Update on SBA’s Pandemic Response Programs — Committee on Small Business (April 20, 2021)

Summary

This is a hearing before the Committee on Small Business of the United States House of Representatives, titled Update on SBA's Pandemic Response Programs, on April 20, 2021. The witnesses listed are William Shear of the United States Government Accountability Office and Hannibal Ware, Inspector General of the United States Small Business Administration. In the opening remarks, Velázquez says SBA has approved 9.9 million PPP loans worth $762 billion and 3.77 million EIDL loans for approximately $195 billion. Luetkemeyer's statement says the Committee must focus on three areas, starting with eliminating existing fraud within these programs.

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

Issuer: Congressional materials
Document type: Congressional Hearing
Case: Chrg 117Hhrg44271

Cite this document

“Update on SBA’s Pandemic Response Programs — Committee on Small Business (April 20, 2021).” Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/chrg-117hhrg44271/, SHA-256 8ba30b8ea295b066e4f2fb08dceb06af94160b0ae3101680eb20456da5de97a4.

Full text

UPDATE ON SBA’S PANDEMIC RESPONSE
PROGRAMS

HEARING
BEFORE THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION

HEARING HELD
APRIL 20, 2021

Small Business Committee Document Number 117–008
Available via the GPO Website: www.govinfo.gov

U.S. GOVERNMENT PUBLISHING OFFICE
44–271 WASHINGTON : 2021

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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin

MELISSA JUNG, Majority Staff Director
ELLEN HARRINGTON, Majority Deputy Staff Director
DAVID PLANNING, Staff Director

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CONTENTS
OPENING STATEMENTS
Page
Hon. Nydia Velázquez ............................................................................................. 1
Hon. Blaine Luetkemeyer ....................................................................................... 3

WITNESSES
Mr. William Shear, Director, Financial Markets and Community Investment,
United States Government Accountability Office, Washington, DC ................ 5
Mr. Hannibal ‘‘Mike’’ Ware, Inspector General, Office of the Inspector Gen-
eral, United States Small Business Administration, Washington, DC ........... 6

APPENDIX
Prepared Statements:
Mr. William Shear, Director, Financial Markets and Community Invest-
ment, United States Government Accountability Office, Washington,
DC .................................................................................................................. 36
Mr. Hannibal ‘‘Mike’’ Ware, Inspector General, Office of the Inspector
General, United States Small Business Administration, Washington,
DC .................................................................................................................. 58
Questions and Answers for the Record:
Question from Hon. Fitzgerald to Mr. Hannibal ‘‘Mike’’ Ware and Answer
from Mr. Hannibal ‘‘Mike’’ Ware ................................................................. 72
Additional Material for the Record:
CUNA - Credit Union National Association ................................................... 73
EIDL Validations and Internal Controls ........................................................ 75
NAFCU - National Association of Federally-Insured Credit Unions ........... 79
PPP & EIDL Oversight Info ............................................................................ 81

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UPDATE ON SBA’S PANDEMIC RESPONSE
PROGRAMS

TUESDAY, APRIL 20, 2021

HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
Washington, DC.
The Committee met, pursuant to call, at 10:02 a.m., in Room
2360, Rayburn House Office Building. Hon. Nydia Velázquez
[chairwoman of the Committee] presiding.
Present: Representatives Velázquez, Crow, Davids, Phillips, New-
man, Bourdeaux, Chu, Evans, Delgado, Houlahan, Kim of New Jer-
sey, Craig, Schneider, Luetkemeyer, Williams, Hagedorn, Stauber,
Meuser, Tenney, Kim of California, Van Duyne, Donalds, Salazar,
and Fitzerald.
Chairwoman VELÁZQUEZ. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a recess at
any time.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during hybrid proceedings.
All Members are reminded that they are expected to adhere to
these standing rules, including decorum.
House regulations require Members to be visible through a video
connection throughout the proceeding, so please keep your cameras
on. Also, please remember to remain muted until you are recog-
nized to minimize background noise. If you have to 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 will recognize that
Member at the next appropriate time slot provided they have re-
turned to the proceeding.
For those Members physically present in the Committee room
today, we will also be following the health and safety guidelines
issued by the attending physician. That includes social distancing
and especially the use of masks. Members and staff are expected
to wear a mask at all times while in the hearing room, and I thank
you in advance for your commitment to a safe environment for all
here today.
The COVID-19 pandemic sparked a once-in-a-lifetime crisis for
American small businesses. The pandemic hit small firms the hard-
est, resulting in the most significant reduction in business owner-
ship in U.S. history. Facing an unprecedented wave of small busi-
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ness closures, Congress acted by creating economic relief programs
to help businesses stay afloat through the crisis.
Since the passage of the CARES Act, the SBA has approved 9.9
million PPP loans worth $762 billion, 3.77 million EIDL loans for
approximately $195 billion and has disbursed 5.8 million EIDL ad-
vances amounting to $20 billion. This was a tall order for a small
agency like SBA. It administered more aid during the COVID crisis
than it had for all other disasters combined during its 67-year his-
tory.
I commend the SBA’s staff who have worked diligently around
the clock, often 7 days a week for over a year now. Their dedication
and work, while not perfect, have made a difference in the lives of
millions of small business owners and workers. Now is the time to
continue this Committee’s work to take a hard look at this effort
and learn lessons for the future. I hope to examine the problems
uncovered by our nation’s watchdogs and hear about SBA’s efforts
to address them.
Since the inception of the pandemic, the Government Account-
ability Office and SBA’s Office of the Inspector General have com-
bined to release 16 reports calling attention to SBA’s management
of these programs. In fact, just last month, GAO added PPP and
EIDL to its annual ‘‘High-Risk List,’’ identifying the economic relief
program as being at high risk for waste, fraud, and abuse. These
reports are sobering and a call for action.
To that end, in the last Congress, I worked closely with then
Ranking Member Steve Chabot and the Members of this Com-
mittee to conduct a robust oversight of the SBA. We held hearings
with the administrator and other high-level officials in charge of
the economic relief programs. We sent letters to the agency, placed
numerous calls, and requested countless briefings.
We were relentless in our pursuit of making sure these programs
were working effectively for America’s small businesses. It is my
hope that in this Congress the Committee can put our partisan dif-
ferences aside and work together to support the new administra-
tion to deliver much needed economic assistance to America’s small
businesses.
It is important to note that the administration inherited a num-
ber of open recommendations from GAO and the IG. In the first
couple of months in office, the Biden administration has heeded
those recommendations and made it a priority to restore program
integrity in PPP and EIDL.
The agency implemented a long review plan, maximizing pro-
gram integrity. In 2021, before issuing an SBA loan number, the
agency began conducting front-end compliance checks on new First
Draw PPP and Second Draw PPP applications using a modified
version of the automated screening tool and information from the
Department of Treasury Do Not Pay lists.
I applaud the new administration for taking these concerns seri-
ously and acting quickly to prevent emergency loans from going to
bad actors. As I always say, if something is not perfect, let’s see
what we can do to make it better.
I want to thank Mr. Ware and Mr. Shear for joining us here
today and I now yield to the Ranking Member for his opening
statement.

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Mr. LUETKEMEYER. Thank you, Madam Chair. And good
morning to all, and a special thank you to Mr. Shear and Mr. Ware
for taking time to speak with us today.
The COVID-19 pandemic has thrown never-before-seen obstacles
in front of every American, especially our Nation’s small busi-
nesses. From the devastating state and local shutdowns to the
struggle to find access to sufficient capital and employees to helps
survive, our country has never faced a disruptive problem like this.
Regardless of who has held the gavel over the years, Congress,
and specifically this Committee, has long held the view that small
businesses are vital to the health of this Nation’s economy and se-
curity. The Small Business Act of 1953 and the Small Business In-
vestment Act of 1958 established that the U.S. Small Business Ad-
ministration’s function is to aid, counsel, assist, protect insofar as
possible the interests of all small business concerns.
This continues to hold true today nearly 70 years later.
Equally important to these roles is the need of the SBA to main-
tain vigorous oversight of its own programs. Unfortunately, we
have seen numerous blunders—and I use that term very politely—
as the SBA has neglected to be good stewards of our constituents’
tax dollars. Over the course of the last year we have seen countless
stories of how the Paycheck Protection program, Economic Injury
Disaster Loan program (EIDL), and the EIDL advances have bene-
fitted small businesses, kept employees on their payroll, and helped
pay their mortgage, rent, and utilities. Without these critical pro-
grams, more of our country’s smallest firms would have been closed
permanently and millions of employees would have been out of
work. That is the good news.
The bad news is that the SBA has mismanaged these programs
and opened them up to unprecedented levels of waste, fraud, and
abuse, limiting their effectiveness and previously squandering tax-
payer dollars that could help our economy move forward. This is
unacceptable.
We will hear from the SBA’s Inspector General and Federal Gov-
ernment’s watchdog, the Government Accountability Office during
this hearing citing specific examples of troubling failures by the
SBA in administering these lifesaving programs. Those of us on
this side of the aisle have been working diligently to help rectify
these problems. Over the initial months of the 117th Congress,
Small Business Committee Republicans offered numerous construc-
tive amendments to President Biden’s COVID Relief Bill that
moved through Congress via the reconciliation process.
More specifically, we offered amendments that would enhance
and improve the oversight of SBA’s COVID programs. For example,
we offered amendments that would significantly increase the ap-
propriation for SBA’s Office of Inspector General to expand over-
sight of the SBA programs, specifically calling on the administrator
to closely examine waste, fraud, and abuse within the EIDL pro-
grams.
And while my colleagues on the other side of the aisle had many
kind things to say about most of our ideas at the time, not one
Democrat voted for any of our amendments. Perhaps after this
hearing and the subsequent events that have taken place at the
SBA, my friends on this side of the aisle will come to the table and

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actually work with us on these serious issues. Do we really need
another OIG alert detailing the impending doom of another con-
gressionally-mandated SBA program like the one published hours
before the Shuttered Venue Operators Grant program went live
and quickly crashed? Nobody should want that level of dysfunction
to occur again. The SBA had more than 3 months to pull this pro-
gram together and they could not do it.
Small business owners have been waiting a long time for these
funds to get out the door and we want those who qualify to get the
money as expeditiously as possible, but the necessary safeguards
need to be in place for all SBA programs before American taxpayer
dollars are disbursed.
In addition to the SVOG program, we are still waiting for the
majority of details, like the specific launch date, for the Restaurant
Revitalization Fund Program contained in President Biden’s par-
tisan $1.9 trillion COVID package. We tried adding more money
and oversight protections to this important program during rec-
onciliation markup, but again, the Democrats chose to go without
this in a similar partisan manner.
I hope that all my friends across the aisle can agree that we can-
not afford another bungled rollout of the restaurant program like
we saw in the Shuttered Venue. We need to be accurately pursing
legislative vehicles to ensure that this dysfunction does not occur
again.
Moving forward, the Committee must focus on these three areas.
First, we need to prioritize eliminating existing fraud within these
programs. Second, we need to delay implementation of all new pro-
grams until the SBA has the oversight controls in place to protect
against waste, fraud, and abuse. And third, we need to take a hard
look at restructuring the SBA as a whole. Should they be a direct
lender? That is a question that needs to be answered.
I thank the Chairwoman for calling this timely hearing, and I
yield back.
Chairwoman VELÁZQUEZ. Thank you, Mr. Luetkemeyer. The
gentleman yields back.
If Committee Members have an opening statement prepared, we
will ask that they be submitted for the record.
I would like to take a moment to explain how this hearing will
proceed. Each witness gets 5 minutes to provide a statement, and
each Committee Member will have 5 minutes for questions. Please
ensure that your mic is on when you begin speaking and you re-
turn to mute when finished.
With that, I would like to introduce our witnesses.
Our first witness is Mr. Bill Shear. Mr. Shear is the director in
GAO’s Financial Markets and Community Investment Team. He
leads GAO in addressing the SBA Community and Economic Devel-
opment programs and Native American Housing issues. As part of
his portfolio, he oversees evaluations of SBA contracting, disaster
assistance, credit and counseling programs. He has a master’s de-
gree in Public Policy and a Ph.D. in Economics, both from the Uni-
versity of Chicago. Welcome, Mr. Shear.
Our second witness is the Honorable Hannibal ‘‘Mike’’ Ware, In-
spector General of the SBA. Mr. Ware was sworn in as the Inspec-
tor General in May of 2018 and has been an effective leader in his

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role and an asset to this Committee. He has 28 years of experience
in the IG community rooting out fraud, waste, and abuse in Fed-
eral programs. Welcome, Mr. Ware.
Mr. Shear, you are now recognized for 5 minutes.

