions from SBA in fraudulent loans from this
    program.
        But as it transitions from supporting small businesses to
    servicing loans, I am concerned about the SBA's lack of
    attentiveness to ensuring law enforcement has everything it
    needs to pursue those who have defrauded the taxpayers.
    Wrongfully awarded dollars must be returned to the program and
    returned to the American taxpayer. Timely action is needed in
    order to do so.
        In a similar vein, the SBA has unlawfully approved nearly
    $100 million in forgivable PPP loans to Planned Parenthood
    affiliates. To make matters worse, the SBA forgave 34 of these
    loans, despite it being a clear violation of the affiliation
    rule. Yet to date the SBA has not launched an investigation
    into this issue or made any effort to recoup the ineligible
    funds.
        It is critically important to protect the integrity of the
    capital access programs that are intended to provide support to
    small businesses from fraud and ineligible distributions.
        Mr. Kelley, thank you for appearing before us today. I look
    forward to working together in the future to ensure that
    taxpayer money is protected from fraud and that bad actors are
    held accountable. Thank you.
        Thank you, Senator Cardin.
        Chairman Cardin. Thank you very much for, again, taking on
    the responsibility today.
        I want to ask consent to put into the record letters that
    were written to Administrator Guzman on May 6, 2022, from
    Senator Van Hollen and myself, and July 15, 2022, from a group
    of Senators, headed by Senator Cornyn and myself, in regard to
    our concerns as to why certain information as given to our
    constituents when we were told that there was money available.
        Chairman Cardin. Administrator Kelley, thank you again for
    being here. As I had pointed out earlier we appreciate your
    leadership on this program. The Office of Capital Access is
    critically important to small businesses. The role of that
    committee has quadrupled, maybe more than that, since COVID-19,
    so we know that you have stood up an agency that was meant for
    a certain purpose that was really tested to its limit. And we
    thank you very much for your service and thank you for being
    here, and you may proceed.

    STATEMENT OF PATRICK KELLEY, ASSOCIATE ADMINISTRATOR, OFFICE OF
    CAPITAL ACCESS, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON,
                                  DC.

        Mr. Kelley. Great. Thank you, Chairman Cardin, thank you
    Senator Ernst. I too want to extend my sympathies to the
    Commonwealth of Kentucky. Obviously, 35 families to date no
    longer have a loved one, and there are hundreds of others that
    have not been found.
        As Chairman Cardin mentioned in his opening statement,
    President Biden declared a disaster area for the five counties,
    and obviously we will work to expand that, if necessary, and
    obviously work to help all of the survivors.
        On behalf of Administrator Guzman, I am happy to be here
    with the Committee today to answer any and all questions. My
    name is Patrick Kelley. I am the Associate Administrator of the
    Office of Capital Access at the SBA, and I have been since
    March 1st of 2021.
        First I would like to echo the Chairman's comments
    regarding the work of the civil servants at the SBA. It truly
    is a privilege for me to have a second opportunity to work with
    people during a time when so much was asked of them for the
    last 24 months. On balance, these are some of the best people I
    have ever worked with, across the private sector and the public
    sector, and I will continue to enjoy the opportunity to serve
    the American people with them.
        We oversee a bunch of different CARES Act and Economic Aid
    Act programs, and COVID EIDL is certainly a focus today. That
    particular program, as was mentioned by Chairman Cardin,
    serviced about 4 million small businesses and roughly $400
    billion in financing. Seventy-two percent of those loans went
    to small businesses with 10 or fewer employees. Fifty percent
    of the recipients were not able to access the PPP program. So I
    think one of the great success stories about this, what I have
    characterized as an uber-credit-not-available-elsewhere
    program, is its success getting to all corner of our society.
        In addition to the COVID EIDL program, just to provide an
    update for you and the members, we are obviously working on
    forgiveness in the PPP program. We are currently approaching
    10.4 million loans out of the 11.4 million forgiven, and we
    expect that the remaining 1 million will seek forgiveness this
    fall as the April/May/June 2021 PPP loans hit their 10-month
    mark and begin to make payments.
        We have provided direct forgiveness to assist 1,500
    lenders, which has amounted to 2 million loans being serviced
    by the SBA on behalf of lenders and borrowers to assist with
    that forgiveness. That particular program also coincided with
    obviously the Restaurant Revitalization Program.
        I do want to thank the Chairman's leadership on the
    restaurant program. We worked diligently to roll that out, with
    members of this Committee's staff as well as the House, and
    101,000 businesses were supported, for $28.6 billion.
        The last thing that I will add before we get to the
    questions, which I am looking forward to hopefully helping
    folks understand what we are trying to accomplish, is just to
    provide some context to the breadth of what the SBA was asked
    to do. The Office of Advocacy at the SBA estimated that in
    2021, a total, for small business and medium-sized enterprises
    receiving capital from any source, any private sector lender,
    was $651 billion. In the COVID EIDL program, in 2021, we put
    out $200 billion on top of the $167 billion that the Chairman
    referenced in 2020.
        So it is absolutely the case that the SBA has played an
    outsized role, as Administrator Guzman has worked with this
    Committee and the nation to provide. Thank you.
        [The prepared statement of Mr. Kelley follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Cardin. Well again, thank you, and I agree with
    your last statement. The SBA had played an outsized role, and
    there is no question about it. It stepped up during the
    pandemic, and I agree with you on the civil servants, and I
    give our real thanks to the incredible amount of work that they
    put out to help out quickly, both with the PPP program and the
    EIDL loan program, the EIDL Advance program, and then later
    with the Shuttered Venue and the restaurant program. So it was
    an incredible effort, and it saved small businesses, that exist
    today that would not have but for the ability to get those
    programs out.
        And as we point out, this has all been bipartisan. The
    bills were developed bipartisan, and this hearing, in regard to
    how the EIDL program is being wound down, there is bipartisan
    interest to see it done right.
        So I want to get the numbers right because we had like 3.9
    million loans that were given out. We have, we think, 41,000
    people who are looking for determinations that have not yet
    been done. We have seen, at times, the SBA say that these are
    unworkable, but to our knowledge those 41,000 small businesses
    have not been informed as to their status. So they are sitting
    out there hoping that they are going to get a positive
    response, but they want a response. They want to move on with
    their life. They want to know whether they can or cannot access
    the funds, because they have to plan their businesses, and we
    believe there are 41,000 that are in that status.
        And then we had 125,000 small businesses that thought they
    were going to get their funds, thought they had been approved
    for the funds, and have not gotten their funds. And then they
    get notices that there are not funds available, but yet we have
    been told that there is money there. So the funds are there. So
    it seems like they are not getting accurate information, which
    is extremely frustrating. And they call our office, and they
    call your office, and they call every Senator in this country
    with legitimate concerns.
        So can you clarify the numbers for us? How many
    applications are still pending? Are they workable or not
    workable? Why have the small businesses not been notified? And
    are there applications that have been approved but have not
    been acted upon, and for what reason would that be?
        Mr. Kelley. Yes, I will get to all of that. So first I just
    want to start off the top with the 125,000 first, so we can
    address that. The 125,000 folks have obligated funds to them.
    They could close those today with the assistance of an SBA
    district office, directly themselves with the call center for
    the specific COVID EIDL program. But that money is theirs. We
    will not cancel those funds. Obviously, at some point, you
    know, later this year we will send out notice and start to see
    if folks want to seek this. Obviously, it is a loan product
    that has to be paid back, obviously, very favorable terms. But
    still, nevertheless, a loan product.
        So at their discretion, each of those 125,000 can close
    that loan. I welcome the opportunity to make sure that anybody,
    in any of the offices, is clear that those folks have money and
    can be funded.
        Chairman Cardin. And those funds are there.
        Mr. Kelley. Yes.
        Chairman Cardin. There is no problem of collecting the
    funds.
