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Letter to SBA Administrator Guzman (July 21, 2023)

Issuer
Congressional materials
Document type
Report
Date
2023-07-21
Case
2023 07 21 Housesbc Majority To Agency Letter From Sbc To Admin Guzman Covid Oig Report

Summary

A letter dated July 21, 2023 from members of the House Committee on Small Business, led by Chairman Roger Williams, to SBA Administrator Isabella Casillas Guzman. The letter states that the Administrator did not appear at the July 13, 2023 hearing with Inspector General Hannibal "Mike" Ware and cites a $164 billion discrepancy between the SBA and OIG reports on fraud in COVID lending programs. It contrasts the SBA figure of $36 billion in likely fraud with the OIG figure of $200 billion in potential fraud among $650 billion in flagged loans. The letter poses 12 numbered questions, covering review methods for the 3.4 million human-led reviews, the $30 billion the OIG reports as recouped, loans under $100,000 and FinTech oversight, and asks for answers no later than August 4, 2023.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

                                              July 21, 2023

The Honorable Isabella Casillas Guzman
Administrator
U.S. Small Business Administration
409 3rd Street SW
Washington, D.C. 20416

Dear Administrator Guzman:

         On June 29, 2023, the House Committee on Small Business (the Committee) invited you
to testify at the July 13, 2023, hearing with the Small Business Administration’s (SBA) Inspector
General (IG) Hannibal “Mike” Ware to discuss the recently released SBA and IG reports on
fraud within SBA’s COVID lending programs.1 Given the $164 billion discrepancy between
these two reports, it was vital to have all parties in the same room to discuss potential fraud of
this magnitude.2 While the Committee would have preferred to hear from you in person at the
hearing, in lieu of your absence, we write to request answers to questions Committee members
would have posed to you during the hearing and further justification for the discrepancy between
the reports.

        The SBA report states that the SBA began its review with $400 billion in pandemic
lending that it believed required additional scrutiny.3 Of that, the SBA found that there was just
$36 billion in likely fraudulent loans actually disbursed, resulting in a three percent fraud rate
across all disbursements.4 Roughly $24 billion of that—or 6.3 percent—was likely fraudulent in
the COVID-EIDL program, representing 66 percent of all fraud SBA identified in its report.5 The
likely fraud within the PPP program was approximately $7.4 billion, fraud within the Restaurant
Revitalization Fund (RRF) program is likely around $286 million, and fraud within the Shuttered
Venues Operators Grant (SVOG) program totaled approximately $146 million.6 The SBA
concluded these figures after engaging in 3.4 million human-led reviews of loans in its portfolio,
equating to approximately 3,000 reviews completed per day.7


1
  U.S. SMALL BUS. ADMIN., PROTECTING THE INTEGRITY OF THE PANDEMIC RELIEF PROGRAMS (Jun. 27, 2023).
2
  Id. at. 6 (Jun. 27, 2023); U.S. SMALL BUS. ADMIN., OFFICE OF INSPECTOR GEN., REP. 23-09, COVID-19 PANDEMIC
EIDL AND PPP LOAN FRAUD LANDSCAPE, 11 (Jun. 27, 2023).
3
  U.S. SMALL BUS. ADMIN., PROTECTING THE INTEGRITY OF THE PANDEMIC RELIEF PROGRAMS, 6 (Jun. 27, 2023).
4
  Id.
5
  Id. at 13.
6
  Id. at 13-14.
7
  U.S. SMALL BUS. ADMIN., OFFICE OF INSPECTOR GEN., REP. 23-09, COVID-19 PANDEMIC EIDL AND PPP LOAN
FRAUD LANDSCAPE, 27 (Jun. 27, 2023).
The Honorable Isabella Casillas Guzman
July 21, 2023
Page 2 of 5

        The SBA’s conclusion of just $36 billion in fraud massively differs from the findings
within the OIG’s report. The subject matter investigatory experts at the OIG found $200 billion
in potential fraud in its review of $650 billion in flagged loans.8 In our hearing, IG Ware
expressed confidence in OIG’s fraud estimate and skepticism of the SBA’s fraud report.9 Given
the large discrepancy between OIG and SBA’s perceptions, the Committee seeks to better
understand the analysis the SBA used to determine the amount of fraud at issue.