STATEMENTS OF WILLIAM SHEAR, DIRECTOR, FINANCIAL
MARKETS AND COMMUNITY INVESTMENT, UNITED STATES
GOVERNMENT ACCOUNTABILITY OFFICE; HANNIBAL ‘‘MIKE’’
WARE, INSPECTOR GENERAL, OFFICE OF THE INSPECTOR
GENERAL, UNITED STATES SMALL BUSINESS ADMINISTRA-
TION

STATEMENT OF WILLIAM SHEAR
Mr. SHEAR. Thank you. Chairwoman Velázquez, Ranking Mem-
ber Luetkemeyer, and members of the Committee, I am pleased to
be here this morning to discuss our work on SBA’s Paycheck Pro-
tection Program and the Economic Injury Disaster Loan program.
SBA has made or guaranteed about 19 million loans and grants
through these programs, providing about $970 billion to help small
businesses adversely affected by COVID-19.
In April 2020, SBA moved quickly on these programs to help
small businesses survive during the pandemic. SBA initially put
limited controls in place, leaving both programs susceptible to pro-
gram integrity issues, improper payments, and fraud.
Since June 2020, we have made eight recommendations to SBA
to improve the programs. In addition, we included these programs
as a new area on our high-risk list in March 2021 because of their
potential for fraud, significant program integrity risk, and need for
much-improved program management and better oversight.
We also cited the results of SBA’s most recent financial state-
ment audit in which the auditor issued a disclaimer of opinion on
SBA’s financial statements because SBA was unable to provide
adequate documentation to support a significant number of trans-
actions and account balances related to PPP and EIDL.
Further, as we reported multiple times, SBA’s failure to provide
us with data and documentation in a timely manner impeded ef-
forts to ensure transparency and accountability for the programs.
However, I am glad to report that we have received a significant
amount of information and data from SBA and its contractors over
the past 2-1/2 months. Here, I will quickly summarize steps SBA
has begun to take to address initial deficiencies.
In June 2020, we recommended that SBA develop plans to re-
spond to PPP risk to ensure program integrity, achieve program ef-
fectiveness, and address potential fraud. SBA has developed a loan
review process and added upfront verifications before it approves
new loans.
In November of 2020, we recommended that SBA expeditiously
estimate improper payments for PPP and report estimates in error
rates. SBA has now developed a plan for testing needed to estimate
improper payments.
In January 2021, we recommended that SBA conduct portfolio-
level analyses to detect potentially ineligible applications. SBA has
not announced plans to implement this recommendation.

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In March 2021, we recommended that SBA implement a com-
prehensive oversight plan for EIDL to ensure program integrity.
SBA agreed to implement such a plan.
In March 2021, we made four recommendations, two for each
program, for SBA to conduct a formal assessment and develop a
strategy to manage fraud risk for each program. SBA said it would
work to complete fraud risk assessments for both programs and
continually monitor fraud risk.
We continue to review information SBA recently provided, in-
cluding data on PPP loan forgiveness and details on the PPP and
EIDL loan review processes. In addition, we have obtained addi-
tional information from a survey of PPP participating lenders,
interviews with SBA’s PPP contractors, and written responses to
questions provided by SBA’s EIDL contractor and subcontractors.
This concludes my statement. I would be pleased to respond to
any questions you may have.
Chairwoman VELÁZQUEZ. Thank you, Mr. Shear.
Mr. Ware, you are now recognized for 5 minutes.
STATEMENT OF HANNIBAL ‘‘MIKE’’ WARE
Mr. WARE. Good morning. Chairwoman Velázquez, Ranking
Member Luetkemeyer, and distinguished members of the Com-
mittee, thank you for inviting me to speak with you today and for
your continued support of my office.
I come before you today in the midst of a historic challenge to
the Nation, a challenge in which SBA has a pivotal and unprece-
dented role in stabilizing the U.S. economy. The men and women
in my office have been working diligently to provide oversight of
SBA’s pandemic response. I am always proud to represent them
publicly and to speak to you about our important work. We share
in the Nation’s grief for those lost in the pandemic and are keenly
aware that nothing short of the public’s trust is at stake in our
oversight efforts.
SBA’s [inaudible] trillion in lending authority through the PPP
and the EIDL programs with the most recent tranche of lending
authority being contained within the American Rescue Plan Act
(ARPA).
As with OIG, the men and women of SBA have been running at
a sprinter’s pace; however, the race we are running has been more
of a marathon. Nonetheless, we have sought to have an aggressive
and focused approach to our oversight to ensure our work is prop-
erly calibrated and relevant. Congress recognized that the over-
sight required of the pandemic response was outsized for existing
oversight resources [inaudible] government to include my office. We
have received three supplemental appropriations to increase our
oversight capacity. Initially, we focused on the recruitment of a mix
of auditors, analysts, and criminal investigators to provide imme-
diate and timely insight into these programs.
In December, we received funding directed to oversight of the
EIDL program that seeks to address the rampant fraud identified
by my office. These funds are being used to increase our investiga-
tive staff and enhance our data analytics capacity.
We received our most recent supplemental increase a couple of
weeks ago, and those funds will be used to further increase our in-

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vestigative capacity to combat fraud. Fraud investigations will be
a decades-long effort due to the performance of these loans within
SBA’s portfolios and the statute of limitations on fraud. Our office
will have approximately 40 percent more staff onboard after our
hiring surges for EIDL and ARPA conclude than we had before
March of 2020.
Even still, we recognized from the beginning that the level of
oversight required would take a whole of government approach. We
partner with law enforcement entities across government and join
multiple taskforces to multiply our reach. Since the outset of the
pandemic response, our strategy has been to prevent and deter
fraud, waste, and abuse, and to identify and combat instances of
the same.
The first step was the issuance of three reports sharing risks and
lessons learned from our past oversight work. Principally, that
most closely related, which is of the American Recovery and Rein-
vestment Act of 2009. These reports, as well as a fraud and scam
alert were published before SBA made the first PPP and EIDL
loans. Recognizing the speed at which lending was occurring in
both these programs, we developed innovative report products to
provide timely insight to our stakeholders. Our first flash report
was published just a little over 30 days of PPP’s implementation.
Our next report will come out in July, which found significant
deficiencies in internal controls and rampant fraud within the
EIDL program. We have issued 13 reports on SBA’s pandemic re-
sponse oversight with two more near issuance. Most recently, we
issued a management alert on serious concerns about SBA’s control
environment and the tracking of performance results in the Shut-
tered Venue Operators Grant Program prior to the program
launch.
In light of having to plan a program under tight constraints, it
is imperative that SBA design the program in a way that provides
for a balanced audit risk framework, consistent application of Fed-
eral regulations for grant management, clearly defined perform-
ance goals and adequate resources to effectively administer the pro-
gram.
While our audit work was ongoing, our criminal investigators
were aggressively pursuing fraud. On May 5, that is a little over
a month after the first PPP loans, the first in the Nation fraud
charges were announced against an individual fraudulently seeking
a PPP loan. We have since initiated over 420 investigations, and
together with our law enforcement partners, the Department of
Justice has announced over 100 indictments against individuals
committing fraud against the PPP and EIDL programs.
We have received over 150,000 complaints on our hotline since
March of last year. This is over 150 years’ worth of complaints
when compared to prior years. We have sought and obtained assist-
ance from the Pandemic Response Accountability Committee
(PRAC), the catalogue complaints being received outside of our on-
line complaint submission system, and we are employing data ana-
lytics to further triage these efforts.
I look forward to discussing our most recently published works
surrounding implementation of PPP, EIDL, and SVOG. Thank you

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for the opportunity to speak to you today. I am happy to answer
any questions you may have of me.
Chairwoman VELÁZQUEZ. Thank you, Mr. Ware.
I will begin recognizing myself for 5 minutes.
Mr. Ware, the Biden administration has taken steps to restore
program integrity, including implementing front end compliance
checks on PPP loans. What other steps have been taken by the new
administration to improve program integrity? Also, how effective
will these steps be?
You are muted.
Mr. WARE. Yes. I had to figure out the mute button.
Thank you. Thank you for that question.
This administration has implemented quite a bit of front-end
controls to include addressing our recommendations that have to do
with IP address deconfliction, checking on those accounts that have
at the last second changed the bank account information, and
many of the other controls that we asked them to put in place, spe-
cifically with our December memo to the administrator.
Chairwoman VELÁZQUEZ. Thank you.
Mr. WARE. Yes.
Chairwoman VELÁZQUEZ. Mr. Shear and Mr. Ware, has the
new administration been responsive to your requests? Has SBA,
under the leadership of President Biden and Administrator
Guzman increased the level of cooperation and transparency? Has
the new administration been more forthcoming with information?
Mr. SHEAR. Yes. Definitely. As in my written statement and my
oral statement, since the beginning of February, in terms of access
to people, having in-depth discussions with SBA officials and their
contractors, in terms of providing us data and information, pro-
viding us details about the oversight plans particularly for PPP, I
am glad to report that it has become much better.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Ware?
Mr. WARE. I also agree. I did not have many of the problems
that GAO encountered, but this administration has been very up-
front, very transparent, very interested in implementing the rec-
ommendations, or at least taking steps to move in that direction,
and very interested in hearing what the Office of Inspector General
has to say.
Chairwoman VELÁZQUEZ. I would like to submit for the record
a list of improvements to SBA programs that have been made by
the Biden administration.
Without objection, so ordered.
Mr. Shear and Mr. Ware, were the loans mentioned in your re-
port made during the last administration or since March 16th
when the new administrator was sworn in?
Mr. Shear?
Mr. SHEAR. The loans that we are referring to are over a period
that goes into the beginning of 2021. But for the most part it was
loans over the period during the previous administration.
Chairwoman VELÁZQUEZ. Mr. Ware?
Mr. WARE. Pretty much the same. Like, we started from before
the first loan even went out. So that work is still ongoing, but the