        Mr. Kelley. Correct. And I start there to then move to the
    41,000, because prior to--I believe my testimony in the House
    was the week of May 16th, and during my testimony it was timely
    because we were in the period of time where applications
    received on or before May 6th, I indicated in the House that
    there were roughly 61,000 of those, two-thirds of which were
    roughly loan increase requests, and a third of those were
    reconsiderations. And I said during that testimony that we
    would get to all of those files prior to May 16th, and we would
    decision those files.
        So 38 percent of the two-thirds--so if we are keeping
    track, 38 percent of 40,000 files were decisioned and were
    approved and obligated funds and either sit in that 125,000
    bucket or have already closed their loan and been disbursed.
        With respect to the final third, the reconsiderations, I
    indicated at that time, and it held true, that reconsiderations
    are decisioned successfully, meaning you ask for a
    reconsideration, the SBA reconsiders it and says, ``You know
    what? On hindsight you are correct.'' Two out of 10 times the
    SBA reverses a prior decision.
        It is important to understand that 92 percent of the 41,000
    did receive a loan and a prior decision in 2021, regarding
    their increase request, or in 2022, had been indicated what
    documents they were missing, which is one-third, or two-thirds
    of that number--I realize I am throwing a lot of data here, but
    as the Chairman asked to get into the numbers--two-thirds of
    that number has either not filed taxes from 2019. So it is
    important to understand that you could file an extension and
    that the extension period tolled within the fall of 2020. So
    these are 2019 tax returns with no filing.
        There was a filing once in 2021, when the program resumed,
    a historic practice at an SBA program. So to Senator Ernst's
    comments about fraud, waste, and abuse, historically the SBA
    has always validated tax verification through the 4506-T
    process. The CARES Act required the SBA to forego that
    provision, and the Economic Aid Act replaced that.
        So in addition to not filing or filing late there is a
    third category of filers who, upon learning that their increase
    request was not validated by the filing that they put forward
    for 2019, proffered an amended filing return that,
    coincidentally, coincided with the request that they were
    seeking. So it is really important to understand that yes,
    there were communication challenges with trying to indicate,
    first, we are seeking all comers in the five months following
    the program's formal conclusion.
        12/31/2021 was the last day that in the program, by law,
    anyone could submit a new application. As Chairman Cardin
    mentioned, since 92 percent of the loans, or 3.6 million from
    2020, had from April of 2021 until May 6, 2022, to seek a loan
    increase. And the reason I use the April time frame instead of
    the September 2 million threshold is because the average loan
    increase was $200,000.
        So it is absolutely the case that these folks are
    frustrated. It should be mentioned that 75 percent of the
    41,000 files are from NAICS codes that Congress indicated were
    not impaired by the pandemic. As you know, in the Economic Aid
    Act, Congress designated specifically industry segments, which
    was appropriate--hospitality, restaurants, et cetera. Seventy-
    five percent of the remaining requests are from industries that
    were not designated as significantly impaired by the pandemic.
        I lent money for six years to small businesses for a
    community bank based in Wilmington, North Carolina, and the CEO
    of that company's line to us is the only two questions that a
    borrower cares about is am I approved and when do I get my
    money.
        And so I understand that from a borrower's perspective
    ``no'' is a suboptimal outcome. But given the fraud, waste, and
    abuse that this Committee has highlighted for the last year and
    the reforms that the Economic Aid Act began, and the Biden-
    Harris administration extended to address fraud, waste, and
    abuse, we cannot extend loans to folks who have not paid their
    taxes.
        Chairman Cardin. I understand exactly, and we want you to
    verify. But recognize that during COVID-19 we gave relaxations
    on filing returns. So not all the documentation is there, and
    it is not always the small business owner's fault. They may
    very well be entitled. They just have not been able to because
    of the pandemic, to dot every I and cross every T.
        So I am interested in how many files today are there still
    open, where the small business owner has not been informed. If
    you reject, they can file an appeal, so they have that right.
    But if you do not reject and they are in sort of an open
    status, they do not know what the future has. How many EIDL
    applications are still pending, where there has not been a
    finite answer given by the Small Business Administration?
        Mr. Kelley. So Chairman Cardin, every single person--and I
    know this because we have worked with your staff, Committee
    member's staffs on a daily basis, and my colleagues here from
    Legislative Affairs work on a daily basis. We receive email
    accounts, both your office and our office, and in those email
    accounts--and I read them daily, so I read each one each day,
    because it is an easy way for me, in public service, to have an
    impact that day. It is directly tangible. I can either help
    somebody unblock something or I can get to a solution.
        In each of those email correspondences there is an
    indication, by the borrower, of multiple instances, and several
    different times over the balance of however long they have been
    seeking a loan increase, of interaction and communication with
    SBA employees, either at the district office or directly with
    the loan officers themselves. To say that they have not been
    notified of the challenges facing their files I believe
    understates the totality of the circumstances.
        Where, in the most recent cases--so since the program
    stopped considering reconsiderations and loan increase requests
    in May--the emails that come in are either, as I said, in the
    obligated funded category, in which we work then to assist them
    with how they can close that loan if they want to close that
    loan, or they are almost entirely in the category related to a
    tax issue.
        So 41,000 is obviously a deafening amount of voices,
    because if you took 50 states and divided it by that, that is
    roughly 800 calls. So your colleague, Senator Van Hollen, on
    that staff call that you mentioned, referenced 1,200 calls,
    which, at the time, if you did 50 by 1,200, that is roughly
    61,000 when we had the call.
        And so it is totally understandable that your offices are
    frustrated, that the borrower who, in 2020, the Federal
    Government allowed them to seek a loan product without any
    verification of whether they had filed taxes or could
    demonstrate the gross sales receipts number and the cost of
    goods sold number, integral to the economic injury calculation,
    and they say to us, collectively, ``But you gave me money.
    Therefore, I am eligible.''
        And in the sense that their business is small--as I
    mentioned, the overwhelming majority of these are 10 or fewer
    employees, so they are, by anybody's definition, small--totally
    true. But in the sense that we can make a reasonable
    reassurance of repayment from the cash flow of the business,
    and verify that they filed their taxes, we cannot do that.
        Chairman Cardin. I understand what you are saying, and I
    think we are like two ships passing in the night. We are
    hearing from the borrowers that they requested additional
    information, they supplied that additional information, they
    did not hear back from the SBA, their application is still
    pending. They get a notification that there is no money
    available and now they hear that money is available. Then they
    get notification that all files are unworkable, but they think
    their case is still pending. That is where the frustration is
    occurring, and we need to know the numbers.
        I will come back on a second round. Senator Ernst.
        Senator Ernst. Yes. Thank you, Mr. Chair. And just a quick,
    easy--I hope it is easy--question for you. Do taxpayers deserve
    an SBA that is transparent and accountable to Americans in how
    it spends their money?
        Mr. Kelley. Yes.
        Senator Ernst. That is great. Thank you. I do agree with
    that as well. And your office has received recommendations from
    both the inspector general and the GAO on both PPP and COVID
    EIDL, many of which are pretty common sense, including
    continually assessing the COVID EIDL program and developing
    portfolio-level data analytics to help identify fraudulent
    loans and fraud risk factors. Yet these recommendations and
    others have remained open for more than a year while watchdogs
    have identified billions in fraud, and law enforcement
    prosecutes fraud case after fraud case.
        And I have heard from a lot of Iowans who said that PPP and
    COVID EIDL loans were helpful for them in the early days of the
    pandemic, but when we listen to Inspector General Ware, he is
    right when he says that PPP and COVID EIDL have unprecedented
    levels of fraud. So it has been helpful, but there is a lot of
    fraud ongoing in these programs. And we have all seen this
    story about the BMW with the license plate PPPLOAN. You know,
    this is Manhattan, in New York. And we have seen so many of
    these cases. I do not think the program was there for folks to
    buy brand new Beamers.
