[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




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            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:]

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    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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