Preventing Fraud and Abuse of PPP and EIDL: An Update with the SBA OIG and GAO

Source document: Chrg 116Hhrg41471; document type: congressional-materials.

Full text

U.S. GOVERNMENT PUBLISHING OFFICE
WASHINGTON :
41–471
2021
PREVENTING FRAUD AND ABUSE OF PPP AND
EIDL: AN UPDATE WITH THE SBA OFFICE
OF
INSPECTOR
GENERAL
AND
THE
GOVERNMENT ACCOUNTABILITY OFFICE
HEARING
BEFORE THE
SUBCOMMITTEE ON INVESTIGATIONS,
OVERSIGHT, AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
HEARING HELD
OCTOBER 1, 2020
Small Business Committee Document Number 116–097
Available via the GPO Website: www.govinfo.gov
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(II)
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELA´ ZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
MELISSA JUNG, Majority Staff Director
JUSTIN PELLETIER, Majority Deputy Staff Director and Chief Counsel
KEVIN FITZPATRICK, Staff Director
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(III)
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Judy Chu .........................................................................................................
1
Hon. Ross Spano ......................................................................................................
3
WITNESSES
Mr. Hannibal ‘‘Mike’’ Ware, Inspector General, Office of the Inspector Gen-
eral, United States Small Business Administration, Washington, DC ...........
5
Mr. William Shear, Director, Financial Markets and Community Investment,
United States Government Accountability Office, Washington, DC ................
6
APPENDIX
Prepared Statements:
Mr. Hannibal ‘‘Mike’’ Ware, Inspector General, Office of the Inspector
General, United States Small Business Administration, Washington,
DC ..................................................................................................................
23
Mr. William Shear, Director, Financial Markets and Community Invest-
ment, United States Government Accountability Office, Washington,
DC ..................................................................................................................
28
Questions and Answers for the Record:
Questions from Hon. Judy Chu to Mr. Hannibal ‘‘Mike’’ Ware and Re-
sponses from Mr. Hannibal ‘‘Mike’’ Ware ...................................................
45
Questions from Hon. Judy Chu to Mr. William Shear and Responses
from Mr. William Shear ...............................................................................
48
Additional Material for the Record:
NAFCU - National Association of Federally-Insured Credit Unions ...........
51
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(1)
PREVENTING FRAUD AND ABUSE OF PPP
AND EIDL: AN UPDATE WITH THE SBA
OFFICE OF INSPECTOR GENERAL AND THE
GOVERNMENT ACCOUNTABILITY OFFICE
THURSDAY, OCTOBER 1, 2020
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON INVESTIGATIONS,
OVERSIGHT, AND REGULATIONS,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:01 a.m., via
Webex, Rayburn House Office Building, Hon. Judy Chu [chair-
woman of the Subcommittee] presiding.
Present: Representatives Chu, Vela´zquez, Crow, Evans, Craig,
Burchett, and Spano.
Chairwoman CHU. Good morning. I call this hearing to order. I
thank everybody for joining us today both virtually and in the
hearing room. I would also like to thank the witnesses for their
participation in this important and timely oversight hearing.
Before we begin, I would like to take this opportunity to note
some important requirements. Let me begin by saying that stand-
ing House and Committee rules and practice will continue to apply
during hybrid proceedings. All members are reminded that they
are expected adhere to these standing rules, including decorum.
During the covered periods designated by the Speaker, the Com-
mittee will operate in accordance with House Resolution 965 and
the subsequent guidance from the Rules Committee in a manner
that respects the rights of all members to participate.
House regulations require members to be visible through a video
connection throughout the proceeding. So, please keep your cam-
eras on. Also, please remember to remain muted until you are rec-
ognized to minimize background noise. If you must participate in
another proceeding, please exit this one and log back in later.
In the event a member encounters technical issues that prevent
them from being recognized for their questioning, I will move to the
next available member of the same party and I will recognize that
member at the appropriate timeslot provided they have returned to
the proceedings. For those members physically present in the Com-
mittee room today, we will also be following the health and safety
guidelines issued by the attending physician. This includes social
distancing and especially the use of masks. I urge members and
staff to wear masks at all times while in the hearing room. I thank
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you in advance for your commitment to a safe environment for all
here today.
The COVID-19 pandemic has fundamentally altered the way
American small businesses operate. Mandatory closures to protect
the public health has significantly impacted their bottom line and
visibility. To help small businesses weather the pandemic, Con-
gress has passed a series of legislative packages. On March 6th,
the Coronavirus Preparedness and Response Supplemental Appro-
priations Act became law and authorized SBA’s Disaster Assistance
Program to use available funds to issue economic injury disaster
loans, or EIDL, to small businesses affected by the pandemic.
On March 27th, the CARES Act was signed into law and created
the Paycheck Protection Program, or PPP, and the Economic Injury
Disaster Loan emergency advance. And SBA acted extremely
quickly to implement these critical economic relief programs in
order to deliver emergency funding to small business owners to
keep them afloat.
Over the past 6 months, more than 5.2 million PPP loans and
approximately 3.5 million EIDL applications have been approved.
That is an incredible amount of Federal assistance to America’s
small businesses. And I commend SBA’s staff for creating the infra-
structure to set up these programs so quickly. SBA was asked to
undertake an enormously challenging task to implementing these
programs in just a few days. And this Committee recognizes that
some mistakes were expected. But the Congress and the American
people must have confidence that the Administration is taking seri-
ously their responsibility to mitigate fraud and ensure that this as-
sistance is available to all eligible small businesses.
Today, I hope to learn more from the SBA Inspector General and
the Government Accountability Office about your findings and dis-
cuss ways to improve the delivery of SBA services to small busi-
nesses.
On July 28th, the SBA Office of Inspector General released a re-
port detailing potential incidents of fraud in the EIDL program.
Initial investigations found tens of millions of dollars in duplicate
loans and serious concerns about suspected fraud, including in-
stances of accounts established with stolen identities and at-
tempted award transfers to foreign accounts and deposits into per-
sonal accounts that have no evidence of business activity. And
without swift action from SBA, these fraudulent activities will only
become more widespread as Congress debates legislation to allocate
more emergency assistance as the economic impact of the pandemic
stretches on.
I understand that SBA responded to this report by stating they
have internal controls in place to address these types of fraud. Yet,
recent reporting from the Project on Government Oversight, or
POGO, cast doubt on how effective these internal controls are. The
POGO report stated that anti-fraud policies were not fully imple-
mented during EIDL processing. Software was not up to date and
that SBA was struggling in mid-August to handle fraudulent appli-
cations. As the Chairwoman of the Investigations, Oversight, and
Regulations Subcommittee, I am concerned with these reports and
hope we can have a constructive discussion to address these find-
ings today.
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In addition to the IG’s report, the GAO released reports on Au-
gust 31st and September 21st detailing concerns with SBA’s over-
sight of the PPP and their ability to collect and interpret applicant
data. The September report outlines extremely concerning gaps in
the availability of demographic information and serious data reli-
ability issues. The report also details potential fraud that the SBA
referred to both the IG and the Department of Justice.
More than 40 fraud-related cases are currently under investiga-
tion. Additionally, the report finds that SBA has failed to ade-
quately prepare borrowers and lenders for the PPP forgiveness
process. Demonstrating the seriousness of this problem, last week
SBA announced that they had received 96,000 forgiveness applica-
tions representing less than 2 percent of the loans that were dis-
bursed, but they still have not processed a single one.