        But as the programs are winding down and they are shifting
    to the fraud identification phase, I am concerned that it seems
    everybody cares about fraud mitigation and prosecution except
    maybe the folks in your office, and we really need the SBA to
    step up on this.
        So will you commit to implementing each of the
    recommendations the OIG and GAO have made to your office so
    that we can actually limit the waste, the fraud, and the abuse
    of our taxpayer funds?
        Mr. Kelley. Yes, and we have. What Inspector Ware also
    mentioned in his testimony, specifically, is that under the
    Biden-Harris administration we have made great progress on the
    items you have identified. Specific to the COVID EIDL program--
    and what I am going to do is list the choices made in the
    previous administration during 2020, that were not in place,
    and these changes were made in 2021, by the Biden-Harris
    administration.
        First, verifying business address. There is an easy, fast,
    speedy way to verify a U.S. postal address through API. They
    did not do that.
        IP static address. Again, another automated--and the theme
    that I will continue to come back to is this false distinction
    that you could not have speed without certainty. We restored
    speed and certainty. We made 6.1 million PPP loans in the same
    amount of time, same amount of months, but we did that with a
    fraud framework ahead of the E-Tran authorization.
        In addition, we have talked about the 4506-T, which, again,
    Congress corrected in the Economic Aid Act, and we instituted.
        As was mentioned in the IG findings in 2020, in the RER
    RAPID portal, borrowers were allowed to switch their bank
    accounts. That is a red flag for any financial service company,
    it is not something that is necessary for speed, and we
    restored preventing that from happening. And you see that,
    actually, in the comments regarding the ACH disbursements going
    over to Treasury and some of the challenges with banks flagging
    suspicious activity.
        In addition, we restored the Rule of 2 and manual reviews
    for all fraud flag related to individual loan files. This is
    particularly important because the IG referenced, in the COVID
    EIDL program, that there were bulk filings, where despite
    having fraud flags fire on those particular loan applications,
    they were waved through in 2020.
        Specific to the PPP program and the challenges that were
    highlighted in 2020 there, specifically the Secretary of the
    Treasury at the time required SBA to process E-Tran
    authorizations in real time. For any bank of financial service
    company or payments company, that is near impossible. There are
    three core accounting systems on Planet Earth that banks use--
    Jack Henry, Fiserv, the FIS, and I am sure there are other
    brands but those are the three that lead--they cannot process
    in real time reconciliation. So by allowing E-Tran
    authorizations to be granted in real time, which they never had
    been before and will not again, it led to 50,000 duplicate
    loans.
        In addition, there were bulk processing choices that were
    made in Phase 2 that were provided to banks to move through,
    which the IG has correctly pointed out led to a host of issues
    with respect to duplicate loans as well as challenges with
    respect to the loan calculations.
        I can keep going, but what I want to assure you, Senator
    Ernst, is that under Administrator Guzman and under the Biden-
    Harris administration we have worked with the IG every day. The
    reason that this Committee does have the data that Chairman
    Cardin has talked about, on both programs, on all programs, is
    because unlike our predecessors who went to court to block the
    access for the American people to the data of the programs, we
    have made all data available.
        So it is absolutely the case that we will continue to
    prioritize fraud, waste, and abuse. It is something that we do
    not have to sacrifice speed. So I want to assure the borrowers
    out there, back to my points about am I approved and when do I
    get my money, you can go fast in the 21st century but you can
    go fast with sensible controls all through automated.
        And the last thing I will say on this particular point,
    with respect to PPP, is that we put in, beginning in January of
    2021, for 6.1 million PPP loans, a fraud control framework
    which enabled us to validate all manners of eligibility and
    compliance as well as know-your-customer principles of
    individual identity and business identity.
        So before you could get a PPP-3 second-draw or first-draw
    loan, whether or not the nonbank lender ran a fraud protocol,
    the agency ran that fraud protocol. And but for the holds that
    we place on loans, that lenders needed to work with us and
    borrowers needed to work with us to overcome, where we did
    manual reviews depending on the issue, those things went
    through fast. And again, there were 5.1 million loans in 2020,
    no controls in six months, 6.1 million loans in 2021 with
    controls.
        So the thing that I have been looking for, to talk to, and
    I appreciate this opportunity today, is that speed and
    certainty can coexist. You can do emergency relief.
        And the last thing I will say on behalf of the civil
    servants at the SBA, which is really important for them, is
    that you would be hard-pressed to find an IG or GAO report
    ahead of 2020, that has fraud, waste, and abuse featured
    prominently in it. There are improper payments, for sure,
    meaning the lender made a mistake on the eligibility or some
    type of rule, but you would be hard-pressed to find that fraud,
    waste, and abuse.
        So 2020, there were choices made to prioritize speed at all
    costs, that in my opinion did not need to be made, and are the
    outlier event that has caused the challenges that we all
    regret. And I say that completely admiring the prior
    administration, both Congresses, and everybody that has been
    involved, because PPP and COVID EIDL were unbelievable programs
    to help Main Street small businesses. But it is absolutely the
    case that fraud, waste, and abuse is a huge priority and we
    will continue to do that.
        Thank you for indulging me.
        Senator Ernst. Yes. No, and I appreciate that, and I do
    hope once the fraud, waste, or abuse has been identified then
    we go that next step of either prosecution or recoupment. So
    again, I will go back to my opening statements as well. We do
    know that there was an error made with Planned Parenthood and
    the affiliation rules. But we have not seen any attempt to
    recoup those dollars.
        So it is one thing that we can identify it, but then to
    actually go back and correct problem, I think that is really
    important. Because whether it is PPP or the EIDL program, the
    loan program, obviously there are still those that have applied
    that would like to see those dollars in their businesses.
        And we can come back to that, certainly. I will have some
    follow-on questions, because I do know that you have a Fraud
    Risk Management Board, which is good. So I will want to know a
    little bit more about that as well.
        Thank you very much, Mr. Chair.
        Chairman Cardin. Thank you. Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman.
        Whenever there is a natural disaster, SBA is among the
    first agencies to step forward, and certainly Hawaii has had
    its share of nationally declared disasters. And I want to thank
    you and Administrator Guzman and all of the men and women who
    work at SBA for being there as they have been.
        It is clear that the prior administration did not set up
    adequate protections against fraud, waste, and abuse, so I get
    that you are doing everything you can to ameliorate those
    deficiencies. The PPP and EIDL were massive, massive programs,
    and, in fact, you have about 4 million loans that are coming
    due. Did you not request additional resources for SBA so that
    you can process these loans that are coming due?
        Mr. Kelley. Yes. I believe the 2023 budget makes a request
    for the servicing, and what you are referencing is beginning in
    October, so less than 60 days from now, we will begin to
    service payments. As the Committee knows and as you know,
    Senator, there were 30 months of deferment. I am pleased to
    report that a third of COVID EIDL recipients have already made
    payments, even during the deferment, so that is encouraging.
        But yes, we will begin servicing. That number, obviously,
    as Chairman Cardin referenced in his opening remarks, is a
    massive number, so we will need resources.
        Senator Hirono. Mr. Chairman, I hope that we are going to
    be supporting the Administration's request for additional
    resource. Otherwise, you are going to have, I would say, the
    word ``chaos'' comes to mind, as SBA does its best with its
    resources to administer all these loans.
        You have heard a lot about people in our own state, we have
    all been getting phone calls, and the issue for me is that
    there are people who applied for these loans who were told that
    things were going well. They were following up on all of the
    requested information, et cetera, and then finally to be told
    by the SBA that the program ran out of funds.
        And then the next thing they heard was that, no, the issue
    for this particular applicant--I am talking about an applicant
    called Maikai Health Corporation, which is a nonprofit
    organization that takes care of the health care needs--but the
    thing they hear is that they were actually in the situation
    where they had made exaggerated projections of 2021 expenses
    and did not file their 990 tax return. I do not know what that
    is.