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majority of our work informs what happened in the past in order
to set up what is to happen in the future.
Chairwoman VELÁZQUEZ. Thank you.
Mr. Ware, your office issued a management alert on April 7,
2021, the night before the launch of the Shuttered Venue program
citing a number of concerns but you missed the main issue, the
technical issues that throttled the system on the day of the launch.
What happened on your end and why did you not flag these con-
cerns earlier?
Mr. WARE. Thank you for that.
So, a management alert or advisory, the purpose of it is to
present interim engagement results or share information as quickly
as we can during a broad scope review. So we are assessing the
program and we saw this at the onset of the program and thought
let’s stop and get this information in their hands right now while
they still had time to improve the control environment. At that
time we had not yet got to those controls.
Chairwoman VELÁZQUEZ. Mr. Ware, is it not customary to
alert Congress and the agency of such concerns in a timely man-
ner?
Mr. WARE. It is. But the alert, right, is a part of a broader scope
review. So in terms of alerting timely, this is what we alerted time-
ly on. This is what we had known for certain at the time in the
review. So the review on this program is still ongoing. These were
the concerns that we thought we should raise immediately.
Chairwoman VELÁZQUEZ. Thank you. My time has expired.
Now I recognize the Ranking Member, Mr. Luetkemeyer, for 5
minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair.
I think we need to sort of set the stage a little bit here with re-
gards to what we are talking about this morning from a standpoint
that the PPP program was implemented in a very, very quick fash-
ion. In a way that we knew we had our economy at risk. We had
jobs at risk. Businesses at risk. And we knew that this was prob-
ably not the perfect way of going about dispensing those dollars
and get them out in a hurry. And I think SBA did a great job of
getting those dollars out the door and in the hands of folks who
needed it.
I think the numbers have come back with some concerns about
some of these loans. As a former regulator, I can tell you that
whenever you are looking at a loan file and you see something that
there is an I dotted or T not crossed in there you kick it out for
what they call a technical exception. In discussing this issue with
some of the IG and GAO folks, I think that is where we are with
some of this stuff that is in these reports.
That being said, there has been some documented fraud in there
as well, and I think that is the concern that I have is that we make
sure we go back and recover those dollars. Make sure that there
is an effort made to stop those folks from getting at those dollars
and setting up the new programs, which are the EIDL program
here with a recharge of money, as well as the restaurant program
and the venue program, make sure those programs are set up so
that this does not happen again. And this is my concern this morn-
ing from the standpoint that the EIDL program, and to quote Mr.

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Ware, you called it rampant fraud in the EIDL program with re-
gards to identity theft. This program was not that big compared to
the amount of money that is going out with regards to identity
theft.
Have you seen any kind of controls put in place by the SBA with
regards to identity theft? Because I think the Shuttered Venue pro-
gram was going to be operated very similar to, if I am not mis-
taken, the way that the EIDL program is. So have you seen them
put anything in place that could be considered protection against
that kind of activity? Mr. Ware?
Mr. WARE. Yes. Actually, I have. Yes. Actually, we have. SBA,
and in particular, the Office of Disaster Assistance—since we are
talking about EIDL, they have been at the table quickly imple-
menting the upfront controls. At least they are stated; we have not
tested them as yet. We trust that they are doing it but we always
verify. The alert on Shuttered Venues, for example, never ad-
dressed the upfront controls for fraud. That we found that they had
in place, at least what we had asked them to implement. What we
were talking about was relative to measuring the program and
having enough people to actually oversee the program on the
backend so that we know that the program met its intended pur-
pose.
Mr. LUETKEMEYER. Well, with regards to that, according to
you two all’s reports, there was not that much identity theft of a
problem in the PPP program comparatively to the EIDL program.
So it begs the question, the difference between the EIDL program
and PPP program is that the banks basically were the ones that
went through the program and got these dollars out the door. And
they have a ‘‘know your customer’’ law in place to make sure that
they know who the person is who is contacting them, the business
that they are working with, and yet in the EIDL program, those
sort of safeguards had not been in place. And maybe they are now,
but it would seem to me and to beg the question, if SBA is going
to stop that sort of fraud, they need to change the way that they
do lending and let the lending be direct as it was in the PPP pro-
gram or they become just a guarantor of the loan versus the actual
lender of those dollars.
And so I guess my question to you is, are you satisfied that the
controls in place are such that you would not want to see perhaps
a third party actually get those dollars out the door so there is an-
other level of safeguards in place, especially when the banks are
there and used to I dotting and T crossing, collecting information,
collecting forms and doing it in a very efficient manner? Would you
consider that something that we need to be taking a look at?
Mr. WARE. My oversight is to the criteria based on the way that
the programs are set up. In order for me to say that I would be
satisfied with the controls, we would have to test the controls,
which we have not done yet.
Mr. LUETKEMEYER. Okay.
Mr. WARE. We believe in what we have recommended to SBA
and we believe that if properly implemented it would stem the tide
of fraud in these programs.
Mr. LUETKEMEYER. Excuse me, Mr. Ware. I would like for Mr.
Shear to get in on the question.

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What would be your opinion on that?
Mr. SHEAR. I would agree with Mr. Ware that the mechanisms
from the programs are different. With respect to PPP and the role
of the banks, there is some information that comes out of it. We
have suspicious activity reports that are used with that type of ar-
rangement but banks also made suspicious activity reports on
EIDL as well but they are of a different nature. So there is some
control in place, ‘‘know your customer’’ type of controls that also af-
fects who was able to get in and get the loans from the banks. So
there are certain tradeoffs here in terms of who is being served. So
there is a mechanism there through, as you say, through banks.
But just like Mr. Ware said, we have not tested controls and we
are looking for the details now on the oversight of the banks them-
selves and we are going through the information which is quite ex-
tensive that we have been getting to look at what the oversight of
the banks is.
Mr. LUETKEMEYER. Okay. Thank you very much. I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Colorado, Mr. Crow,
Chairman of the Committee on Innovation, Entrepreneurship and
Workforce Development, for 5 minutes.
Mr. CROW. Thank you, Chairwoman. Thank you to the wit-
nesses for coming here today.
Mr. Ware, I have a question regarding data and the integrity of
data. Last year it was discovered that the Miter system that the
database had significantly data disparities. So just as one example,
the zip codes and the congressional data, the district data did not
match up. And the SBA itself had found we were doing 500 PPP
loans over the $150,000 threshold, that 111 of those did not match
the state code for the loan. So it was nearly a 22 percent disparity.
We actually did our own analysis in our office and found significant
loans that had been allocated to other districts that actually oc-
curred within our district, hundreds of loans, in fact, and had our
staff do that.
So did you all see that same disparity in your review? And have
you been able to track any trends as to whether or not that data
disparity is getting cleaned up?
Mr. WARE. Thank you very much.
Yes, we actually found the very same thing in terms of our data
analytics unit. It kept reporting that some of the data is dirty. That
is the term that they use. It is not good. But I know that they were
able to work with SBA to rectify some of those challenges, which
means that SBA is able to clean the data once they know that it
is incorrect. So I know it is something that they are working on.
They are working on making sure that they have clean data.
Mr. CROW. Can you give me some sense, I mean, I always kind
of bristle at this notion, they are like, oh, we are working on it.
And the problem for us is I am sitting here and we all represent
districts. And I literally want to know what loans have been given
in my district. Like, I want to know where those loans went, what
the loan numbers are, and I just do not have trust right now that
I understand that. That any one of us sitting here today can pull
that data up and trust that data and actually understand what is
going on in our own communities. So can you give me some sense

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as to when we can have that trust and a date by which we can say
this is the data, this is what is going on in our community?
Mr. WARE. So, as you know, that data belongs to SBA, not to
SBA-OIG. So I know that question would be best posed to the pro-
gram, which is SBA. I could tell you that when we look at the
data——
Mr. CROW. No, Mr. Ware, you are the watchdog of SBA, right?
So I am asking you as the watchdog, the person that is charged
with internal oversight, what you think the timeline is for when
they are going to clean this up.
Mr. WARE. Like I was saying, as I am not on the program side
of things, I cannot give you a definitive date on which they would
clean their data up. What I can tell you——
Mr. CROW. I am not asking for a definitive date, Mr. Ware. I
am sorry, I am not asking for a definitive date. Can you give me
an estimate as to the glide path that they are on to cleaning this
up? Are we talking about a week? Are we talking about a year? Are
we talking about somewhere in between? Can you give me any
sense as to where they are at?
Mr. WARE. It is real difficult for me to give you a sense of where
they are at in that. What I could tell you is this; what my office
reviews, we clean to make sure that the data that we are putting
out in our reports is indeed accurate.
Mr. CROW. Okay. I understand. That does not help us, unfortu-
nately.
Mr. WARE. Right.
Mr. CROW. It does not help us. And you can tell I am frustrated
because we do not even know what is going on or have trust in the
data fully in our own communities because the data is dirty, as you
say. And we need answers to when it is going to be clean.
So I think I made my point here. This needs to be fixed and we
would expect you to push hard and we would like better answers
from somebody as to when this is going to be fixed.
Madam Chair, I yield back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
The gentleman from Texas, Mr. Williams, Vice Ranking Member
of the Committee is recognized for 5 minutes.
Mr. WILLIAMS. Thank you, Madam Chair.
On April 8, small business across the country were devastated to
see the Shuttered Venue Operator Grant portal shut down within
2 hours of launching, and I was the Republican lead on the House
side so I am very disturbed on what I see. These businesses have
already suffered enough economic injury while waiting 4 months
for this program to be open.
So Mr. Ware, you mentioned in your testimony that you have se-
rious concerns about the SBA’s control environment over SVOG
program, Save Our Stages program. Can you elaborate on specific
internal controls that need to be implemented within the SBA re-
garding waste and fraud within the SVOG program, and are you
confident that the changes outlined in your initial report will be
solved by the time the application portal reopens? We have busi-
nesses across the country that are closing every day because this
was approved into law on December 8th and we are still not there
yet. So what can we do to fix that?

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Mr. WARE. Thank you for your question.
First off, the alert that we put out raised the attention of serious
concerns with the control environment and the tracking of perform-
ance results. We need them to reduce or eliminate risk by imple-
menting controls to address the misuse to Federal funds. In this
case it was the way that they wanted to go about identifying the
vulnerabilities commensurate with the expected volume of applica-
tions that they were going to get. We wanted them to clearly estab-
lish 2 CFR 200 criteria for the program to ensure compliance. It
is important for me to point out that this is a grant program, not
a lending program. Grant programs come with specific rules and
regulations that need to be followed in order to determine the im-
pact of program funds. We did not feel that they had sufficient re-
sources available to implement or oversee the program from the
onset. Relative to the fraud risk side of it, this did not address that
because we found that they had implemented the recommendations
that we had been given all along in terms of what checks should
be in place to mitigate the risk of fraud.
Mr. WILLIAMS. Okay. I spoke with Administrator Guzman the
other day after the OIG report, and it seems like they are claiming
the report was released prematurely as a result of
miscommunication and that many of the concerns had already been
addressed. So even if that is true, it raises serious concerns about
the agency’s ability to carry out similar programs in the future if
they cannot even get on the same page with their communications
with the Office of Inspector General.
So Mr. Ware, what improvements need to be made to solve these
communications issues so we can have confidence that all the pro-
grams being run out of the SBA are doing so with the proper levels
of oversight? And again, I remind you, many, many people are
waiting to get on these programs to save their businesses.
Mr. WARE. Right. This is a little surprising to me, kind of news
to me, catches me a little bit off guard. Internally, before we re-
lease anything there are quite a bit of meetings that are taking
place between our audit teams and the program staff. And even in
those, not necessarily a communication issue. It was an under-
standing of what we mean by you have to establish criteria that
is different because this is a grant program and not a lending pro-
gram. And that we did not think that you could shut off certain re-
quirements of CFR 200 that governs these programs. So that was
the main thing.
But relative to communication, the administrator is new. We are
building our relationship. Right now I think that is off to a much
better start, especially after this was issued. We now have stated
rules of engagement for how we go forward to make sure that
they——
Mr. WILLIAMS. Okay.
Mr. WARE.—do not feel like there is a communication issue.
Mr. WILLIAMS. All right. Let me move on to another question.
I recently sent a letter to the Small Business Administration ex-
pressing concerns about the outstanding PPP loan forgiveness ap-
plication past the 90-day deadline. The inaction and lack of commu-
nication coming out of the agency on these outstanding loans are
keeping financial institution businesses in the dark. The result is