       Accordingly, the Committee writes today requesting additional information about the
SBA’s estimations of fraud within the COVID lending programs. Please provide answers to the
following questions as soon as possible but no later than August 4, 2023:

    1. What differences in method, analysis, and procedure (other than not considering partial
       repayment as an indicator of legitimacy) created this large discrepancy in the OIG and
       SBA reports?

    2. In making its fraud estimate, did SBA utilize data that SBA OIG did not have access to?

    3. Why do you think that the SBA is better able to produce a more accurate fraud estimate
       than the OIG?

    4. On average, how long did SBA reviewers spend per loan on the 3.4 million human-led
       reviews?
           a. What were the criteria used by reviewers to determine whether a loan was likely
              to be fraudulent?
           b. Were reviewers assessing individual loans, or rather batches of loans with similar
              flags?
           c. Who at the SBA is performing these reviews?
           d. What is their training?

    5. The SBA stated in its report that 6.3 percent of the COVID EIDL program was likely to
       be fraudulent.10 The SBA’s report also states that its improper payments rate will be
       “well below the statutory threshold of 10 percent.”11

            a. What is the total improper payment rate for the COVID EIDL program?


8
  Id. at 11; Stolen Taxpayer Funds: Reviewing the SBA and OIG Reports of Fraud in Pandemic Lending
Program,118th Cong, 17 (2023) (Questioning by Chairman Roger Williams) (In response to Chairman Williams
asking what the total value of loans the OIG reviewed, IG Ware responded “$650 Billion”).
9
  Stolen Taxpayer Funds: Reviewing the SBA and OIG Reports of Fraud in Pandemic Lending Program,118th Cong,
17 (2023) (Questioning by Representative Maria Salazar) (where IG Ware stated “It is evident (the SBA) cannot
prove that case based on their response to the (OIG’s) report.”).
10
   U.S. SMALL BUS. ADMIN., PROTECTING THE INTEGRITY OF THE PANDEMIC RELIEF PROGRAMS, 13-14 (Jun. 27,
2023).
11
   Id. at 18.
The Honorable Isabella Casillas Guzman
July 21, 2023
Page 3 of 5

            b. What research or evidence indicated to the SBA that there was more fraud in the
               COVID EIDL program than all other improper payments combined?

     6. What is the SBA’s role in assisting the OIG to reclaim fraudulently obtained funds?

     7. The SBA’s report indicates that there was $24 billion in fraud in the EIDL program, $7.4
        billion in fraud in PPP, and less than one billion dollars in each of the SVOG and RRF
        program.12 This adds up to a total of $33 billion, where did the SBA locate the remaining
        $3 billion in fraud?

     8. The OIG, both in its report and in IG Ware's testimony to this Committee, has stated that
        $30 billion in PPP and EIDL fraud has been recouped. However, in a call with your
        office on June 28th, 2023, it was relayed to this Committee that the $30 billion is not
        accurate as it is not exclusively comprised of fraudulent PPP and EIDL funds. Can you
        please clarify what the $30 billion in returned funds is comprised of?

            a. Given the SBA’s claims that there was only $36 billion in fraud, and the OIG
               claims it has recovered over $30 billion in fraudulent pandemic lending, does the
               SBA believe that only $6 billion in pandemic lending still needs to be clawed
               back?13

                     i. If not – how much does the SBA believe still needs to be clawed back?

     9. In your report you claimed that the SBA's approximations were actually more
        conservative than the OIG's considering that you began with a potential figure of $400
        billion in fraud before narrowing it down to $36 billion.14 Did the OIG ever convey to
        SBA the value of the initial set of loans it reviewed before finding $200 billion in
        potential fraud?

