[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
OFFICE OF INSPECTOR GENERAL REPORTS TO CONGRESS ON INVESTIGATIONS OF
SBA PROGRAMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT, INVESTIGATIONS, AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
APRIL 19, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-009
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
51-813 WASHINGTON : 2023
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E T S
OPENING STATEMENTS
Page
Hon. Beth Van Duyne.............................................. 1
Hon. Jared Golden................................................ 2
WITNESS
Hon. Hannibal ``Mike'' Ware, Inspector General, United States
Small Business Administration, Washington, DC.................. 5
APPENDIX
Prepared Statement:
Hon. Hannibal ``Mike'' Ware, Inspector General, United States
Small Business Administration, Washington, DC.............. 16
Questions and Answers for the Record:
Questions from Hon. Williams and Answers from Hon. Ware...... 28
Questions from Hon. Bean and Answers from Hon. Ware.......... 34
Questions from Hon. Van Duyne and Answers from Hon. Ware..... 46
Questions from Hon. Mfume and Answers from Hon. Ware......... 47
Questions from Hon. Velazquez and Answers from Hon. Ware..... 50
Additional Material for the Record:
None.
OFFICE OF INSPECTOR GENERAL REPORTS TO CONGRESS ON INVESTIGATIONS OF
SBA PROGRAMS
----------
WEDNESDAY, APRIL 19, 2023
House of Representatives,
Committee on Small Business,
Subcommittee on Oversight,
Investigations, and Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:13 a.m., in
Room 2360, Rayburn House Office Building, Hon. Beth Van Duyne
[chairwoman of the Subcommittee] presiding.
Present: Representatives Van Duyne, Williams, Luetkemeyer,
Mfume, Golden, and Perez.
Chairwoman VAN DUYNE. Good morning, everyone, I now call
the Committee on Small Business to order. Without objection,
the Chair is authorized to declare a recess of the committee at
any time. The committee will hear testimony today from the
Small Business Administration's inspector general.
Before my opening statement, I ask unanimous consent for
the Congressman from Missouri, Mr. Luetkemeyer, to participate
in today's hearing. And without hearing objections so ordered.
I now recognize myself for my opening statement. I want to
welcome everyone here to today's hearing which will focus on
the Office of the Inspector General's investigation of Small
Business Administration programs. First, I want to thank our
witness, Inspector General Ware, for joining us today. I hope
this is the first of several productive hearings that we will
have with you in this Congress and I appreciate you speaking
with us today.
This hearing could not be coming at a more important time.
I have heard from countless small businesses in north Texas who
have faced difficulties in dealing with the SBA and the waste
and mismanagement that we have seen from the agency is a
complete disservice to our job creators and their employees.
Some of the most egregious examples of SBA mismanagement came
in the form of pandemic-related funds and programs. As the SBA
dispersed an unprecedented amount of money, they relaxed
internal controls and failed to be a responsible steward of
taxpayer dollars.
While the SBA was overwhelmed with an increased workload,
they left the door wide open for criminals to abuse pandemic
relief programs. Who ultimately the pays the price? Hardworking
American taxpayers. The SBA's disorganized management structure
and a lack of basic guardrails to prevent fraud led to wasted
taxpayer dollars.
The OIG identified nearly 71,000 potentially fraudulent PPP
loans totaling more than $4.6 billion, and that may only be the
tip of the iceberg. In the Economic Injury Disaster Loan
program alone the inspector general found $78 billion in loans
and grants that were potentially fraudulently obtained. Tens of
bills of dollars of apparent fraud. That was from just one
program.
Again, against Inspector General Ware's advice, the SBA
ended collection on and forgave all PPP loans with an
outstanding balance of $100,000 or less. This sets a horrible
precedent of allowing fraudsters to avoid facing repercussions.
While billions in pandemic relief funds were misused, the
SBA neglected to implement simple fraud mitigation measures
until the first round the PPP loans were approved. We could
have prevented much of this fraud and still can for future
programs. But the SBA has ignored proposed reforms. Right now
our nation's small businesses are facing runaway inflation,
rising interest rates at a fastest pace since the 1980s and a
labor shortage. This committee is prioritizing the needs of our
small businesses and their employees and we stand with them.
I hope this hearing can help gauge how Congress can take
steps to improve the integrity, accountability and performance
of the SBA. Inspector General Ware has done a commendable job
on shining a light on waste, fraud, and abuse within the SBA. I
am hopeful that this hearing with our committee will help us
better understand how we can help our job creators get the
support they need and deserve from the SBA.
And with that, I yield to our distinguished Ranking Member
who is actually not with us yet so we are going to go ahead and
recognize Mr. Golden, from the wonderful State of Maine for 5
minutes.
Mr. GOLDEN. Well, look at that right there, folks. On
queue.