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that hardworking Americans are stuck holding enormous liabilities.
It prevents them from investing in business growth as we recover
from COVID.
So Mr. Shear, quickly, what steps do we need to be taking with
the SBA so we can clear this backlog of PPP loans waiting to be
forgiven?
Mr. SHEAR. Part of it is consistent with putting in the right in-
ternal controls that pay attention to what are the elements that
are slowing down the forgiveness decisions, such as when flags go
up. I will call it flags of potential fraud. When flags go up, is there
a disciplined approach of determining which flags are more impor-
tant than others are? So I think that these are the types of things
that we are looking for in that program.
Now that we have PPP forgiveness data, we are really analyzing
it in depth to try to see how rampant these problems are. So I do
not have an answer to your question yet as far as whether it is iso-
lated or whether there is a large magnitude to this.
Mr. WILLIAMS. I yield my time back.
Chairwoman VELÁZQUEZ. The gentleman yields back.
The gentlelady from Kansas, Ms. Davids, Chairwoman of the
Subcommittee on Economic Growth, Tax, and Capital Access is rec-
ognized for 5 minutes.
Ms. DAVIDS. Thank you, Chairwoman. And thank you to you
and to the Ranking Member for holding this hearing today. And of
course, to Mr. Shear and Mr. Ware for your critical oversight work.
As of earlier this month, the SBA had approved over 13 million
loans totaling approximately $964 billion through the Paycheck
Protection Program and the EIDL Program. And these programs
have been absolutely essential lifelines to small businesses across
the country, and we know there is more to be done to support our
small businesses until the end of this pandemic.
But part of that support definitely has to include the exact thing
we have been talking about so much today, ensuring the integrity
of the programs, of preventing further fraud and abuse from frank-
ly wasting taxpayer dollars. And I know the Office of Inspector
General and the GAO reports have highlighted persistent fraud in
both the PPP and EIDL programs.
In the Kansas 3rd, which I represent, a local newspaper was able
to share some information about 35 cases of relatively easy-to-iden-
tify fraud in just one of the counties in our district. And that was
mostly fake farming enterprises in a largely suburban and residen-
tial area. And in addition to wasting taxpayer dollars, these cases
are, of course, defrauding innocent people through identity theft
and it is obviously urgent and critical that SBA is able to root out
this type of fraud really quickly. I know I have urged, and I know
others have, too, for the SBA to adopt the OIG recommendations
that we have already seen so that the victims of identity theft are
not held at fault.
Mr. Ware, I would love to ask you my first question. In your tes-
timony, you mentioned the ongoing review of SBA’s response to al-
legations of identity theft. And I know the Chairwoman kind of
touched on this a little bit ago. But can you give us an assessment?
I know you indicated that there is some new frontend controls, but

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can you give us a sense of how the SBA is handling these types
of cases?
Mr. WARE. In terms of identity theft?
Ms. DAVIDS. Yeah, identity theft, particularly as it relates to
PPP and EIDL. Or the EIDL is the one that seems to have the
most impact in the district that I represent based on the data we
have.
Mr. WARE. Correct. Well, we have an ongoing review right now.
As a matter of fact, that report, I think the response from SBA to
this report is due today if I am not mistaken—I think it was the
20th—and will be issued shortly thereafter provided they do not
ask for an extension being that the administrator is new. But in
that, we are reporting publicly on what SBA has done to address
what is happening with identity theft because, like you, we have
heard countless stories and complaints involving identity theft.
And just so we are clear, SBA-OIG does not have principal juris-
diction on investigations involving identity theft. That belongs to
the Federal Trade Commission. But we have a direct link on our
hotline page in hopes of helping victims. We share those complaints
with SBA so they can take appropriate actions, and we view this
as a significant matter for SBA to address, one that is tied to inter-
nal controls within the programs. So it is something that we are
taking very seriously and many of our active investigations have to
do with this identity theft issue.
Ms. DAVIDS. Yeah. So that is helpful context. I am curious if
you are able to give any kind of indication about, now that the
EIDL loan repayments have been delayed by another year, some of
those victims of identity theft are going to have other parts of their
lives disrupted. Do you know if SBA, or have you made rec-
ommendations about how SBA might be able to reduce down or
solve that issue so that people who have been the victim of identity
theft through these EIDL loans are not negatively impacted in a
bunch of other aspects of their lives?
Mr. WARE. Right. We have provided recommendations. The
thing is, it is still in draft so it is not a completed work that I can
speak about publicly.
Ms. DAVIDS. Okay.
Mr. WARE. Like in this setting.
Ms. DAVIDS. Yeah, so actually, so we will follow up with you
based on your answers today. Thank you so much.
Chairwoman, I yield back.
Mr. WARE. Thank you.
Chairwoman VELÁZQUEZ. The gentlelady yields back.
The gentleman from Minnesota, Mr. Hagedorn, is recognized for
5 minutes.
Mr. HAGEDORN. Thank you, Chair. I appreciate this oppor-
tunity. And thanks to the witnesses.
Mr. Ware, I think you have been around government a little
while and you kind of realize that this was quite an avalanche of
lending that was going on by SBA through their partnerships with
financial institutions and others. And quite something that the
Congress and the president could get a bill enacted and then 7
days later they would actually have regulations on the books in

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order to move the program along. Usually I think regulations like
that would take 3 to 6 months, maybe even longer.
So I understand there are going to be some issues. We do not
want any of that. But in looking at your testimony, it seems to be
a big difference here between the Paycheck Protection Program and
whatever monies might have gone out the door that were not sup-
posed to be. And then compare that with the EIDL program. And
you know, Congressman Luetkemeyer, our ranking Republican
member was making the point that, boy, the EIDL program had
substantially less money and yet there seems to be a lot of issues.
In your testimony you account for about $75 billion that may
have been inappropriately sent to ineligible businesses, but those
numbers are from back in July of last year; right?
Mr. WARE. Yes. The numbers at that time were from back then.
Mr. HAGEDORN. So since then have you been able to update
those or do we have some idea that this is way less than it was
before or they have reclaimed some of those monies on all these
other things?
Mr. WARE. That is a good question. We have been working dili-
gently, of course, to claw back money that has gone to folks that
it should not have gone to. I think we are up to a total between
us and SBA, our partners, $1.9 billion. We are continuing to move
along those lines. We do have updated figures. I just do not have
them at my fingertips right here.
Mr. HAGEDORN. All right.
Mr. WARE. It would take me a couple.
Mr. HAGEDORN. I mean, it looks here, this looks terrible but
hopefully there is something that accounts for that and the prob-
lem is not this big. But it seems to me again that where you had
lenders, financial institutions and others working with customers
where they have to know their customers, there was not as big of
an issue, as big of a problem. But then we get in to where the gov-
ernment is dealing with these folks directly there is all this iden-
tity theft and so forth.
So what was the most serious broad scheme that they had tar-
geting these EIDL loans? What is your experience on that?
Mr. WARE. Before that there are two important things to point
out here. When we were providing context as to what was going on
in terms of fraud, the Office of Capital Access deals with PPP. They
were very quick to implement controls that we thought were miss-
ing, very, very quick. And we know that is a big reason why there
was a lot less that we found in that area. ODA took a much longer
time to implement. That is a fact.
Secondly, in terms of identity theft, we are starting to see more
of it raise its ugly head on the PPP side with the bringing on of
the Schedule Cs. And so, I mean, we are still at the very beginning
of this. We are starting to see the trends start to take shape. And
so it might turn out to be a different story a little bit later. But
you asked about the schemes; right?
Mr. HAGEDORN. Yeah. What is the role of the most prevalent
scheme?
Mr. WARE. One of the most prevalent schemes, particularly for
the EIDL Advance program was where people were being contacted
by, I do not know, fraudsters who would say the government is giv-

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ing out free money and all you have to do is have us sign up for
you and SBA will give you a check for up to $10,000 and it will
be deposited into your account and you just have to pay us out a
portion of it. And that is what we were seeing with the multiple
IP address hits. It would be like one computer handling all this for
maybe 200, 300, 400 different loans and just really bombarding
base controls with that.
Mr. HAGEDORN. So people were literally just handing over
their basic information to the fraudsters and then they were going
ahead and making those applications and taking the money.
Should the government have not figured out some way that all
these things were coming from the same addresses? I mean, were
there not any controls that were in place before this started out?
Mr. WARE. That argument that we were faced with was, well,
multiple loans came from a single IP address doesn’t mean it is
fraud. And I would say maybe there might be a real reason for it
but until you check you would not know.
Mr. HAGEDORN. You might want to look into that; right? Yeah.
Check into it.
I do not know how much time I have. I am not seeing the com-
puter. If I have just another minute——
Mr. PHILLIPS. Mr. Hagedorn, your time has expired.
Mr. HAGEDORN. Okay. I yield back then. Thank you.
Mr. PHILLIPS. All right. The gentleman yields back.
And now I recognize myself for 5 minutes.
I want to thank our witnesses for being here today, and I believe
I speak for all of my colleagues on this Committee when I say we
are deeply troubled by the reports of rampant fraud and abuse
within the PPP and EIDL programs. Congress established these fa-
cilities to be a vital lifeline to American businesses in their darkest
hour and now we are bringing some much needed sunlight as a dis-
infectant for corruption.
I am also troubled by the frenzied environment that gave birth
to the programs with all their shortcomings, and I would hope to-
day’s hearing stands as a lesson to those of us in Congress to re-
turn to regular order, and those of us in the administration, to ex-
ercise the very highest standards of ethics in implementing and en-
forcing the law which ought to be amongst our highest priorities.
Mr. Ware, on February 2nd, the Biden administration published
a fact sheet detailing new measures to prevent fraud in the PPP
and EIDL programs. These measures provided that loan guarantee
approval would now be contingent on passing SBA fraud checks,
Treasury’s Do Not Pay database, and public records. While imple-
menting these checks at the late stage has somewhat slowed the
processing of loan applications, these safeguards could have been
implemented from the very beginning. In fact, on the day that
lenders began processing applications for PPP loans last year, you
issued a white paper outlining lessons learned from previous stim-
ulus loan programs. In that document you warned that ‘‘increased
loan volume, loan amounts, and expedited loan processing time-
frames may make it more difficult for the SBA to identify red flags
in loan applications.’’ You urged the agency to put sufficient con-
trols in place then. Did administrative officials at the agency heed
your warnings at that time, sir?