Perhaps most troubling to me are reports that GAO has had dif-
ficulty even completing their audit objectives because SBA has not
been forthcoming with documentation and access to data. Today, I
would like to learn more about where SBA stands in implementing
internal fraud controls, where the deficiencies lie, and what this
Subcommittee can do to support SBA in their efforts to prevent
fraud in both EIDL and PPP.
Again, I want to thank the witnesses for participating both vir-
tually and in-person. And I now yield to the Ranking Member Mr.
Spano for his opening statement.
Mr. SPANO. Thank you, Madam Chairwoman, and thank you,
Chair Vela´zquez, for holding today’s timely hearing to combat the
economic impact of the coronavirus pandemic. This Committee has
worked to create and optimize economic relief programs adminis-
tered by the SBA. Through bipartisan cooperation and interagency
negotiations, we created the Paycheck Protection Program, or PPP.
We revitalized the pre-existing Economic Injury Disaster Loan Pro-
gram, EIDL. I would like to take a moment to thank everyone for
their work. Both programs have been a lifeline for our Nation’s
small businesses.
As of August the 8th 2020, the date that the program reached
its authorized deadline, the SBA had approved over 5.2 million
loans totaling more than $525 billion. The average loan size was
around $100,000, and there were nearly 5,500 participating lend-
ers. Florida small businesses received nearly 432,000 PPP loans for
a total of more than 32 billion. And in my district, Florida’s 15th
District, 10,254 businesses have received $304 million loans in PPP
funds. These loans have helped small business owners keep the
lights on and keep their employees on the payroll.
I have talked with many small business owners since the launch
of the PPP, like Tom Powell, owner of Bolder Athletic Wear in
Plant City, Florida, a manufacturer of women’s athletic wear in my
district. The loan was absolutely essential and crucial for Mr. Pow-
ell’s business because it provided the critical capital necessary to
retain his employees through the retail closures.
In addition to creating the new PPP program, the CARES Act
and its subsequent legislation expanded the pre-existing EIDL pro-
gram administrated by the SBA’s Disaster Loan program. And as
of September the 13th 2020, the SBA has approved 3.5 million
EIDL loans for approximately $190 billion, with an average loan
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size of $53,000. The EIDL advance grant, which is not required to
be paid back, provided 6 million small businesses with $20 billion
in grants. Florida small businesses had approximately 450,000
EIDL loans approved for nearly $20 billion.
With only the basic statistics, Congress cannot fully measure the
impact of these programs. That is for sure. We need to ensure that
loans went to the intended businesses and that the loan proceeds
were used properly. Fortunately, we have fantastic allies in the
SBA’s Office of Inspector General and the Government Account-
ability Office. Today, each office has sent a representative, and we
are grateful for that, to represent their initial—or to present, I
should say, their initial reviews of PPP and EIDL. We look forward
to working together to make sure that taxpayer dollars are spent
appropriately and to reduce waste, fraud, and abuse in these crit-
ical SBA relief programs.
And with that, Madam Chair, I yield back.
Chairwoman CHU. Thank you, Mr. Spano. The gentleman yields
back. And if other Subcommittee members have an opening state-
ment, we would ask that they be submitted for the record.
I would like to just take a moment to explain how this hearing
will proceed. Each witness will have 5 minutes to testify and each
member will have 5 minutes for questions. Please ensure that your
microphone is on when you begin speaking and that you return to
mute when finished.
I would now like to introduce our witnesses. Our first witness is
the Honorable Hannibal ‘‘Mike’’ Ware, Inspector General of the
SBA. Mr. Ware was sworn in as the Inspector General in May 2018
and has been an effective leader in his role and an asset to this
Committee. He has 28 years of experience in the IG community,
rooting out fraud, waste, and abuse in Federal programs. He has
received numerous awards throughout his career, including several
awards from the Counsel of the Inspectors General on Integrity
and Efficiency in recognition for his significant portfolio of over-
sight work. Welcome, Mr. Ware.
Mr. WARE. Thank you, Chairwoman Chu.
Chairwoman CHU. Thank you. Our second witness is Mr. Wil-
liam Shear, Director of Financial Markets and Community Invest-
ment Team at the Government Accountability Office. He leads
GAO’s work community and economic development, small business,
and SBA’s COVID-19 response programs. Mr. Shear joined GAO
more than 20 years ago. He has a master’s degree in public policy
and a Ph.D. in economics, both from the University of Chicago. He
also served as an adjunct faculty member in the graduate program
in city and regional planning in the University of Pennsylvania.
Welcome, Mr. Shear.
I would like to begin today’s hearing by recognizing Mr. Ware for
5 minutes.
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5
STATEMENTS OF HANNIBAL ‘‘MIKE’’ WARE, INSPECTOR GEN-
ERAL, OFFICE OF THE INSPECTOR GENERAL, UNITED
STATES
SMALL
BUSINESS
ADMINISTRATION;
WILLIAM
SHEAR, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY
INVESTMENT, UNITED STATES GOVERNMENT ACCOUNT-
ABILITY OFFICE
STATEMENT OF HANNIBAL ‘‘MIKE’’ WARE
Mr. WARE. Chairwoman Chu, Ranking Member Spano and dis-
tinguished members of the Subcommittee, thank you for inviting
me to speak with you today and for your continued support of my
office. Believe me when I say that. The men and women of the Of-
fice of Inspector General have been working diligently to provide
oversight of SBA’s pandemic response. I am always proud to rep-
resent them publicly and to speak to you about our important
work.
I come before you today in the wake of a historic crisis posed by
the COVID-19 pandemic and an ensuing unprecedented role for
SBA to mitigate the damages to the Nation’s economic vitality.
SBA is managing over a trillion dollars in lending authority
through PPP and the EIDL program. The speed and lowered
guardrails relative to eligibility verification controls surrounding
the PPP and the EIDL lending authorities brought with it substan-
tially increased risk. As indicated in my written statement, we
sought to inform SBA’s efforts through three White Paper reports
offering lessons learned and known risks to implementing PPP and
EIDL based on prior oversight of the Recovery Act and other disas-
ters. At the same time, we focused on preventing and deterring
fraud by raising public awareness of fraud schemes and scams.
At the outset, we initiated several reviews to include the PPP
and EIDL reviews. During the course of these reviews, we had
alarming findings causing us to issue a flash report on PPP in May
and a management alert on EIDL in July. As oversight work car-
ried on, we solidified our preliminary results and identified addi-
tional findings.
On September 14th, we provided SBA leadership two draft re-
ports. One containing our findings related to SBA’s implementation
of PPP and one containing findings of SBA’s initial disaster assist-
ance response to COVID-19. Our review standards require that we
consider SBA’s official comments prior to issuing these reports in
final. We anticipate publishing these reports in mid-October, fol-
lowing the 30-day review and comment period by SBA’s leaders. As
such, my comments today regarding those findings must be consid-
ered preliminary so we can account for SBA’s official comments be-
fore finalizing our reports.
