[Senate Hearing 119-251]
[From the U.S. Government Publishing Office]
S. Hrg. 119-251
RUNNING GOVERNMENT LIKE A SMALL BUSINESS:
CUT WASTE, CRUSH FRAUD
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 10, 2025
__________
Printed for the use of the Committee on Small Business and
Entrepreneurship
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov.
__________
U.S. GOVERNMENT PUBLISHING OFFICE
62-296 WASHINGTON : 2026
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED NINETEENTH CONGRESS
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JONI ERNST, Iowa, Chair
EDWARD J. MARKEY, Massachusetts, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana CHRISTOPHER A. COONS, Delaware
JOSH HAWLEY, Missouri MAZIE K. HIRONO, Hawaii
TED BUDD, North Carolina JACKY ROSEN, Nevada
JOHN R. CURTIS, Utah JOHN W. HICKENLOOPER, Colorado
JAMES C. JUSTICE, West Virginia ADAM B. SCHIFF, California
JON HUSTED, Ohio
Meredith West, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
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DECEMBER 10, 2025
Opening Statements
Page
Joni Ernst, U.S. Senator from Iowa............................... 1
Edward J. Markey, U.S. Senator from Massachusetts................ 3
Witnesses
Mr. Luke Rosiak, Investigative Reporter, The Daily Wire.......... 5
Prepared Statement........................................... 8
Submission for the Record--Real Estate Slide................. 12
Mr. Dylan Hedtler-Gaudette, Acting Vice President, Policy and
Government Affairs, Project on Government Oversight (POGO)..... 13
Prepared Statement........................................... 15
Mr. John Hart, Chief Executive Officer, Open the Books........... 24
Prepared Statement........................................... 26
Submission for the Record--Graphs of Federal Spending........ 28
Dr. Courtney LaFountain, Acting Director, Financial Markets and
Community Investment, United States Government Accountability
Office (GAO)................................................... 31
Prepared Statement........................................... 33
Additional Letters/Statements for the Record
Aleut Federal, LLC--Letter Dated December 10, 2025............... 70
Department of Defense--Letter to Senator Sullivan Dated August
25, 2025....................................................... 73
GovCon Intelligence--Article Dated December 16, 2025............. 75
Minority Business Development Agency, U.S. Department of
Commerce--Report Dated June 2022: The Probability of Winning
Federal Contracts: An Analysis of Small Minority Owned Firms... 80
Montgomery County Chamber of Commerce GovConNet Council--
Statement Dated December 10, 2025.............................. 102
National Congress of American Indians (NCAI)--Statement Dated
December 10, 2025.............................................. 108
Old Harbor Native Corporation--Letter Dated December 10, 2025.... 111
Poarch Band of Creek Indians--Letter Dated December 10, 2025..... 115
Senator Dan Sullivan--Statement Dated December 10, 2025.......... 118
Jessica Tillipman, Associate Dean, The George Washington
University Law School--Statement Dated December 10, 2025....... 121
United States Senate Committee on Small Business and
Entrepreneurship--Letter to the U.S. Small Business
Administration Dated October 30, 2025.......................... 138
White House Council of Economic Advisors--Report Dated December
20, 2024: Racial Disparities in Government Contracting......... 142
Women's Procurement Circle--Statement Dated December 10, 2025.... 171
Alphabetized List of Additional Submissions for the Record, with
Corresponding Online Links..................................... 175
RUNNING GOVERNMENT LIKE A SMALL BUSINESS: CUT WASTE, CRUSH FRAUD
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WEDNESDAY, DECEMBER 10, 2025
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The committee met, pursuant to notice, at 2:31 p.m., in
Room 428A, Russell Senate Office Building, Hon. Joni Ernst,
Chair of the committee, presiding.
Present: Senators Ernst [presiding], Hawley, Husted, and
Hirono.
OPENING STATEMENT OF SENATOR ERNST
Chair. I call the Committee on Small Business and
Entrepreneurship to order. We've all heard Washington, DC.
referred to as the swamp, but these days, it is looking more
and more like a pigsty. While Iowa small businesses keep their
books neat and tidy and pinch pennies to balance their own
budgets, they are the ones who are hurt when the government is
sloppy and reckless with hard earned taxpayer dollars.
That's why I made a promise to Iowans to make Washington
squeal. For over a decade, I've been exposing egregious
Washington waste with my monthly Squeal Awards. Some examples
are too outrageous to believe. I'm talking about bureaucrats
approving PPP loans for applicants who used pictures of dolls
for IDs; imagine giving Barbie or Ken a taxpayer-funded loan.
Not only that, but they also believe folks claiming to be over
115 years old were alive and well enough to be approved for
3,095 PPP and EIDL loans worth $333 million, including $36,000
to a 157-year-old. That's pure hog wash!
But this is only the tip of the iceberg. Instead of
boosting Main Street, millions of your tax dollars were wasted
through USAID to fund Iraqi Sesame Street. And this one is
unacceptable: Improper payments, or the government tossing cash
into the wrong trough, have become commonplace.
In Fiscal Year 2024, federal agencies shoveled out $162
billion in improper payments. The most frustrating part is how
simple it is to stop this waste. A report by the Pandemic
Response Accountability Committee found that $79 billion in
potential COVID fraud could have been prevented if four basic
questions were asked. One, is the applicant's social security
number valid? Two, if valid, does the name connected to that
number match the name on the application? Three, does the
birthday match? And lastly, is the individual alive? Seriously,
folks that could have saved $79 billion right there.
The good news is that we can prevent nearly all improper
payments in the future with my DOGE in Spending Act that enacts
common sense guardrails--like those four simple questions. And
these quick fixes could not come soon enough. Six years after
COVID, scammers are still pigging out on SBA relief funds. I'm
proud this committee advanced my SBA Fraud Enforcement Act, and
I'm eager to see it become law.
Fraudsters snout-deep in pandemic-era shuttered venue and
restaurant funds must be held accountable. Unfortunately,
unless my bill is passed by the Senate and signed into law,
many of these criminals will soon get away with it. During the
prior administration, USAID repeatedly rebuffed my request for
information, using intimidation and shell games to hide where
money is going, how it's being spent, and why. This is the same
agency that handed cash to violent terrorists, and funded dance
classes in Wuhan. Yes, the same Wuhan you are thinking of.
As a result of my oversight, I discovered firsthand USAID
was a rogue bureaucracy, operating with little accountability
and, at times, at odds with our nation's best interests. My
findings were confirmed when, this summer, federal prosecutors
convicted a USAID contracting officer who raked in over $1
million in bribes to steer more than $550 million in contracts
to 8(a) program participants.
Unfortunately, the SBA's 8(a) program has been a magnet for
fraudsters since its inception. Decades of government watchdog
investigations, bipartisan oversight hearings, a patchwork of
reforms, and what is there to show for it? Not a shred of
evidence that the program is worth taxpayers' investment. It is
refreshing to see an administration take fraud as seriously as
I do, and I applaud Administrator Loeffler's efforts to end
8(a) program scams for good.
In the meantime, I have launched my own 8(a) investigation
and introduced the Stop 8(a) Contracting Fraud Act to pause
8(a) no-bid contracts government-wide until the SBA completes
its audit. I am also urging federal agencies government-wide to
adopt this common-sense moratorium.
Make no mistake, this waste hurts all our small businesses
the most. When COVID fraudsters cashed in, thousands of
deserving small businesses in Iowa were left out in the cold
because funds had run dry. When the Biden USAID sent money to
every corner of the world, small businesses here at home footed
the bill as their taxes skyrocketed.
When 8(a) programs divert government contracts to
businesses committing fraud, legitimate small businesses pay
the price losing jobs, revenue, and growth opportunities.
Government contracting should be based on eligibility and
merit, not skin color. I promised to make Washington squeal,
and it is clear that this pig pen of a swamp needs a thorough
mucking out.
I want to thank our witnesses for bravely pulling on their
rubber boots and grabbing their buckets. Thank you all very
much. Let's clean this up for American taxpayers and put our
hardworking small businesses first. And I do look forward to
hearing your testimony.
I now ask unanimous consent that a statement by Senator Dan
Sullivan of Alaska be entered into the record. Senator Sullivan
has been a fierce advocate for Alaskans and a partner in
working to ensure fraud is eradicated from federal contracting.
And without objection, so ordered.
I now recognize Ranking Member Markey for his opening
statement.