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Mr. WARE. At that time, no.
Mr. PHILLIPS. Okay. And when it became clear that the set up
of EIDL, which is directly processed by SBA loan officers also made
it particularly susceptible to abuse, you issued a July report con-
taining another warning of ‘‘potentially rampant fraud’’ in that pro-
gram as well. Is that correct?
Mr. WARE. This is correct.
Mr. PHILLIPS. And then last month, the Justice Department
unveiled charges against a former Florida tax collector who alleg-
edly bribed an SBA loan officer to ‘‘use her access to the SBA’s
computer systems and her access to EIDLs to manipulate the sta-
tus of EIDLs to trigger the system to extend funding’’ for the ben-
efit of the defendant.
Mr. Ware, this is not the first instance of questionable behavior
by agency employees. So please elaborate, if you would, on why
these activities did not trigger red flags in the loan system, and
please speak to the OIG report that you issued in October of 2020
concerning SBA employees and contractors who were involved in
inappropriately influencing loan approval.
Mr. WARE. Well, the control that you are speaking about was
not in place to begin with and that was one of the controls that we
were talking about, hey, you have to implement these controls. I
mean, we were at the table on several instances speaking about
this even before the reports were out saying this is a serious issue
and there are certain things that need to be implemented. But as
I was saying before, it was not I guess the best way to say it. It
was not always taken as seriously. So there was always a justifica-
tion trying to be made that there could be a valid reason for why
we were seeing what we were seeing, although we had already
made dozens of arrests up to that point using the same red flag in-
dicators.
Mr. PHILLIPS. Okay. On the subject of taking things seriously,
Mr. Ware, if you could just spend a moment and speak about your
knowledge of the staffing challenges at SBA given the workforce
needed to administer programs of this scale and any recommenda-
tions that you have to ensure that employees are thoroughly vetted
moving forward.
Mr. WARE. Right. Well, relative to that, as you know, especially
in the disaster area, SBA has the authority to very, very quickly
ramp up and they did that. Our issue was where the ramping up
was taking place. So we wanted them to put more people to ad-
dress the red flags. More people to check why is there 200 loans
from a single IP address. Why did all these loans have a changed
bank account? We wanted them to assign folks there and they did.
They actually, they did that and that was one of the things that
they did rather quickly once they decided that they would review
the red flag areas because many of them had to be cleared. So I
believe they went from four people to 40 to 250. The numbers prob-
ably are not exact but I am pretty positive they are close in terms
of how big they moved on that.
Relative to that, we have long recommended the importance of
not only staffing up but properly training and vetting folks. There
are multiple reports with that as a recommendation.
Mr. PHILLIPS. All right. Thank you, sir. Duly noted.

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My time is expired. And now I recognize my fellow gentleman
from Minnesota, Mr. Stauber, for 5 minutes.
Mr. STAUBER. Thank you very much, Mr. Chair. And to the
witnesses, thanks for being here today.
Mr. Ware, a couple of questions. Of all the recommendations OIG
has made in the various reports over this last year, how many rec-
ommendations has the SBA adopted?
Mr. WARE. That is a good question. I actually have it some-
where. I am trying to scroll quickly to find the exact number. But
I do know that I could get you the number. But they have moved
to implement recommendations.
We have closed, of the almost I think 24 of them, we have closed
six. And are reviewing information necessary to close others. We do
know that they have shown us documentation that several of the
others, they have addressed them. And to be quite honest, they are
moving expeditiously to implement the recommendations.
Mr. STAUBER. And Mr. Ware——
Mr. WARE. They are at least addressing them even if they have
not had the time to fully put them in place.
Mr. STAUBER. Mr. Ware, what has the SBA signaled to you as
their reason for not implementing more of the recommendations
that you have just suggested?
Mr. WARE. SBA, we have resolved all but one recommendation
with SBA. I know you are going to ask me which one that is. I do
not know the exact one that is. Oh, the one that they did not re-
solve is one that they agree with but they have a different way that
they would like to address the cause of that recommendation,
which was fine with us. But we have resolved just about all of
them. They are not saying that they are not going to implement
them. Some just take a longer time than others. The more critical
ones they have moved on.
Mr. STAUBER. Thank you, Mr. Ware.
And then one last question for Mr. Ware. How would you rate
or describe the SBA’s ability to prevent new fraudulent behavior in
the existing pandemic response programs as it stands right now?
Mr. WARE. I would rate it much stronger than it was at the be-
ginning. I believe that we have all, SBA included, learned a lot of
lessons from where we were in the past months and that SBA is
intent, at least on what they have presented to us, they are intent
on making sure that the same errors do not happen again. It is our
intent to measure it in terms of where we were before, what got
through and where we were, where we are now in terms of what
has been prevented.
Mr. STAUBER. And Mr. Ware, if you could, could you provide
that information to the Committee?
Mr. WARE. Yes. Actually, I have it at my fingertips. I mean, it
is right here. I have it.
Mr. STAUBER. Thank you very much.
Mr. Shear, a question for you is, in your opinion, what is the
most important recommendation either the OIG or the GAO has
made that has yet to be adopted to the SBA?
Mr. SHEAR. I will speak to the eight recommendations that we
have made and they are all still open. And what I want to empha-
size, because four of them deal with fraud risk management is that

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where Mr. Ware has a very important role to play in terms of being
part of law enforcement, our focus is on preventative controls. So
what you put in place.
So we have four recommendations that were made in our March
report that have to do with really developing a disciplined ap-
proach, creating clear responsibility and authority in a unit within
SBA to carry out those four recommendations. They mirror each
other, two for EIDL and two for PPP. So I would probably put
those at the top. But then in terms of our role, again, and I will
emphasize that we coordinate with the IG, and we do different
things. And we are not conducting fraud investigations as a part
of law enforcement, but just to back up to what we said originally
with PPP, that you just needed an approach that would ensure the
integrity of the programs that eligible businesses are participating
in. That it is meeting, more broadly, it is meeting the intent of the
programs. And so that is a more global approach. So I do not want
to forget about what I call the more global recommendation we
made, but the four in particular that we made, dealing with fraud
risk management I think are probably at the top of the list.
Mr. STAUBER. Thank you, Mr. Shear. And I see my time has
expired. Back to you, Mr. Chair. Thank you.
Mr. PHILLIPS. The gentleman yields back.
The gentlelady from Illinois, Ms. Newman, is recognized for 5
minutes.
Ms. NEWMAN. Thank you, Mr. Chair. And thank you to Chair-
woman Velázquez and Ranking Member for this hearing. It has
been very helpful.
So we have talked a lot about granular things today, Mr. Shear
and Mr. Ware, and I really appreciate that. So let me start by say-
ing that this program was huge and complicated to start out with
for the SBA. Given that we had to move very quickly, it is not sur-
prising that there were challenges in 2020. Throughout the year of
2020, many of these challenges were identified and not corrected
frequently. So I am glad we are finally getting to a point.
And so I have the same question for both of you. I will start with
Mr. Shear because it probably is more GAO than it is for Mr.
Ware.
So it looks to me that while we have all these very significant
and severe granular problems, there is a higher level management
problem, that the structure of the SBA needs to change. It appears
they come in four buckets. There is fraud and litigation issues.
That there are categorization review analysis and assessment and
data integrity issues. It sounds like there are workforce issues. So
given that there are four very systematic issues and they are very
large buckets with very granular problems in them it would appear
that we need to look at the structure of the SBA from an organiza-
tional standpoint and really make some recommendations there so
the move forward is working better.
So can you speak to that, Mr. Shear?
Mr. SHEAR. Thank you for the question.
What I think that it really focuses on, some of the reasons why
we put SBA, these programs on our high-risk list. And so when we
think of, one of the things I was encouraged by, basically starting
with the transition team was how would we, meaning SBA, would

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get ourselves off of the high-risk list? When we said we planned to
put these programs on the list, the list came out March 2nd. And
we look for certain elements there and it starts with leadership and
it involves rigorous strategic planning and just a plan for how do
you get from A to B with all of these things? And so it involves as-
sessment. It involves commitment of resources. So for example,
among the things we are looking at now is SBA did not have the
resources for these programs and we are actually looking now at
the use of the supplemental appropriations. We are talking about
$3.4 billion for administrative expenses and we are saying how
were those funds used? So it was a lot of contractors. And then you
start getting into issues of contractor oversight, and we are trying
to get more information about what is SBA doing to oversee the
contractors who are overseeing these programs? So there are some
basic structural issues there that I think you raise a very good
point.
The other issue I will point to is that SBA has had an office for
a number of years called the Office of Continuous Operations and
Risk Management. And when we first drafted our recommenda-
tions around fraud risk management, we directed it to having that
office take the lead. Give it the responsibility and the authority to
lead these efforts. And with that they said, well, now we also have
a fraud risk council but both of them seem to be kind of—one had
become kind of an informal body and the other one was an informal
body that was just kind of put together. There is no clear responsi-
bility to carry this out, and authority to carry it out. So this is also
a structural type of issue.
So those are the parts of what we have done that I think pertain
most closely to the very good question you asked.
Ms. NEWMAN. So let me follow that up, and I appreciate your
answer. And it is complex; right? But what is the plan? If I was
looking at this problem I would say that it looks like we need, if
it was an organization, an executive VP of fraud and risk manage-
ment. You know, that we need to look at workforce issue from an
HR standpoint. Do we have the right folks that are assessing these
things? And then from an information systems standpoint, do we
need to have a CTO and CIO change? So for me, who is looking
at that broader organizational structural problem? It may not be
you, Mr. Shear, and that is okay. That is A-okay with me. But we
need someone to look at it.
If Mr. Shear could just respond.
Mr. SHEAR. Thank you. We had concerns way before the pan-
demic, in 2015, that there were certain structural problems in just
how SBA carries out its mission and we did what we call a general
management review where we just looked from soup to nuts, look-
ing across the agency. And we made a number of recommendations,
and those recommendations were actually implemented. Part of it
had to do with enterprise risk management and the risk manage-
ment office that I just referred to. There are certain things that are
in place that could have been teed up for this and probably still
have to be teed up to implement our recommendations. So there
are structural issues here and what we are looking for with respect
to these two programs is what has to be done to really resolve
fraud risk management for these programs, and some of these ac-

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tions will probably end up leading to some structural change in the
agency.
One of the things that I am very encouraged by, and I will just
refer to one more thing if you can bear with me on this, is that last
week I participated in a meeting between the Comptroller General,
Gene Dodaro and Administrator Guzman and her chief of staff.
And it was a very constructive meeting. It was like, we are seeing
some positive signs that Administrator Guzman is stepping up, and
certainly the transparency in working with us has improved. So we
hope this leads to changes but it is like some of the changes as you
bring up will probably be structural. Our focus is on what is really
needed with respect to these programs? And some of them will
probably require some structural change, if nothing else, to make
it clear who is the authority on fraud risk management.
Mr. PHILLIPS. All right. The gentlelady’s time has expired.
Ms. NEWMAN. Thank you.
Mr. PHILLIPS. We have to move on.
The gentleman from Pennsylvania, Mr. Meuser, is recognized for
5 minutes.
Mr. MEUSER. Thank you, Chairman. And thank you, Mr. Shear.
Thank you, Mr. Ware for appearing with us here today.
So just to add to some perspectives, compared to the average of
65,000 disaster loans, EIDL loans a year as of April, the SBA has
approved more than 3.77 million during the COVID time period,
EIDL loans totaling more than $200 billion. That is 60 times more
than normal. The ratios are the same in Pennsylvania.
In testimony, it was referenced that the SBA lowered the guard-
rails, Mr. Ware, lowered the guardrails, relaxed internal controls to
get funds to struggling businesses but that led to increases in po-
tential fraud in EIDL. As well, Mr. Ware, your initial report found
that the SBA issued $14.3 billion in potentially fraudulent EIDLs
to accounts that differed from the original bank account listed on
the application, $62.7 billion to multiple EIDL applicants using the
same business and contact information, and $1.1 billion in EIDLs
and advanced grants to potentially ineligible businesses. That is
$78 billion out of $200 billion, so almost 40 percent was potentially
fraud? Is that right? That is pretty staggering. Are those numbers
correct?
Mr. WARE. Yes. That is what we were saying.
Mr. MEUSER. Okay. Yeah, I know. But I just kind of wanted to
put it in perspective. Forty percent. So in a private lending institu-
tion, if that were to occur, I think we would all agree that they
would be out of business, many people would be fired, there would
be investigations. So that is just staggering.
Does the SBA model itself for fraud controls after private lend-
ers? Mr. Ware, can you comment on that?
Mr. WARE. Not——
Mr. MEUSER. No? Well, maybe you should.
Mr. WARE. That is a good question. Normally, a good question
for the program office how exactly they model themselves because
there are a couple of different ways of looking at it. But one of the
things relative to context that must be placed here is that the 40
percent was in terms of potential fraud. Right? Meaning that we
could not look at all of them in that time to determine whether or