Nonetheless, our findings are significant and speak to the need
for strengthening internal controls and for combatting potential
fraud in the programs. Our reports speak to significant potential
fraud in both PPP and EIDL. It is remarked as potential only be-
cause we have not reviewed each loan associated with the area of
finding. However, the amount of dollars we cite as being subject to
potential fraud are not based on projections. Rather, they are based
on buckets of loans meeting criteria for a weak internal control en-
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vironment where in many instances, we have active criminal inves-
tigations of fraud to substantiate the concern.
Our office has received tens of thousands of complaints of wrong-
doing on our hotline. Hundreds of investigations involving com-
plaints of fraud have been initiated by my office and are ongoing
with noteworthy results being reported daily by the United States
Department of Justice, which has been a tremendous partner.
Among these accomplishments was the first in the Nation
charges against individuals fraudulently seeking PPP loans, which
was announced on May 5th. More than 57 defendants have been
charged with PPP fraud since the CARES Act passage as an-
nounced by the Department of Justice on September 10th. I want
to assure SBA’s lending partners and the Nation’s small business
owners that if they followed the guidelines and acted in good faith,
we are not focused on your actions. The findings we report do not
diminish the feat that the men and women of SBA and their lend-
ing partners accomplished. At one point in the crisis, it was re-
ported that SBA performed as 14 years’ worth of lending in just 14
days. However, our oversight work confirms SBA did not have suf-
ficient controls to address risks and provide assurance that PPP
loans and EIDL grants and loans were only being received by eligi-
ble recipients.
We will continue our efforts to keep the administrator and this
Congress currently and fully informed of our findings. We are not
alone in this effort. Programs of this magnitude require a whole of
government response. As a statutory member of the Council of the
Inspectors General on Integrity and Efficiency Pandemic Response
Accountability Committee, I am working with my inspector general
colleagues to leverage the collective power of joint oversight efforts
to increase transparency of SBA’s pandemic response. Rest assured
the men and women of my office understand that nothing short of
the public’s trust is at stake, as well as the vitality of the Nation’s
economy.
Thank you for the opportunity to speak to you today. I am happy
to answer any questions you may have of me.
Chairwoman CHU. Thank you, Mr. Ware. Mr. Shear, you are
now recognized for 5 minutes.
STATEMENT OF WILLIAM SHEAR
Mr. SHEAR. Thank you. I am pleased to be here this morning
to discuss our work on SBA’s Paycheck Protection Program and
Economic Injury Disaster Loan Program. Through these programs,
SBA has made or guaranteed more than 14.5 million loans and
grants providing about $729 billion to help small businesses ad-
versely affected by COVID-19. In April 2020, SBA moved quickly
to implement PPP. Given the immediate need for these loans, SBA
worked to streamline the program so that lenders could begin dis-
tributing these funds as soon as possible. For example, lenders
were permitted to rely on borrowers’ self-certifications for eligibility
in use of loan proceeds. As a result, there was significant risk that
some fraudulent or inflated applications were approved.
In our June report, we recommended that SBA develop and im-
plement plans to identify and respond to risk in PPP to ensure pro-
gram integrity, achieve program effectiveness, and address poten-
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tial fraud. According to Federal internal control standards and
GAO’s fraud risk framework, managers and executive branch agen-
cies are responsible for managing fraud risk and implementing
practices for mitigating those risks. When fraud risk can be identi-
fied and mitigated, fraud may be less likely to occur.
In June 2020, we reported that reliance on applicants’ self-certifi-
cations can leave a program vulnerable to exploitation by those
who wish to circumvent eligibility requirements or pursue criminal
activity. Since May 2020, the Department of Justice has publicly
announced charges in more than 50 fraud-related cases associated
with PPP funds. In April 2020, SBA announced it would review all
loans of more than $2 million to confirm borrower eligibility. And
SBA officials subsequently stated that they would review selected
loans of less than $2 million to determine, for example, whether
the borrower is entitled to loan forgiveness. However, SBA did not
provide details on how it would conduct either of these reviews.
As of September 2020, SBA reported that it was working with
the Department of the Treasury and contractors to finalize the
plans for the reviews. Because SBA had limited time to implement
safeguards up front for loan approval, we believe that planning and
oversight by SBA to address risk in the PPP program is crucial
moving forward. We continue to be concerned about the potential
for fraud in PPP and are continuing to conduct work on the pro-
gram, including on internal controls and fraud risk management.
SBA’s efforts to expedite processing of economic injury disaster
loans such as the reliance on self-certification, may have contrib-
uted to increased fraud risk in that program as well. In July 2020,
as Mike Ware just stated, SBA’s Office of Inspector General re-
ported indicators of widespread potential fraud, including thou-
sands of fraud complaints, and found deficiencies with SBA’s inter-
nal controls. The Department of Justice in conjunction with other
Federal agencies, has also taken actions to address potential fraud.
We continue to be concerned about the potential for fraud in the
EIDL program and are currently conducting work on the program,
including on internal controls and fraud risk management. How-
ever, we have experienced delay in obtaining data and information
requested from SBA, including access to application level EIDL
data. We continue to take actions to obtain records needed to move
forward with our work.
Chairwoman Chu, Ranking Member Spano, and members of the
Subcommittee, this concludes my statement. I would be pleased to
respond to any questions you may have.
Chairwoman CHU. Thank you, Mr. Shear. We will begin the
questioning and I will begin by recognizing myself for 5 minutes.
Well, frankly, I am shocked by these findings. Our two main loan
and grant programs are EIDL and PPP and in both programs, you
have said that there are not the internal controls in existence to
prevent fraud. So, I have many questions. First, I would like to
start with Mike Ware, our Inspector General. And just to summa-
rize, you said that there was fraud and also that there was a lack
of internal controls. So, that for number one, there were $250 mil-
lion worth of loans in the EIDL program, loans and grants in the
EIDL program that were given despite the fact that they were
clearly ineligible. That is, no business was eligible if they created
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their business after January 1st of this year. And yet, loans were
given in the amount of 250 million, and grants, to these particular
businesses.
The second problem, the duplicate loans, I mean, there were no
internal controls. And as a result, duplicate loans in the amount
of 45.6 million were approved. And then, third, is the shocking so-
cial media fraud schemes in which they use social media to recruit
applicants and then split the advanced money with the ringleaders.
And, in fact, there was advertising of their ability to secure SBA
money for clients to start businesses and then the sharing of this
money.
I am just astounded that these terrible acts took place when le-
gitimate deserving businesses could have used that help. So, again,
Inspector General Ware, in your report you stated that despite the
internal controls that SBA has claimed are in place, fraud and the
potential for fraud still exist in the Economic Injury Disaster Loan
or the EIDL program. Can you identify the weak points in SBA’s
internal controls and how can SBA improve these existing controls
in the time ahead?
Mr. WARE. I certainly can. And I have identified those to SBA’s
leadership. So, the challenge that SBA always has, especially in
their disaster lending program, is they have to balance, balance is
a key word here, the need of speeding aid to people in desperate
need while balancing against a proper control environment.
In this instance, SBA’s efforts to hurry capital to businesses were
at the expense of controls that would have mitigated the risks of
ineligible or fraudulent businesses obtaining PPP or EIDL loans.
And that’s why we have the problems that we have. The SBA said
for themselves that to get funds to eligible entities quickly, they
lowered the guardrails for the EIDL program specifically by remov-
ing or weakening of controls. And we have found for a fact through
thousands of contacts from banks, tens of thousands of hotline com-
plaints, our own data analytics, that those actions increased fraud
risk significantly.