Chairwoman VAN DUYNE. We are going to yield to our
distinguished Ranking Member Mr. Mfume, from the wonderful
State of Maryland.
Mr. MFUME. Madam Chair, Members of the Committee my
apologies. As all of you know, these are the days when we are
having for some reason committee meetings that all run
simultaneously. So I apologize. I had to be in the Oversight
Committee hearing and deal with an issue of an Afghanistan
withdrawal. But I am happy to be here. And I want to welcome
Inspector General Ware. Thank you very much for your presence
today.
The past 3 years have been extremely challenging, and we
commend you for your oversight of the pandemic relief programs,
as well as making sure that the Small Business Administration's
core programs are working effectively as well for small
businesses. Every year your office issues the top management
challenges report and the semiannual report to the United
States Congress. Both of those reports call attention to long-
standing issues and identify some of the biggest challenges
facing the agency.
As the Ranking Member of the Oversight, and Investigations
and Regulations subcommittee, I want you to know that your work
with guide this committee throughout the year as it conducts
and as it should its oversight of the SBA. I anticipate that
much of the discussion today will focus on pandemic relief
programs. Since 2020, SBA has distributed more than $1 trillion
in economic relief to small firms. And while the economic aid
was vital in keeping millions of small businesses afloat during
the pandemic, we know that your work and through your work that
there was a significant amount of potential fraud. And I have
stated my disgust with that in previous hearings both at full
committee level and at another subcommittee.
I think most of us are concerned about that, particularly
as it relates to the Paycheck Protection Program and the
Economic Injury Disaster Loan program. Much of this potential
fraud can be traced back I think to the early days of the
pandemic when programs were new, when the loan volume was high
and there was a need to get loans out of the door quickly.
Those priorities unfortunately in many respects created the
possibility of potential fraud.
This committee took steps to address the problems and to
make sure that the money went to small businesses that needed
it and that it did not go to a bunch of bad actors who we are
all incensed about. To that end I support a bipartisan
legislation to extend the statute of limitations for fraud in
the Paycheck Protection Program and the Economic Injury
Disaster Loan program in the last Congress.
Both of those bills which became law we believe sent a
strong message to the unscrupulous behavior by a number of
people and that behavior would no longer be tolerated and that
those who committed the fraud would be held accountable in the
years to come. And we all hope that there are fewer years than
more years in order to make sure sure they are held
accountable.
The SBA under the leadership under leadership of
Administrator Guzman has taken steps to combat fraud in the
pandemic relief programs. And today it will be important for
all of us to hear your perspective on the progress of the
agency and on the progress that we believe has been taking
place since that time and to hear more about your combined
efforts to recover the stolen funds, which really at the end of
the day looms as a significant undertaking.
Oversight of the pandemic relief programs will be a top
priority for all of us for years to come. And your office will
play a central role, obviously. I recognize that you will need
additional resources in order to be able to investigate the
fraud and to bring bad actors to justice. And I expect to hear
more about that in your fiscal year 2024 budget request. It is
a reality unfortunately, but we have got to find a way to hold
people accountable. And we have got to be able to have the
resources to do that.
It is also important to know what is working well with the
agency and how it is working well and what more needs to be
done to ensure that core SBA programs are in fact working
effectively. So I am committed to working with my colleagues on
this committee, the administration and your office to root out
fraud, to bring fraudsters to justice, to find bipartisan
solutions to make the SBA run for effectively. And I want to
again thank the distinguished Chairwoman who has called us
together for this particular hearing.
I apologize, Madam Chair, for my in and out on this as I am
dealing with two other committee meetings quite frankly. Thank
you.
I yield back.
Chairwoman VAN DUYNE. Thank you very much.
I now yield to Chairman Williams for a brief opening
statement.
Mr. WILLIAMS. Thank you. And good morning, General Ware.
Thank you for being here. We appreciate that.
I want to thank my fellow Texan, Beth Van Duyne, for
holding today's subcommittee hearing with the SBA's Office of
Inspector General. Today's hearing is a critical component to
examining the competency and performance of the SBA, especially
after the pandemic forced the agency to take on a more
prominent role which exposed many shortcomings.
For nearly 71,000 fraudulent PPP loans as we have talked
about already to $78 billion in fraudulently obtained loans and
grants to the Economic Injury Disaster Loan program the SBA
failed to implement adequate guardrails to protect taxpayers'
dollars. And this allowed criminals and illegitimate entities
to have a payday after payday while legitimate small businesses
struggled through pandemic.
The change is needed and we hope that you, General Ware,
can help lead the way in fighting the success of waste, fraud,
and abuse so Main Street America who we represent cannot
continue to allow the recommendations that you have made for
the agency to be ignored. There must be significant changes
made to improve the integrity and accountability of the agency.
And with that, I am looking forward to today's discussion
and hope we can create a sense of urgency for the SBA to listen
to your suggested changes.