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not fraud was actually occurring. What we were asking SBA to do
though was because these things are under these red flags, the
same red flags that we are conducting our criminal investigations
on, the same ones that we have arrested many people on, are the
same ones. These are the indicators. These are what is showing up
and that you need to pay attention to.
Mr. MEUSER. All right. Well, despite all of these numerous re-
ports of fraud, the SBA in April raised the loan limit for the
COVID-19 EIDL program from 6 months of economic injury with
a maximum loan amount of $150,000 up to 24 months of economic
injury with a maximum loan of $500,000.
Can either one of you comment as to why that would be done
with all this potential fraud taking place?
Mr. WARE. If I may.
Mr. MEUSER. Sure.
Mr. WARE. From ODA’s perspective it would be that they have
instituted the controls that we have recommended. Meaning that
they would feel we have not yet verified that the control environ-
ment is a lot stronger than it was at the beginning, so that they
would be able to act on the flags and stop people from getting into
the program who should not be in the program.
Mr. MEUSER. All right. Well, we certainly hope, you are not
necessarily to blame but somebody is and we certainly hope that
you will do the things that we are discussing here to correct this
horrible problem.
I just want to shift gears here a little bit. Can you comment, can
either of you comment on the issues EIDL loans have created for
secured lenders? Secured lenders by the EIDL have been very
much crowded out. Secured lenders are subordinate to the EIDL
loans. The EIDL loans replace other credit lines so as secured lend-
ers cannot use the EIDL for collateral. It has damaged the indus-
try. And in the end, what is more important is that it will damage
that small business over time. Just quickly, will this be addressed?
Is this being considered by you all? And would you state to me
whether or not you could meet with the secured finance network
to try to address and resolve this problem?
Mr. WARE. Bill, should I go?
Mr. SHEAR. No, I will go first.
Mr. WARE. Okay.
Mr. SHEAR. We have focused a lot on the question of a sec-
ondary market with PPP, and so we have interacted with the fi-
nancial community on that. It has not risen to being an issue with
EIDL but we could look into the question that you have. We could
look at that.
Mr. MEUSER. Could you meet with them?
Mr. SHEAR. We meet with trade associations, and what is im-
portant for us is to make sure that we are doing that in an objec-
tive way in terms of who we meet with but I would think so.
Mr. MEUSER. Of course. That is great. Thank you.
Mr. Chairman, thank you. I yield back.
Mr. PHILLIPS. Thank you. The gentleman’s time is expired.
And I just ask members and our witnesses to try and be respect-
ful of the 5 minute rule.

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With that, the gentlelady from Georgia, Ms. Bourdeaux, is recog-
nized for 5 minutes.
Ms. BOURDEAUX. Okay. Thank you so much. And I very much
appreciate our two witnesses here.
Obviously, these are huge programs and have really been very
important in shoring up our business community throughout the
crisis, but at the same time it is very, very important to make sure
that we are good stewards of taxpayer dollars. That this is being
spent wisely and well.
A lot of questions have already been covered about how we make
sure that we put the safeguards in place as we open some of these
new programs up and try to make sure that we are cautious on
that front and the money is going to the people who need it and
into the right spots.
One issue, and I know we kind of touched on this in some of the
other questions but just to ask Mr. Shear about this because I
think Mr. Ware has touched on this, and it is about the targeting
of the Restaurant Revitalization Fund. And we know that when we
initially launched the Paycheck Protection Program it was not real-
ly getting to some of the underserved markets as best we could see,
and based on the current guidance issued so far, are you confident
that we will be able to resolve this issue and make sure that we
get the Restaurant Revitalization Fund to some of the smaller mi-
nority-owned businesses across the country?
Mr. SHEAR. I will start out by saying that a lot of our focus on
both PPP and EIDL is in terms of what are characteristics of the
borrowers who are getting these loans? So this is something that
has been a close focus of ours, and as we initiate work on the res-
taurant program, we will be looking at that as well. So it is impor-
tant to see who the program is serving. It has to do with what is
the intent of the program and looking at who is being served by
the program. So we will be taking a close look at that.
Ms. BOURDEAUX. Okay. We have this 21-day prioritization pe-
riod. What is your take on how effective that is going to be in mak-
ing sure that we get to the right people?
Mr. SHEAR. We are auditing in real time and we are going to
soon begin work on the Shuttered Venue and the restaurant pro-
gram. So the idea is we are auditing in real time but we are going
to be looking at who actually is being served by the program, so
I think we will get some indication as far as how well it has
worked in terms of serving its intended impact.
Ms. BOURDEAUX. Okay. All right. Well, just turning to one
more other issue that we have really been watching or trying to
see, although the data really is challenging as you all have noted.
And I guess this is a question for Mr. Ware or Mr. Shear which
is, we have a lot of businesses relying on the PPP loan forgiveness.
And I was wondering if you all have discovered any reasons for
concern with respect to access to loan forgiveness among small
business owners? And what standards are in place to ensure that
potentially fraudulent PPP loans are not given but while ensuring
that the small mom and pop businesses can still access that loan
forgiveness?
Mr. WARE. If I may, we are currently conducting an evaluation
of the loan review process. And the objective of that was to assess

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SBA’s process for reviewing the loans for eligibility and forgiveness.
It is in the early stages and it is designed to set the foundation for
a series of projects on SBA’s forgiveness of loans under the PPP eli-
gibility. So it is in our 2021 oversight plan, and we will be able to
give you real concrete answers on this as soon as that work is
wrapped up.
Ms. BOURDEAUX. Okay, great. Thank you.
Mr. Shear, do you have anything to add to that?
Mr. SHEAR. We look very seriously at the recommendations hav-
ing to do with thinking strategically about fraud risk management
because it is not a matter of putting in controls that can slow down
the process or can make it difficult for those who are eligible and
are being served by the program to get forgiveness. But the idea
of coming up with a strategic approach that says, what flags can
we pay attention to, do we have to pay attention to, and which
flags are of lesser concern? So it is really to come up with an ap-
proach that we are looking for.
Ms. BOURDEAUX. Okay. Thank you so much. And I yield back
the balance of my time.
Mr. PHILLIPS. The gentlelady yields back.
And now the gentlelady from New York, Ms. Tenney, is recog-
nized for 5 minutes.
Ms. TENNEY. Thank you, Mr. Chairman. I want to thank Chair-
woman Velázquez and Ranking Member Luetkemeyer for holding
this important meeting.
Our district was saved, basically, by the PPP program and we
are really excited that it was an opportunity to keep some of our
small business community alive. Ninety-four percent of the jobs in
our district are created by these small businesses, so it was a vi-
tally important issue, which is why I am so disheartened by this
fraud, abuse, and waste number that has come up, particularly
with the PPP program which really affected us more.
And I wanted to address my first question to Mr. Shear. I know
that you had said in your testimony that SBA’s failure to provide
the data and documentation on PPP and also on the Economic De-
velopment Disaster Loan program in a timely manner impacted ef-
forts to ensure the transparency and accountability of the programs
which I guess has apparently happened.
What would you do, and I know you have somewhat answered
this question, but if you could answer in another way, could you
tell me what you would do to correct the way that SBA could
change its practices to get that data to you more efficiently and
quickly in the future so that we could make these loans and avoid
these sort of astounding fraud numbers that we are seeing? And
maybe a best practices guideline. Could you address that quickly,
sir, please?
Mr. SHEAR. There are two parts to it. One was, when we refer
to the lack of transparency and the uncooperative nature of the
agency with us, it was getting to the very notion of just like not
that they were inefficient in terms of getting us data and informa-
tion; it was not providing us data and information. It was, I hate
to say it but quite intentional.
So to get to the question is, how can they get information to us
more quickly? We are always working with them to try to get infor-

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mation more quickly and we are certainly doing it now in that
there are a lot of outstanding items that we work through with
them. We are very busy interacting with them, interacting with
leadership at SBA and interacting with the Office of General Coun-
sel in terms of trying to improve the process to get us the informa-
tion that we seek. And there certainly have been improvements.
Ms. TENNEY. That is interesting that you say that you think
they maybe intentionally did not give you the information. What
reason would they be trying to hide the information from you or
what would you attribute your opinion that they were intentionally
trying to keep the information from you?
Mr. SHEAR. This is one where I do not want to really state an
intent because the idea is it is getting into people’s minds as far
as why was SBA not being cooperative? It was not from lack of ef-
fort from our side, and certainly, there were efforts made, not just
by my teams but also by our General Counsel, by the Comptroller
General, by Members of Congress. So I really do not want to com-
ment on what the mindset was that led to the lack of cooperation.
But there certainly was a lack of cooperation and it did impede
transparency.
Ms. TENNEY. Would you recommend that those people not con-
tinue to work in that regulatory agency and that we replace them?
Because obviously this is obstructionist in some ways. Meeting the
needs that the taxpayers are expecting with these programs.
Mr. SHEAR. It was clear that this involved officials at very sen-
ior levels. So with the changes that have occurred now you have
certainly new people in the associated administrator type of posi-
tions and general counsel position. We have a new Administrator.
So it is a different environment.
Ms. TENNEY. Do you think that any of that intentional, as you
put it, do you think that has anything to do with the massive
amount of fraud that we have discussed, like the 3.6 billion alone
for the PPP program where potentially ineligible recipients receive
that money? Is that something that you think there was some kind
of underhanded behavior on their part?
Mr. SHEAR. I do not want to make the connection to saying that
the reason we see so much potential fraud in this program and so
much fraud risk is because of the behavior that reduced the level
of transparency and our inability to really audit the programs in
a rigorous manner. But what I will state to you is that under nor-
mal conditions, and I will say this with SBA in terms of their nor-
mal programs and things like that, I would like to think that the
cooperation leads to improvement of the operations of the agency.
And that was an opportunity that was delayed by the lack of co-
operation with us. The ability to have us take a look at how they
are doing things and to make recommendations for improvement
and act on those recommendations. So I am making a more general
point.
Mr. PHILLIPS. The gentlelady’s time has expired.
Ms. TENNEY. Can you say that you have a similar issue with
the Treasury with the Do Not Pay business center?
Mr. PHILLIPS. Ms. Tenney?
Ms. TENNEY. Am I out of time?
Mr. PHILLIPS. Yeah, your time is expired. I am sorry.