STATEMENT OF SENATOR MARKEY
Senator Markey. Thank you so much, Madam Chair. Today's
hearing is called, Running Government Like a Small Business:
Cut Waste, Crush Fraud. Sounds important. A more accurate
title, however, would be, Running Government Like a Trump
Family Business: Cutting Deals with Billionaires and Crushing
Small Businesses. That's what the title on this hearing should
say. Because this administration, the Trump administration,
it's chosen to focus their energy on relentlessly attacking
small businesses from tariffs, to healthcare, to electricity
prices, to contracts.
Yeah. They're focused on small businesses, crushing Main
Street. Through the now defunct Department Of Government
Efficiency, or DOGE, the administration disproportionately cut
contracts for women-owned and minority-owned small businesses.
Those are the programs they cut. Additionally, 10 percent of
all contracts cut by DOGE were veteran-owned businesses, most
of whom were veterans disabled in the line of service. Can you
imagine they cut 10 percent of those contracts for those vets?
This is all since January.
While, we all want taxpayer dollars to be well spent, we
should take note of who this administration treats as
expendable. It's those least able to defend themselves. It's
those least able to flatter or provide gifts to the President
and to his family.
The administration's most recent fixation, SBA's 8(a)
program, which is a program that gives small disadvantaged
businesses training, technical assistance, and federal
contracting opportunities for nine years. Now, those businesses
are principally Black and Brown owned in our country. That's
who they're focusing on, cutting that program for those people
who are just a small business trying to get a foothold in this
American economy during this very difficult economic time with
healthcare costs, and with electricity costs, and with the
tariffs all zeroing in on small businesses.
This program was created by a Republican President,
President Nixon and signed into law in 1978. It has done a
world of good for tens of thousands of small businesses, and
again, disproportionately Black and Brown, providing access to
billions in contracting opportunities with the largest buyer of
goods and services in the country, the federal government.
Like any federal program, there have been rare cases of bad
actors taking advantage of these resources and they should be
held accountable. They should be made to pay the price. But
these rare instances do not warrant an all out assault on a
program that has created good paying jobs, provided pathways to
success for small businesses, and created economic growth for
our country.
In a hearing focused on waste, and fraud, and abuse, we
just cannot avoid or ignore the elephant in the room: President
Trump's pay to play system. To receive special status as a
foreign country, you must gift the President a $400 million
jetliner that he gets to keep when he leaves the White House.
That's unbelievable. To get a gold mine of government
contracts, just pay for the President's golden ballroom. To
receive an exemption from President Trump's terrible tariffs,
simply give the President a lavish gift or pay to dine at Mar-
a-Lago.
Can a small business do that? No. They're not dining at
Mar-a-Lago. They can't afford it. You got to put up a million
bucks to just get in the door. This is not how honest,
hardworking, small businesses get things done. This is how they
get business done in The Godfather, Godfather Part One. That's
what this White House is all about.
Because when it comes to true oversight, who gets thrown
under the floodlights? It's the little guys, the minority,
small business owner, the Black and Brown small businesses, the
veteran-owned small businesses, the local restaurant trying to
make it through the pandemic.
And what is it for? It's all to help the big guys who
hobnob with the President and don't want pesky small businesses
competing with them for customers or contracts. Those big guys
say crush the little guys, and by the way, give us all their
money in tax breaks for us, too.
If we're serious about cutting waste, crushing fraud,
helping small businesses, let's start at the top. The
President's handouts to his billionaire buddies aren't just
corruption and an abuse of power, it's theft. Theft from small
businesses, theft from hardworking Americans, theft from our
future. Every tariff exemption handed out to the President's
political posse rigs the game against small businesses trying
to survive the President's disastrous trade war.
Small businesses had to take the President to the Supreme
Court to try to remove those tariffs on them. My hope is that
they'll rule that way. But you never know with the Supreme
Court. Every dollar the Trump family gets by treating our
government as their own personal piggy bank is money stolen
from everyday people. President Trump and his family raked in
more than $1.8 billion in cash and gifts just this year, the
first 11 months. It's Robin Hood in reverse. It's Main Street
versus Mar-a-Lago. That's what this hearing is all about.
And it's time Congress does its job, and holds this
President accountable for turning the federal government into
an arm of the Trump business organization. The little guys are
not the villains. President Trump's corruption, and waste, and
fraud, and abuse is America's real villain, and I look forward
to this hearing, Madam Chair,
Chair. Thank you, Ranking Member Markey. And I want to
extend a warm welcome to all of our witnesses. I'm thankful
that you took time out of your busy schedules to share your
expertise and insight with this committee.
I will now introduce our first witness, Mr. Luke Rosiak.
Mr. Rosiak is an Investigative Reporter at The Daily Wire, who
has covered waste in the federal government for nearly 20
years. He is the winner of the prestigious 2025 Dao Prize for
best reporting on government waste and the 2022 Media Research
Center Bulldog Award for outstanding investigative journalism.
Congratulations on your recent Dao Award, and it is well
deserved.
Next, Mr. John Hart is the CEO of Open the Books. Before
joining Open the Books, he served as the Communications
Director to late U.S. Senator Tom Coburn, where he helped pass
landmark transparency legislation that put federal spending
online. His work at Open the Books includes oversight reports
on improper payments, government waste, and COVID fraud.
Our third witness, Dr. Courtney LaFountain, is the Acting
Director of Financial Markets and Community Investment at the
Government Accountability Office, GAO, in Washington, D.C. Dr.
LaFountain earned her Ph.D. in economics from Washington
University in St. Louis, Missouri. She is a recipient of the
2022 Arthur S. Fleming Award, which recognizes federal
employees for outstanding public service. Thank you again.
And I now recognize Ranking Member Markey to introduce his
witness.
Senator Markey. Yeah. Thank you, Madam Chair. Dylan
Hedtler-Gaudette is the Acting Vice President of Government
Affairs at the Project on Government Oversight, or POGO. POGO
began in 1981 as a Pentagon watchdog. In the years since, they
have expanded to focus on the entire federal government,
fighting to achieve a more ethical, effective, and accountable
federal government.
Mr. Hedtler-Gaudette has covered a range of issues
including Congressional stock trading, Pentagon accountability,
federal spending issues, foreign influence and the Foreign
Agents Registration Act, judicial ethics, and Congressional
capacity amongst others. POGO is one of my all-time favorites,
and it's so great to have you here today. Thank you.
Chair. Great. Thank you, Ranking Member Markey. And
briefly, I'll take a moment to explain our lighting system to
our witnesses. And Mr. Hedtler-Gaudette, you just talk away,
okay, so we'll let you know if time is expiring. There are
three lights in front of you. Green means go. Yellow means you
are running out of time. And red means wrap up your remarks. I
ask unanimous consent that the witnesses' full statements be
included in the record. Without objection, so ordered.
As your written testimony has been made part of the record,
the committee asks that you limit your oral remarks to five
minutes. And with that, Mr. Rosiak, we'll start with you, and
you are recognized for five minutes for your testimony.
STATEMENT OF MR. LUKE ROSIAK, INVESTIGATIVE REPORTER, THE DAILY
WIRE, NASHVILLE, TENNESSEE
Mr. Rosiak. Thank you, Senator Ernst, Senator Markey,
committee members. It's an honor to appear before all of you.
I've been an investigative reporter for nearly 20 years focused
on waste, fraud, and abuse in the federal government. I
concluded many years ago that the most openly abused and
shockingly corrupt program in the federal government is so-
called ``set aside''. Contracting contracts are set aside from
open competition for women and minority owned businesses and
other groups.
The Small Business Administration coordinates so-called
8(a) contracting for agencies across the government. That gives
this committee an important jurisdictional vantage point for a
big pool of money at places like the Pentagon. Now, if you were
doing something in your yard like taking down a tree, or doing
some other work on your property, you probably wouldn't do that
work unless you called around and got, say, three quotes from
different vendors. You choose the one with the best value.
The government would build a tank without even trying to
find the best value first through this mechanism that we call
set aside contracting. The program was created in 1978, mostly
to help Black Americans start businesses since they'd been
discriminated against by the government. But I don't believe
any member of this committee would support the program if you
see how it works, a half century later.
At least five percent of all federal contracting dollars
are diverted through set-asides. But these billions don't go to
poor minorities in your states. They go to insiders in the
suburbs of DC, which are already the wealthiest counties in the
country. Very little goes to Black Americans these days.
The racial composition of America is more complex than it
was back in 1978. In the case of first-generation immigrants,
this results in an odd policy that the government is basically
prioritizing foreigners over Americans by one measure. South
Asians, people from the country of India gobble up a lion's
share of 8(a) contracts while black Americans get only 15
percent. Not 50 percent, but 15 percent.