So thank you, Chairman Van Duyne. I yield back.
Chairwoman VAN DUYNE. Thank you very much.
It is an honor today to introduce or witness, the honorable
Hannibal Mike Ware, Inspector General Ware is a native of the
U.S. Virgin Islands and holds a bachelor of arts degree in
accounting from the University of the Virgin Islands. In May
2018, following his confirmation from the U.S. Senate,
Inspector General Ware was sworn in as inspector general of the
Small Business Administration. Prior to his appointment, Mr.
Ware served as deputy inspector general. Mr. Ware has over 30
years of experience within the OIG community.
In 1990, he joined the Department of the Interior OIG
Virgin Islands' field office as an auditor and later became the
field office supervisor. Mr. Ware later moved to the DOI OIG's
office of management and served as the deputy assistant
inspector general for management. In this capacity he executed
the DOI OIG's independent operating budget and managed the
logistical concerns to the offices nationwide presence.
In his current role as inspector general, Mr. Ware's
responsible for independent oversight for Small Business
Administration's programs and operations, which normally
encompass more than $100 billion in guaranteed loans and nearly
$100 billion in federal contracting dollars.
Inspector General Ware, thank you for joining the
subcommittee today and I am looking forward to our
conversation.
I now recognize Mr. Ware for his 5-minute opening remarks.
STATEMENT OF HONORABLE HANNIBAL MIKE WARE, INSPECTOR GENERAL,
SMALL BUSINESS ADMINISTRATION
Mr. WARE. Thank you very much. Thank you, Chairman Van
Duyne, Ranking Member Mfume, and distinguished Members of the
Subcommittee. And Chairman Williams and Congressman
Luetkemeyer, thank you for being here. And thank you for the
opportunity to appear before you today.
I am as always super honored to represent the dedicated men
and women of the SBA's Office of Inspector General and their
work to provide oversight of SBA's programs aimed at bolstering
the nation's small businesses to include more than a trillion
dollars at stake as part of the pandemic response programs. I
am confident that much of our discussion today will focus on
the challenges SBA faced and experience in delivering critical
funds that stem from the economic ruling as a result of the
pandemic are oversight efforts span SBA's other programs.
To a significant degree, the strain of the pandemic
response laid bare SBA's systematic management and performance
challenges. My office knew from the onset of pandemic relief
that SBA would face a delicate balancing act of preventing
widespread fraud while ensuring timely disbursement of relief
funds to Americans in immediate neat of assistance.
The biggest concerns for our office was SBA's quick
delivery of capital to qualifying small businesses without
first establishing the internal controls necessary to decrease
risk. This was why we issued three reports prior to the first
PPP loan or EIDL being disbursed, stressing the importance of
up front program controls to mitigate the risk of fraud.
Notwithstanding these early warnings, SBA's internal
controls challenges engendered the biggest fraud in a
generation. It was immediately clear that pandemic relief
efforts had drawn the attention of unscrupulous and greedy
criminals. Complaints from lenders and allegations of misuse of
funds overwhelmed our hotline. Over 100,000 complaints in the
first year alone, which has swelled to more than 240,000 and
counting.
We actively engaged SBA's leaders throughout the duration
of the pandemic to notify them of preliminary findings so they
could respond in real-time to prevent loss to the taxpayer. At
the same time, we launched criminal investigations and audits
to root out the fraud and abuse engendering these critical
resources.
There are is no higher priority than addressing the top
management and performance challenges facing SBA, which is the
pandemic response. We have unleashed the power of data
analytics in our oversight, fueled by the expertise and
experience of our criminal investigators, auditors and
analysts. To prioritize our work and to bring fraud that is
hidden in plain sight within the vast portfolio, we have indeed
embedded data analytics into the hearts of those efforts. We
have been able to responsibly use machine learning and
artificial intelligence to identify outliers in a portfolio for
review and investigation.
To date, we are have issued 30 pandemic-related reports
with dozens of recommendations for corrective actions to the
agency. Additionally, since March of 2020, we have initiated
over 1,000 investigations involving complaints of fraud
resulting in arrests, indictments and convictions. Our
investigative work has resulted in 860 indictments, 687 arrests
and 486 convictions as of March. And those numbers continue to
balloon.
Through our oversight OIG has provided taxpayers an
exponential return in investment. In the past 2 years alone our
work has resulted in more than $9 billion in accomplishments,
over $8 billion in EIDL funds also have been returned to SBA by
financial institutions and another $20 billion by borrowers. We
have played a key role in the return of those funds to working
with our law enforcement partners and financial institutions.
With swift congressional action last year the President
signed into law an increase in the statute of limitation for
fraud in PPP and EIDL to 10 years. It is vital that sufficient
resources are available to my office to confront the fraud
landscape. The President has sought a $63.3 million in total
budget authority from my office in fiscal year 2024.