Now, again, they have that balance to deal with. One part of the
balancing act cannot be sacrificed for the other. And the type of
things that we were finding in terms of controls lowered, of course,
the self-certification part was one. But the contractor that they got
had some built-in controls, but these things—the loan applications
came in huge batches. So, that batch process and the speed to get
it out allowed a lot of things to be missed. And then there were a
lot of things, other controls, that were not in place. Such as what
happens after the contractor says, okay, this is a legitimate bank
account, but they allowed on the back end the applicant to change
the bank account before the money was disbursed and there was
no control in place to at least doublecheck or make sure that those
were going to an eligible recipient.
Now, the Agency in these meetings especially on EIDL, they
have taken a lot of action already. And before the alert went out,
we had been meeting with them because we thought it was critical
that they knew this information and that they take action imme-
diately. So, they shored up the control where it reverifies the bank
account information every time it is changed. And if they didn’t
find issues or the loan application are only minor issues, then they
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would come to SBA in much smaller batches. And then they now
have a team lead approving the batches and, I mean, they have
done that.
Let me see what else. They have done quite a bit. They found
a logic issue with the system of control that they said they had in
place, where it wasn’t identifying all the duplicative information.
And now they have addressed that issue.
And now the big thing that they have put in place is that they
have began automatically declining loan applications where the
system identifies suspicious online activity. That wasn’t happening
at all. For example, related applications by the same bank accounts
that are not the same person. Email addresses or phone numbers
in somebody else’s name. Weird email addresses, but like odd pe-
riod location like mi.ke.wa.re, for example, along with the regular
mike.ware.
Now, that may force any legitimate applicants into the loan ap-
plication reconsideration process to allow for supporting docu-
mentation before the applicant gets their loan approval.
And, yes, so, they have pivoted pretty quickly on implementing
the controls, I have to say. I don’t know if the time is up or not.
But fraudsters are going to do what fraudsters are going to do. And
we have to continue to meet with the Agency when we find new
schemes so that they can pivot quickly to mitigate a lot of the risks
and to shore up their controls. And I think that they have been
pretty responsive to that.
Chairwoman CHU. Well, thank you for that thorough answer.
And now, we have our Ranking Member Mr. Spano from Florida.
Mr. SPANO. Thank you, Madam Chair. The CARES Act set up
an intricate web of oversight mechanisms utilizing preexisting of-
fices and creating new ones like the Pandemic Response Account-
ability Committee and the Office of the Special Inspector General
for Pandemic Recovery. My question is how do your offices con-
tribute to the larger pandemic oversight system? If you could an-
swer that first, Mr. Shear?
Mr. SHEAR. We have a major responsibility in the CARES Act.
And it was actually articulated to each of the affected agencies in
letters from the Comptroller General as far as our role in over-
seeing CARES Act programs broadly, and the need for us to report
on a bimonthly—generally, a bimonthly basis to the Congress on a
wide variety of issues.
So, in contrast, I would just say that we focus on issues just as
my colleague Mike Ware does dealing with fraud risk and things
of that nature. But we deal with broader issues having to do with
the integrity of the programs. So, we do look at responsiveness. We
have issued reports in June, August, and September that deal with
a wide range of CARES Act programs. And addressing them in a
broad way and doing detailed audit work.
Mr. SPANO. Mr. Ware, would you like to——
Mr. WARE. Sure.
Mr. SPANO.—respond to that?
Mr. WARE. Yeah, I will. And this is actually like one of the ques-
tions that I was hoping that I would get mainly because of the
prominent role that I play on the PRAC. I am the audit committee
Chair on the PRAC. And we meet regularly like every single week.
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I am a statutory member of that committee. So, in our meetings,
we work constantly to determine how we can help the community
and how we could move the whole of government approach forward.
If you have noticed the press releases concerning our investiga-
tive work, it is always joint. We have been working with the FBI,
FDIC, Federal Reserve Board, HHS. I mean, this has been an all
hands on deck approach to this oversight because no single one of
our offices could handle this alone due to the magnitude of issues
that we are finding.
Regarding Mr. Miller’s new shop, he is just standing that up.
Him and I have had several one-on-one meetings particularly to
pass on certain things to my office that he is not able to do at this
time as he stands up his office. But we are all in communication
and all working in a collaborative manner to ensure that the prop-
er level of oversight is undertaken.
Mr. SPANO. Do you feel like you need any additional guidance
or clarity in terms of the roles that you are playing respectively?
Mr. WARE. Sir, I do not. I believe that the act that stood up, the
PRAC as we refer to it as, was pretty clear. I do believe that, well,
you know what, in some teams we have discussed quicker access
to data for the PRAC. But I am pretty sure that is something that
the executive director——
Mr. SPANO. Mr. Shear, would you like to respond to that?
Mr. SHEAR. I think that the CARES Act—beyond just relying on
our access authority and our role generally as Congress’ watch-
dog—made it very clear that we had very expansive access author-
ity. We also had very expansive responsibilities and we, led by our
Comptroller General, Gene Dodaro, have gone on in that direction.
We generally have had very good cooperation with the agencies
that are included. So, it’s an expansive role and it very clearly
states what our role is and what our authorities are in terms of ac-
cess to information.
Mr. SPANO. Thank you. Madam Chair, I yield the remainder of
my time.
Chairwoman CHU. Thank you. The gentleman’s time has ex-
pired, and the gentleman yields back. Now, the gentlelady from
New York, our Chairwoman, Nadia Vela´zquez is recognized for 5
minutes.
Ms. VELA´ ZQUEZ. Thank you, Chairwoman Chu, and Mr. Spano,
Ranking Member. This is a very important oversight responsibility
that we have in this Committee regarding the CARES Act. So, Mr.
Shear, we understand that you had issues and problems accessing
EIDL data from SBA. Why do you think that happened?
Mr. SHEAR. We and I always try to avoid trying to say what is
going through people’s minds, but what we can observe is a situa-
tion that is not a cooperative one. We have experienced a more co-
operative environment with SBA dealing with other matters, but
not when it comes to CARES Act. As you know that with PPP
data——
Ms. VELA´ ZQUEZ. Would you——
Mr. SHEAR. Yeah.
Ms. VELA´ ZQUEZ. Excuse me, sir.
Mr. SHEAR. Sure.
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Ms. VELA´ ZQUEZ. Would you characterize the actions out of the
SBA as obstructionist?
Mr. SHEAR. There was obstruction when we were trying to ob-
tain loan-level PPP data. That went on for weeks. Getting access
to people to talk about how they were implementing PPP, that
went on for weeks. We still aren’t getting a lot of cooperation from
SBA. And yet, they accuse us of not giving them credit for what
oversight they have in place when they provide very little informa-
tion and don’t respond to what we are asking. With EIDL, it is
more extreme. We have asked, a very long time ago, for application
level EIDL data.
Ms. VELA´ ZQUEZ. So, let me ask you. You know, it is clear that
you have expand authority and the comptroller general has expand
authority to demand and to have the access to the information, to
have access to the data. And so, I, myself, have to call the adminis-
trator to ask her to expedite or to allow for the comptroller general
to have the information that he was requesting.