The scandal isn't that there have been a few examples of
abuse. The scandal is that it's hard to find one that isn't.
Pick a random set a aside contract on USAspending.gov. I
quickly chose OCT Consulting LLC when preparing this testimony.
So, this isn't a notorious fraudster that's been in the news. I
haven't written about this person. I literally just picked them
off a list a couple days ago. It's a guy named Atul Kathuria,
who lists a home in McLean, Virginia as his company address.
He received 19 contracts from the federal government,
totaling $43 million without having to show that he had the
best price or the best services. The government didn't even
consider anybody else. Now, normally it would be illegal to
give a contract to a company with no competition. That can
enable bribery and kickbacks. It's the kind of thing corrupt
countries like Russia do. In this case, it was legal because
the government certified OCT Consulting as a, ``Subcontinent
Asian Indian American-owned Small Business 8(a) Participant.''
Well, perhaps the SBA forgot to check with the U.S. Census
Bureau. Indian Americans are the wealthiest demographic in
America with higher median income than whites. These contracts
are in the field of IT, which didn't even exist during the era
of government discrimination. Indians have never been
underrepresented in the field of IT. They're actually
overrepresented in that field.
Now, a listing of DC's most expensive real estate
transaction shows that earlier this year, Atul bought an 11,000
square foot estate replete with a wine cellar for $7 million.
You can see it up there on the screen. Minority ownership is
just to win a contract, not to fix societal disparities at any
meaningful scale.
Every staff member listed on OCT Consulting's website is a
white man except for the owner and his wife. What did Atul do
before he became a disadvantaged businessman and overcame all
odds to become a millionaire? He went to George Washington
University, and worked for 15 years as a financial consultant
at Ernst and Young and Booz Allen Hamilton.
This kind of thing is a disgrace. You've all seen the video
where an exec from Native American 8(a) ATI Consulting was
caught on camera saying they just subcontract the work out to
companies like Accenture and keep a huge cut. The story here
isn't that a wily businessman concealed this from the
government and finally got caught. It's that 8(a) is actually a
corrupt conspiracy between government procurement officers and
big companies. The companies, the beltway bandits, like
Accenture, Booz Allen, Deloitte, Lockheed Martin.
Somebody from government will be talking to a friend at one
of these companies and say, ``I have some work that you guys
might be a good fit for. Let's work together.'' But if Booz
Allen, say, has to compete for it, they'll have to make sure
they charge less than Deloitte. The process would take forever
and there's no guarantee they'll get it.
So, the contracting officer encourages the beltway bandit
to seek out a random 8(a) that's listed waiting like a shell
company on one of the contract vehicles. The government can
immediately award the contract to the 8(a) knowing that they'll
subcontract the work back to the big firm. It's just a way to
bypass competitive bidding a process we have in place for a
reason. So, the guy in the James O'Keefe video didn't swindle
the government. We all knew the government knew there are
skyscrapers down the street in Tyson's Corner, defense
contractors working on advanced weapons that don't have to bid
competitively for contracts because we say they're Alaskan
Native corporations. Every one of us in this room knows there
are not Native Alaskans in those buildings.
8(a) creates a random group of influence-peddlers, who like
lobbyists, get rich by selling their access to government
insiders for the benefit of big business while driving up the
costs for all of us. This is the kind of thing people hate
about Washington. You owe it to voters to end this program.
[The prepared statement of Mr. Rosiak follows.]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair. Thank you for the testimony, Mr. Rosiak. And next,
we will go to Mr. Hedtler-Gaudette. Mr. Hedtler-Gaudette,
you're now recognized for five minutes for your testimony.
STATEMENT OF MR. DYLAN HEDTLER-GAUDETTE, VICE PRESIDENT OF
POLICY AND GOVERNMENT AFFAIRS, PROJECT ON GOVERNMENT OVERSIGHT
(POGO), WASHINGTON, D.C.
Mr. Hedtler-Gaudette. Thank you, Chair Ernst, Ranking
Member Markey, and members of the committee. I appreciate the
opportunity to testify before you today on the important issue
of waste, fraud, and abuse in the federal government,
particularly in the federal contracting process. This is a
really important and persistent issue, and I'm pleased to see
the Senate Small Business Committee taking it up.
My name is Dylan Hedtler-Gaudette, and I'm the Acting Vice
President of Policy and Government Affairs at the Project on
Government Oversight, or POGO. We are a non-partisan,
independent watchdog group with nearly 45 years of experience
promoting more accountability, transparency, and effectiveness
in federal government. We literally exist to combat abuse of
power and corruption, which necessarily includes trying to root
out waste, fraud, abuse, and conflicts of interest.
As you can imagine from the name of our organization, we
believe strongly in the power and the value of oversight. This
hearing today is a prime example of good oversight work. We
believe strongly that good oversight work is indispensable to
the pursuit of good governance. And this is why it's been so
alarming to see what has been happening over the past year or
so.
The current administration has systematically dismantled
the very foundation of the federal government that it is
supposed to be leading, which has included attacking key
oversight institutions, whether it's firing Inspectors General,
attacking oversight bodies such as the Government
Accountability Office, cutting off access to key agencies or
press and journalists, nominating manifestly unfit and
unqualified individuals to serve in critical oversight
positions, or largely relegating Congress to the sidelines.
The current administration has made a mockery of the very
concept of oversight and accountability in government. We also
saw the hyped, but largely failed, effort to root out waste,
fraud, and abuse under the auspices of the so-called Department
of Government Efficiency. Beyond that, we've seen direct
assaults on the constitutional structure of government, which
has included the illegal impoundment and withholding of
Congressionally appropriated funds and the unlawful firing of
large numbers of federal workers.
We have already heard today, and we'll continue to hear
more about the Small Business Administration's 8(a) Business
Development Program. We should put this program in a little bit
of context at the outset here. All 8(a) contract dollars
comprise about 5.4 percent of the total $755 billion that were
handed out in federal contract last year, the vast majority of
which are awarded to very large, well-connected powerful
corporations.
If there are people taking advantage of the 8(a) program or
any other program in government, they should be held
accountable. But we must realize that oversight bandwidth and
resources are extremely finite and scarce, and we need to
triage those resources, and focus on the most egregious and the
largest examples of waste, fraud, and abuse. We should not
select oversight targets on the basis of political or
ideological agendas.
My primary purpose here today is not to criticize, and
complain, and to point out bad things that have happened. I'm
here to propose solutions. So, I want to focus on a couple of
solution areas here, but there are many more I lay out in my
written testimony.
First, we must protect, strengthen, and preserve the
independence and the effectiveness of key watchdog and
oversight practitioners such as Inspectors General and the
Government Accountability Office. We must also sufficiently
resource and fund those organizations so that they can perform
their critical oversight duties effectively.
The Senate also has an especially pivotal role to play in
providing advice and consent on the nomination of the
individuals who should be leading those entities. And the
Senate must never allow the confirmation of politically
compromised, unfit, and unqualified individuals.
We must also take a long hard look at the ethics rules and
the enforcement of those rules that we have on the books
currently. They're wholly insufficient to the task of rooting
out corruption, conflicts of interest in cronyism, which play
midwife to waste fraud and abuse. We must also halt the
pernicious effects of the revolving door between agencies and
the very industries that those agencies are supposed to oversee
and regulate.
We have an opportunity before us here today, and in the
rest of the 119th Congress, to advance real common-sense
reforms to promote government integrity and crack down on
waste, fraud, and abuse. Me and my organization stand ready,
willing, and able to partner with anyone who wants to turn
those goals into reality.
Thank you for having me here today, and I look forward to
answering your questions.
[The prepared statement of Mr. Hedtler-Gaudette follows.]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair. Thank you, Mr. Hedtler-Gaudette. We appreciate your
testimony. And next, we will move to Mr. Hart. Mr. Hart, you
are now recognized for five minutes for your testimony.
STATEMENT OF MR. JOHN HART, CHIEF EXECUTIVE OFFICER, OPEN THE
BOOKS, KNOXVILLE, MARYLAND
Mr. Hart. Madam Chair Ernst, Ranking Member Markey, and
distinguished Senators, thank you for the invitation to testify
today.
Every dollar saved in Washington is a dream realized
somewhere in America. Nowhere is that more true than in the
small business community. Small businesses aren't just the
engine of growth, they are also teachers. They teach us that
our Founders were right. That Thomas Jefferson was onto
something when he said the natural progress of things is for
liberty to yield and government to gain ground. So, I commend
this committee for truly listening, for hearing, and we're
here, of course, because government doesn't operate like a
small business.