        So they are getting two different pieces of information. So
    what are they supposed to do? Because the second one sounds
    serious. When you are exaggerating your costs, that sounds like
    fraud. So what are they supposed to do, because originally they
    were not told that they were in a situation where they had to
    deal with what sounds like fraud.
        Mr. Kelley. First off, yes, not filing your taxes is fraud,
    yes. So it is a criminal offense. And for this particular
    program, the 2019 return is the return that we are leveraging.
    Those returns needed to be file, even with extensions, by the
    fall of 2020.
        And the reason there is a disconnect, I believe--and I work
    on this every day, and I just want to say for the Committee,
    and it is important just to say personally, I come from a town,
    Manchester, Connecticut, where the median income is $61,000. It
    is under the national average. In my community, behind us was a
    dentist, across from us was a steak owner, and around the
    corner was a franchise owner for Dairy Queen, obviously our
    favorite.
        So I want people to get capital, and as does the
    Administrator. But the reason that they cannot get capital, and
    believe that they are eligible in the first place, is because
    they did get capital in 2020, even with those issues. And so it
    is important to understand that that original choice, with
    respect to the tax filings, has a ripple through the process.
        Senator Hirono. Is there any way for this nonprofit agency
    to remedy its situation? I mean, exaggerated projection for
    2021. That is probably in dispute. But whether or not they
    filed a 990, that is an objective criterion. Is that something
    they can remedy, so that assuming they still need these funds
    and you have funds, that they can pursue funds?
        Mr. Kelley. Yeah. So first off, obviously, as I have
    indicated, this is a credit-not-available-elsewhere program, so
    we take extraordinary lengths together, and I think it is
    appropriate for the public sector to, for example, originate
    loans with a 570 credit score, which, of course, in the private
    sector would be difficult to get.
        On this particular issue, though, on whether or not you
    filed, and the fact that the increase request that you were
    seeking is not supported by the tax information or the
    financial information that you provided, I believe that we need
    to draw the line there, and I have recommended to the
    Administrator that that is what we do.
        And I guess the last thing I would say is there is no
    comparable process in the private sector for appeal or
    reconsideration, and I will say every time that I said yes when
    I was lending--and I lent half a billion dollars to Federal
    Government contractors across the country, minority, women,
    veteran-owned--every time I said yes, I was the greatest banker
    in the history of the world. And the next day when I said no, I
    was the worst banker in the history of the world.
        Senator Hirono. So with regard to this particular nonprofit
    then, the answer is no because they did not file--they either
    filed a 990 or they did not, and if they did not file it, this
    disallows their increased request. That is my conclusion. They
    just need to know one way or the other, I would say.
        Mr. Kelley. Yeah.
        Senator Hirono. Okay. So that is their situation. Thank
    you.
        I know, Mr. Chairman, that with the millions of loans and
    everything that happened in the PPP and the EIDL program, there
    were people that came out of the woodwork to take advantage of
    this program. And my one last question is who is prosecuting
    all the people who were engaged in fraud in these two programs?
        Mr. Kelley. As you know, and Senator Ernst also referenced
    this, the Biden-Harris administration designated a team at DOJ
    to focus on fraud, waste, and abuse associated with the CARES
    Act programs. And as I understand it, both the House and the
    Senate are moving bills along to extend statutory limitations,
    which obviously will support their efforts. Because as the
    license plate shows, folks do need to be held accountable for
    where it is appropriate.
        Senator Hirono. Do you have any idea how many people have
    already been indicted for these two programs?
        Mr. Kelley. I do not. And I do want to clarify something. I
    know this Committee knows, so many reaching across the
    Committee out to the C-SPAN public. SBA is not an enforcement
    agency. So unlike the SEC, unlike the bank regulatory bodies,
    we administer program certifications for government, and I know
    everybody knows this.
        So we rely on the Office of the Inspector General
    primarily, and then, of course, they work with Secret Service,
    at Treasury, as well as DOJ, Department of Justice. So we can
    assist the IG, and one of the primary ways to do that is
    allowing inspector general personnel, on a daily basis, to have
    access to any and all data related to anything across all these
    programs.
        And Administrator Guzman, upon being sworn in, actually
    preceding her, when I took my position in March, we restored
    that. And so the IG has daily access to anything and everything
    they want. And obviously as Senator Ernst referenced, the
    Administrator has designated a front-office person to
    coordinate with those other bodies on this. She meets every two
    weeks with the inspector general, and her directive to us has
    been, and will continue to be, to be completely open,
    completely cooperative.
        I want fraudsters put in jail, because the 32 million small
    businesses are the people that employ two-thirds of this
    nation, and they were my neighbors and my friends and my
    relatives growing up.
        Senator Hirono. Thank you. Thank you, Mr. Chairman.
        Chairman Cardin. I will point out that Senator Paul and I
    have worked together. The legislation you refer to passed the
    Senate this week and is on the way to the President for
    signature, extending the statute of limitations. Senator Rosen.
        Senator Rosen. Thank you, Chair Cardin and Ranking Member
    Ernst today. And Mr. Kelley, thank you for being here and
    testifying and the work you are doing.
        You know, we are here today because a little over 2 2 years
    ago Congress had to respond to a pandemic with the promise--a
    promise to our small business owners that we would not let them
    lose everything as a result of the global health crisis,
    completely outside their control--completely outside their
    control. We made this promise through programs like PPP, the
    Restaurant Revitalization Fund, and, of course, EIDL.
        EIDL has provided relief to over 40,000 Nevada small
    businesses. Thank you. We are grateful for that. It was
    particularly important for the smallest of business because it
    allowed them to get support directly from the SBA without going
    through a bank. And this program's ability to help struggling
    small businesses is why I introduced the bipartisan EIDL For
    Small Business Act. It is aimed to eliminate the borrowing caps
    on EIDL loans, to fulfill our promise on EIDL advance grants,
    and replenish the funding for this program, which I know the
    Chairman supports. I am proud that my efforts lobbying these
    two administrations resulted in raising EIDL loan cap up to $2
    million.
        But through all this, small business owners, of course,
    they face numerous challenges. Over 90 percent of businesses in
    Nevada are small businesses, and so working with SBA on EIDL
    programs in the last two administrations, really important.
        And after the current administration has corrected many
    errors of the previous administration--I applaud you for that--
    SBA seemingly reneging on its promise by ignoring many of the
    qualified applicants who began their EIDL application process
    prior to the May 6th deadline.
        So I think that we have to restore trust. You aim to serve
    small business. This is your mission. You come from a small
    town. You know all of the business owners there, ice cream,
    your favorite. I think that is a favorite for everyone in the
    heat of the summer, for sure.
        But how do we restore trust between the SBA and small
    business owners who feel they have been unfairly boxed out of
    this process? And I think that has to do with the
    communication. Can you speak to the communication that you need
    to have between SBA and the small business owners who applied
    before May 6th?
        Mr. Kelley. Yes, I can. First, they tell me that it is your
    birthday.
        Senator Rosen. It is.
        Mr. Kelley. So happy birthday.
        Senator Rosen. Thank you.
        Mr. Kelley. I will communicate that first.
        Senator Rosen. Thank you. Ice cream, maybe.
        Mr. Kelley. Yeah. I mean, cherry-dipped at Dairy Queen,
    pretty good.
        Senator Rosen. Pretty good.
        Mr. Kelley. What I will say about communication. So there
    is no question that for 24 months there were peaks and valleys,
    or plusses and minuses with the way that the programs were
    communicated. We have talked about structural expectation
    setting earlier in the hearing, and you referenced this, which
    is to say you tell someone, in 2020, you can show up for
    something. You do not need documentation to validate that you
    filed taxes. We give you $150,000. We do 3.6 million in four
    months. And so the expectation is set, okay, that this must be
    something that I am able to access because I went to the
    Federal Government and they gave it to me.