Budget scenarios such as return to the fiscal year 2022
funding levels for us would be detrimental to instilling
integrity in SBA's program and promoting accountability for
wrongdoing. Reducing our funding to fiscal year 2022 enacted
would decrease our investigative and fraud enforcement
capabilities nearly equivalent to staffing levels that we had
following sequestration in 2013, which is less than 100 total
positions. Such a funding scenario simply does not allow us to
provide effective oversight.
We are able to provide information to you to ensure
adequate resources are made available to promote the public
trust and instill integrity in SBA's programs. The nation can
depend on my office to provide independent, objective and
timely oversight of SBA.
Thank you for the opportunity to speak to you today. I am
happy to answer any questions you have of me.
Chairwoman VAN DUYNE. That was exactly 4 minutes and 59
seconds. Congratulations. Thank you very much.
We will now move to Member questions under the 5-minute
rule and I recognize myself 5 minutes.
On April 17, 2022, the SBA decided to formally end
collections on remaining defaulted PPP loans with an
outstanding balance of $100,000 or less. Your office noted in a
September 2022 report that this decision lacked evidentiary
support. Do you still stand by that analysis?
Mr. WARE. Thanks for the question. I definitely stand by my
analysis. Feel strongly that there are many steps that could be
taken. And I believe it sends a detrimental message for any
future emergency programs or any programs period across
government.
Chairwoman VAN DUYNE. So as of September 30, 2022, the
value of $100,000 and under loans no longer being pursued was
approximately $1.1 billion. Do you have the current total
dollar amount of these loans that are no longer being pursued?
Mr. WARE. I could get back to you on the exact total. I
could give you a general right now. The general on it is about
$8 billion that it has gone up to. I believe that is what it
is.
Chairwoman VAN DUYNE. Okay.
Mr. WARE. I have it in front of me. I can find it.
Chairwoman VAN DUYNE. All right. Thank you. We were just
looking for--if you could find that out and follow up with me
after that would be great.
The committee sent a letter to the SBA on March 15, 2023,
expressing our concerns about the SBA's decision not to collect
on these loans and the taxpayer dollars being abandoned. The
SBA responded on March 27 claiming that collection of the
government is not a cost effective use of taxpayer resources.
As justification the SBA used historical data from the SBA
Express loan program which they claim is most analogous to PPP
loans.
The SBA claims that because Treasury recovered only .28
percent of the Express loans referred for further collection,
that collection on the exponentially greater outstanding PPP
loan portfolio was futile. Do you agree that these programs are
a fair comparison and that that collection is futile?
Mr. WARE. I actually don't agree that it is a fair
comparison. I actually think it is more like apples to orange
in that regard. Relative to collection that is not--what they
are comparing is not the only form of collection, it is not the
only collection efforts. There is more simple avenues such as
Treasury offset. Where Treasury offset works that any future
government funds that would go, it could be a tax return, it
could be anything would be held to fulfill the debt to the
government. And these are not--that is not a difficult
mechanism to deploy at all. On top of it, it would help in
ensuring that folks who defaulted, who didn't pay for whatever
reason, it may not have been fraud, it was just that they
refused to pay, it would help that they don't get access to
future programs until they are current. So I really don't--it
is not something that I am in agreement with.
Chairwoman VAN DUYNE. The SBA had mentioned that they
provide this analysis to and I am just going to ask if you
could provide that to the committee when you get a moment.
Mr. WARE. Sure I could.
Chairwoman VAN DUYNE. The SBA had mentioned in a briefing
to the committee staff their attempts to collect this money has
already been made, including by mailing letters to borrowers.
Are you aware of these attempts and do you believe they are
sufficient?
Mr. WARE. We have not looked into exactly how frequently
they did that, but they were required to do so. And that is
what you do prior to going to going to Treasury offset so it
would be the first step actually.
Chairwoman VAN DUYNE. But then they did the first step and
they just dropped it after that.
Mr. WARE. Well, on that they made a decision that they
would go away from that.
Chairwoman VAN DUYNE. Okay. And another questionable
decision, the SBA has evidently also decided to end collections
on COVID Emergency Injury Disaster Loans, COVID EIDL, under
$100,000 which makes up approximately $71 billion of the $303.6
billion COVID EIDL loan portfolio. Unlike PPP loans, most of
which were able to be forgiven if certain criteria were met.
COVID EIDL loans were meant to be repaid. So the SBA has not
said how many loans are in repayment or experiencing issues
with repayment. Do you agree with this decision not to collect
on COVID EIDL loans under $100,000?
Mr. WARE. I definitely don't agree with that stance. And I
am pretty public with that. And I am internally public with it
as well in my discussions.
Chairwoman VAN DUYNE. Did SBA provide you with any analysis
for the justification of that decision?