Instead of doing more with less, government does less with
more. Over the past 100 years, the federal government has grown
massively. In 1925, it's been about $484 per person adjusted
for inflation. Today, that number is more than $20,000 per
person. And in our economy, we see this at work. The best way
to make something expensive is for government to make it
affordable.
Sectors that have been the most lavishly subsidized, such
as healthcare and education have seen the worst inflation. On
the other hand, sectors that have not been as heavily
subsidized such as electronics tend to produce goods and
services that get better and more affordable over time. It's
pretty simple. TVs get thinner while government gets bigger,
while government borrows to avoid hard choices.
Small businesses live in the real world of finite
resources. Our unsustainable safety net programs are absolutely
the primary drivers of our debt and deficit, in particular,
healthcare fraud. But government salaries are part of the
problem. Between 2020 and 2024, government salaries rose 33
percent faster than private sector wages.
Meanwhile, the number of federal employees earning more
than $200,000 a year rose by 82 percent to bring the number to
70,000 employees. And today, we have more than 400 agencies and
subagencies in the federal government. Do small businesses
really need 400 agencies to succeed, or would they be better
off at 200, 100, or maybe the 4 our Founders authorized in the
Constitution?
Instead of expanding federal agencies, we should be
expanding their agency. Meanwhile, the agency charged with
helping small businesses often misses the mark across the
country. We see SBA lending flowing to organizations that most
Americans would never consider small. SBA-backed loans have
gone to Fortune 500 firms, Rolex stores, Napa wineries, luxury
spas, and plastic surgery centers. These aren't the mom-and-pop
shops Congress intended to support.
Since 2023, our auditors found more than $105 million in
SBA loans for private country clubs, beach clubs, tennis and
racket clubs, and yacht clubs. Nearly half of that in 2025
alone. Another 11.8 billion went to highly capitalized
investment funds and venture finance firms, which was aid to
Wall Street, not Main Street.
And fraud and improper payments compound the problem.
During the pandemic, the SBA issued paycheck protection loans
to 50,000 entities on Treasury's do-not-pay list, a failure
that modernized data systems could have prevented. Major law
firms and accounting firms received $1.4 billion despite
showing little or no financial hardship.
And of course, we all know age-related fraud also
flourished. In 2021 and 2022, SBA issued 5,593 loans to
businesses owned by people who said they were 11 years old or
younger. Now, I applaud that initiative, but I think that may
not be true. While 3,095 loans went to borrowers aged 115 or
older. That's $645 million in questionable loans in just two
years. You memorably noted, Senator Ernst, some fraudsters
uploaded pictures of Barbie dolls as forms of ID to obtain
loans. So, I guess that makes us all kin, you know, accessories
to the fraud and waste of our own taxpayer dollars.
But the good news is our system is amenable to change.
Twenty years ago, my late boss, Senator Tom Coburn, teamed up
with a young Senator from Illinois named Barack Obama to pass
landmark transparency legislation that put all federal spending
online for the first time. Obama said it is not often that two
Senators from different parties are able to bridge the partisan
divide in this town and get something accomplished.
But the American people demand greater transparency and
accountability. And it is our honor and privilege. Indeed, it
is our duty to provide the tools to help make that possible. At
Open the Books, we are continuing that work. We're encouraging
real time transparency and building next generation AI tools.
We believe the best way to thwart a surveillance state is with
a surveillance citizenry.
So, thank you, and I look forward to your questions.
[The prepared statement of Mr. Hart follows.]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair. Thank you, Mr. Hart. And Dr. LaFountain, you are now
recognized for five minutes for your testimony.
STATEMENT OF DR. COURTNEY LAFOUNTAIN, ACTING DIRECTOR,
FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT
ACCOUNTABILITY OFFICE (GAO), WASHINGTON, D.C.
Dr. LaFountain. Chair Ernst Ranking, Member Markey, and
members of the committee, thank you for the opportunity to
discuss GAO's work on Small Business Administration programs.
SBA's mission is to help Americans start, grow, and build
small businesses. Today, I'd like to discuss opportunities
we've identified for SBA to improve management of fraud risks,
improper payments, and contracting programs to better meet that
mission in the future. And my testimony draws on
recommendations from GAO reports in these areas since the
spring of 2020. So, I'll begin with opportunities to better
manage fraud risks and improper payments that surfaced during
the pandemic.
SBA moved quickly to set up programs to respond to the
pandemic's economic shock. And altogether, it made or
guaranteed more than $1 trillion in loans and grants, and
assisted more than 10 million small businesses. But the speed
of those loan approvals came at the expense of oversight and
fraud risk management, especially early on. Our work uncovered
several weaknesses such as heavy reliance on self-certification
and pay-and-chase approaches, rather than putting stronger
upfront safeguards in place against fraud and other improper
payments.
So, where SBA has acted on our recommendations, we've seen
some clear improvements. It's conducted fraud risk assessments,
and put controls in place to prevent funding from going to
potential fraudsters or ineligible applicants. And as of the
end of Fiscal Year 2025, we estimate that improved oversight
saved the government at least $30 billion.
All that being said, fraud risks and improper payments
didn't disappear with the end of the public health emergency.
SBA's pandemic programs still involve large numbers of loans
and grants being reviewed, monitored, and serviced. Because of
that, SBA needs to continue strengthening its safeguards, for
example, by expanding its use of data analytics for detecting
fraud, strengthening post-award monitoring, and improving
processes for referring potential fraud cases to its Inspector
General.
In addition, SBA should enhance its capacity to identify
and track overpayments and subsequent recoveries. I also want
to emphasize that the lessons learned about fraud risk
management from SBA's pandemic programs do remain relevant for
the agency's other programs. For example, the pandemic programs
highlighted the importance of conducting robust fraud risk
assessments. And we've reported recently on weaknesses in fraud
risk assessments by agencies participating in small business
research programs, and we identified steps SBA can take through
its oversight role to help improve the quality of those
assessments should those programs be reauthorized.
Our work has also underscored the value of robust internal
controls and quality data for detecting bad actors and
ineligible applicants. We've reported recently on weaknesses in
the data systems that SBA uses to certify its small businesses
eligibility for contracting assistance programs. And while we
didn't specifically examine those systems through the lens of
fraud risk management, a more secure, reliable system for
validating, maintaining, and disseminating information about
program eligibility would clearly help reduce risks.
Finally, in June, the SBA Administrator announced a review
of fraud in the 8(a) Business Development Program following a
Department of Justice investigation, that you've discussed,
involving bribery and businesses participating in the 8(a)
program. Applying the lessons that SBA learned about fraud risk
management and its pandemic programs could be applied to
support this effort as well.
So, bottom line, with a more robust system of internal
controls and fraud risk management, SBA would be better placed
to support small businesses both during normal times and in
future emergencies, while also ensuring that taxpayer dollars
go where they should.
So, this concludes my opening remarks, and thank you again
for the opportunity to speak here today.
[The prepared statement of Dr. LaFountain follows.]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair. Thank you everyone for the testimony, and we'll move
into the question-and-answer portion of today's hearing. And I
now recognize myself for five minutes for questions. And Mr.
Rosiak, we'll start with you.
Today, the 8(a) program allows Washington insiders to sell
government access and contract awards. What's your assessment
of the program's current oversight mechanisms and how effective
have they been in preventing abuse?
Mr. Rosiak. So, oversight hasn't worked and it's not going
to work. Set asides are inherently extraordinarily vulnerable
to corruption and fraud and waste. Wherever there's the
prospect of millions of dollars going to somebody without the
usual competitive process, the free market is going to find
creative ways to get that money to where it would otherwise
have gone, which unfortunately, often means big companies.
This waste is massive. If you look at, for example, the
women-owned businesses in certain industries, say,
construction, asphalt paving, things like that. Anecdotally,
everybody that I talk to says the vast majority of these
companies are actually owned by the husband of the woman that's
the supposed owner. But realistically, how would the government
ascertain who's really in control of the company? You'd almost
have to--the government would practically have to be in the
bedroom with them there to see who's exerting control over this
business. It's not realistic.
In cases of pass throughs, the disadvantaged company is
supposed to retain 51 percent of the proceeds, but it's
virtually impossible to stop pass throughs without having the
sort of information that the government would realistically
never see. There's so many ways around it.
For example, if you partner with a non-disadvantaged
company that's supposed to get 49 percent or less, you could
put a lot of the expenses on the disadvantaged side, including
maybe even taking some of the staff from the non-disadvantaged
company, and temporarily hiring them, and putting them on the
books of the disadvantaged company.