     10. How many loans across all SBA pandemic lending programs were identified as
         potentially fraudulent through information collected during account servicing?

     11. The SBA has expressed its intent not to pursue loans under $100,000.15 If those loans are
         no longer being serviced, how will fraudulent loans that have escaped initial detection be
         discovered?

12
   Id. at 13-14.
13
   Id. at 6; U.S. SMALL BUS. ADMIN., OFFICE OF INSPECTOR GEN., REP. 23-09, COVID-19 PANDEMIC EIDL AND PPP
LOAN FRAUD LANDSCAPE, 7, 11 (Jun. 27, 2023).
14
   Letter from Bailey DeVries, Acting Assoc. Adm’r, Office of Capital Access, Small Bus. Admin., to Hannibal
“Mike” Ware, Inspector General, Small Bus. Admin. (Jun. 21, 2023).
15
   Oversight of SBA’s Implementation of Final Rules to Expand Access to Capital: Hearing before Senate Comm.
On Small Business & Entrepreneurship, 118th Cong., statement of Mr. Patrick Kelley, Assoc. Adm’r, Office of
Capital Access, Small Bus. Admin. (Apr. 26, 2023).
The Honorable Isabella Casillas Guzman
July 21, 2023
Page 4 of 5


   12. From the OIG's report and testimony it appears that the SBA struggled overseeing the
       few financial technology (FinTech) companies involved in its COVID lending programs.
       How then does the SBA have confidence it can effectively oversee FinTechs more
       broadly?


       To schedule the delivery of your response or ask any related follow-up questions, please
contact Committee on Small Business Majority Staff at (202) 225-5821. The Committee on
Small Business has broad authority to investigate “problems of all types of small business” under
House Rule X. Thank you in advance for your cooperation with this inquiry.

                                            Sincerely,




_________________________                           _________________________
Roger Williams                                      Blaine Luetkemeyer
Chairman                                            Vice Chairman
Committee on Small Business                         Committee on Small Business




_________________________                           _________________________
Pete Stauber                                        Dan Meuser
Member of Congress                                  Member of Congress
Committee on Small Business                         Committee on Small Business




_________________________                           _________________________
Beth Van Duyne                                      Maria Salazar
Member of Congress                                  Member of Congress
Committee on Small Business                         Committee on Small Business




_________________________                           _________________________
Tracey Mann                                         Jake Ellzey
Member of Congress                                  Member of Congress
Committee on Small Business                         Committee on Small Business
The Honorable Isabella Casillas Guzman
July 21, 2023
Page 5 of 5



_________________________                    _________________________
Marc Molinaro                                Mark Alford
Member of Congress                           Member of Congress
Committee on Small Business                  Committee on Small Business




_________________________                    _________________________
Wesley Hunt                                  Nick LaLota
Member of Congress                           Member of Congress
Committee on Small Business                  Committee on Small Business



cc:   The Honorable Nydia M. Velasquez, Ranking Member
      Committee on Small Business

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  1. City of Phoenix Coronavirus Relief Fund Desk Review (OIG-CA-23-032) — Treasury OIG, July 21, 2023same month · 2023-07-21
  2. Stipulation and Order Regarding Discovery of Electronically Stored Information — Marshall v. Prestamos CDFI, LLC (Dkt. 80, E.D. Pa. No. 5:21-cv-04337)same month · 2023-07-21
  3. Pleasant Point, Maine Coronavirus Relief Fund Desk Review (OIG-CA-23-033) — Treasury OIG, July 21, 2023same month · 2023-07-21
  4. State of Texas Coronavirus Relief Fund Desk Review (OIG-CA-23-034) — Treasury OIG, July 21, 2023same month · 2023-07-21

Part of: Paycheck Protection Program (PPP) · COVID Economic Injury Disaster Loans (EIDL) · Reports and audits · Congressional committees · 2023 · Source documents

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