He personally called me and I believe that even called the Rank-
ing Member. Can you imagine? It is our responsibility to protect
taxpayers’ money and to make sure that the program is imple-
mented. And what we have seen is not only a case of fraud and
abuse committed in the EIDL and both the PPP, but mismanage-
ment probably the obstruction coming out of the SBA is because
they knew that they didn’t take or implement the kind of controls
to prevent fraud and abuse.
So, what can we do? What can Congress can do to help you do
your job——
Mr. SHEAR. As you——
Ms. VELA´ ZQUEZ.—going forward?
Mr. SHEAR. As you and——
Ms. VELA´ ZQUEZ. Do you think that, for example, withholding
agency funding that that will be an option?
Mr. SHEAR. It is like this could be an option and I would hope
it wouldn’t come down to that. But if you go back to the issues that
we had with just getting loan-level PPP data, I am sure you and
Ranking Member Chabot and other members of Congress were sur-
prised when Gene Dodaro, the Comptroller General, was making
personal calls to you seeking your support. And we appreciate your
support greatly. It is unfortunate it was necessary.
With EIDL, it is not just data that we know should be readily
available. But there are certain things like contracts—there is a
tremendous delegation of authority to contractors—where we are
just asking for contracts and that is very straightforward informa-
tion to provide. So, we certainly hope it doesn’t have to go up to
people at higher levels. We are close to being at the stage where
you might be hearing from the Comptroller General again and the
Administrator at SBA might be hearing from the Comptroller Gen-
eral again. Our general counsel will be reaching out to the general
counsel at SBA. It is an extreme situation.
Ms. VELA´ ZQUEZ. So, the Agency is not collecting demographic
data that we have requested. And that was the intent and a sense
of the Senate when we passed the legislation. It is clearly stated.
And so, how difficult does that make your job and our job in deter-
mining whether or not we are making sure that the loans are going
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12
to deserving businesses? And particularly, minority and businesses
in underserved communities?
Mr. SHEAR. This is an issue we have dealt with involving nu-
merous programs including now with PPP as far as demographic
data. And the SBA takes a certain view toward the authority to
collect data on race and ethnicity. And we have been dealing with
that. So, the workaround, I think, becomes for SBA and for us is
to geocode where we are not saying who are the borrowers, for ex-
ample, are they minority owned small businesses? But at least
what communities are they operating in. And that becomes the
best we can do with that situation.
Ms. VELA´ ZQUEZ. Chairwoman, with your indulgence, I just
need to ask one more question. And if you consider that necessary,
please allot the same amount of time to the minority.
There are 4,226 loans that went to businesses with over 500 em-
ployees. In your work, have you been able to examine whether SBA
has confirmed that these businesses employed the number of em-
ployees stated in their application?
Mr. SHEAR. We are still at the stage and we have been waiting
for a meeting that is now scheduled for next week just dealing with
what we consider extreme data reliability issues, which affects our
ability to do work that is associated with evaluating what Mike
Ware was talking about, data analytics. It is affecting our ability
to evaluate who the programs are serving. And we are trying to
move forward on that, but we aren’t at that stage yet. And part of
that is the extended delays we get in dealing with SBA.
Ms. VELA´ ZQUEZ. Thank you. I yield back.
Chairwoman CHU. Thank you. The gentlelady’s time has ex-
pired, and the gentlelady yields back.
Now, the gentleman from Tennessee, Mr. Burchett, is recognized
for 5 minutes.
Mr. BURCHETT. Thank you, Chairlady, and I appreciate the
panel. I guess my first question would be what is the—been the
economic impact of this? And I will open that up to anybody who
would care to answer that positive or negative, overall.
Mr. WARE. Will? Sorry, Will, you want to talk?
Mr. SHEAR. Please, Mike, go ahead.
Mr. WARE. Okay. By economic impact I think you are talking
about the economic impact of the fraud?
Mr. BURCHETT. No.
Mr. WARE. Okay.
Mr. BURCHETT. Of both sides of it. I would like to hear both
sides of it.
Mr. WARE. Oh, there is absolutely no doubt that this program,
both programs reach out to people who are definitely in need. We
know that for certain. But we also know for certain that there is
no assurance that all that money went to the small businesses it
was intended to go to. And this a fact. I do believe that there is
a balance that could be struck in order to mitigate much of the risk
of fraud and to shore up vulnerabilities that both of us have identi-
fied for SBA.
But on the one side, I am telling you that SBA’s employees have
worked long and hard to get this money into the hands of people
who badly needed it. Fraudsters do what fraudsters do. We have
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13
identified many of the schemes. We have worked with the Agency
to mitigate much of that risk. So, I know that there is a large
part—there is no doubt that there is a large part that have gone
to ineligible and fraudulent recipients.
Mr. BURCHETT. Since we have identified those, are we going to
be—do you think it is in place? I am sorry to interrupt you, but—
and I like what you said about fraudsters are going to fraud. I
think that is a pretty accurate every time you do something, some
new plan or some horrible tragedy occurs in our country, these
dirtbags get out and take advantage of the situation. But is some-
thing in place to go after these people? And do you feel like we will
go after them? Or are we just going to say, ah, let it go?
Mr. WARE. No. So, like the Department of Justice, what is it
called, the press conference that we had just a few weeks ago, we
had it to note it to signify the 50th arrest made of these type of
these fraudsters. There are hundreds of investigations already in
process by my office. The FBI at our press conference stated that
they had over 500 investigations initiated. And if you know how
fraud works and fraud investigations work, that normally doesn’t
take place until 12 to 18 months after these loans have gone out.
The fact that we have moved so very quickly to catch people has
been pretty remarkable. A great deal has to do with the Depart-
ment of Justice and their partnership with us and other law en-
forcement entities. But we are on this and we are going to keep
going.
Mr. BURCHETT. Good, I appreciate that. What I am afraid is
is that we move on to the next calamity in our country and we for-
get about the working folks who didn’t get the money they should
have because, again, as my favorite term, these dirtbags got the
money and they shouldn’t have. And we have got hardworking
business folks, especially our smaller business in our rural and our
inner city areas will not receive that funding. And thank you for
your answer. Sir, I know you are wanting to say something too as
well, please?
Mr. SHEAR. I won’t pull this out from the fraud issue, but I am
just saying who are the intended beneficiaries of this program? And
how is it serving these small businesses in the communities they
operate in over time? It was clear that PPP is trying to both keep
businesses in business and to allow businesses to keep payroll.
Where EIDL is a little bit more of a focus on keeping businesses
sustainable. So, they are slightly different approaches. They serve
slightly different issues.
But let me take PPP. We have serious concerns about data reli-
ability having to do with jobs reported. But nonetheless, it is clear
that PPP has, as you know, the federal government has spent a
large amount of resources to support a large number of small busi-
nesses that employ a lot of people. And so, it has been a lifeline.
So, we can observe that. And what also became clear is that where
originally it was an 8-week period before forgiveness, it was recog-
nized that the pandemic would continue for a longer period of time
and Congress made legislative changes to expand that period.
What we don’t know yet in terms of economic impact is basically
to what degree it has helped various segments of the economy. And
it is a very difficult question to answer and it might not be possible
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until we have gone through much, if not all of loan forgiveness. But
there are a lot of questions over the long haul where there are still
uncertainties about what will happen with the pandemic. There are
still a lot of questions of what the economic impact ultimately will
be. But it has certainly been a lifeline for a very large number of
small businesses.