It's trivial to hit that 51 percent marker. Not to mention
that, you know, in some cases, they may just keep 51 percent if
they're too lazy to cook the books a bit. Just keep 51 percent
as essentially--you know, Senator Markey made a Godfather
reference earlier. That's what I've heard. Some of these 8(a),
a contractor likened himself to the mafia and said it's
basically like the protection money or whatever you have to pay
the mobsters to get these contracts.
The big companies kind of know they have an unspoken
agreement with the procurement officers and these 8(a)
contractors that you got to cut them in on that. And I think
that's not going to change. I don't see any way around that
without basically just ending the practice of set asides.
Chair. Wow. Thank you for that response. Mr. Hart, I want
to go to something that you referenced in your testimony. You
mentioned that your former boss, Senator Tom Coburn, someone
that many of us respected so much, he worked with then-Senator
Barack Obama. You know, one of these instances where we have
people of different parties that are coming together to really
do something good for our taxpayers.
And what they did, they wrote the law creating
USAspending.gov, and that's a searchable public website of
government spending. My team spends a lot of time on that
website. Was it their intent for other transaction agreements,
or the OTAs, to be omitted from the website?
Mr. Hart. Absolutely not. Senator, that was never their
intention. And as you've noted, that's a tremendous problem
right now with USAspending. And that is one of the reforms that
we need to do is immediately fix and patch that so that money
cannot be hidden from taxpayers.
But we have to look at why did the Founders write
transparency into the Constitution? It's important to note they
used the word ``shall'' in Article I, section 9, clause 7.
``Shall provide a regular accounting of receipts.'' They didn't
say you can provide that if you feel like it, if it's
convenient for you, and your political opponents and will
punish your enemies. They said shall. So, it's a requirement,
and that language precedes the Bill of Rights in the First
Amendment itself.
So, transparency is a foundational first principle. It's
the oxygen in the public square. We can't speak if we can't
breathe. So, if they wrote that today, I'm convinced they would
demand real time transparency be the norm. And our ambition 20
years ago wasn't just to pass a law, it was to create a norm
and to create this assumption that, of course, government
spending's online, of course we can search what government is
doing.
You know, government always lags behind technology. So, we
need to move very quickly to upgrade our transparency laws
today.
Chair. Yeah, I agree. Because bottom line, if we don't know
who is receiving taxpayer dollars and why, then there's no way
for us to track that and hold recipients responsible for
delivering what they've promised to our taxpayers. So, I'm in
complete agreement with that. My time is expiring, and I'll
reserve the rest of my questions for another round. And with
that, I will turn to Senator Hirono of Hawaii.
Senator Hirono. Thank you, Madam Chair. As we're focusing
on waste, fraud, and abuse, you know, there's just so much of
that rampant in this regime that I hardly know where to begin.
And while this is a Small Business Committee, and you want to
focus on waste, fraud, and abuse in small business segment,
there is massive waste, fraud, and abuse going on in our
government.
And I only need to point out to things such as the
destruction of the White House and a ballroom being paid for by
individuals and corporations that seek to get support from this
administration. If that isn't pay to play, I don't know what
is. You have the Border Czar accepting $50,000 and what looks
like bribes to him lending contracts to people that he has a
relationship or even ownership interest in. Talk about ethical
problems. There's all that.
And meanwhile, this regime has gotten rid of all of the
entities, the independent entities such as the IGs, who might
be able to point out to us overseers that this kind of waste,
fraud, and abuse is going on. I am also aware that the chair
has sent letters to almost two dozen agencies and departments
asking for--I don't know, demanding, asking for a pause on the
8(a) program. I don't even know if these agencies or
departments have the authority to do such a pause.
Because we're talking about contracts and who knows--you
know, I don't even know what that means to pause, but to know
that the 8(a) program consists of entity-owned businesses,
which mean we are Alaska Native corporations, Native Hawaiian
organizations, tribal organizations, these are entities that
have to give back to the communities and who can access
contracts, large contracts up to $100 million. And the 8(a)
also includes individual-owned businesses, and they have to
show that they are economically and socially disadvantaged.
So, Madam Chair, when you write a letter saying you want to
pause on the 8(a) program, you are basically focusing your
attention on the native-owned businesses who hire thousands of
people giving back to the communities, all alleging massive
fraud. I would like to see that if there is fraud going on in
the 8(a) program, as if there is fraud in any other program, we
should go after these people. You don't go in there and say
wipe out the entire program. So, I'd say that is definitely
overkill, and I want to record my serious concern about what
you are doing, Madam Chair.
I have a question for Mr. Hedtler-Gaudette. So, would you
say that you have an awareness of the 8(a) program? Would you
say that it is fraught with rampant fraud and abuse?
Mr. Hedtler-Gaudette. No, no. I would say that, as you just
mentioned, with any program in the federal government,
especially ones that deal with money, there are going to be
people who take advantage of the system, bad actors.
Senator Hirono. Yeah. And considering that the 8(a) program
consists of maybe $25 billion or so in contracts versus, what
is it? $755 billion?
Mr. Hedtler-Gaudette. That's right.
Senator Hirono. I should think that there might be concerns
about waste, fraud, and abuse in all those entities getting the
$755 billion in government contracts. And I am very aware of
the need for contract reform within the Armed Services
Committee. Because I have sat on that committee for over 12
years, and the former chair of that committee has spent his
entire time chairing that committee trying to figure out how to
do contracting reform.
So, we know that there are issues relating to oversight of
all of these that the amounts of federal dollars that go out.
Now, this is a desire to help entities that would otherwise
have a hard time getting a fair shake and getting a share of
federal contracts. This committee is actually supposed to be
supporting those efforts not to support waste and fraud, of
course not, but to enable entities that would otherwise have a
difficult time getting their opportunity to provide services to
our country.
When I think of all of the obvious conflict of interest and
pay-to-play activity that is going on, not to mention the
President wanting $200 million from the Department of Defense,
which he considers his law firm, he considers Pam Bondi, his
lawyer. He wants the DOD to go after all his enemies. Well,
what is that but abuse? Why don't we pay attention to those
things.
Chair. You have two seconds, Senator.
Senator Hirono. I have run out of time.
Chair. Yes, thank you. And just because the member has
brought into question my motives. I did say pause on the 8(a)
program. I did not say cancel the 8(a) program, because of the
recent abuse that has been brought to light through various
investigative pieces of journalism.
Senator Hirono. Why don't you [Off mic.]
Chair. You are out of order Senator Hirono. Thank you.
So, because of the abuse that has existed in the system,
and I think most Americans, and especially, our small
businesses, would want us to open the books and provide
transparency. So, that's what we were asking is a complete
audit. Those that are fearing audits perhaps shouldn't be
participating in federal government programs. I began my
political career as an auditor. I believe in transparency and
oversight.
So, next, we will recognize Senator Husted of Ohio.
Senator Husted. Thank you, Chair Ernst. And I appreciate
what you're doing by raising this issue, and giving us an
opportunity to talk about it today. I'm just blown away by the
idea that the people think that given the events of the recent
events, that fraud is not an issue.
The COVID fraud in the system was outrageous, including
unemployment compensation. We're dealing with an issue in
Minnesota right now where perhaps as much as a billion dollars
was stolen and money diverted away from what was supposed to be
a food program for poor kids into the hands of criminals.
And I was just on the Senate floor talking about the
Affordable Care Act premium subsidies, which we know have been
ripped off between--well, $21 billion and $27 billion according
to different reports, including one from the GAO. And this is a
huge issue because people lose trust in government when they
think their programs don't work.
And I'm going to ask each to answer a yes or no question
because I'm interested in your take. Because I'll tell you
quick story. I was with a road contractor that does aggregates,
asphalts, and things like that. And I asked him about--which
he's not part of any set aside program. I said, ``What do you
think about these set aside programs?'' He said, ``They don't
really bother me because everybody who has a set aside just
brings their trucks here, fills them up with my stuff, my
aggregates, marks up the price, and then delivers it to the
same place that I would.''
So, I'm going to ask a question. Is that illegal?
Mr. Rosiak. Do you want one word?
Senator Husted. One word.
Mr. Rosiak. Yes.
Senator Husted. Legal, Mr.----
Mr. Hedtler-Gaudette. No.
Senator Husted [continuing]. Gaudette? No?
Mr. Hart. Yes.
Dr. LaFountain. Based on our work, I actually don't know
the answer, but I'd be happy to connect you with our experts on
that.