        And then in 2021, when I come back and I am asked to
    proffer evidence now of tax verification that goes to the
    economic injury, by definition we have now changed the
    expectations, right? So
        So at the basis of communication, in anything, is what
    expectations do you set, and if you change those expectations--
        Senator Rosen. Do applicants receive an email, any kind of
    opportunity, communication from you about this?
        Mr. Kelley. Yes. So one of the silver linings to
    communications--I will call this one of the plusses--has been
    the open rate of email correspondence with borrowers. In the
    private sector, if an email marketing campaign that I was
    involved with got, you know, high single digits, we were very
    excited, and during PPP it would climb into the double digits.
        At SBA, for COVID EIDL programs, we were getting, in some
    cases, each week, 60 percent open rates. So that is really
    important, and we see this evidenced in the correspondence to
    your offices and our offices, that they are understanding and
    processing the requests and the communication.
        But I think the other expectation about communication is
    that in a loan product situation there is, yes, are you a small
    business? That is a foundational principle. But then there is,
    do you have reasonable reassurance of repayment? And it is
    there, in the credit decision, that differentiates it, for
    example, from PPP, where we did not have a credit decision. We
    had a formula that the lenders executed, but we did not make a
    credit score, which was one of the reasons that you will recall
    that lenders were concerned, in Phase 1, about lending to
    business borrowers who were not existing customers.
        So I think one of the things that we improved, but was too
    late, in terms of communication, certainly for a program that
    had been open well over a year at that point, in August of
    2021, we made reforms to the RAR RAPID portal to enable the
    district offices to have direct access and transparency to see
    whatever the loan officer or any other processing employee in
    the DPC in Dallas-Fort Worth could see. That was really
    critical because it helped expedite casework for your offices,
    but it empowered them. And one of the mistakes prior to that
    was the fact that a person could pinball from the call center
    to the district office and back, in an infinite loop, and that
    is deeply frustrating, and regrettable.
        In September, we switched call center vendors. So the
    vendor that had been selected, the contract staff augmentation
    and call center system that had been selected in 2020, had no
    service-level agreements or KPIs. So what that translates to
    is, well, what was the call response time? How quickly did you
    pick up the phone? We do not know. How quickly did you
    disposition it in a favorable outcome? We do not know. And so,
    again, choices made at the outset proved to be really
    devastating across the span of time.
        In addition, the portal itself had a two-step process,
    which from a technology standpoint was inept, quite frankly. It
    required you to come in, fill out the application form in an
    intake, and then wait for a response. And in an emergency
    situation, as you guys have told me and I totally agree with,
    silence is deafening. And so if I am waiting to be invited back
    into the portal and I do not know, I logically start a new
    application. Well, the system then detected that you were
    applying for two instances at the same time, so then, of
    course, you are now on the call center line.
        So again, there were choices made, in 2020, from a speed
    standpoint and a design standpoint, that created systemic
    issues that rippled forward, and it leads to this day, because
    the constituency interactions that we receive are still trying
    to make heads or tails out of all these, you know, disparate
    signals that we sent them. And that is horrible, and from
    Administrator Guzman's standpoint, it is never again. So the
    Office of Capital Access is now charged with reforming all of
    this in the core natural disaster programs.
        Senator Rosen. Thank you very much, and I look forward to
    seeing more streamlined communication and process.
        Thank you, Mr. Chairman.
        Chairman Cardin. Senator Hickenlooper.
        Senator Hickenlooper. I was so glad to yield to the Senator
    from Nevada on her birthday, to make sure she did not have to
    wait.
        Senator Rosen. Thank you.
        Chairman Cardin. And we all wish you a very happy birthday.
        Senator Hickenlooper. We try to do our best.
        Mr. Kelley, Administration Guzman, I have tremendous
    respect for, and I think you are acquitting yourself well
    today. But whatever I am saying, whatever agitation I bring to
    my questions is not a reflection on you. Recognize I view you
    as a solution, not the problem. But it is hard to look at a
    system like this where the communication and the system has
    been so dysfunctional, and not feel tremendous aggravation.
        Senator Risch and I introduced a bill to require the EIDL
    program to meet exact timelines--I am sure you have probably
    seen it--to make sure that it is communicating in a timely,
    effective manner.
        In March, the SBA started work on GAO's July 2021,
    recommendation to develop a comprehensive strategy for
    communicating with disaster loan program participants. And
    obviously, the resilience in this country is insufficient.
    These wildfires, these floods are going to continue.
        Is the SBA's comprehensive communication strategy, does it
    include the timelines that Senator Risch and I had in our bill?
        Mr. Kelley. I apologize. I am not able to recall exactly
    the timelines, but I will endeavor to state some timelines, and
    you can tell me to speed up or, as Senator Cantwell did last
    spring on RRF.
        But with respect to what we are doing in the disaster
    loans, 83 percent of disaster loans are under $50,000, and they
    are consumer and EIDL loans for business but there is property
    damage on the consumer side. Those are unsecured loans, and we
    ought to be, in the 21st century, able to approve, decision,
    and disburse within 72 hours or less. And I am sure right now
    there is somebody online saying, ``Well, you know, Kelley, I
    can do it in 24 hours.'' But 72 hours sending the disbursement
    ACH list over to Treasury, we can get to that.
        There is, historically, in natural disaster, challenges
    between the way the FEMA systems and the SBA systems--they are
    not as integrated as they could be. So we are working with FEMA
    on a roadmap of application program interface to allow for
    those systems to integrate with one another. That is important
    because we often talk about a single point of entry so that I
    do not have to go to multiple different places. But in the
    modern technology architecture with API you can have no wrong
    entry point but maximum reuse or optimal reuse of data that you
    have put in.
        So from our standpoint I would look to the Restaurant
    Revitalization program as an indicator of how Administrator
    Guzman intends to reform disaster lending in terms of
    timeliness. In that particular program, we had APIs published
    for private sector tools, point-of-sale vendors, Square, and
    Toast. We enlisted other point-of-sale vendors for source-of-
    truth data that went to the economic injury calculation. And we
    were able to process 60 percent of those applications mobile,
    at the discretion and election of the applicant, and we were
    able to process those in less than 20 minutes.
        And if you think back to RF, in particular, in terms of the
    totality of Administrator Guzman's vision and execution, in
    comparison to the shortcomings we are discussing today over the
    two years, with respect to COVID EIDL or some of the legacy
    issues with PPP, it is quite remarkable and promising, because
    we did not have the tax issues that we see.
        Senator Hickenlooper. No, I agree, and I think that is
    exactly correct and one of the reasons I admire her and her
    work.
        Let me ask you another question, just a little bit
    connected to that. You mentioned Square and Toast, is there--
    and this is just kind of pie in the sky, future--a way that you
    guys could work with the fintech. They claim that they now have
    so much information about their customers that they can give a
    more accurate loan. They can tell who is credit-worthy, and
    that they are giving many, many loans that are turned down by
    the SBA. Is there some way to partner with them to kind of use
    that capacity and the increased accuracy and get a better
    performance?
        Mr. Kelley. Yeah. So yes, and that is underway. For
    example, under the hood, so to speak, in the back end, for the
    Restaurant Revitalization portal, we integrated a fintech
    provider called Plaid. Plaid enabled us, at the election and
    discretion of the borrower, to integrate, through API, with
    Plaid, to validate their bank account. If you wanted to forego
    that we did a manual review to validate bank account, again
    going back to what was not done in COVID EIDL, where you could
    switch your bank account, in 2020. So we were able to offer
    speed with certainty.
        In addition, we integrated the 4506-T process inline, in
    the application workflow, leveraging DocuSign, electronic
    signature. And so what people will tell you when they design
    user experience for product in financial technology is that you
    do not want to break the workflow. You do not want somebody to
    go out of that experience. You want them to complete the task
    on hand.