Mr. WARE. We have a current--an ongoing review right now
that is ramping up on that. So I believe the audit team has
their justification, but from what I am being told it is along
the same lines that they provided for PPP.
Chairwoman VAN DUYNE. So are you able to provide
justification for this committee at all?
Mr. WARE. As soon as the report is finalized.
Chairwoman VAN DUYNE. Would you be interested in drafting
legislation to require the SBA actually be--collect those loans
under $100,000?
Mr. WARE. So I don't believe in my role I can draft
legislation.
Chairwoman VAN DUYNE. No, I am just--if you think that
would help, if we actually drafted legislation to be able to
get at least $8.8 billion plus the $78 billion?
Mr. WARE. I would say this, I would say that I believe SBA
should make every effort to collect. And that they are pretty
simple avenues to make an attempt to collect that money. And I
believe it sends a terrible message relative to how seriously
we take that.
Chairwoman VAN DUYNE. Excellent. Thank you very much.
I yield. And I now recognize Mr. Golden from Maine for 5
minutes.
Mr. GOLDEN. Thank you, Madam Chair.
Mr. Ware, the budget proposal coming out of the White House
is a reflection of an institution's priorities. So in fiscal
year 2024 there was a request for an increase from your office
of nearly $16 million, that is about a 33 percent increase from
last year's enacted levels. So how does this proposal reflect
the priorities of the administration to fight fraud as it
relates to pandemic relief programs?
Mr. WARE. Thank you. It definitely demonstrates that they
have a real commitment or high confidence in my office's
ability to go after bad actors, because the majority of that
money if you looked at it is for to deal with our criminal
investigations. And on top of it, it is basically to keep us
afloat. When we had the supplemental budget that we had, that
is about to be to finished in 2024. We have quite a bit of term
investigators who would basically disappear, if not for that.
We are basically trying to right size that to stay there before
even going forward.
Mr. GOLDEN. Okay. So there is proposals out there right now
to cap discretionary spending levels overall for the
government, fiscal year 2022 levels, of course that doesn't
have to be an even cut across every program. So how vital is it
that that not occur to your budget? What do we stand to lose if
you actually lost money rather than got more?
Mr. WARE. If my office lost money or went back to the 2022,
facing what is happening with my term employees in 2024, I
wouldn't be able to provide the oversight. The number goes back
to almost like our 2016 or something like that enacted number.
Mr. GOLDEN. Sir, I understand the GOP is pending a debt
ceiling legislation which we may see soon, it may actually
include a funding government savings to the tune of $50 billion
related to COVID, part of which is the recovery of fraudulent
loans. Would you be able to help recover fraudulent loans if
you took a cut?
Mr. WARE. No, I don't believe that I would be able to. I
simply would not have the staffing necessary to do so. But if
we did recover the funds, it would be at a much smaller clip.
Look at what we are dealing with. My office--with an office
that has a budget of 20 something million dollars, we have
returned what close to $30 billion or played a major role in
returning close to $30 billion. That is kind of an
unprecedented return on investment.
Mr. GOLDEN. Yeah, I like those odds.
So just focusing a little bit more on how much we can
recover and suffice it to say that I think everyone on this
committee thinks that you shouldn't lose money but rather get
more and deepen that return on investment. So what do you think
is a reasonable estimate for SBA to recover in regards to
fraudulent PPP or EIDL loans over the next let's say 2 years or
looking further over the next 10 years? What is in the realm of
possible for a goal?
Mr. WARE. That is a great question, very difficult to
answer.
Mr. GOLDEN. Yes, I know.
Mr. WARE. Very, very difficult. I don't believe I could put
my arms around what that could be. Criminal investigations are
pretty tricky, but I will tell you this, when we go after
normal fraud before the pandemic I created the footprints in
sand. So you have to move quickly in order to catch a bad actor
or it is gone, the evidence is gone. What we have right now is
footprints and cement. Right? When we get to it, it is found.
As soon as we open that file it is found. All the records are
there.
Mr. GOLDEN. Very good.
Just thinking about over all expectations, when does your
kind of confidence on the ROI start to diminish? Surely I mean
we would love to get every penny back, but that is probably not
a reasonable expectation. So when do we start to go beyond the
return on investment?
Mr. WARE. I don't think you can with my office and I will
explain.
Mr. GOLDEN. Your office, sure, but certainly the SBA argues
that at some point they might use more resources trying to
recover some of these funds than they would actually get back.
It is a delicate balance and I know you don't want to send a
bad message.
Mr. WARE. I agree that there is some sort of delicate
balance. I don't believe we are there yet.
Mr. GOLDEN. Yeah, I agree with that very much. I appreciate
your testimony and the work that you do, very important.
Chairwoman VAN DUYNE. Thank you very much, Mr. Golden.