Senator Husted. So, the answer I received back when I asked
questions about it is that that's not illegal. It is offensive.
It's not how these programs would be designed, and it's a
ripoff to the taxpayers. I think we could all agree with that,
though. And it may not be illegal, but I hope, Chair, we work
on this. That we make that kind of stuff illegal because it's
not, in my opinion, what the programs are supposed to be about.
And I know finding the fraudsters in the act is a hard
thing to do. But we have new technologies at our disposal,
things like AI tools. And so, I'm interested, I'll start with
you, Dr. LaFountain. What tools could--tech tools like AI, is
it possible that we could do a better job with tools like that?
Dr. LaFountain. So, let me share a couple of things that
we've learned from looking at the role of data analytics and
similar tools in fraud detection and prevention. We have
definitely learned that leveraging big amounts of information
and big data across multiple programs is really important for
helping agencies detect and prevent fraud.
We have also learned that leveraging external data, so an
agency needs to look outside of it of itself and, you know,
find other ways to validate information that it's receiving.
That's another important way for agencies to detect fraud. So,
we do have some work looking at how AI can be used for this
purpose and in other in other purposes. And we'd be happy to
share the findings of that when we're completed our work.
Senator Husted. Okay. Mr. Hart, you have thoughts on that?
Or what other tools should we use? Because we have this fraud.
I mean, a lot of it apparently is in the missed design of these
programs, right? That while they may be well intended and noble
in their pursuit, the practical application is that the
fraudsters always seemed to outwit government and misuse these
programs, and don't use them for the purposes that they were
intended.
Mr. Hart. Well, thank you for that. I'll try to be very
brief, but I have some experience in this. So, between stints
when I worked in the Senate, now to Open the Books, I was a
consultant and worked quite a bit with Silicon Valley companies
who people who've designed these technologies.
So, I'm excited about the technology for a couple reasons.
What AI can do is pattern recognition and pattern prediction.
So, I was just in London recently, and there are live facial
recognition vans everywhere. So, I found that very dystopian
rather than reassuring. But what inspired me to think about is,
can we do live spending recognition? In other words, what we
need to be doing and what our organization is actually doing is
using our data set. We have the biggest data set of
government's spending ever assembled.
To do AI, you need three things. You need big data, you
need an algorithm, and processing power. So, we're actively
working on building tools that can do pattern recognition and
then pattern prediction. So, in a year or five years from now,
we can run circles around CBO and provide those tools to
individual taxpayers and make sure that that authority and that
technology belongs with we the people. That is achievable. And
that's what we're working on at Open the Books. Okay. Thank,
Senator Husted. Thank you for your time.
Chair. Thank you, Senator Husted. I will now recognize
Senator Markey.
Senator Markey. Yeah. Thank you, Madam Chair. And before I
begin my questions, I want to take note of who is here serving
as an expert on supposed fraud in the 8(a) program. I'll let
his words behind me speak for themselves as to why he is
unqualified to speak on this program. Even Elon Musk suspended
him from Twitter for his extreme views. Mr. Rosiak's history
shows he starts with a point of view, one which I find
abhorrent, then spreads misinformation and conspiracy theories
to support his views, and that is not journalism.
For the past almost 50 years, the 8(a) Business Development
Program has broken down historical barriers that underserved
small business owners face when trying to contract with the
federal government. Decades of research backed by real stories
of discrimination and statistical analysis, show that
historical discrimination has created an unequal playing field
in government contracting. It also shows that discrimination
continues to this day working against minority contractors.
Yet, programs like 8(a) are under an all-out attack from
opponents within the government and outside the government who
claim the programs are ripe with fraud. While it is important
to root out instances of genuine fraud, these opponents aim to
tear down programs that address historical discrimination.
Mr. Hedtler-Gaudette, how do programs like 8(a) program,
and other small business contracting programs, help competition
help to ensure that in the federal contracting space that there
is room that is made for access for the groups that
historically had been left out?
Mr. Hedtler-Gaudette. Thank you for the question, Senator.
Small businesses are, as everyone on this committee I think
would agree, the backbone of the American economy. However,
they're not the backbone of the federal contracting system. And
that is because there are a handful of extraordinarily large,
extraordinarily well connected and powerful corporations who
vacuum up the vast majority of federal contracting dollars.
This is particularly true in the defense industry space, but
it's true everywhere also.
So, SBA programs, and generally speaking, small business
set asides, are critical to trying to unlock the sort of
stranglehold that that small cadre of very large companies has
on federal contracting dollars. And when you expand and
diversify and broaden the industrial base, you make it
healthier and more resilient. And then when you have an eye
toward broadening and diversifying even within the small
business contracting space and trying to make sure that the
playing field is the level for those who might want to be in
that space, you do an even better job of increasing the health
and the resiliency of the industrial base.
Senator Markey. Yeah. So, Mr. Hedtler-Gaudette, do you
believe small, disadvantaged businesses contracting programs
make up for make up the most fraud or waste in the federal
government? Do you believe they make up the most within just
the federal contracting space?
Mr. Hedtler-Gaudette. And that's a categorical no. No, it's
not even close.
Senator Markey. Do you believe the Trump administration's
actions towards 8(a) program are efficient or effective
oversight?
Mr. Hedtler-Gaudette. I do not. I think if they cared
deeply about looking into 8(a) or any other program, they would
have an Inspector General do it because that's who should be
doing it. I also think it's a little bit too convenient that
the program they're targeting happens to fall into a category
of a sort of ideological or political viewpoint that they
disagree with.
Senator Markey. Yeah. And they fired the best Inspector
General in America in January who oversaw the SBA. They just
fired him. In June, the SBA announced the so-called audit of
the 8(a) program. And this month, SBA ordered all 8(a) firms to
submit extensive documentation within 30 days over the holidays
as a part of their investigation. Oversight is important to
make sure that government programs are working properly, but
I'm concerned that the SBA's investigation is politically
motivated.
Dr. LaFountain, the GAO provides the standards for
government audits through what's known as the Yellow Book. Can
you tell us how audits are done, and how your office typically
conducts them?
Dr. LaFountain. So, thank you for the question. I love to
talk about the Yellow Book. The Yellow Book is our nickname for
the Generally Accepted Government Auditing Standards, or GAGAS.
And this is a framework for conducting high quality audits with
competence, integrity, objectivity, and independence.
The Yellow Book is a big book, and it covers a lot of
territory. It explains the purpose of government auditing,
which is to provide objective analysis and information needed
to improve government performance and accountability. It
includes standards for conducting audits ethically,
independently, and with sound professional judgment and other
matters related to making sure we do our work in a manner
that's transparent, independent, and accountable throughout our
auditing process.
Senator Markey. Yeah. Thank you. So, as I spoke about in my
opening statement, it is ironic that we're here today to talk
about waste, fraud, and abuse, and are ignoring the elephant in
the room. President Trump's supercharged pay-to-play system
designed to benefit his billionaire buddies and hurt small
businesses.
Mr. Hedtler-Gaudette, as an expert in oversight, could you
explain how President Trump is using the federal contracting
system to reward donors and political supporters?
Mr. Hedtler-Gaudette. Sure. One especially brazen example
of this, and it's been mentioned a couple times, but I think
it's worth underscoring because of how conscious shocking it
should be to everybody, is the East Wing Ballroom Project.
Recently a report came out from one of our colleague
organizations, Public Citizen, that scanned all of the
corporations and individuals who were donating to that vanity
project. And it turned out that a large number of them were
big, prime contractors who, on aggregate, held about $280
billion worth of federal contracts. I think there's a bit of a
clear wink, nod, pay-to-play at the very least, the appearance
of such a relationship there.
Senator Markey. Yeah. And what effect do you see that pay-
to-play system having on small businesses?
Mr. Hedtler-Gaudette. I think the more the already well-
connected and the already powerful companies who receive
contracts, the more they receive, the more you crowd out and
close off opportunities for smaller businesses.
Senator Markey. And how does corruption or fraud in the
8(a) program compare to what the administration is doing with
its big business contracting and backroom deals?
Mr. Hedtler-Gaudette. I think in terms of scale and scope,
it doesn't really compare at all.
Senator Markey. Yeah. Like an elephant to a mouse. Huh?
Chair. Thank you.
Senator Markey. So, yeah, we thank you. We thank you for
your great work on this. And I think you've helped to clarify
what is going on here today and how we still haven't had
hearing in any one of the Republican-controlled committees on
what the Trump administration is doing to instill waste, fraud,
and corruption into the heart of the federal government. Thank
you, Madam Chair.