        So those are two examples. But from the standpoint of
    fraud, waste, and abuse, we were able to integrate Treasury Do
    Not Pay, 4506-T, yes. Those are very important public sector
    criteria. But we were able to access third-party databases,
    like LexisNexis public records, research Plaid, et cetera.
        So there is enormous opportunity in natural disaster, which
    we are focused on right now, and into our core programs to do
    that, yes.
        Senator Hickenlooper. Great. Perfect. You made my day.
        Thank you. I yield back to the Chair.
        Chairman Cardin. Senator Shaheen.
        Senator Shaheen. Thank you, Mr. Chairman, and thank you,
    Mr. Kelley, for being here and for all of the work that SBA
    does.
        It is my understanding that SBA has argued that no funding
    remains to continue to approve EIDL loan modifications or
    previously denied applications. But in drafting the Bipartisan
    Infrastructure Bill Congress very clearly intended that SBA use
    transfer authority granted by that law to reallocate funds from
    targeted EIDL grant program to the EIDL loan program so that
    businesses that were eligible for that assistance would be able
    to receive it.
        Now in the past, SBA has used that authority. Why was the
    decision made, in this case, not to use that authority again?
        Mr. Kelley. As we have indicated to the Committee we did
    use that authority, for example, to process applications that
    were received on or before May 6th cutoff deadline. So we used
    both cancellations, which I think Chairman Cardin referenced,
    as well as funds that we moved in coordination with ONB into
    that fund.
        There is no question that communication from center-level
    personnel on an individual basis about funding being exhausted
    was confusing. However, when we speak to the inventory that we
    are talking about today, the 41,000, it there are not any
    instances that would be approved in obligated funds. Those
    files have been looked at. There has been communication to
    those borrowers about what was missing, what was insufficient.
    And in two-thirds of the cases it is a tax-related issue.
        At this point, we would not move fund because we do not see
    the inventory of demand. And again, the reason that is the case
    is 92 percent of that population has had a loan since 2020, and
    as of April of 2021, with the average increase being $200,000,
    they could seek a loan increase, and many did. But only 20
    percent of those eligible for an increase ever responded over
    the course of 15, 16 months, roughly.
        So I understand--again, and I want to keep reiterating
    this--I understand why they are frustrated with the outcome,
    but in terms of the SBA's responsiveness to their petition for
    an increase, we have given them multiple, in some cases,
    reconsiderations or appeals, and we are not going to be able to
    get to yes on their individual file.
        Senator Shaheen. I appreciate the effort. I beg to differ
    on a list of applications that we have worked with, our
    district office, on. And while there are some--I do not want to
    use the word ``questions,'' but there are some disparities, but
    they are in, you know, in at least one case, as simple as an
    email address that was different.
        So I guess you have not convinced me. And while I recognize
    that there are some cases that, you know, for various reasons,
    human error, do not get reviewed in the same way that we would
    all like, I am still concerned that we have businesses out
    there that qualify, that are not being acknowledged by SBA.
        So I do not know how to resolve some of those cases, but I
    do think it is a concern, and it is an ongoing concern. And as
    Senator Rosen talked about trust, I think that is a real issue
    that many of our small businesses still have at this point.
        I want to ask you about an issue that is not directly
    related to EIDL but it is one that concerns me a great deal
    because I think the district offices that SBA has around the
    country are really important. I have lived through recession in
    New Hampshire where the only thing that kept our small
    businesses afloat was the SBA and the work of the district
    offices, and particularly during the pandemic they were really
    important.
        And I am very concerned because I am hearing that there are
    some at SBA who would prefer to see a smaller footprint in the
    district offices, who would like to see more power consolidated
    in Washington, and that data that we have seen shows that there
    is a marked drop in operating budgets for some district
    offices, including in New Hampshire, even as some of the other
    programs that help our small businesses are being phased out.
    To have a further reduction in the ability of our district
    offices to help small businesses I think does not accomplish
    the goal that we all share.
        So can I ask you if you support the work that is being done
    by SBA's district offices, and will you commit to resist
    efforts to decrease staffing and operating budgets as long as
    Congress appropriates sufficient funding for salaries and
    expenses overall?
        Mr. Kelley. Well first, yes, I enjoy working with the
    district offices. I had five years during the Obama
    administration where I traveled quite a bit more to those
    district offices. I understand their value at the point of
    sale. And one of the things that we have done, for example, in
    Restaurant Revitalization program was we integrated 100
    district office employees directly into the decisioning process
    as a response to some of the shortcomings that were identified,
    for example, in COVID EIDL previously, at that moment.
        In addition, as I mentioned for COVID EIDL, one of the
    things that we worked with the field on was getting them access
    to the data regarding COVID EIDL files, so that they could
    assist borrowers directly. So there is absolutely a place for
    district office folks to help us success on the mission.
        As to the second part of your statement, I think it is yes,
    and I think what you are saying is a budget is about
    prioritizing choices, and you are suggesting that the SBA would
    have its funding to do its full suite of things. And quite
    obviously, then, the district office should be, you know,
    funded as it needs to be.
        Those decisions, obviously, are above my pay grade, but I
    think everyone, and certainly Administrator Guzman, to your
    question, in her hearing this spring, I think indicated support
    for the field offices.
        Senator Shaheen. Well, she did, and I have had a chance to
    raise that with her, yet we do not see a change in terms of the
    information that we have been getting with respect to how the
    money is being distributed. And the fact is that those district
    offices are still being told they have to reduce their
    operating budgets significantly, and I think that is a concern.
        Mr. Kelley. My understanding on this particular issue is
    that--so these guys are about to jump out of their seats--I do
    not understand appropriations. I know there are appropriations,
    but there is an Appropriations Committee, and what has been
    related to the agency is that these things are going to be
    sorted out as the process moves forward. That is not a very
    informed answer, but what I took that to mean, in relation to
    prioritization, is that there is an understanding that there is
    a lot of opportunity, there is a lot of need across the SBA
    footprint, given the balance of what we have to attack.
        Senator Shaheen. Well, thank you. As an appropriator I am
    going to be watching this very carefully, and I do not
    appreciate having a budget submitted that is being done with
    the idea that we are going to cut this area because we know
    Congress is going to put that back so that we can fund
    something else. I would hope that in the budget process we
    would all be as honest as we can about what the priorities are
    and what we should be funding.
        Thank you. I appreciate your answers.
        Chairman Cardin. I am going to follow up on some of Senator
    Shaheen's points. I just want to acknowledge that we spent a
    lot of time together in developing these programs, with Senator
    Rubio and Senator Collins. And we really did want to get money
    out quickly, and we recognized that the verification systems
    would be lax, because if we had to go through all the
    verification systems the businesses would be shuttered and
    closed for good. So we knew that there was going to be some
    challenges in doing this when we created the program.
        I am also going to follow up on some of Senator Shaheen's
    points about individuals that are not--they have followed the
    rules and they have not gotten the clarity that you have given
    us today.
        But first let me just point out, on waste, fraud, and
    abuse, because I agree. Look, we wanted to get money out
    quickly. We did not want to see any waste, fraud, or abuse, but
    we wanted to get money out quickly. And when you look at the
    size of the PPP program and the EIDL programs and the
    restaurant program and the Shuttered Venue program, the amount
    of fraud is very, very small. So let us be clear about that. We
    want to see it at zero percent, but the percentages are very,
    very small.
        And under waste, fraud, and abuse, or mistake, a lot of
    this is not fraud, as you pointed out, and we should recognize
    that small businesses do not have the same degree of capacity
    that large companies have, and at times mistakes are made. They
    are not intended, and we have to correct that. But let us not
    call it fraud when it is not fraud.
        So I just really wanted to clarify those points and also
    compliment this Administration for having much more
    transparency. We have gotten much more information. I note
    Senator Ernst might get a little upset about this. It was not a
    high bar to meet under the Trump administration because they
    just did not make anything available to us. But we do
    appreciate the fact that it has been a much more open process
    under this Administration.