Mr. BURCHETT. Right, as in my district. Chairlady, I have gone
over. But if you could issue my distaste of the fact that this is such
an important issue and we have so much—I have to go to another
committee, and we are marking up bills. But if you could tell them
to prioritize these things. Both parties do it. This should be
prioritized. We should not be scheduling other meetings. We go
hours during the day where nothing is going on. Nothing, abso-
lutely nothing. And they stack these dadgum committees on top of
each other. And it is a disservice to you, as the Chairlady, and dis-
respectful to you and it is disrespectful to the dadgum taxpayers.
And I am going to talk to my leadership, and I would hope that
you would do the same because this a very important issue. And
I apologize that I have to go to another committee. But I am very
passionate about this issue.
So, thank you, Ma’am, and always your courtesy to me and
friendship.
Ms. VELA´ ZQUEZ. Thank you.
Chairwoman CHU. Well, thank you. And the gentleman’s time
has expired. The gentleman yields back. And now, the gentleman
from Pennsylvania, Mr. Evans, is recognized for 5 minutes.
Mr. EVANS. Thank you, Madam Chairperson. Mr. Shear, SBA is
relying on heavy contractors to process EIDL applications. What in-
formation has SBA provided to you of the contractual responsibility
of contractors or subcontractors and why such important informa-
tion for GAO works?
Mr. SHEAR. This is one of the areas we had a meeting with SBA
last Wednesday to discuss. So, just 8 days ago where there at least
was a meeting to talk about what we are requesting from the
Agency. So, that was a step forward. But there was no timeline put
on providing material. And in both of these programs, but you
asked with respect to EIDL, there is heavy reliance on contractors.
So, we just asked for the contracts themselves. And that will lead
to questions about what the contractors are doing, but it will get
us started.
In terms of information that should be readily available, we are
still waiting for a response. And as I said to Chairwoman
Vela´zquez, we are taking actions to push this forward just like we
did with PPP and access to PPP data. But we are still seeking in-
formation from SBA on the contracts and what the contractors are
doing.
Mr. EVANS. Do you get any real sense of cooperation or not?
Mr. SHEAR. No. The cooperation has been poor. And I don’t like
stating this, but we haven’t had good cooperation in conducting this
work. There was some improvement when the Agency then decided
that they would provide us loan-level PPP data. But it is not the
usual cooperation that we have received from SBA, and for that
matter, other agencies with respect to both of these programs.
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Mr. EVANS. Mr. Ware, it is my understanding that SBA did not
put in internal controls in place for PPP and EIDL on the front end
of loans because of the speed in which the CARES Act money need-
ed to get to small businesses. Many businesses in my district need-
ed the money right away to stay afloat. Mr. Ware, if Congress au-
thorized additional—and the Chairwomen have overall sort of
asked you this, authorized additional funding, can you be specific
what you recommend Congress take to ensure internal controls are
placed at the beginning of the approval process of the new loans?
Mr. WARE. Great, so, thanks for the question. I recommend that
Congress put in place just the need to have the type of controls
that at the very least, if an application falls into the high risk
where we know there is fraud buckets, where we know there is
rampant fraud buckets, it requires an automatic second look to
verify. So, the lowering of the guardrails needs to come up particu-
larly on those that fall in the high risk areas. And those that have
multiple loans and the same type of NAICS code categories from
the same IP addresses. Those that have random email generator
accounts. Those where the bank accounts are changed after the ap-
proval process is over. Those that are in the name of, for example,
like prominent politicians, prominent business leaders that we
would all know their names and other clearly ineligible entities.
And the type of controls that capture the ineligible entities. If the
date does not meet this or if the TIN does not meet this date, it
is automatically declined. Those upfront controls are necessary.
Mr. EVANS. Thank you, Madam Chair. I yield back the balance.
Chairwoman CHU. Thank you. The gentleman’s time has ex-
pired. The gentleman yields back. And now the gentlelady from
Minnesota, Ms. Craig, is recognized for 5 minutes.
Ms. CRAIG. Thank you so much, Chairwoman Chu, and good
morning, everyone. Chairwoman and Ranking Member Spano, I am
so grateful we are having this hearing today. This issue is incred-
ibly important to me, the issue of fraud and improper payments
and government waste.
Since the beginning of the COVID pandemic, I have worked
hard. I know all of us have, to make sure that we are providing
the businesses in our community the absolute best of resources and
especially to those hard-hit small businesses through the PPP pro-
gram. You know, these fraudulent activities that have now been in-
credibly well documented, it steals resources from taxpayers, and
it steals resources from the small businesses who still need that
help.
Improper payments are exactly why I introduced the Payment
Integrity Information Act, which I am proud that President Trump
signed this into law earlier this year. It strengthens protections
against improper payments in Federal programs. So, currently,
there are a number of resources and tools available out there in the
market developed to detect exactly the kind of fraudulent activity
that seems to have gotten through the SBA. In fact, a division of
Thomson Reuters located right in my congressional district has
that kind of technology and system.
So, in light of this, Mr. Ware, I have a first question for you. Do
you feel at this stage that SBA has the necessary tools and re-
sources and funding and oversight to be able to accelerate your ef-
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forts to prevent fraud and waste? And if not, what specifically do
you need from our Subcommittee and the U.S. Congress to put you
in a better position to manage your activity in this Agency?
Mr. WARE. Thank you. I am being told that I got a call from the
House that said that my camera is coming and going. I don’t know
why I am looking at myself. So, I don’t know what is going on. So,
I apologize.
So, when you ask about the resources, are you asking about SBA
OIG or are you asking about SBA proper the Agency?
Ms. CRAIG. I am asking more generally do you and the Agency
have what you need to be able to do better? Because, obviously, if
there is technology out there that can help you detect and improve
the accountability here. And I am asking is for an active effort to
make sure that that happens. Because, sadly, this pandemic is not
going away anytime soon. And I suspect unless we are able to effec-
tively suppress this virus in a way that we clearly haven’t been,
we are going to have to continue to ask SBA to do some very dif-
ficult things that, obviously, we are not in a position to stop fraud-
ulent activity at this moment.
Mr. WARE. We are extremely fortunate that maybe what two
years ago Congress gave us additional money to stand up our data
analytics capability. And we are very fortunate that that invest-
ment was made because that group is doing excellent work in iden-
tifying fraud trends and quickly reporting out to the Agency. As far
as the Agency, well, I am still speaking about my resources, right?
We are coordinating with the PRAC and with other law enforce-
ment entities to approach this is a more whole of government man-
ner.
As far as the Agency, like I said earlier, they have taken some
steps. I will give you one of the steps in terms of their resources.
Initially, in that first report that we issued where we were talking
about all of these thousands of calls we were getting from the
banks saying, hey, guys there is fraud here. We don’t know what
to do with this. We have stopped this. We have held this money.
How do we give the money back to the government? This, that, and
the other. We pulled everybody into a meeting and initially what
I required was a secondary review that we were asking SBA to
round up to make sure. Because sometimes there are reasons why
things happen and it could be an eligible loan. They only had a
couple of people assigned to doing that. They grew that to imme-
diately 25 people to do that. And then I think it was 54, and now,
I believe, that number is even higher.