Chair. Thank you. And Mr. Rosiak, because your name was
brought up, if you would like to respond, you may respond.
Mr. Rosiak. I can't see it, but if I could have a copy of
that poster framed, if possible, that would be amazing. You
mentioned the prospect of a President giving contracts to his
friends. I think that's of concern to all of us. The mechanism
to do it is when we have safeguards against.
But let's say purely hypothetically speaking, President
Trump wanted to steer a contract to SpaceX or to somebody who
donated a bunch of money to him. He can't do that under the
competitive bidding process. He needs a mechanism to do it. So,
what could happen is you have a low-level SpaceX employee, have
his wife create a women-owned small 8(a) firm, and they get the
sole source contract, and then they sub it out, of course, to
the people that they work with closely. And it's easy for the
government to do with a wink and nod, or just read between the
lines that this is going to wind up with SpaceX.
So, that's the concern here. Is that procurement is like
water. It follows the path of least resistance. And when you
have a loophole like this, it creates all those things that
nobody supports.
So, the other thing is, it's not that there's a couple
reasons that 8(a) is in the spotlight now, but one of it is the
Supreme Court. So, students for fair admissions, the big
Supreme Court dealing with race that showed that this program
is illegal. There's a court case called Ultima that has
subjected 8(a) to an injunction right now. So, we can't have a
hearing about 8(a) and talk about, oh, Trump is against DEI,
whatever, without recognizing it's literally under injunction
right now.
So, this committee is going to have to go back and revisit
the legislation. And the SBA is going to have to, as the terms
of a legal settlement or a final court order, do a rulemaking
process. But right now, the government cannot treat people
differently based on race. So, if you have a minority set aside
program without the minority, you're left with just a random
set aside program, which is just rife for all sorts of
exploitation.
Chair. Thank you. I appreciate----
Senator Markey. Madam Chair.
Chair. I'm on my five minutes of questioning.
Senator Markey. Well, you gave him more time----
Chair. This is part of my questioning.
Senator Markey. Oh, what you mean is I get recognized
again?
Chair. You'll get recognized again, Ranking Member Markey.
Thank you. So, I just want to get this straight. So, we were
talking--in Ranking Member Markey's line of questioning. He
said, you know, the largest amount of fraud, waste, abuse is
not in the Small Business Administration and its programs, I
might be paraphrasing a little bit. This is, however, the Small
Business Committee, and that's what we are focusing on today.
So, Mr. Hedtler-Gaudette, you said that no, that doesn't
happen the most in the 8(a) programs. However, I did annotate
or go through quite a few billions of dollars of fraud or waste
that happened within the 8(a) program, the PPP, and the EIDL
loan programs. So, you are not saying to this committee that we
should not go after people committing fraud in these small
business programs of which the small business committee has
jurisdiction. Am I correct?
Mr. Hedtler-Gaudette. Yes, absolutely, you should go after
fraud and waste wherever it exists. I think the point I was
making was more about sort of prioritization of resources than
doing so.
Chair. Thank you for that clarification. And I would state
as well, I have focused on fraud, waste, and abuse for the past
11 years of my Senate career, regardless of what agency or what
president was at the helm. So, I think it's fair to say that we
fight for American taxpayers, regardless of whether we have an
-R, a -D, or an -I behind our name. And that's the purpose of
today's committee, is that we're focusing on fraud that has
cured with occurred within these programs.
So, a question for the entire panel, just very quickly.
Just last week in my home state of Iowa, just to show I don't
pick on everybody without recognizing issues in my own home
state, there was a former Cuban military sergeant who came to
the U.S. illegally after crossing the southern border and was
sentenced to four years in federal prison for his role in
orchestrating a pandemic benefits fraud conspiracy involving
$2.4 million in fraudulently obtained PPP loans. An illegal
Cuban militant in Iowa applied for, and got, $2.4 million in
PPP loans.
Meanwhile, many of our Iowans were struggling to keep their
lights on during the COVID pandemic. So, because I only have 20
seconds left, we have a lot of egregious examples, but wouldn't
you agree this is someone that should have been prosecuted? Mr.
Rosiak?
Mr. Rosiak. Yes.
Chair. Mr. Hedtler-Gaudette?
Mr. Hedtler-Gaudette. Yes.
Chair. Mr. Hart?
Mr. Hart. Yes.
Chair. Ms. LaFountain?
Ms. LaFountain. Based on our work, yes, it should be
investigated.
Chair. Thank you. And I'll recognize Ranking Member Markey
for a second round.
Senator Markey. Well, thank you. And again, I wasn't going
to put it in the record, but I will. You know, one of Mr.
Rosiak's tweets just says, ``Turns out lots of DEI hires are
both dumber and vastly moral than their competent
predecessors.'' And I don't think that the evidence would
actually bear that out. I just think that basically continues
to reflect a preexisting bias.
So, Mr. Hart, in your testimony, you call for transparency
surrounding contracting. A recent study found that donors to
the President's Ballroom Project have received $279 billion in
federal contracts over the last five years. Mr. Hart, do you
think those donors to the ballroom should have to disclose
their names?
Mr. Hart. Well, Mr. Markey, what I believe is that in our
Constitution, the Founders describe transparency not as a two-
way street, but a one race, one-way street. In other words, as
taxpayers, we have the right to inspect the government's
checkbook.
However, the government does not have the right to inspect
our checkbook. I think that's the constitutional standard of
transparency. And when we conflate those two, we actually
dilute the meaning of transparency in the Constitution.
So, I'm an equal opportunity oversight person. I think we
should look at the spending of everything. But if we expand the
aperture of the hearing to look at ballroom spending, we should
also look at healthcare fraud. And the Peterson Foundation
found that there's $925 billion in healthcare fraud. So, the
other title of the hearing could be the Opportunity Cost of
Fraud for Small Business, which is extreme all over the federal
government, particularly in the healthcare sector.
Senator Markey. No, thank you. And this year I have sent a
number of letters to the SBA asking about DOGE's activities.
And I requested a meeting with DOGE in February that has yet to
occur. And I've asked for that meeting with DOGE and the SBA
led by the chair over, and over, and over again. We haven't had
it. DOGE is in like a witness protection program. You know, we
know they're someplace they're inside of SBA.
And by the way, the same thing is true over the Environment
Committee. No hearings over at Labor. No hearings. No hearings,
no hearings. They're inside, you know, but we don't have any
hearings on it. And we know there's a lot of waste, and fraud,
and abuse, corruption going on. We just aren't going to have
any hearings on it. And I think we're going to finish the whole
term without ever having had a hearing on DOGE inside of these
federal agencies.
And that's a crime in and of itself. You know, that we're
not going to look at that. It's hiding in plain sight right in
front of us. DOGE inside of these agencies, what kind of self-
serving activities are they engaging in? Who are they helping
by the decisions which they are making? What's going on? Well,
we're the committee of jurisdiction, and we haven't had a
hearing yet. We haven't had a joint investigation yet. We have
done nothing, you know, to find out what is going on.
So, what little we do know about DOGE's dealings at SBA is
coming from the media rather than SBA's responses to my
Congressional request. I made this request over, and over, and
over again. And in rare cases, where I've received a response,
there is no helpful information, which we get. They write their
answer essentially in invisible ink--they don't provide the
information which the public, Mr. Hart, is entitled to the
transparency.
It's a one-way street. It's coming out of the federal
government to the American people, then they can judge what's
going on. They're not going to provide that information. And
it's my understanding that GAO also has had some trouble
getting Administrator Loeffler and her team to respond to
requests for information of that is necessary for your work.
And I'm very glad to hear that GAO was conducting a
government-wide review of the administration's efforts to
implement the President's executive orders, including how DOGE
has been used to access data and make policy decisions without
any transparency. Who are they helping? What businesses are
they helping? What friends of the President are they helping?
We don't know. And it's not just SBA, it's every agency. It's
the entire federal government.
So, Dr. LaFountain, is GAO looking to see how DOGE complied
with privacy and information law?
Dr. LaFountain, Yes. We have a body of work, at least eight
engagements, ongoing on issues related to DOGE. And we do have
one engagement on DOGE and data protections that is looking at
compliance with privacy and information law.
Senator Markey. Okay. So, again, I reiterate to you, Madam
Chair, I request that this committee hold a hearing on GAO's
findings about DOGE, specifically about their compliance with
data and information security laws. This would be especially
helpful since we never heard from DOGE, despite our efforts to
get them to brief our committee. And I make that again, as a
special request to you. I think the American public is waiting
for the answers to the questions they are asking about what's
going on inside of the SBA.