        And in regard to Planned Parenthood, I did not know we have
    to talk about that again. This is the affiliation rules.
    Affiliation rules apply not just to Planned Parenthood but
    other nonprofits. We clearly wanted nonprofits to be eligible.
    We made nonprofits eligible. And the affiliation rule is the
    same for Planned Parenthood as it is for the Y's, as it is for
    Boys and Girls Clubs, et cetera. There was never a
    determination made that money should have been returned.
        So let us be clear about that. I know we will hear about it
    again, but I just really wanted to clarify that for the record.
        Now let me get to the main thrust of today's hearing. It is
    clear that the SBA did send out communications saying that
    applications were being denied because of lack of resources,
    but as you have clarified today, that is not the case. Correct?
        Mr. Kelley. Yes. In all of those instances, both of those
    messages I believe were communicated to the borrower.
        Chairman Cardin. So now we have 125,000 eligible small
    businesses that have been informed that they are entitled to
    receive additional loan money, and your testimony today is it
    is up to those applicants to get the documentation in, in order
    to complete the settlement of those loans.
        Mr. Kelley. It is up to any borrowers to close a loan. So
    they have to sign the note. They have to sign the ancillary
    documents to the note. So they are not providing any additional
    documentation for any approval or anything. So if you bought a
    house and you remember the big closing table and the big stack,
    that is what they have got to execute. They just have not done
    that yet.
        Chairman Cardin. I just really want to emphasize what
    Senator Shaheen has said. We will give you chapter and verse--I
    think we have already given you these cases. We have several
    that have come to my attention where that is not the case. The
    burden is on the SBA to complete the closing, not on the
    person. They have done that and they are still waiting for
    their checks.
        Mr. Kelley. There is yet another issue with what you just
    opened up. I agree that but for the borrower agreeing to take
    the note--so they have to sign to be the borrower--we are
    responsible for closing the loans in association with that. So
    for the 125,000, including with the district offices, we are
    executing the closing, and it is at the discretion of the
    borrower to execute that.
        And yes, we have seen, from your office and others, that
    there was confusion for those folks who do have funding--and I
    want to reiterate again, their money is there, they can execute
    the closing, and we will assist them with that closing.
        Once they have executed the documents the money goes on a
    schedule over to Treasury for the ACH into the designated bank
    account. There are issues with those bank accounts, where the
    account is located are bouncing back our disbursements, and I
    do not know the exact reasons from each institution. One of the
    reasons that is cited most often is the opinion of the bank
    that commercial activity for this account is not recognized,
    and therefore they are flagging it as suspicious activity.
        Chairman Cardin. I understand exactly what you are saying
    and I recognize that, and that is one of the points that I
    think some of our colleagues have mentioned. There are better
    systems out there that would have dealt with this. And we are
    dealing with two agencies, Treasury and SBA, and that is a
    challenge also.
        My plea to you is, provide the leadership and resources to
    get these resolved. These are people that are frustrated. They
    need their money. In one case it was the bank account only
    accepted checks up to a certain amount, and they had a higher
    check coming in so they set up a separate account, and it took
    them forever, and they still have not completed getting that
    routing into the system so the money actually could get there.
        Mr. Kelley. Yes.
        Chairman Cardin. You know, these are small businesses. They
    need help. So please resolve these issues. Get the resources
    and get it done. And they have been given inconsistent
    information over time. At one point they thought the money was
    not there, and many of them were giving up.
        So please provide the services they need so we can get that
    125,000, those that want to take out the loan, that they can
    complete the loan process and stop calling our offices. That
    would be very helpful. So I appreciate if you would follow up
    on that.
        Mr. Kelley. I understand. Yes, and I hear you. One hundred
    percent we will redouble our efforts. And for all of those bank
    account bounce, just like the closing, we will work those to
    completion. So we will work with that particular borrower to
    get that money. And that money remains theirs, even if it
    bounced back.
        Chairman Cardin. Now to the 41,000 potentials. We are
    informed, either directly or through communications generally,
    that these loans are unworkable, not that they were denied but
    that they were unworkable, as I understand it. And I understand
    that a lot of these they could not get the verifications that
    are required, they had not filed their tax returns, all those
    issues that have to be done for them to be able to get their
    loans completed. I recognize that.
        But unworkable is not denied. Many of these, according to
    the case work notes that we have, they think that they have
    given adequate information, or that they can supply the
    adequate information, but they have not gotten that ability to
    do that because of the way the system is set up.
        So I would just urge you, to those that do have claims that
    can be adjudicated in a positive way, either reconsideration or
    increased loan amount or whatever they have filed, let us try
    to get those resolved. The numbers are getting small enough
    that it seems to me that we should be able to handle those with
    the type of service that we would expect from the SBA. So I
    just urge you to try to resolve that.
        For those that are truly not eligible, you are going to
    have to bite the bullet and give them a determination so that
    they can move on or file an appeal.
        So it would seem to me you have to complete these. I do not
    want you to deny an application that has merit because you want
    to get it off the books. I am happy to keep it open if there is
    a possibility for successful conclusion for the small business
    owner. But they need to know. There has to be a time.
        Mr. Kelley. So understood. I understand the urgency. I
    understand what the objective of the mission is. The one thing
    that I do want to make the Chairman aware of, and members, is
    that from the point of first disbursement a borrower has 24
    months to seek a loan increase. So as of July, 80 percent of
    that universe told. It is August 2nd today, so 80 percent of
    that universe can no longer seek a loan increase. By October,
    that number will be in excess of 90 percent, and by the end of
    the year it will be zero.
        So what is important to understand, too, is that, again,
    the program did formally close, as you guys know, on December
    31st, from taking new applications. So the combination of those
    things makes it such that from our perspective we are moving on
    to servicing, for which that begins in October. There will be
    27,000 folks that are required to make their first payment, and
    then it spikes up a half a million for multiple months
    thereafter.
        That is a huge lift. We are going to have to onboard the
    staffing that we briefly scaled back when originations
    concluded, to come back on board. Despite the fact that this
    Committee and the Appropriations Committee made billions of
    dollars available for COVID EIDL admin, the COVID EIDL RER
    RAPID portal does not handle servicing. And so we have to stand
    up a servicing solution at scale, which is a technology lift as
    well as a people process lift.
        So we are facing that in the next 60 days. I understand the
    frustration that folks feel out there, as a part of that
    41,000, but from the perspective of what I can assure you is
    that we did work with these borrowers to find a yes. And it
    should be mentioned that with your leadership, in 2021, we did
    $200 billion of support, and we did those 400,000 loans
    checking IP static address, checking business address,
    validating tax information.
        So we demonstrated that you can do 20 percent of the total
    addressable marketplace of all lending in 2021, with 7,000
    employees. We did that together, and yes, there are definitely
    things that we would do differently and have learned from, for
    sure.
        Chairman Cardin. I would just point out that I have been
    told the 24-month period is not statutory. You can waive that
    24 months if you wanted to.
        Mr. Kelley. Sure. I understand.
        Chairman Cardin. Senator Ernst.
        Senator Ernst. Yes, thank you, Chairman, and I appreciate
    the discussion today. And I want to make it clear. I do not
    care what administration it is, we should always be
    transparent. I think that is just the best policy across the
    board.
        And with that transparency, again, I am going to go back to
    the Fraud Risk Management Board. I am really excited. I know
    that the SBA had announced in April that they were creating
    this Fraud Risk Management Board. But again, when it comes to
    transparency SBA has not really shared any details with
    Congress or the public about its impact since it was created.
        Can you maybe just visit with us a little bit, give us an
    overview of what type of programs the board is looking at. Have
    there been results from that? Maybe just share information with
    us on how that board is going.