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Ms. TENNEY. Okay. Thank you. Thank you.
Mr. PHILLIPS. Now, the gentlelady from California, Ms. Chu, is
recognized for 5 minutes.
Ms. CHU. Thank you.
Mr. Ware, you provided such valuable testimony to the Oversight
Subcommittee hearing that I chaired in October. After our hearing
last fall, SBA strongly disagreed with the Office of Inspector Gen-
eral’s findings on the level of fraud risk in the EIDL program and
asserted that the agency had a robust system with internal con-
trols. However, the third-party audit of SBA’s 2020 finances found
that despite this internal control system, SBA’s loan officers were
never formally trained to address flagged applications. So approv-
als on potentially fraudulent loans and rents continued.
Well, today we have a new administration at SBA that is dis-
bursing the targeted EIDL funds that have been appropriated by
the American Rescue Plan. So Mr. Ware, you were saying that now
SBA has implemented internal controls. But I want to know what
the highest priority steps are that SBA can take today to improve
the security of the EIDL grant and loan program, considering that
these grants are being made as we speak, right now?
Mr. WARE. Thank you. The highest priority as we would see it
is actually some of the things that they said that they addressed.
And we have some indication that they have. And that is reinsti-
tuting the rule of two where two people would review the loan,
whereas they would stop the amount of batch processing that they
would do. Those were big weaknesses in their system that allowed
a lot of things to sneak through. Those are two of the biggest ones
that come to mind quite quickly. They are doing the IP address
checks. They are doing the bank account checks. I know that is a
major part of it.
Ms. CHU. So is it just implementation of the controls that are
there now?
Mr. WARE. Right. I believe that, well, the controls that were
completely absent.
Ms. CHU. Yes.
Mr. WARE. Right. The implementation of those should actually
help quite a bit.
Ms. CHU. Okay, thanks.
Mr. WARE. And I have got to tell you, it is a different environ-
ment in terms of cooperativeness and in terms of listening and in
terms of sitting down to come up with what the best way is to ad-
dress the fraud risk.
Ms. CHU. So it sounds like they have implemented the sugges-
tions, every single one of the suggestions you have talked about?
Mr. WARE. Well, they have stated that they have. We have not
yet tested them.
Ms. CHU. Oh.
Mr. WARE. Some we definitely can see that they have. Others,
we certainly have not tested as yet.
Ms. CHU. Okay. Mr. Ware, also, there is another issue. It has
been almost a year since you participated in an oversight forum to
discuss the findings of your flash report following the program
launch. And during that forum you told me that last year SBA
issued no guidance to lenders describing how they should prioritize

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underserved borrowers and have taken almost no steps to collect
data on loan disbursements meaning that it would be nearly impos-
sible to evaluate whether the program was reaching underserved
businesses. And that is an important issue to me. Congress is great
at set asides for community financial institutions in order to reach
these underserved businesses—data collection reporting we could
never know how effective the programs would be at reaching un-
derserved markets or how we can improve the outreach.
So since under the last administration the agency failed to act
on your recommendations, can you describe what specific steps the
SBA can take now to backfill the demographic data on PPP recipi-
ents?
Mr. WARE. Well, although publicly they disagree, they actually
did make some changes to the forms. They did some changes to
way that they are going to be measuring. So that was done even
under the last administration to make sure that they could capture
going forward. But what happened in the past, basically, it hap-
pened. So there is no way to capture that initial part of it. But
going forward that was something that they did move to correct.
Ms. CHU. And how about now in terms of the data collection?
Mr. WARE. In terms of data collection, well, if you just use the
Restaurant Revitalization program as an example, you are doing it
in the pilot to make sure that they get to the people they are sup-
posed to get to up front and to be able to take a deep breath and
assess the effectiveness. I think that is a major step forward. And
we will be reviewing that pilot program.
Mr. PHILLIPS. The gentlelady’s time has expired.
And now the gentlelady from California, Ms. Kim, is recognized
for 5 minutes.
Ms. YOUNG KIM. Thank you, Chairman. I also want to thank
the Committee for holding this important hearing to discuss the
oversight of the SBA’s COVID-19 programs.
We have heard a lot about the deficiencies that were found
through the GAO and IG report and I think we all agree that PPP
and the EIDL program have helped countless small businesses. It
certainly did in my 39th District. However, in order to explore the
PPP and the EIDL continues to provide assistance [inaudible] tax-
payer money, SBA [inaudible] better job complying with GAO and
Inspector General recommendations. The purpose of this hearing is
to let them know that we are watching and they are on notice.
But SBA should also take note of the oversight deficiencies of the
PPP program to ensure that other programs do not face the same
problems.
So Mr. Ware, to your knowledge, does the SBA have the right
oversight capabilities in place for the [inaudible] program and the
Restaurant Revitalization Fund program?
Mr. WARE. What I can say is this: Based on what SBA has pro-
vided to our office, it is apparent, number one, that they are taking
it very, very seriously. And number two, on the surface, that they
have built in a control structure that would address all of our rec-
ommendations and that should, on the surface because we have not
yet tested them, it should mitigate a lot of the fraud risk that we
saw in the beginning.

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Ms. YOUNG KIM. So when do you plan on doing a follow-up in-
spection?
Mr. WARE. Well, for example, on the Restaurant Revitalization
program, we will be conducting a review of the implementation of
the pilot, for example. At that time we will be able to talk more
clearly and succinctly about what controls were in place, what the
controls achieved, and whether or not they met the intent of the
act.
Ms. YOUNG KIM. Mr. Ware, you mentioned the importance of
data analytics. So how does data analytics help? Can you provide
some examples?
Mr. WARE. Sure. Well, it has basically transformed the way we
do business. When you have that many loans to review, when you
have that many hotline complaints, when you have that many re-
ferrals from the agency to the tune of almost like 15,000 a week,
the only way that you could focus your attention on what needs to
be focused on is through the use of data analytics, through the use
of trend analysis to see where the problems are located so that we
can assign our investigative staff to pursue it. Or so that we can
assign our audit staff to give a more global look in terms of what
is going on in these programs. Where the fraud is so that we can
move. It is the only thing that has not crippled us. We would have
been crippled had it not been for data analytics.
Ms. YOUNG KIM. That is fine. I will yield the balance of my
time. Thank you.
Chairwoman VELÁZQUEZ. The gentlelady yields back.
The gentleman from Pennsylvania, Mr. Evans, is recognized for
5 minutes.
You need to unmute.
Mr. EVANS. Thank you. Thank you, Madam Chair. Thank you
also for this hearing.
I would like to ask a question, Madam Chair, to Mr. Shear and
Mr. Ware. The question I would like to ask is, if you had to give
the SBA a grade for handling of the programs during the pan-
demic, what grade would you give it and why?
Mr. WARE. Bill? I would like to see how you tackle that one.
Mr. SHEAR. Okay. I will give it a try.
It is a great question and it makes me think of my former days
as a college professor. It is just like how do you grade students.
And on this one, we were very accepting when SBA said, going
back to last April, we had to get the loans out quickly, there was
a pressing need to get the loans out quickly. And so at any rate,
they got the loans out very quickly but then when you look at just
the problems with administering the program and moving forward
and putting the types of oversight in place that was so necessary
and just the lack of cooperation with us rather than trying to use
us as a tool to try to identify improvements that could be made in
the program, it is a poor record. And so these are some of the
things that are associated with why we have these programs on our
high risk list.
Mr. WARE. The role of an Inspector General is to assist our
agencies in being the best agencies that they can be in terms of ef-
ficiency and effectiveness. As we all know, SBA was charged with
setting up a program in a matter of days. They got 14 years’ worth

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of lending out in 14 days basically. And we were along on the ride
with them from the very beginning in terms of the three white pa-
pers that we put out and in terms of coming to the table and what
needed to be set up from the very beginning. I do not know what
grade I would give but I know had those been heeded it would be
a much larger success story. I cannot give a letter grade.
Mr. EVANS. Is that the same deal with Mr. Ware? Can you give
one to you or you would rather not to?
Mr. WARE. No, that was me.
Mr. EVANS. Mr. Shear. I mean, Mr. Shear.
Mr. WARE. Oh, yeah, yeah, sorry.
Mr. SHEAR. I would just say that personally, my focus is more
on this long period of time where there was the lack of trans-
parency, the lack of cooperation and where there was not a dem-
onstration basically that, for example, with PPP, that the loan re-
view process being in place, the lack of information there. So I am
not going to give, you know, I do not want to give an exact letter
grade but it would not be an A. So, but I really, I really do not
want to give it a letter grade. It is not something that we are in
the business of doing.
Mr. EVANS. Mr. Ware, is that what you are saying, too? You do
not want to give it a grade neither?
Mr. WARE. Yes. I am saying that it is clear that SBA worked
hard. And I am here. I know how hard these employees have
worked. And they helped Americans in need. The only thing is in
terms of our assurance, or anyone’s assurance that the money went
to only the eligible. So, no letter grade.
Mr. EVANS. I thank both of you. I yield back the balance of my
time, Madam Chair. Thank you.
Chairwoman VELÁZQUEZ. The gentleman yields back.
The gentlelady from Texas, Ms. Van Duyne, is recognized for 5
minutes.
Ms. VAN DUYNE. Thank you very much, Madam Chair. And to
the Ranking Member for holding this necessary hearing.
Each of today’s testimonies have referenced that amidst billion of
dollars of fraud and identity theft and its pandemic relief pro-
grams, that the SBA has failed to provide necessary data and docu-
mentation on the PPP and EIDL in a timely manner. I have got
to tell you. I listened to a lot of blame game going on today and
it is frustrating. We have people who are being blamed in leader-
ship that are no longer here to defend themselves. I know that SBA
was a $17 billion agency that was expected to put out over a tril-
lion dollars in a matter of months. I am not here to defend them
but I think what we need to do, instead of playing the blame game
on the last administration that I know elected officials were the
ones who were pushing that to make sure that that money got out,
for good reason. Governments shut down these businesses and
made them insoluble in a number of cases and we needed to help
them as soon as we could. But I am looking moving forward. What
are the steps that we are going to take as we are coming out with
more money to add to these programs, as we are coming out with
more programs of the new administration. Moving forward, what
are we doing to make sure that we will be in a position where this

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fraud is not rampant, where we are having more controls given the
fact that we have had a number of months now to get up to speed?
So with that, regarding the lack of data and documentation, my
question to both of you is, what information is still outstanding and
who can provide it? Are we expecting a time period that we are
going to look and work with the new administration to say this is
actually the numbers that we looked at? I am sure that data exists.
How do we get to it?
Mr. Ware, go ahead and go first.
Mr. WARE. Should I go first? Okay.
My issue was a lot different from GAO’s, my experience was. All
right? I had access for the most part to the data that I wanted. And
I had access to the leadership. I sat at the table with the leader-
ship on numerous occasions. As a matter of fact, every week the
administrator and I had a standing meeting every week where we
would go over these things. So I did not have that same experience.
And I do not have anything that is necessarily outstanding that
would prevent us from providing the type of fast information that
the agency can use to make sure that they are putting out these
programs the way they are supposed to.
Ms. VAN DUYNE. Mr. Shear?
Mr. SHEAR. Our focus is on looking at how SBA is acting to im-
plement our eight open recommendations. So that is a big focus of
ours and a lot of that is that we are being provided information
and we know that these recommendations are not something that
it is just a matter of giving us information, that SBA will have to
make some fundamental changes. And I think that they are show-
ing a responsiveness to realize that certain changes have to be
made in how these programs are operated.
As far as what we are doing is that our next step, we have had
these bimonthly reports that are GAO-wide under the CARES Act,
and we are going to quarterly reports. And then we are going to
have three standalone reports this summer that will focus on for
PPP one report looking at who has been served by the program and
the lenders and borrowers that have been participating in the pro-
gram. On PPP, what I have been talking about today has to do
with internal controls and looking at the forgiveness process. So we
are analyzing a lot of data. We are analyzing a lot of information.
We are getting cooperation on that. We are still seeking a fair
amount of information on the oversight structure for the EIDL pro-
gram but we are going to be reporting on the EIDL program in a
standalone report that is going to be both on who has been served
by the program and looking at questions as far as how is the agen-
cy implementing our recommendations. And in doing that, now
that we have a lot more information——
Ms. VAN DUYNE. Understand, I have got 5 minutes and I have
got a ton more questions so if you could just make your answer a
little bit more——
Mr. SHEAR. I will just say we are probably going to have more
recommendations——
Ms. VAN DUYNE. Okay.
Mr. SHEAR.—now that we have more detailed information on
what the agency is doing.