Chair. Yes, and thank you. And DOGE does happen to be the
Democrat's favorite boogeyman out there. And I do want to be
clear that under this administration, we are finally reining in
government spending and rooting out waste, fraud, and abuse.
So, during the pandemic and under the Biden Administration,
SBA loans were given out like candy. Let's not forget that
individuals who used Barbie dolls as their photo identification
were approved for SBA loans. This is totally unacceptable. In
March, it was announced that, due to DOGE's hard work in this
area, they have uncovered more than 5,000 SBA loans equivalent
to millions of dollars where the listed borrower was 11 years
old or younger.
Again, DOGE is the Democrat's favorite boogeyman. If
updating outdated systems and saving taxpayers time and money
scares them, that says more about their priorities than ours.
Are my Democratic colleagues saying that we should be ignoring
billions of dollars of waste, fraud, and abuse because we're
focusing only on SBA today and not the entire federal
government?
The Biden administration tried to sweep this problem under
the rug. We aren't doing that. In fact, we are going to do
everything we can to stop it from happening again and recollect
every penny that was stolen or misspent. As Chair of the Senate
DOGE Caucus, I agree with the aim of DOGE, which is to ensure
that taxpayer dollars are being used effectively and that
waste, fraud, and abuse in the federal government is rooted
out.
And this demonstrates why, to truly create change within
the federal government, DOGE has been given access to many
federal agencies and department systems, which has allowed them
to cut through longstanding hurdles to find waste within each
government entity. And all Americans should know that DOGE
employees are federal employees. They are federal employees,
subject to the same background checks, privacy laws, and
restrictions regarding data sharing as any other federal
employee.
So, if we want to discuss hypotheticals and leaked data,
whatever might be out there, let's talk about real leaks and
failures, starting with how a former IRS contractor leaked the
private data of more than 400,000 taxpayers, including
President Trump's.
Additionally, I've heard my colleagues question if DOGE has
saved money, and the answer is a resounding yes, and it's
transparently listed on their website. DOGE is working to
generate real savings and estimates that it has saved about
$214 billion so far.
DOGE is saving Americans money at across the federal
bureaucracy. The Department of Veterans Affairs was paying
$56,000 to water eight plants. Yes, eight household plants for
five years. $56,000. I would've loved to have had that
contract. Thanks to DOGE, this contract was canceled, and those
plants will be watered for free.
So, while DOGE keeps delivering more savings every day,
Democrats are more upset by the effort to stop wasteful
spending than by the misuse of Americans taxpayer dollars. As
I've always said, if you can't find waste in Washington, D.C.,
there can only be one reason: you are not looking. Shouldn't we
be pulling the plug on government waste instead of those who
are finding it?
I have one minute left. And I will go to Mr. Hart talking
about waste. I gave the egregious example of a Cuban illegal
migrant militant who scammed the federal government for $2.4
million. Can you provide any other egregious examples of where
there has been scams in the federal government?
Mr. Hart. Well, Senator, unfortunately, I think one example
we haven't touched on is that in Atlanta. There was a mail
carrier who stole paycheck protection program checks from
people's mailboxes along as routes and used it to provide
personal clothing, personal expenses for himself.
And we have to ask why did that happen? And I believe it
happens because when government gets in the business of
deciding it can pick winners and losers, what it ends up doing
is punishing the winners and rewarding the losers. And maybe
instead of having a federal Small Business Administration, we
should return business to business and business to the states
and let them navigate the questions, the economics of it.
Chair. And that is pretty profound. So, thank you for that.
I would also like to make sure the Ranking Member is aware that
on October 30th, I requested the SBA Inspector General to do an
audit of the 8(a) program. So, I ask unanimous consent that my
letter be entered into the record. And without objection, so
ordered.
You want another round----
Senator Markey. Yes, please.
Chair [continuing]. Ranking Member.
Senator Markey. Yes.
Chair. You're recognized for five minutes.
Senator Markey. Yeah. I would love to see the DOGE
representative from SBA sitting here at a witness table under
oath. Love to see who that is. I think you and I right now
would have about a 50 percent chance of picking that person out
of a two-person lineup. We have no idea who it is. We have no
idea what their name is. We don't even know who they are, and
we're supposed to take their word for it. We don't even know
their name.
How in the world can we give any respect to people who are
too afraid to have us know their names, too afraid to appear
before this committee? You know, they beg to be put in a
witness protection program so that they can hide out, you know,
from any scrutiny from the public. And yet, we're supposed to
respect the numbers which they've given us and we don't even
respect them. We don't even know who they are.
You know, this is like anonymity. This is like Soviet
Russia. This is like the deepest, darkest Kafkaesque-kind of a
proceeding that we're operating on that we don't have any
information to give any kind of respect to any number, which
again, although I do know one thing that the biggest part of
the COVID fraud occurred in 2020 when Trump was President,
although we're not going to hear that from--is that not correct
from the GAO? Is that not an early conclusion that you've
reached?
Dr. LaFountain. So, we did find that PPP and COVID Idle
were both more vulnerable to fraud early in the program. But I
checked with our experts, and we don't have estimates that kind
of break it down from one year to the next.
Senator Markey. No, I get it. Very vulnerable to fraud
during the Trump administration. And you know, but we're not
going to have a hearing on that, that's for sure. That's not
going to happen either. We're putting Trump into a witness
protection program as well. And anyone who represents him and
who would've had a responsibility for any of that.
But we're not beyond like taking Black and Brown citizens
who have small businesses and somehow rather being able to
smear them. When the vast amount of all of the fraud, the
elephants still isn't willing to come in here and to sit down.
So, you know, maybe we could let them come in, like they were
ICE agents and just put bags over their head. You know, maybe
they could wear masks so we wouldn't identify them. You know,
maybe we could just have them sit out there and maybe mumble
through their masks what, what they found.
But we could at least cross-examine them. You know, we got
to at least hold them to an oath. But if they're afraid to be
recognized the way ICE agents are maybe, you know, and that's
kind of a characteristic of the Trump administration. People
want to put on their mask almost like they are in fact engaging
in criminal behavior. They are engaging in behavior which is
unconstitutional, abhorrent to the rule of law in our nation
that abhorrent to the due process protections, which all of
these people who are in all of these programs are, are entitled
to.
So, that's pretty much my take on this. You know, unless,
and until we have these people in here and testifying, we don't
owe them any honest respect at all, any numbers, any
representations, which they are making. And it is the GAO, it
is the Inspector Generals who have to conduct the proper
independent oversight of federal programs.
And unfortunately, this is not a hearing focused upon
finding bipartisan solutions to problems that are relative.
That's what I would like to do, rather than turning this into a
star chamber, you know, into a Kafka's Trial where it's
impossible for us to actually get to the accusers who are
inside of DOGE and sending out information, but without any
ability to cross examine them.
So, we should be having real oversight hearings, Madam
Chair. We should be calling on the administration to make sure
that SBA programs are running the way they are supposed to. We
should be collaborating with the SBA Inspector General, with
the GAO, so that we can get to the bottom of what's going on
right now. Congressional oversight is critical. It's absolutely
essential. And we can't do it if we don't have the facts. We
can't do it if we can't get the information.
Otherwise, it just turns into political targeting of
programs and individuals who have invoked the political ire of
particular segments of the Trump empire. And that's just not
real oversight. And as members of this committee, we should do
everything we can to uplift small businesses. That's not what
this hearing is all about. It's stigmatizing those who are
already most vulnerable historically in terms of the
durability.
So, again, we're ignoring the elephant in the room, and we
know it's the Trump administration officials who are inside all
of these agencies. Until we get to that GOP elephant, we're not
having real hearings. We're not doing real oversight. We're
just allowing for the demonization of those who have always
historically been most vulnerable. Thank you, Madam Chair.
Chair. Thank you. And with that, we will go ahead and wrap
the committee. I will take a little bit of issue in describing
the United States of America as Soviet Russia. Those of us that
served in uniform for this great nation feel otherwise. So, I
just wanted to make that very clear that I'm proud of my
country, regardless of who is at the helm, because our country
is made of incredible men and women from all walks of life.
So, if there are no further questions, I want to thank our
witnesses for being with us today. I ask unanimous consent that
the record of today's hearing remain open for two weeks for
members to submit questions, revise and extend their remarks,
and submit additional information into the record. And without
objection, so ordered.
With that, the Committee on Small Business and
Entrepreneurship stands adjourned.
[Whereupon, at 3:55 p.m., the hearing was adjourned.]
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