So, they have put the bodies necessary to have these secondary
reviews. We have not reviewed how that has gone on yet. This is
what has been reported to us. But in terms of resources, I can’t
speak to what SBA has to do things. I just know that they have
moved things around to address and to mitigate some of this fraud
risk.
Ms. CRAIG. Thank you, Mr. Ware. It appears my time has ex-
pired. So, I will yield back to the Chairwoman.
Chairwoman CHU. Thank you. The gentlelady’s time has ex-
pired, and she yields back.
And now we actually have time for a second round of questions
if anybody desires to do so. I believe the topic is so important that
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I would like to go a second round. And so, I will start by recog-
nizing myself for 5 minutes.
Mr. Shear, I wanted to ask about the loan forgiveness process.
You described in your September report that SBA has not provided
clear guidance to lenders on the PPP loan forgiveness process and
as a result, SBA may be using unreliable data to process loan for-
giveness. And I would say that the description that you provide de-
scribes a situation that is at best fragmented. And that is the guid-
ance comes on a rolling basis. They are not specific review require-
ments for lenders who are processing these applications, but as a
result, what we have is a situation where SBA has announced it
has received 96,000 forgiveness applications, but has yet to process
and approve one single one.
I mean, there are lots of businesses that are hanging on the
edges of their seats wondering if they are going to get loan forgive-
ness. So, what specific steps should SBA take now to improve the
quality of this data and what can be done to make sure that there
is a loan forgiveness process that is functional?
Mr. SHEAR. There has to be clear guidance and responsibilities
of who is responsible for what. And the role of SBA’s oversight of
that process, you have banks that are interested in certain types
of safe harbor and that has always been an issue. You have had
reliance on borrower certifications. And again, we were very recep-
tive to the fact that loans had to be gotten out very quickly, like
immediately. In our first report we made a pretty broad rec-
ommendation that SBA needed certain controls in place and there
has to be some clarity for the participants in the program rather
than this rolling guidance.
So, there has to be clearer processes and procedures that banks
and borrowers can go on. And I say this especially with respect to
the smallest businesses that might not have the most resources
available for accounting and legal assistance. So, there just has to
be greater clarity.
And we need, again, we wish they would look at us as a asset
in terms of trying to improve the integrity of this program. And
that they would let us look like they let us do with other programs
in our experience at SBA and actually be in a position to evaluate
and to make recommendations for how those processes can be im-
proved.
Chairwoman CHU. Thank you, Mr. Shear. Now, I would like to
ask about the first phase of PPP being dominated by large bor-
rowers and even some publicly traded companies. SBA had issued
guidance to emphasize the economic necessity requirements, but
then this came after many larger companies, even publicly traded
companies, had already been approved. So, first, how many publicly
traded companies returned the money? And what is the dollar
amount that this represents? And how would you suggest SBA pre-
vent large companies from accessing a program designed for Amer-
ica’s smallest companies?
Mr. WARE. If that question is for me, I don’t have the exact fig-
ures. I definitely could get back to you within a very short period
of time on the exact figures. But in terms of what happened there
was how it was initially set up in terms of the 500 employees in
a single place. And that allowed some of these larger companies to
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get in within the confines of the law. Now, so if you understand
like the NAICS code that they use I believe it is 72. You are consid-
ered small if the businesses had fewer than 500 employees in one
location. So, that happened. So, if there is a shoring up of that to
ensure—I believe there was in the amended or the next act that
came out. But that is how they can ensure that these companies
don’t get it. And like I said, I will get back to you with the exact
amount of companies and the exact amount of dollars.
Chairwoman CHU. My time has expired. But, yes, I am very,
very interested in that information. I think so many others would
be as well. So, please come back with that information.
I yield back and now the Ranking Member from Florida, Mr.
Spano, is recognized for 5 minutes.
Mr. SPANO. Thank you, Madam Chair. What is the percentage
of fraudulent loans approved in proportion to the 5.2 million loans
approved?
Mr. SHEAR. I will at least start with that. We don’t know. Just
realize that we make a very big distinction between fraud and the
management of fraud risk and a lot of things we have talked about
in this hearing have been about data analytics and other actions
to look at fraud risk management. And so, we look at that. We are
not a law enforcement agency. But one of the things that we em-
phasize is how do you prevent this? How do you set up the fraud
risk framework along the lines that we have—actually, we have
had a report now since 2015 spelling it out that is widely used by
agencies. How do you set it up? Because the cost of setting up pre-
vention right out of the starting gate or even now when we are
talking about what happens as we proceed with loan forgiveness
and other aspects of the program. Prevention tends to be the most
efficient thing to do.
Mr. SPANO. I get that and I apologize for interjecting. I only
have 5 minutes left.
Mr. SHEAR. Okay, I’m sorry.
Mr. SPANO. But here from the very beginning what has been ar-
ticulated as the balance that has to be struck between, in this par-
ticular situation, getting money out quickly and preventing against
fraud. They are both important. We obviously experienced person-
ally how important that was when we were getting in our congres-
sional offices dozens and dozens of calls from small businesses own-
ers every day that said what in the world are you doing? I have
got to know what is going on. I don’t know whether to let my staff
go. So, there was this inexorable push to the SBA to get this stuff
done quickly, okay?
So, and the last thing I want is fraud. Don’t want fraud. But
when we acknowledge that there are two competing interests in
this scenario, to get it out quickly and prevent fraud. It seems to
me that an important question we should ask and an answer that
we should have, if both are important, is how many loans were
fraudulent and how much of the over 525 billion loans was ex-
tended was fraudulent? That will help us determine how much, if
any, additional measures should be taken to prevent fraud in the
future. Does that make sense?
Mr. SHEAR. Yes. Let me try to be brief on this. It will be a long
time until we know how much fraud there was in the program and
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you can think of the adjudication of Department of Justice and
other law enforcement agencies. But part of our emphasis has
been—while we very much recognize that there was a push to get
loans out, but with the passage of time, it becomes much more
troubling when the fraud framework is not in place to try to miti-
gate the risk of fraud existing in the program——
Mr. SPANO. Yeah.
Mr. SHEAR.—and being practiced. And even more generally im-
proper payments occurring because of the lack of oversight. At
some point in time and we think that time has come and that is
what we are looking for is what has SBA put in place? So, that is
where our emphasis has been.
Mr. SPANO. Understood. What do you, if you know, what is the
statute of limitations for prosecution of fraud under the CARES
Act? I will let you answer that first.
Chairwoman CHU. No, well, if you want to make a question for
the record, I don’t know it. Maybe Mike Ware does. But I don’t
know, but if you make a question for the record, I would be glad
to respond.
Mr. SPANO. Mr. Ware, can you answer that question?
Mr. WARE. Great. I don’t—it appears that it didn’t specify a par-
ticular amount of time in terms of it. Normally, we were looking
at 7 to 10 years that we are dealing with on these fraud investiga-
tions. And these loans are going to perform in a portfolio for dec-
ades. So, I mean, there will be a time to go back and deal with this.
But if I may, I don’t know if we still have time for me to——
Mr. SPANO. Yeah, I have 30 seconds.