I now recognize Mr. Luetkemeyer from Missouri for 5
minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair. And thank you
General Ware for being here again and your continued hard work
to recover these tax dollars from fraudsters.
One of the things in some of our previous conversations
that we have talked about were the fintech companies that were
kind of the main problem children in the PPP program. And it is
very concerning because the SBA now is trying to enlarge the
number of entities that can make 7(a) loans to include fintech
companies. To me this is was very concerning whenever we say in
the PPP program that the banks and the credit unions were
basically the good actors and the real problem children were
the fintech companies and there is about a handful of them. Do
you have concerns about this program being expanded, 7(a)
program to be able to include more fintech companies?
Mr. WARE. Thank you. I have concerns with the inclusion of
any type, it could be a bank, it could be a fintech, any our
type of nondepository lender that doesn't have brightly marked
out rules that they are going to work under, that doesn't have
an internal control structure in place to deal with it and that
doesn't have the proper oversight and monitoring mechanism in
place to go with it.
Mr. LUETKEMEYER. So you bring up the point that I was
trying to get to here, in order for these fintech companies to
be able to do this, do you think it would be a good idea for us
to put in place some additional requirements for them to be
able to participate in a program or would that something that
comes from you as the inspector general saying these folks need
to have these extra precautions because these things were in
place for the banks and credit union, which things to be in
place and then force the SBA to do it that way. So how would
you recommend us going about this process?
Mr. WARE. So a couple of ways. One is that we have some
work that is going on right now, the evaluation of SBA's
oversight of the fintechs and the Paycheck Protection Program
that will definitely have recommendations that would get to a
proper control environment and making sure that SBA properly
oversees and manages them, because as you know with the
nondepository lenders, SBA is basically the oversight. They are
the regulator. So that is of concern to me. But we have also
had prior work that identified key areas of risk with fintech
and they also speak to the very same things that I am talking
about here.
It is basically a three headed monster up front, rules and
regs, that is a general thing that doesn't happen well with
everybody having a level playing field and knowing which rules
they are playing under and really playing under the same rules
that the internal control environment and then very important
the oversight and monitoring.
Mr. LUETKEMEYER. Thank you for that. And I think it's very
concerning to us to see that they have done this and there
doesn't seem to be any additional protocols or procedures in
place to monitor the fintech. So one of the questions that I
asked the director the our day when she was here were how many
people showed up for work everyday? Do you monitor that at all?
Because she was talking about well, because we know that
there is a lot of them still working from home. And she talked
about maybe they are in the office 2 out of 5 days. I mean, I
think you would go over there and you would see dust on some of
the desks personally, but do you monitor that at all.
Mr. WARE. That is not an area that we have looked into. But
I must self disclose, my office had a as pretty robust telework
and remote work policy in place currently. The main reason that
we are in the major fraud fight right now. That work is done in
courtrooms and U.S. attorney's offices and in the Department of
Justice across the country. That is where our focus is.
Mr. LUETKEMEYER. So you people are out in the field doing
their work. They are not home behind the--in their PJs with
their feet up, drinking a latte, while they are looking on
their computer. Is that what you are saying?
Mr. WARE. I am not saying. I don't know if anyone is doing
that.
Mr. LUETKEMEYER. But I am not wrong in my perception of the
fact that they are not there. We have got people out in the
field doing their work where they are supposed to be.
Okay. Just to get a handle again as a follow up on the
previous two questioners here, what do you see as the total
amount of fraud that is all there--not that you can recover all
of that--do you have an idea roughly of about what the amount
of fraud that is still out there that you would be going after?
If it is, like, $50 billion, we realize you may get 10 percent
or 5, can you give us an idea of roughly where we are at?
Mr. WARE. So at the beginning the pandemic we put out these
numbers that Chairman Van Duyne spoke about. Those numbers were
at the beginning, those are tiny. Where we are at now, we are
way past that. I can't give you the exact number now.
I am telling you that we have a report coming out, our
fraud landscape report will be out in just a few months. And
that report I am extremely confident in our methodology, it
will tell the story of what the true fraud landscape is and it
is meant to be a living document because as we continue to dig
in on or data analytics and get access to more data points the
number could grow.
Mr. LUETKEMEYER. Thank you for that. I yield back.
Chairwoman VAN DUYNE. Thank you very much, Mr. Luetkemeyer.
And I now recognize Chairman Williams for 5 minutes--oh, I
am sorry. I am so sorry.
I did not recognize you. I now recognize Ms. Perez, from
the State of Washington for 5 minutes.
Ms. PEREZ. Thank you so much, Chairwoman.
And thank you for your testimony, Mr. Ware. A lot of
conversation today has focused on how we can prevent and tackle
fraud in small businesses programs and I agree that is
critically important. We also need to ensure that SBA dollars
are not being misspent or defrauded by criminals.