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Ms. VAN DUYNE. Okay. So we are going to see a lot more re-
ports coming out. But you have got two new programs that are
going to come out now, the Shuttered Venue and the Restaurant
Revitalization Fund, which are, again, new programs under the
new administration, their own challenges. You have already noted
that some of these have had horrendous launches. So do you be-
lieve that the SBA has put in place enough controls to limit the
susceptibility to waste, fraud, and abuse for the new programs?
Chairwoman VELÁZQUEZ. Time has expired but I will let him
answer the question. Go ahead.
Mr. WARE. Okay. In response to the question, what we have
been presented with to date demonstrates that they are very alert
and attentive to the issues that were in place before and intent on
making sure that it is not there. They have set up a control envi-
ronment to address these issues.
Ms. VAN DUYNE. Okay. Well, I——
Mr. WARE. We have not tested it yet.
Ms. VAN DUYNE. Okay. I look forward to working with Chair-
man Phillips to hold a hearing in the near future on some of these
issues with the OIG’s office, GAO’s office and SBA. I know that we
have got the SBA administrator coming in at our next hearing but
I really look forward on our Oversight, Investigations, and Regula-
tions Subcommittee on pulling together a hearing. So thank you
very much.
Chairwoman VELÁZQUEZ. The gentlelady’s time has expired.
The gentlelady from Minnesota, Ms. Craig, is recognized for 5
minutes.
Ms. CRAIG. Thank you so much, Chairwoman, and thank you in
particular for holding this hearing today.
Mr. Ware and Mr. Shear, thank you for being here, and for keep-
ing this Committee updated and well-informed on the SBA’s pan-
demic response. I know that this has been a significant challenge
for the Small Business administration over the last just over a year
now and we appreciate the work that the SBA and its employees
have undergone to make sure that our small businesses, as many
as possible, could survive this public health crisis.
It is clear from testimony today though that there have been
some internal controls that are lacking, and action in the SBA has
resulted in several issues that ultimately harm the people that we
are trying to help, those small business owners. While the SBA
should certainly work toward corrective actions based on its experi-
ence over the last year, we have an opportunity to proactively add
more internal controls and address these issues as we stand up
new programs such as the Shuttered Venue Operator’s Grant and
the Restaurant Revitalization Fund.
So Representative Van Duyne in her questioning here just a mo-
ment ago touched on this at the end but I know she was out of
time and you did not get to really expand upon this, but our hard-
est hit small businesses have been waiting for this assistance for
months and we must ensure these funds to get our small business
owners the money and not spammers.
So Mr. Ware, you noted in your testimony serious concerns with
the control and tracking of the Shuttered Venue Operators Grant
program that requires immediate action and attention. Could you

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please provide an update on that work that you are doing with the
SBA to strengthen and launch this program? And more specifically,
have there been similar conversations, and do you believe that the
work you are doing for the Shuttered Venue program will suffice
as you launch the Restaurant Revitalization Fund?
Mr. WARE. So maybe I will start backwards. So on the Res-
taurant program, like I said, it is very evident that they are intent
on establishing a control structure that would ensure that fraud
risk is mitigated in a major way. I believe they have done the same
thing on the shuttered venue programs. Those programs, they have
shown us the control structures for both of them that go a long way
in addressing many, if not all of our concerns. The issue that I re-
ported on with the Shuttered Venue had to do with what happens
for the people that get in the right way. Is there proper guidance?
Is there any way for you to monitor what those funds are actually
going to be used for? Because it is a grant program. It is not a
lending program. There are specific rules contained in the 2 CFR
200. And so that was the issue that we thought was critical, that
they had to have the control structure on the inside to make sure
that we are able to know what the program results were.
Ms. CRAIG. Fantastic. Well, I also serve on the Oversight Sub-
committee, and we will look forward to continuing to receive your
information and I look forward to Chairman Phillips continuing
that dialogue.
And with that, Madam Chairwoman, I am going to yield back.
Chairwoman VELÁZQUEZ. She yielded back. I am sorry. Thank
you. The gentlelady yields back.
The gentlelady from Florida is recognized, Ms. Salazar, for 5
minutes.
Ms. SALAZAR. Thank you, Madam Chairman. And thank you
very much, Mr. Ware, for your role as Inspector General which is
vital to do a good job. And myself, as well as my constituents thank
you for your hard work.
And I have a few questions which I know they are going to be
a little bit uncomfortable but I wanted to just ask you if you the
last year the SBA received $3.6 billion in salary and administrative
costs, the Inspector General office received $70 million, and it re-
ceived $50 million extra for audits. But after all this money that
I just explained and I just told you right now, still, $82 billion be-
tween PPP and EIDL was not used properly. Eighty-two billion dol-
lars. So where were you guys? Were you guys asleep? You had, I
am going to repeat, $3.6 billion in salaries and administrative
costs, $70 million for the Inspector General Office, and $50 million
for audits.
Mr. WARE. I am not sure if you realize, I am the Inspector Gen-
eral, so I did not get those funds that you are talking about. My
budget is generally $21 million and it is for audits, investigations,
and things of that nature. We were far from asleep. We have
been——
Ms. SALAZAR. Well, wait a minute. Were you not in charge?
Were you not the——
Mr. WARE.—issues of this before the first loan went out the
door.

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Ms. SALAZAR. Let me just interrupt you in a minute. Were you
not in charge of making sure that whatever monies the SBA was
receiving was properly used?
Mr. WARE. I am the Inspector General. My job is to make sure
that I point out instances of fraud, waste, and abuse. That is the
role of an IG.
Ms. SALAZAR. Correct. So when $82 billion were being——
Mr. WARE. Correct. And that is what we did——
Ms. SALAZAR.—dilapidated. Yes, tell me. So where were you?
Mr. WARE. We were the ones who reported on the money that
is being misused. We are the ones conducting the criminal inves-
tigations to make sure criminals are brought to justice. That is our
role. I think there is confusion between the role of the Inspector
General and the role of the administrator.
Ms. SALAZAR. And I am sorry my ignorance. And it is true.
Let’s suppose that I am ignorant and I am very sorry, but then,
what then can we do with your help in order to make sure that
those people that did not use these monies properly are going to
be held responsible?
Mr. WARE. That is my role. To date, we have over 460 criminal
investigations going on. We have already recovered, along with
SBA, over $1.9 billion. This is what we do. And we have been the
ones that have been recommending from the very beginning the
proper control environment that needs to be in place up front so
that I do not have as many criminal investigations to run on the
back end.
Ms. SALAZAR. All right. So then you did your job and I com-
mend you for that. So then who do we have to go to right now in
order to ask that person these questions? Somebody has to be re-
sponsible and that is what I am trying to find out and you are the
person that needs to tell us.
Mr. WARE. I believe at this point where we are currently, we are
in an environment where the control environment is greatly
shrinking. We are in an environment where we have partnered
across the entire government to include FBI, Social Security Ad-
ministration, Secret Service, FDIC, everyone, the PRAC working
groups, all of us are looking into this at this time.
Ms. SALAZAR. All right. So then please keep advising us as to
where we need to look at in order to make sure that we do not
have another $82 billion wasted.
Mr. WARE. Thank you.
Ms. SALAZAR. I yield back.
Chairwoman VELÁZQUEZ. The gentlelady yields back.
With that we conclude our important oversight hearing. Let me
thank our witnesses for joining us today.
Your oversight of SBA is a critical tool for Congress as we seek
to limit instances of fraud, waste, and abuse in agency programs.
PPP and EIDL have been vital lifelines for the millions of small
businesses that have been devastated by the pandemic. However,
it is clear that these programs’ unprecedented size and scope, in
addition to the speed in which the agency processed these loans
have opened them up for fraud. The steps SBA has been taking to
mitigate fraud are encouraging. However, your testimony today has
made it clear that more work needs to be done. This Committee

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must remain diligent and work to root out instances of fraud,
waste, and abuse. To address the problems that we have heard
about today, we must conduct this oversight in a fair, bipartisan
manner.
I look forward to working with Committee Members to ensure
that money goes to the small businesses that truly need it and that
taxpayers’ dollars are protected.
I will ask unanimous consent that Members have 5 legislative
days to submit statements and supporting materials for the record.
Without objection, so ordered.
If there is no further business to come before the Committee, we
are adjourned. Thank you.
[Whereupon, at 12:02 p.m., the Committee was adjourned.]

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APPENDIX

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SBD026 with DISTILLER Insert offset folio 61 here 44271.026

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62

SBD026 with DISTILLER Insert offset folio 62 here 44271.027

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63

SBD026 with DISTILLER Insert offset folio 63 here 44271.028

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64

SBD026 with DISTILLER Insert offset folio 64 here 44271.029

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65

SBD026 with DISTILLER Insert offset folio 65 here 44271.030

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66

SBD026 with DISTILLER Insert offset folio 66 here 44271.031

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67

SBD026 with DISTILLER Insert offset folio 67 here 44271.032

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68

SBD026 with DISTILLER Insert offset folio 68 here 44271.033

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69

SBD026 with DISTILLER Insert offset folio 69 here 44271.034

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70

SBD026 with DISTILLER Insert offset folio 70 here 44271.035

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71

SBD026 with DISTILLER Insert offset folio 71 here 44271.036

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72

SBD026 with DISTILLER Insert offset folio 72 here 44271.037

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73

SBD026 with DISTILLER Insert offset folio 73 here 44271.038

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74

SBD026 with DISTILLER Insert offset folio 74 here 44271.039

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75

SBD026 with DISTILLER Insert offset folio 75 here 44271.040

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76

SBD026 with DISTILLER Insert offset folio 76 here 44271.041

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77

SBD026 with DISTILLER Insert offset folio 77 here 44271.042

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78

SBD026 with DISTILLER Insert offset folio 78 here 44271.043

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79

SBD026 with DISTILLER Insert offset folio 79 here 44271.044

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80

SBD026 with DISTILLER Insert offset folio 80 here 44271.045

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81

SBD026 with DISTILLER Insert offset folio 81 here 44271.046

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File and source

File: CHRG-117hhrg44271.pdf
Size: 38,628,956 bytes
SHA-256: 8ba30b8ea295b066e4f2fb08dceb06af94160b0ae3101680eb20456da5de97a4
Our copy: CHRG-117hhrg44271.pdf
Original: www.govinfo.gov