Mr. WARE.—okay, quickly. So, the issue with this is that in
terms of the fraud framework that needs to be in place, we know
for a fact that there is fraud mainly because of the thousands of
calls in the hotline. Particularly having to do with identity theft
where people are finding out for the very first time that their iden-
tities were stolen when they hear from SBA that their loan pay-
ments are going to be deferred, and they are like what loan pay-
ments? I have never had a loan from SBA. This is routine. We are
getting this, dozens every single day. We are hearing some heart-
breaking stories out there. And all these things fall into the same
buckets where we are talking about this fraud environment.
Mr. SPANO. Thank you, Mr. Ware. And I know my time is up.
I would say it seems to me if the CARES Act didn’t specify what
the appropriate statue of limitations is that is something that we
should follow-up on. I think that would give us the opportunity to
be able to plan long term for what the window of time would be
in which we need to go back after these folks.
Thank you, Madam Chair. I yield back.
Chairwoman CHU. Thank you. The gentleman’s time has ex-
pired, and the gentleman yields back. And now, our Chairwoman
from New York, Ms. Vela´zquez, is recognized for 5 minutes.
Ms. VELA´ ZQUEZ. Thank you very much. Mr. Ware, I would like
to ask the same question that I asked Mr. Shear, but because of
technical difficulties I was unable to ask the same question to you.
And it is regarding the GAO’s September report that shows that
4,226 loans went to businesses with over 500 employees. So, in
your work, have you been able to examine whether or not SBA has
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confirmed that these businesses employed the number of employees
stated in their application?
Mr. WARE. Have we confirmed of this?
Ms. VELA´ ZQUEZ. Yes.
Mr. WARE. Yes, our work has confirmed that some of that did
take place. The thing is that I don’t have the exact figures in front
of me. I definitely could get you that though. And I already see that
looking at the screen that the request for that information already
popped up.
Ms. VELA´ ZQUEZ. So, several loans that were granted to compa-
nies with over 500 employees, notwithstanding the rules that they
needed exemption for the lodging and food industry, does your of-
fice plan to examine how these companies were eligible to receive
these loans?
Mr. WARE. Certainly. I believe that is covered in our supple-
mental overview plan that we have publicly. And will be definitely
looking into that and its eligibility. As a matter of fact, some of
that will be reported publicly later in this month.
Ms. VELA´ ZQUEZ. Okay. And, Mr. Ware, in SBA’s official re-
sponse to your report, Administrator Carranza stated that, and I
quote, ‘‘Loan decisions are ultimately made by people, namely,
Loan Officers.’’ During your investigation or in the time since, have
you reviewed whether there are adequate training protocols in
place for SBA loan officers?
Mr. WARE. Initially, no. Now, yes.
Ms. VELA´ ZQUEZ. Okay. Because money was provided. Funding
was provided to the Agency to execute and implement the PPP and
EIDL programs.
Mr. Shear, in GAO’s report in September, you stated that the De-
partment of Justice has publicly announced charges in over 50
fraud-related cases related to the PPP. These cases were referred
to the DOJ by SBA, but the Agency has yet to implement addi-
tional internal controls to mitigate risk. Can you expound on the
risk SBA is incurring by not implementing internal controls for
PPP? And what is your assessment as to why they, to this point,
after we enacted the first trench of money, they have not been able
to put in place a control mechanism?
Mr. SHEAR. With the lack of information provided to us, we pre-
sume that controls are not in place. We would hope that, while I
don’t want to speak for the Inspector General, but I would hope
that they could view us in a more constructive way in terms of
helping to identify how you can create a better control environment
for this.
So, with the passage of time, again, right out of the gate, we
thought that something very serious was needed with the limited
upfront controls. And we just don’t see it yet. We see references on
pages 8 and 9 of my written statement as far as how they are going
to use contractors, but we don’t even have contracts now. And as
auditors, we asked the question what is the Agency trying to hide?
And there are just too many questions that go unanswered.
Ms. VELA´ ZQUEZ. Well, we just need to be on record, you know,
basically pointing out the attitude of this Administration. You
know, you could go out there and it just, yes, we do not deny that
the Agency must do everything they can to put money into the
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hands of deserving businesses, but not at the expense of compro-
mising the fact that they have to take every control or put in place
every mechanism to make sure that we avoid mismanagement,
fraud, and abuse. And it is not happening.
Chairwoman, thank you, I yield back.
Mr. WARE. Chairwoman, you are muted.
Chairwoman CHU. Thank you. The gentlelady yields back. And
now, the gentleman from Pennsylvania, Mr. Evans, is recognized
for 5 minutes.
Mr. EVANS. Thank you, Madam Chairperson. My issue is to Mr.
Shear again. Many lenders in my home city of Philadelphia have
expressed frustration with the piecemeal release of PPP rules. De-
spite SBA issuing rules to PPP forgiveness, there is still much con-
fusion about the lender’s role in the process. SBA is supposed to
send the forgiveness amount to the lenders no later than 90 days
from receipt of the lender’s decision on loan forgiveness. That
means for any application submitted on August the 10th, the first
day SBA started accepting them, SBA has little more than over a
month to send the funds to the lender. This is especially concerning
because lenders already operate on a tight margin. Mr. Shear,
what do you believe SBA will be able to do to meet this deadline?
And if not able to meet the 90-day deadline for distribution of for-
giveness funds, will it dissuade lenders from participating in the
PPP future?
Mr. SHEAR. I will first start with saying that SBA might actu-
ally meet those deadlines. Our concern in meeting those deadlines
is that we are looking for some type of control environment under
which the forgiveness process will proceed. But, SBA could meet
the deadlines. It is the question of whether it will protect the integ-
rity of the program in how they go about it.
So, now, if they don’t meet those deadlines, then you are creating
more uncertainty for the lenders. We have spent a lot of time talk-
ing to lenders and their trade groups and the concerns with the
rolling guidance, I will call it, and just changes in the program and
the whole question of how much lenders will be held harmless
based on certifications by borrowers. The situation keeps changing.
So, we are very cognizant of the strain that this has put on lenders
and you could say they are being compensated for it, but in a
sense, they are being compensated for something that wasn’t clear
to them when they started participating in the program. They may
not have known what their responsibilities would be. So, I hope
that is responsive to your question.
Mr. EVANS. Madam Chair, thank you. I yield back the balance
of my time.
Chairwoman CHU. Thank you. The gentleman yields back. And
now, I would like to make a closing statement.
I would like to thank our witnesses for joining us both virtually
and in person to share their important testimony today. The over-
sight work of the OIG and GAO is vital to ensuring that we root
out instances of fraud and abuse and spend America’s tax dollars
wisely especially since our small businesses need so much help.
Your work helps inform the Subcommittee on existing problems
within the SBA’s COVID-19 programs and gives us insight into
these issues as they unfold in real time.
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It is my hope that considering what we learned today that the
SBA will fully cooperate with the GAO and the OIG to improve
these programs for our Nation’s small businesses. Our witnesses
today showed that with proper input and cooperation, it can be
done. I look forward to continuing our oversight efforts with all of
you as partners.
I ask unanimous consent that members have 5 legislative days
to submit statements and supporting materials for the record.
Without objection, so ordered.
And if there is no further business before the Committee, we are
adjourned.
Mr. SHEAR. Thank you very much.
[Whereupon, at 11:22 a.m., the Subcommittee was adjourned.]
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A P P E N D I X
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Æ
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