With my time I would like to focus on the flip side of
that, making sure that dollars that reach small businesses are
spent effectively and meeting small business owners where they
are at. By definition the Small Business Administration deals
with small businesses, these are often one man or woman shows
operating with a skeleton crew.
A small business owner's most valuable asset is their time.
They don't have time to waste reading mountains of SBA
paperwork. So when overseeing SBA programs, how do you evaluate
the small business experience in accessing SBA programs in
addition to SBA programs.
Mr. WARE. Right. So thank you for that. And you are
absolutely right. That is part of our portfolio. We have done
some work on this in the past, but I don't believe--it hasn't
been during the pandemic. We have not looked at that or I think
that as part of the beginning when they were kicking this off
we were looking at the customer experience and we were looking
at--and we have done work in a disaster realm where we have
looked at how much time it takes to get someone at SBA and what
that experience is like.
So we have done some work in that area. SBA has some
challenges in that area, but it is something that, you know, it
is something that we are always looking, looking for. We were
thankful for the legislation that allowed to us do general
surveys. And I know that that is part of our work that we are
teed up.
Ms. PEREZ. Great. I know that you closely engage with
Administrator Guzman, do you also engage with small businesses
to see how SBA programs are rolling on the ground.
Mr. WARE. Personally I have not. My teams do----
Ms. PEREZ. Okay.
Mr. WARE.--when they are doing their reviews.
Ms. PEREZ. Okay, I am glad to hear that.
In general, how can SBA make its resources more accessible
to the average small business owners, not just the small
businesses that have this sort of administrative capacity to
look into the SBA.
Mr. WARE. Yeah, so I mean they have their whole business
development group. And the business development group, that is
what they are charged with, that is part of what they are
charged with. Our work--I don't know if we have work to that
regard, but I know that we can get work to that regard, I can
get you that.
Ms. PEREZ. That would be great.
Your states that the SBA has made limited progress in
servicing EIDL loans. What improvements has SBA made to improve
customer service and servicing those EIDL loans?
Mr. WARE. Right. The customer service angle of it has not
been the angle that I have focused on, but now I realize that
will have some focus in that area.
Ms. PEREZ. So the Office of the Inspector General also has
an important consumer-facing role taking calls and
investigating complaints. The top management in performance
challenge report found that the OIG received over 208,000 calls
on its hotline during the pandemic. How has your office handled
that increase of calls? What is the current backlog of
complaints? And what is the average sort of timeframe it takes
to address a complaint once it is made?
Mr. WARE. Had you asked this question about a year ago, I
would have had quite a backlog. But thank goodness for a really
capable data analytics group that we have that we don't have a
backlog. We are able to triage these things and to distill what
is actionable and what is not. What we have actionable right
new is over 100-year's worth of criminal investigative work in
the hotline. So there is triage's own process that starts with
that and then it goes out to the field, but the field has their
own portfolio, that is why I was talking about the importance
of resources for our office.
Our investigators are so dedicated and so driven that I had
to fight them to reduce their portfolios, because it is not
sustainable for a single agent to be working 20 something, 30
something cases at the same time.
And the ramifications of that means that their supervisor,
who is supervising ten our agents, would have 25 times 10
supervising--that is what we are dealing with.
Ms. PEREZ. Yeah, yeah. Mr. Ware, you have an important role
in keeping the SBA on track and accountable to taxpayers. I
know that you take that responsibility seriously and I
sincerely look forward working with you to improve these
programs. Thank you very much.
Mr. WARE. Thank you. I appreciate your questions.
Ms. PEREZ. Thank you.
Chairwoman VAN DUYNE. I now recognize Chairman Williams,
for 5 minutes.
Mr. WARE. Go frogs.
Mr. WILLIAMS. Thank you again for being here.
The SBA has faced major challenges in managing enormous
financial lending programs, we are talking about that, IT and
other areas even before the pandemic. Now existing issues were
exasperated by the sheer volume and lack of controls of SBA's
COVID-19 related programs and problems continue to surface in
the aftermath of SBA's pandemic response, particularly around
identifying the mitigating fraud, balancing the competing
priority shortcomings and oversight, insufficient reporting
requirements and failure to meet legislative intent.
So it seems the agency does not have the ability to manage
the current loan volume or remedy existing fraud issues, yet
the Biden administration is trying it expand. And we talked
about that the SBA's loan portfolio changes to the 7(a) lending
program. On October 14, 2022, the OIG issued a report stating
that OIG anticipates the agency will face significant
challenges managing its loan volume going forward.
Here is the question, is this still your view? And if so,
what are your greatest concerns with the new 7(a) loan programs
that will grandfather in all current community advantage
lenders as well as bring in more SBLCs.
Mr. WARE. Yes, thank you. My--I still share those concerns.