        Mr. Kelley. The primary responsibility of the board today
    obviously is to handle what amounts to I think somewhere north
    of 60 total audit reports across GAO and OIG, in addition to
    our annual audit with our auditor, KPMG, that is ordered by the
    IG.
        Within that, obviously, is demonstrating to those auditors,
    and first and foremost to ourselves, that we have addressed the
    shortcomings that were highlighted. You know, I mentioned in
    PPP not making a core accounting system reconcile in real time
    loan requests, which is not done on Planet Earth, so we can
    avoid 50,000 duplicates.
        There are issues with improper payments that had been
    conflated to fraud, which, as you guys have addressed, small
    businesses are not necessarily committing fraud. For example,
    in the COVID EIDL program, the $80 billion number that is often
    referenced is in large part due to sole proprietors who, in
    2020, were required to demonstrate, for each $1,000 they were
    seeking, up to $10,000 for the targeted EIDL advance that was
    originally made available, they needed to demonstrate they had
    an employee. In order to have employees as a sole proprietor
    you have to have a registered EIN.
        There are a great many sole proprietors that I have no
    doubt believing have employees, were certified correctly that
    they deserved $5,000 or $6,000, or whatever, but they did not
    have a registered EIN on or before, I believe, the date is
    February 15, 2020, when the pandemic was officially start date.
        So the Fraud Review Board is focused on addressing the most
    immediate issues. From a standpoint of how we do that, we have
    to recognize--and Administrator Guzman has I think shared with
    you and others--we have to recognize that we have to be timely.
    We have to be fast. We have to be relevant. And so that means
    making technology choices that contemplate both that speed and
    certainty. So putting tools in the front end before you
    disburse the money, to know your customer, those types of
    things.
        So across the board it has begun and is a daily event.
    There is not a day since I became the Associate Administrator
    on March 1, 2021, literally, that I have not spent at least,
    minimally, a third, and there were some long days, focused on
    fraud, waste, and abuse. So it is top of mind.
        Senator Ernst. That is good. Now with all of the lessons
    that we have taken away, that came out of COVID-19, and some
    that have been identified by the Chairman and others through
    their lines of questioning today, I am so hopeful that we
    never, ever experience another COVID-19 type event in our
    history, but it could happen.
        So taking all of these lessons learned, are we able to act
    on those in the future, have those suggestions, those solutions
    been identified, and how can we put those into practice as we
    move forward?
        Mr. Kelley. Yeah. I too share the sentiment that I am good
    for pandemics. I hope I do not have to have another one.
        I want to take a second to commend the Office of Capital
    Access, SES civil servants, because they were prescient. They
    took the resources, the admin dollars that this Committee and
    the appropriators made available for CARES Act programs across
    PPP, et cetera, and that technology, specifically for fraud,
    waste, and abuse, as well as call center support--we have
    talked about communication--we were able to build,
    successively, off of the initial portal that was launched
    August 10, 2020, to support, ostensibly in the beginning, PPP
    forgiveness.
        From the private sector, watching that launch August 10,
    2020, I was struck, as many were in the private sector, this
    works. This is good. And Steve Kucharski and his team in the
    Office of Capital Access deserve a heck of a lot of credit,
    because it was that investment, again with the PPP dollars,
    that led to a better experience for all applicants in the
    Restaurant Revitalization, put the agency in a position to
    facilitate 1,500 really small banks with forgiveness in
    processing 2 million loans, and it is that foundation that is
    going right into the natural disaster platform to address the
    fraud issues that the IG highlighted, the call center issues,
    and some of the challenges that we see in the individual case
    files today.
        Senator Ernst. Good. No, I do hope that we continue to
    build upon that. And just in closing too, I do want to say a
    well-deserved thank you to all of the folks at SBA, who really
    had a huge, pressing job ahead of them when COVID-19 hit, and
    they performed admirably, as did, I know, a number of our own
    local banks and credit unions that really helped push those
    dollars out to those small businesses that really did need that
    assistance.
        So thank you, Mr. Kelley, for coming in front of the
    Committee today, and thank you, Mr. Chairman.
        Chairman Cardin. Thank you, Senator Ernst. One more
    clarification I need to get on the record so I understand. May
    6th was the cutoff date for modifications, et cetera. It could
    have gone up to July, if I understand correctly, and you could
    have waived that date and made it later than that. And you put
    on your website May 6th as the date, quote, ``due to lack of
    available funding.'' We will not argue that when the judgment
    was made you were projecting how much money would be available,
    et cetera. You made that judgment.
        But on the website today it still says as of May 6, 2022,
    SBA is no longer processing COVID-19 EIDL loan increase
    requests or requests for reconsideration of previously declined
    loan applications, due to the lack of available funding.
        I would suggest that you may want to modify that, just take
    off that clause. You are not accepting them, fine. We recognize
    you have used that date. We may disagree with that. We can have
    that debate. But clearly funding is available now, and it is
    misleading to keep that on your website.
        The second point I would raise, you indicated during your
    questioning here that most of the 41,000 will not be able to
    get to yes, and that there is a concern that the funding could
    be repurposed. We want to make sure that funding is not a
    reason for determination as pending as of May 6th.
        Mr. Kelley. Yeah, I apologize if I left that impression. I
    either misspoke or was not aware. I am keenly aware that that
    is an appropriations decision. It is a decision for OMB. My
    position, and I want to make this clear, is that these files
    were looked at, and I have seen them personally, I have been
    involved in the day-to-day correspondence, and that we have
    been responsive. And so I apologize for the confusion I may
    have left you.
        Chairman Cardin. So no one will be denied who had their
    applications in prior to May 6th because of lack of funding.
        Mr. Kelley. Correct. The denials, the decisions, beginning
    with their initial denial, for most of these instances,
    beginning way back in 2021, and at the heart of the denials is
    a disagreement between that particular person about whether or
    not filing taxes is appropriate or not. And I understand the
    frustration here and I understand why that person--because
    again, they got the loan originally with no taxes; they did not
    file and they got a loan from the Federal Government in 2020.
        I understand why when they speak to people, including me, I
    receive emails where, when I read the initial email they
    acknowledge the back-and-forth with their particular loan
    officer, they acknowledge that there were some shortcomings at
    first. Then they say a wrong has been done to them. And I came
    back to serve to say yes, so that appeals to me, as I am sure
    it does you and all the members. We are here to serve. And so
    we then take action and we work with the civil servants in the
    process centers to determine whether or not we can make an
    action.
        Chairman Cardin. I just want to make it clear that any of
    the pending applications, if they are meritorious, they will be
    funded. The money is there, that the funds are there.
        We will save for another debate, at another time, whether
    you had to use that May 6th date because of lack of funding. I,
    quite frankly, do not agree with that. I think you could have
    gone beyond May 6th if the funding was available, and that you
    have the discretion to even go beyond July of this year if you
    wanted to, under the authority, to waive the 24 months.
        We will leave that for another debate for another time, but
    it is clear that Congress intended EIDL to have adequate funds
    to deal with the COVID pandemic, and we were prepared to make
    funds available. It seems like a lot of the funds that we
    specifically made available for specific purposes have been
    taken for other purposes, not necessarily on the EIDL program
    but on other programs, and we could have repurposed money to be
    able to take care of all the needs that are out there.
        I want to make sure we take care of the 41,000 and the
    125,000, but it seems to me we could have had a longer offramp
    on this on the applications for increased funds.
        Senator Ernst, anything further?
        Senator Ernst. I am good. Thank you.
        Chairman Cardin. We very much appreciate your time and your
    explanations and your service to our country. You have a very
    challenging job, so thank you very much, and thank you for
    appearing before the Committee.
        The Committee record will remain open, I believe, for two
    weeks, which is our normal process, for friendly questions that
    may be asked to you for the record. We appreciate if you would
    answer those questions as quickly as possible.
        And with that the Committee will stand adjourned. Thank
    you.
        [Whereupon, at 11:43 a.m., the Committee was adjourned.]

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