And I share those concerns because of the volume. Now SBA would
say that they are not adding that much more and that the people
who actually deal with this oversight have assured everyone
that they can handle it, because they are intent is to deal
with more of data analytics to deal with it.
My problem is data analytics is just what you--the capacity
is what you build it to be. So if you don't build it with the
right parameters in place, you are not going to be overseeing
the right things. You are going to miss the things that you
actually should be looking at. And I don't have an assurance
that that has been built in mainly because I haven't seen it.
Mr. WILLIAMS. The bigger they are, the more we lose is
probably what the formula is right now.
The SBA is supposed to be the lender of last resort.
However we are hearing that the SBA is considering changing
standard operating procedures to allow for businesses to self
certify, that they could not find any credit elsewhere in the
private sector.
Now in your opinion, how would this major departure from
the current practice add additional risk to the system or
deviate away from their current role as a lender of the last
resort.
Mr. WARE. In my opinion, and I have stated it just about
everywhere, I don't believe in any self certification on
program. After what we just came through with PPP and EIDL, I
don't see how can we could still be relying on any type of self
certification.
Mr. WILLIAMS. I agree with you.
Mr. WARE. I believe it adds significant risk. And I think
we have the evidence and the experience to know that it does.
Mr. WILLIAMS. The SBA has continually said that they
believe they can leverage technology to make up for staffing
shortages when the Office of Credit Risk Management would be
charged with overseeing the new lenders in the 7(a) programs. I
know what your answer is, but do you share the same opinion?
And believe the agency is equipped to be the sole federal
regulator of these new participants.
Mr. WARE. Even in house for the Office of Inspector
General, we rely on data analytics a great deal and it has
really been a force multiplier for us in terms of our
investigations, but even those we have to back check. Right?
That is why we still talk about potential fraud because we
haven't looked at every single one of them. Right? We have
looked at a lot, enough to validate our data points. So to me,
that is where the concern lies with the reliance on data
analytics is do you have enough people still to know for
certain that you have reduced the mitigating risk in your
program and is it built correctly.
Mr. WILLIAMS. Right. Well, we need to get better at what we
do rather than what we want to do. And I will just ask you a
question, I am in the car business back in Texas. This money
that we can't find. Right, that we have talked about, what if
we people your people on commission, would they be able to find
it?
Mr. WARE. Sorry, I don't mean to laugh. Like, wow.
Mr. WILLIAMS. It is a pretty good idea.
Mr. WARE. That would have changed my entire career.
Mr. WILLIAMS. You think about it and let me know.
Mr. WARE. I will.
Mr. WILLIAMS. Madam Chair, I yield back.
Chairwoman VAN DUYNE. I am going to yield 2 minutes to Mr.
Golden for additional questions.
Mr. GOLDEN. Thank you, I appreciate it. I know we are
looking to wrap up here.
Really more just some feedback, Mr. Ware. First on the
issue of spending a little bit of time and resources looking
into the efficiency of these programs rather than just waste,
fraud, and abuse which is important.
For those of us that represent rural communities I could
tell there is a lot of anecdotal evidence that you could find
ways to improve programs if your staff spent time putting some
reports out to Congress on those things so I appreciate Ms.
Perez's questions.
I just couldn't help, when Mr. Luetkemeyer was talking
about fraud and how much is out there and you mentioned you
have got a report coming. And I know that you don't want to,
like, rush to close something out, but it is pretty timely
topic. The Republicans are talking about reducing the deficit
spending, they are talking about a debt ceiling proposal that
involves the recovery of COVID funds.
Not all of that I think, but some of it is counting on
getting some of this fraudulent money back and important
decisions about what type of budget to give you to help make
sure that we can actually capture those funds, you know, it is
pretty timely.
So could you maybe get an early report out to the committee
or some kind of preliminary data about how much fraud is
actually out there and how much you think we might be able to
recover.
Mr. WARE. I am so glad you said that, because this is the
point that I make internally all the time relative to timelines
and being relevant in this space. So I am so glad you said
that.
The issue with providing something early is that it has not
gone through our independent indexing and independent
referencing to ensure that what we are reporting is 100 percent
factual. And I would not be comfortable in releasing something
that has not gone through that process.
Mr. GOLDEN. Well, always relevant but like I said the clock
is ticking.
Mr. WARE. The clock is ticking.
Mr. GOLDEN. We would love to have the information
yesterday.
Mr. WARE. Man, I can't wait. I am putting those words in
quotes and putting it up on a board in the office, the clock is
ticking. That is our new mantra.
Chairwoman VAN DUYNE. Thank you. I would like to thank our
witness for his testimony and for appearing before us today.
Without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witness to the Chair. Witnesses to the Chair which will be
forwarded to the witness. I ask the witness to please respond
promptly.
If there is no further business, without objection the
committee is adjourned.
[Whereupon, at 10:58 a.m., the subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]